10-K 1 juhl_10k-123111.htm FORM 10-K juhl_10k-123111.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 10-K
 

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

For the fiscal year ended December 31, 2011

OR

o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934

Commission file number: 333-141010

JUHL WIND, INC.
 (Exact name of registrant as specified in its charter)

Delaware
20-4947667
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)

1502 17th Street SE
 
Pipestone, Minnesota  56164
(507) 777-4310
(Address of principal executive offices)
(Registrant's telephone number)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT:

None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT:

Common Stock, Par Value $0.0001 Per Share

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes    o   No   x
 
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 of Section 15(d) of the Act.  Yes   o    No   x
 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x   No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).*
Yes x  No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
  o
Accelerated filer
  o
Non-accelerated filer
  o
Smaller reporting company
  x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes o    No x
 
The aggregate market value of the 6,684,255 shares of common equity stock held by non-affiliates of the registrant was $6,817,940.10 on the last business day of the Registrant’s most recently completed second fiscal quarter, based on the last sales price of the registrant’s common stock on the most recent date on which a trade in such stock took place prior thereto.  (Non-affiliate holdings of 6,684,255 common shares, closing price of $1.02).

As of March 20, 2012 the registrant’s outstanding common stock consisted of 22,194,978 shares. 
 
 
 

 
 
TABLE OF CONTENTS
 
PART I
   
ITEM 1
BUSINESS
1
ITEM 1A
RISK FACTORS (NOT APPLICABLE)
24
ITEM 1B
UNRESOLVED STAFF COMMENTS (NOT APPLICABLE)
25
ITEM 2
PROPERTIES
25
ITEM 3
LEGAL PROCEEDINGS
25
ITEM 4
MINE SAFETY DISCLOSURES (NOT APPLICABLE)
25
     
PART II
   
ITEM 5
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
26
ITEM 6
SELECTED FINANCIAL DATA (NOT APPLICABLE)
28
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
28
ITEM 7A
QUANITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (NOT APPLICABLE)
39
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
39
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
40
ITEM 9A
CONTROLS AND PROCEDURES
40
ITEM 9B
OTHER INFORMATION
41
     
PART III
   
ITEM 10
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
41
ITEM 11
EXECUTIVE COMPENSATION
47
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
50
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
53
ITEM 14
PRINCIPAL ACCOUNTANT FEES AND SERVICES
53
     
PART IV
   
ITEM 15
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
54

 
 

 
 
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties, many of which are beyond our control.  Our actual results could differ materially and adversely from those anticipated in such forward-looking statements as a result of certain factors, including those set forth in this report.  Important factors that may cause actual results to differ from projections include, but are not limited to, for example:  adverse economic conditions, inability to raise sufficient additional capital to operate our business, delays, cancellations or cost overruns involving the development or construction of our wind farms, the vulnerability of our wind farms to adverse meteorological and atmospheric conditions, unexpected costs, lower than expected sales and revenues, and operating defects, adverse results of any legal proceedings, the volatility of our operating results and financial condition, inability to attract or retain qualified senior management personnel, expiration of certain governmental tax and economic incentives, and other specific risks that may be referred to in this report.  It is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained or implied in any forward-looking statement.  All statements, other than statements of historical facts, included in this current report regarding our expectations, objectives, assumptions, strategy, future operations, financial position, estimated revenue or losses, projected costs, prospects and plans and objectives of management are forward-looking statements.  When used in this report, the words “will,” “may,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project,” “plan” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words.  All forward-looking statements speak only as of the date of this report.  We undertake no obligation to update any forward-looking statements or other information contained herein.  Stockholders and potential investors should not place undue reliance on these forward-looking statements.  Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements in this report are reasonable, we cannot assure stockholders and potential investors that these plans, intentions or expectations will be achieved.  These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.  Information regarding market and industry statistics contained in this report is included based on information available to us that we believe is accurate.  It is generally based on academic and other publications that are not produced for purposes of securities offerings or economic analysis.  Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and the additional uncertainties accompanying any estimates of future market size, revenue and market acceptance of products and services.  

Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.
 
DEFINITIONS

“We,” “Our,” “us” and similar expressions refer to the Company and its subsidiaries as the context requires as follows:
 
Juhl Wind or
the Company
Juhl Wind, Inc., a Delaware corporation (formerly MH & SC Incorporated)
 
Juhl Energy Development
Juhl Energy Development, Inc., a Minnesota corporation
Juhl Energy Services
 
Juhl Energy Services, Inc.,
a Minnesota corporation (formerly known as DanMar and Associates, Inc.)
 
Juhl Energy Development and July Energy Services are referred to separately prior to our share exchange transaction on June 24, 2008, in which Juhl Energy Development and Juhl Energy Services became wholly-owned subsidiaries and  Juhl Wind became successor to the business of Juhl Energy Development and Juhl Energy Services, after giving effect to the share exchange transaction (as more fully-described in the Corporate Information and History section herein)
 
NextGen
Next Generation Power Systems, Inc.,
a South Dakota corporation , which we acquired on October 31, 2008 and which is now our wholly-owned subsidiary
 
Juhl Renewable Assets
 
Juhl Renewable Assets, Inc.,
a Delaware corporation (formerly known as Juhl Wind Asset Investment, Inc. and Juhl Wind Project Lending, Inc.), our wholly-owned subsidiary formed on May 19, 2010
 
Juhl Renewable Energy Systems
 
Juhl Renewable Energy Systems, Inc.,
a Delaware corporation, our wholly-owned subsidiary formed on February 2, 2012
 
Valley View
Valley View Transmission, LLC,
a Minnesota limited liability company, of which Juhl Renewable Assets, Inc.  indirectly holds a 32.6% interest (as more fully-described in the Corporate Information and History section herein)
 
Woodstock Hills
Woodstock Hills, LLC,
a Delaware limited liability company, of which we acquired a 99.9% interest on April 28, 2011, and which is now a subsidiary of Juhl Renewable Assets, Inc.
Winona Wind
Winona Wind Holdings, LLC,
a Minnesota limited liability company which we acquired on October 13, 2011, and which is now a wholly-owned subsidiary of Juhl Renewable Assets, Inc. and which owns 100%
of Winona County Wind, LLC, the operator of the wind farm
 
 


ELECTRICAL POWER ABBREVIATIONS

kW
kilowatt or 1,000 watts of electrical power
MW
megawatt or 1,000 kW of electrical power
GW
gigawatt or 1,000 MW of electrical power
TW
terawatt or 1,000 GW of electrical power;
kWh
MWh
GWh
TWh
An hour during which 1kW, MW, GW or TW, as applicable, of electrical power has been continuously produced. 
Capacity
Rated capacity
NCF
Net capacity factor, or the measure of a wind energy project’s actual production expressed as a percentage of the amount of power the wind energy project could have produced running at full capacity for a particular period of time
PTC
Production tax credit under the the American Recovery and Reinvestment Act
REC
renewable energy certificate or other renewable energy attribute, as the context requires
 
 
 

 
 
PART I
 
ITEM 1                                BUSINESS
 
BUSINESS OVERVIEW

Juhl Wind is an established leader in community wind power development and management, focused historically on wind farm projects throughout the United States.  We handle all aspects of wind project development, through our operating subsidiaries, including full development and ownership of wind farms, general consultation on wind projects, construction management of wind farm projects and system operations and maintenance for completed wind farms, which results in multiple revenue streams.  Our primary focus has been to build 5 MW to 80 MW wind farms that are jointly owned by local communities, farm owners, environmentally-concerned investors, and our Company.  The wind farms are connected to the general utility electric grid to produce clean, environmentally-sound wind power. Our development of community wind power systems generally results in landowners owning a portion of the long term equity in the wind farm that resides on their land.  We pioneered community wind power systems in developing the currently accepted financial, operational and legal structure providing local ownership of medium to large scale wind farms.  Since 1999, we have completed 21 wind farm projects, accounting for approximately 195 megawatts of wind power that currently operate in the Midwest region of the United States, and we provide operation management and oversight to wind generation facilities generating approximately 107 megawatts, through our subsidiary, Juhl Energy Services.  We are presently engaged in various aspects of the development of approximately 25 new wind farm projects in the United States totaling approximately 405 megawatts of wind power.

Historically, our wind power projects are based on the formation of partnerships with the local owners upon whose land the wind turbines are installed.  Over the years, this type of wind power has been labeled “community wind power” because the systems are locally owned by the landowners (often farmers).   Community wind power is a specialized sector in the wind energy industry that differs from the large, utility-owned wind power systems that are also being built in the United States.  Community wind power is a form of community-based energy development (C-BED). Various states, including Minnesota and Nebraska (where we have projects in development), have enacted C-BED initiatives, which include mechanisms to support community wind power and are intended to make it easier for community wind power projects to be successful without putting an excessive burden on utilities.  Therefore, community wind power is both environmentally sustainable and provides an economic stimulus for the rural areas that it encompasses.

Our business and operating strategy, among other things, is to continue to leverage our portfolio of existing community wind power projects, develop new wind farm projects located in the United States, and take equity ownership positions in existing community-based wind farms.  We take projects where the following important conditions exist for successful developments: acceptable wind resources, suitable transmission access, and an appropriate regulatory framework providing acceptable power purchase agreements and long-term utility agreements. Based on our pipeline of projects, we believe that we will continue to develop projects and will grow the number of wind farms for which we are providing operational oversight. We expect that the continued growth in our project pipeline will act as a key competitive advantage as the community wind power industry grows throughout the United States.  Further, we believe that there are existing wind farms that are or will become available for sale by equity owners who have fully utilized the tax attributes or no longer have the desire to continue ownership.

We continue to evolve our strategy and increase our portfolio capacity through acquisitions that complement and support our core business and take advantage of the growth occurring in the wind industry, including wind farm management and turbine maintenance services, as well as related business services, such as engineering and consulting services.  In 2011, as part of our acquisition strategy, we acquired ownership of existing wind farms, through our wind farm ownership and operation subsidiary, Juhl Renewable Assets, that fit our distributed generation model and the size of projects that we typically develop.  We believe that the ownership of community wind farms (in part or in whole) will provide an ability to expand our services to wind farm operations and to create recurring annual revenue streams for our business.  

As part of our strategy, we will use our position in the renewable energy space to advance conservation technologies focused on smaller scale and solar systems, through our subsidiary, Juhl Renewable Energy Systems, to consumers, directly and through our dealer network.

Our evolving business and operating strategy will rely heavily on the expertise of our management team. Our Chairman and Principal Executive Officer, Daniel J. Juhl, was one of the creators of community wind power in the United States.  In addition to Mr. Juhl’s expertise in the wind power field developed during the course of his activity in the industry since 1978, John Mitola, our President, is also considered an expert in the energy field having focused his career on energy efficiency, demand side management and independent power development.   Mr. Mitola has significant experience in the energy industry and electric industry regulation, oversight and governmental policy. The visibility of Mr. Juhl and Mr. Mitola in the wind industry will maximize the quantity and quality of projects available for consideration.

Corporate Information and History

Our Company was formed as a Delaware corporation in January 2006 as Help-U-Drive Incorporated for the purpose of developing a business to assist impaired drivers. Upon further investigation, we decided that this was not a business opportunity we wanted to pursue due to potential liability and other reasons. In October 2006, we acquired My Health and Safety Supply Company, LLC, an Indiana limited liability company, pursuant to a plan of exchange with the holders of 100% of the outstanding membership interests of My Health & Safety Supply Company. We changed our name to MH & SC, Incorporated in September 2006. My Health & Safety Supply Company, LLC became our wholly-owned subsidiary and began developing its business to market a variety of health and safety products on the Internet. This business was sold simultaneously with the exchange transaction described below since it was incidental to our new wind energy business. In March 2007, we filed a registration statement with the SEC, which became effective in December 2007, and we became a publicly-reporting and trading company.

 
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On June 24, 2008, we entered into a Securities Exchange Agreement with Juhl Energy Development and Juhl Energy Services and, for certain limited purposes, their respective stockholders. On June 24, 2008, the exchange transaction provided for in the Securities Exchange Agreement was completed and Juhl Energy Development and Juhl Energy Services became our wholly-owned subsidiaries. Juhl Energy Services and Juhl Energy Development were formed as Minnesota corporations in October 2001 and September 2007, respectively, and have been in the wind energy business since formation.
 
Pursuant to the Securities Exchange Agreement, at closing, the two former beneficial stockholders of Juhl Energy Development and Juhl Energy Services received a majority of 15,250,000 shares of our common stock, representing approximately 60.6% of our outstanding shares of common stock, inclusive of shares of common stock issuable upon the conversion of our Series A convertible preferred stock sold in our concurrent private placement. In exchange for the shares we issued to the former Juhl Energy Development and Juhl Energy Services stockholders, we acquired 100% of the outstanding common stock of Juhl Energy Development and Juhl Energy Services. The consideration issued in the exchange transaction was determined as a result of arm’s-length negotiations between the parties.  Concurrently with the closing of the exchange transaction, we also completed a private placement to institutional investors and other accredited investors, in which we received aggregate gross proceeds of $5,160,000.

Leading up to the exchange transaction, Juhl Energy Development engaged Greenview Capital, LLC to assist and advise it in an effort to secure financing. Juhl Energy Development agreed to pay Greenview Capital, and its designees, a fee for such advice in the amount of $300,000 in cash and 2,250,000 shares of our common stock. Aside from the Greenview Capital arrangements, no finder’s fees were paid or consulting agreements entered into in connection with the exchange transaction.

Following the exchange transaction, we succeeded to the wind farm development and management business of Juhl Energy Development and Juhl Energy Services.  Prior to the exchange transaction, there were no material relationships between us and Juhl Energy Development or Juhl Energy Services, between Juhl Energy Development or Juhl Energy Services and our affiliates, directors or officers, or between any associates of Juhl Energy Development or Juhl Energy Services and our officers or directors. All of our pre-exchange transaction liabilities were settled on or immediately following the closing.

Through the exchange transaction, the stockholders of our privately-held predecessors, Juhl Energy Development and Juhl Energy Services, received a majority of the outstanding shares of MH & SC and their officers and directors assumed similar positions with MH & SC.  Following the exchange transaction, we changed our corporate name to Juhl Wind, Inc.
 
On October 31, 2008, we acquired all of the outstanding shares of common stock of NextGen in exchange for an aggregate purchase price of $322,500 payable by delivery of an aggregate of 92,143 shares of our common stock allocated among the NextGen non-controlling interests. The purchase transaction included assumption of certain liabilities of NextGen including a note payable to First Farmer’s & Merchant’s National Bank, but excluded the stockholder notes, which the stockholders of NextGen agreed to contribute to equity.  Simultaneously with the acquisition of NextGen, the Company also purchased a commercial building and associated land located in Pipestone, Minnesota from the individual owners of NextGen. The Company issued 41,070 unregistered shares of common stock to the minority stockholders of NextGen for the purchase of the land and building. The 41,070 shares issued to the NextGen minority interest were valued at $3.50 per share at the date of acquisition, or $144,000.  The acquisition was accounted for at the fair value of the land and building on the date of purchase which totaled $173,055. NextGen is now our wholly-owned subsidiary.

On April 28, 2011, Juhl Wind paid $400,000 to acquire a 99.9% ownership interest in a 10.2 megawatt wind farm, Woodstock Hills, located in Woodstock, Minnesota. The Woodstock Hills wind farm has been operating as a wind energy generation facility since 1999 and had been originally developed by the Company’s CEO, who remains the .1% minority interest member.  On May 6, 2011, Juhl Wind transferred its entire interest in Woodstock Hills to Juhl Renewable Assets, pursuant to a transfer and assignment agreement. 

On October 13, 2011, the individual project owners of the Winona Wind Holdings, LLC, which owns 100% of Winona County Wind, LLC, the operator of a 1.5 megawatt wind-powered electric generating facility in Winona County, Minnesota, sold their 100% ownership interest to our subsidiary, Juhl Energy Development, for $5,000.  Subsequently on December 31, 2011, Juhl Energy Development transferred its interest in the Winona wind farm to Juhl Renewable Assets and increased its equity investment to approximately $100,000.     

On November 29, 2011, Juhl Renewable Assets purchased interests in Juhl Valley View, LLC (“Juhl Valley View”).  As a result of the investment, Juhl Renewable Assets has a 36.6% voting interest in Juhl Valley View, and has an additional 13.9% voting power through a voting trust arrangement with three other investors.  Pursuant to a subscription agreement, Juhl Valley View agreed to invest all subscription amounts received as part of the offering into Valley View Wind Investors, LLC which owns 99% financial rights and 49% governing rights of Valley View Transmission, LLC, which operates the 10 MW Valley View wind farm.

We have not been a party to any bankruptcy, receivership or similar proceeding at any time since inception of the Company.

 
2

 
 
Corporate Organizational Chart:

Juhl Wind, Inc. is a holding company whose subsidiaries and affiliates are organized as set forth in the corporate organizational chart below:
 
 
3

 

OVERVIEW OFOPERATING SUBSIDIARIES

As discussed in detail throughout this report, we provide the following portfolio of services and products, as part of the following operating subsidiaries, which allows us to diversify our offerings and benefit from tiered revenue streams:

Juhl Renewable Assets Renewable Assets Ownership

Through Juhl Renewable Assets, we acquire ownership positions in wind farms, and invest in other industries that meet our renewable energy criteria.  We utilize our unique knowledge base to acquire new and existing wind farms, while building an asset base with a predictable revenue stream.  As discussed herein, Juhl Renewable Assets has taken an ownership position in the following wind farms: the 10 MW Valley View wind farm (February 2011), the 10.2 MW Woodstock Hills wind farm (April 2011), and the 1.5 MW Winona wind farm (October 2011).

In this operating subsidiary, we also look to revenue contribution through acquisition of related business services that provide strong operating margins, such as engineering, consulting and related facilities.

We expect to raise funds to purchase such wind and related assets through the selling of preferred stock of Juhl Renewable Assets.

Juhl Energy Development - Wind Farm Development

Through Juhl Energy Development, we provide full development services for community wind farms, including the following: initial feasibility studies and project design; formation of required land rights agreements to accommodate turbine placement on each project’s specific farm land, assisting in applying for applicable environmental, zoning and building permits for the project; studies, design and agreements with utilities; turbine selection and delivery coordination; negotiation and execution of power purchase agreements; access and consultation regarding construction financing; coordination of vendor terms, including vendor financing; introduction to equity and debt project financing services; construction oversight and complete balance of plant construction services; and project commissioning.  Revenue is recognized on a completed contract basis.

Since 1999, we have completed 21 wind farm projects, accounting for approximately 195 megawatts of wind power that currently operate in the Midwest region of the United States.  We are presently engaged in various aspects of the development of approximately 25 new wind farm projects in the United States totaling approximately 405 megawatts of wind power.

 Juhl Energy Services - Wind Farm Operations and Maintenance Services

Through Juhl Energy Services, we earn revenue through administrative, management and maintenance services agreements with wind generation facilities, and such revenues are recognized as the in-field services are provided.   We can either provide services to wind farms that we have developed, or contract with existing wind farms that we have not developed.  Currently, Juhl Energy Services provides operation management and oversight to wind generation facilities generating approximately 107 megawatts.

Juhl Renewable Energy Systems - Small Scale Renewables

Through Juhl Renewable Energy Systems, we specialize in advanced conservation technologies focused on smaller scale wind and solar energy systems. Juhl Renewable Energy Systems is focused on the sales and installation of our on-site renewable energy systems, including Solarbank™, a proven on-site solar system; Powerbank™, a simple onsite backup power system, and a newly designed wind turbine in prototype stage, which we consider one of the industry’s most advanced medium scale wind turbines at approximately 35 kW. Juhl Renewable Energy Systems handles projects from start to finish, including design, sales, financing and service. Juhl Renewable Energy Systems plans to provide several financing structures including its ongoing system ownership at customer sites while delivering guaranteed operations and savings to end-user customers.

Next Generation Power Systems – Refurbished Turbines and Maintenance Support

Next Generation Power Systems is in the business of refurbishing turbines and maintaining this fleet.  We do not expect to sell any refurbished turbines.

INDUSTRY AND MARKET OVERVIEW

This report includes market and industry data that we have developed from publicly available information, various industry publications and other published industry sources and our internal data and estimates.  Although we believe the publications and reports are reliable, we have not independently verified the data.  Our internal data, estimates and forecasts are based upon information obtained from trade and business organizations and other contacts in the market in which we operate and our management’s understanding of industry conditions.

 
4

 
 
As of the date of the preparation of this report, these and other independent government and trade publications cited herein are publicly available on the Internet without charge.  Upon request, the Company will also provide copies of such sources cited herein.

Energy Demand

According to the DOE’s 2012 Annual Energy Outlook Early Release Overview, the projection case projects an increase in electricity demand of 0.8% per year from 2010 through 2035. New capacity for electricity generation will be required to meet anticipated demand. According to the U.S. Department of Energy, Energy Information Administration’s (“EIA”) “Annual Energy Review 2010,” nearly half of all electricity produced in the United States in 2010 was generated by coal, which is the largest source of carbon dioxide emissions in the atmosphere. Other major sources of electricity in 2010 were nuclear (20%), natural gas (24%), hydroelectric power (6%), and “other,” which consists of, among other things, wind, petroleum, wood and waste (6%).   According to the reference case detailed in the U.S. Department of Energy EIA’s “Annual Energy Outlook 2012 Early Release Overview,” (the “EIA Reference Case”) total coal consumption, mostly for electric power generation, is projected to increase from 20.8 quadrillion Btu in 2010 to 22.1 quadrillion Btu in 2035. More intense use of current power plants from 2015 on is credited for this increase, according the EIA’s “Annual Energy Outlook 2012 Early Release Overview.”  The EIA Reference Case projections in the EIA’s “Annual Energy Outlook 2012 Early Release Overview” also predict that total electricity consumption will grow from 3,879 billion kilowatt hours in 2010 to 4,775 billion kilowatt hours in 2035, increasing at an average annual rate of 0.8% per year.  According to the EIA’s “Short-Term Energy Outlook” published in April 2011, during 2012 the EIA expects a 2.5% increase in total electric power sector generation, fueled primarily by increased coal and natural gas generation.

Most of the world’s primary energy sources are based on the consumption of non-renewable resources such as petroleum, coal, natural gas and uranium. However, while still a small segment of the energy supply, renewable sources such as wind power are growing rapidly in market share. Wind power delivers multiple environmental benefits. Wind power operates without emitting any greenhouse gases and has one of the lowest greenhouse gas lifecycle emissions of any power technology. Wind power results in no harmful emissions, no extraction of fuel, no radioactive or hazardous wastes and no use of water to steam or cool. Wind power projects are developed over large areas, but their carbon footprint is light. Farmers, ranchers and most other land owners can continue the vast majority of their usual activities after wind turbines are installed on their property.

Wind Power Generation

According to the U.S. Department of Energy EIA’s publication “Renewable Resources in the U.S. Electricity Supply,” wind power generation was projected to increase eight-fold between 1990 and 2010, a rate of 10.4% per year.  Annual growth in the global wind energy capacity for the past ten years has averaged 28% per year according to the Global Wind Energy Council’s (“GWEC”) “Global Wind 2010 Report.”  This 2010 GWEC report stated an increase of 24.1% in total global wind power capacity in 2010, despite the global economic and financial crises occurring in late 2008 (the results of which crises were felt much more strongly in 2010 than in 2009).  In the United States, according to the GWEC’s “Global Wind 2010 Report,” it was unfortunately a disappointing year for wind power, with only 5.1 GW of newly installed wind capacity in 2010.  This represents only about half of what was newly installed in 2009 (which was a record year for the United States); however, the American manufacturing sector appears to view the 2010 slowdown as short-term, as new component suppliers continued to enter the market in 2010, according to the GWEC’s “Global Wind 2010 Report.”  The U.S. wind power industry experienced growth in 2011, with 2011 exceeding 2010 in terms of new wind installations, according to the AWEA’s “U.S. Wind Industry Fourth Quarter 2011 Market Report.”  This publication reported that 6,810 MW of wind capacity was installed in 2011, representing a 31% increase from 2010’s total installations.  This brings U.S. nationwide wind power capacity, as of the close of 2011, to 46,919 MW, a 17% increase in capacity from 2010, according to AWEA’s “U.S. Wind Industry Fourth Quarter 2011 Market Report.”  

Wind power has become a mainstream option for electricity generation, and we believe that it is a critical element to solving climate change and delivering cost-effective domestic power in the United States. The demand for renewable energy in the U.S. has been driven by a number of factors, including concerns about energy independence, environmental and climate change concerns, a desire for lower exposure to fuel cost volatility and, more recently, a desire for economic development.  There is strong popular support in the United States for wind energy specifically, according to AWEA’s “Wind Power Outlook 2011” report.  A Harris poll released in October 2010 showed that 87% of Americans want more wind energy. Moreover, the report stated that the use of wind energy will lead to favorable environmental results: wind power is the least harmful form of electricity generation for people and wildlife, and wind power increasingly displaces emissions of carbon, air toxins and other pollutants from fossil fuels.  According to the AWEA’s “Wind Power Outlook 2011”, the electricity generated by the wind turbines installed in the U.S. through 2010 will avoid the emission of over 54 million tons carbon dioxide annually (the equivalent of taking over 9.5 million cars off of the road).   Another environmental benefit of wind power is conservation of water: the AWEA’s “Wind Power Outlook 2011” reported that, each year, the operation of the U.S. wind fleet is estimated to conserve nearly 24 billion gallons of water that would otherwise be used for steam or cooling in conventional power plants.

 
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In 2010, the United States was second in wind power installations, coming in only behind China (which had 18,920 MW of newly installed capacity in 2010, according to the October 2011 issue of “Windpower Monthly”), as reported by the GWEC in its “Global Wind 2010 Report.”  The U.S. also came in second worldwide for total installed wind capacity, as the U.S. was surpassed by China, which had over 42,000 MW of total installed wind capacity and thus became the new worldwide leader in megawatts of installed wind capacity, according to the GWEC’s “Global Wind 2010 Report.”   Germany and Spain came in at third and fourth, respectively, in 2010 in worldwide total installed wind capacity.  Previously, in 2009, according to the GWEC “Global Wind 2009 Report,” the United States was second worldwide, behind China, in new wind power installations, and was first in worldwide total installed wind capacity, with over 35,000 MW at the end of 2009.  Spain and Germany were the second and third largest wind power growth countries in 2009 with 2,459 MW and 1,917 MW of wind power capacity added, respectively, according to the GWEC’s “Global Wind 2009 Report.”

According to the “Wind Energy Outlook for North America” article published by the marketing and consulting firm Pike Research, the North American wind energy industry lags in key areas compared to the European and Asian industries, but many key wind industry players are optimistic about the prospects of the North American market.  The “Wind Energy Outlook for North America” article reported that total installed wind capacity in North America will more than double over the next six years, increasing from approximately 53,00 MW in 2011 to almost 126,000 MW by 2017.  On a worldwide scale, the World Wind Energy Association forecasted in its “World Wind Energy Report 2010” publication that a global wind capacity of 600,000 MW is possible by the year 2015, and that a global wind capacity of over 1,500,000 MW is possible by the year 2020.

Wind power can deliver zero-emission electricity in large amounts. According to the American Solar Energy Society’s report, dated January 2007, “Tackling Climate Change in the U.S.,” energy efficiency and renewable energies can provide most, if not all, of the U.S. carbon emission reductions needed to keep atmospheric carbon dioxide levels at no more than 450 to 500 parts per million, the level targeted in the more protective climate change bills before the U.S. Congress. According to this report, wind power would offer a large carbon reduction “wedge” by contributing a 35% relative share from among the various renewable energy contributors, and can constitute about 20% of the U.S. electricity supply by 2030.  The more recent “Wind Power Outlook 2011” report, published by the AWEA, similarly posited that wind could pay a major role in meeting America’s electricity demand.

According to the Emerging Growth Research, LLP’s Industry Report “U.S. Wind Sector Overview and Predictions for 2009” dated December 29, 2008, which we refer to as the “Emerging Growth Report 2008,” the domestic wind capacity installed as of the end of 2008 is equivalent to the capacity of approximately 35 average sized coal-fired power plants.  Considering that each average size coal-fired power plant in the United States produces about 3,000,000 tons of carbon emission each year, currently-installed wind power capacity is reducing total carbon emissions by just over 105,000,000 tons each year.

Wind power delivers zero-emissions electricity at an affordable cost and the cost of wind power has been decreasing.  Bloomberg New Energy Finance predicted that wind energy is expected to be competitive with natural gas in just four years, by the year 2016.  No other power plants being built in the United States today generate zero-emissions electricity at a cost per kilowatt-hour nearly as affordable as wind power. Consequently, using wind power lowers the cost of complying with emissions reduction goals. The affordable cost of wind power is stable over time. Wind projects do not use any fuel for their operations, so the price of wind power does not vary when fuel prices increase. When utilities acquire wind power, they historically have locked in electricity at a stable price for 20 years or more.  The AWEA’s “Wind Power Outlook 2011” also cited a number of more recent studies concluding that wind power can hold down energy prices and that, although the U.S. does need to reinvest in its electric grid, the consumer savings realized from such an investment would be significantly greater than the costs of the initial infrastructure investment.  An additional benefit of wind power projects is that they typically have a shorter development time frame than other types of power projects and can move more quickly as conditions change (such as natural gas projects).

Wind, however, is intermittent and electricity generated from wind power can be highly variable. Good site selection and advantageous positioning of turbines on a selected site are critical to the economic production of electricity by wind energy. In our experience, the primary cost of producing wind-powered electricity is the turbine equipment and construction cost, which cost has been on the decline in recent years (as discussed more fully below).  Wind energy itself has no fuel costs and relatively low maintenance costs. As an intermittent resource, wind power must be carefully positioned into the electric grid along with other generation resources, and we believe Juhl Wind has demonstrated the expertise necessary to work with local electric utilities to affect the proper integration plan.  As such, we intend to continue to identify new sites to produce wind energy through the community wind model throughout the United States and Canada.

Turbine Costs & Wind Project Costs Decreasing

Over the past few years, the cost of wind turbines has fallen considerably.  The AWEA reported in its “Top 10 for 2011” press release that wind turbine costs have dropped sharply in recent years, by as much as 33% or more between late 2008 and 2010.  Moreover, since 2008, the price declines in the cost of wind turbines were accompanied with improved turbine technology and more favorable terms for turbine purchasers (such as reduced turbine delivery lead times, longer initial operations and management contracts and improved warranty terms), according to the DOE’s “Wind Technologies Market Report.”  The DOE’s “Wind Technologies Market Report” also predicted that all of the foregoing are expected, over time, to exert downward pressure on total wind project costs and wind power prices.  Installed project costs are found to exhibit some economies of scale, at least at the low end of the project size range.

 
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In 2011, the price drop of wind turbines was especially notable.  During the second half of 2011, according to the Bloomberg New Energy Finance (“BNEF”) Wind Turbine Price Index (the “BNEF Price Index”), the average price for utility-scale wind energy equipment hit a new low.  According to the BNEF, purchase contracts for turbines in the second half of 2011 for 2013 delivery fell to $1.21 million/MW, which was down 4% from six months earlier.  The most dramatic price drop was felt by older wind turbines, which prices fell 10% from six months earlier.  However, newer and more efficient wind turbines (which offer improved capacity factors for electricity generation) also saw a price drop, based on the analysis of contracts covered by the BNEF Price Index.  According to the BNEF Price Index, these decreasing prices in the second half of 2011 were worldwide, particularly as the Chinese manufacturers competed for wind turbine orders.  The BNEF Price Index also revealed that most procurement officers and wind turbine manufacturers anticipate further moderate declines in wind turbine prices throughout the rest of 2012 and 2013, and do not expect prices to recover until at least 2014.

The declining prices are significant because lower equipment prices make wind energy more competitive with fossil fuels, such as coal and gas on a dollar-per-megawatt-hour basis, which is extremely important as the tax incentives for wind energy are set to expire at the end of 2012.

According to the U.S. Department of Energy’s most recent “Wind Technologies Market Report,” published in mid-2011, the average installed cost of wind power projects remained stagnant in 2010.  Consistent with the recent trends in wind turbine prices described above, however, such cost was expected to decline in the near future.  As reported in the “2010 Wind Technologies Market Report,” among a large sample of wind power projects installed in 2010, the capacity-weighted average installed cost of $2,155/KW was similar to that seen in 2009, but the estimated costs for projects with construction scheduled to begin in 2011 suggested that there would be a decline in these average costs.  For specific regions in the U.S., the “2010 Wind Technologies Market Report” stated that Texas was the lowest-cost region for wind power projects, while California and New England were the highest-cost regions.

As for small wind turbines (ranging from 400 W to 100 kW (or up to 500 kW, depending on various definitions of “small”) systems consist of a vertical or horizontal axis turbine installed either on-or-off grid.  According to AWEA’s “2010 U.S. Small Wind Turbine Market Report,” published in 2011, the cumulative installed small turbine capacity increased to 179 MW in 2010 (deploying over 144,000 small wind turbines), representing a 26% growth from 2009. The AWEA reported that approximately 7,811 small wind units were sold last year, totaling $139 million in sales.  With a range of small-scale wind turbines, the installations are geared toward farmers, country estates, golf courses and domestic properties with large gardens or adjoining fields, which are all locations that have a significant amount of space.   We believe that this is our target market for Juhl Renewable Energy Systems, which focuses on small renewables.

Governmental Programs and Incentives

Overview

The growing concern over global warming caused by greenhouse gas emissions has also contributed to the growth in the wind energy industry. The Intergovernmental Panel on Climate Change’s “Climate Change 2007: Synthesis Report” (the “IPCC Report”) reports that 11 of the previous 12 years (1995-2006) at the time of the IPCC Report’s publication ranked among the warmest years since 1850. Additionally, at the time of the IPCC Report’s publication, the global average sea level had risen at an average rate of 1.8 millimeters per year since 1961 and at 3.1 millimeters per year since 1993, due to the melting of glaciers, ice caps and polar ice sheets, coupled with thermal expansion of the oceans.  In 2009, the International Alliance of Research Universities organized an international scientific congress on climate change to bring together new knowledge developed since the publication of the IPCC Report.  The synthesis report from this congress (the “IARU Report”) concluded that, based on updated trends in surface ocean temperature and heat content since the IPCC Report was published, ocean warming has been about 50% greater than had been previously reported in the IPCC Report.  The IARU Report also stated that, at the time of the IARU Report’s publication, the Arctic sea glaciers were diminishing in the summers as rapidly as they had been since the estimation given in IPCC Report in 2007.

The importance of reducing greenhouse gases has been recognized by the international community, as demonstrated by the signing and ratification of the Kyoto Protocol, which requires reductions in greenhouse gases by the 193 (as of August 2011, according to the United Nations Framework Convention on Climate Change “Status of Ratification” webpage) signatory nations. While the United States did not ratify the Kyoto Protocol, state-level initiatives have been undertaken to reduce greenhouse gas emissions. California was the first state to pass global warming legislation, and nine states on the east coast have signed the Regional Greenhouse Gas Initiative (according to the Regional Greenhouse Gas Initiative’s “Program Overview” and “Program Contacts by State” web pages) which proposes to require a 10% reduction in power plant carbon dioxide emissions by 2018.

Various state and federal governments have placed restrictions on fossil fuel emissions, and it is anticipated that additional requirements for limitation of such emissions will continue. Substituting wind energy for traditional fossil fuel-fired generation would help reduce carbon dioxide emissions due to the environmentally-friendly attributes of wind energy. According to the U.S. Department of Energy, EIA’s “International Energy Outlook 2011,” released September 19, 2011, of regions belonging to the Organisation for Economic Co-operation and Development (“OECD”), the United States was projected to be the largest source of energy-related carbon dioxide emissions through 2035, with an average growth of 0.3% per year.  According to the U.S. Department of Energy, EIA’s annual report “Emissions of Greenhouse Gases in the United States 2009,” published in March 2011, the electric power sector (which consists of those companies whose primary business is the generation of electricity) is the largest source of all energy-related carbon dioxide emissions; this report also stated, however, that emissions from the electric power sector declined in 2009 by 9.0 %.
 
 
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Environmental legislation and regulations provide additional incentives for the development of wind energy by increasing the marginal cost of energy generated through fossil-fuel technologies. For example, regulations such as the Clean Air Interstate Rule and the Regional Haze Rule, which have been designed to reduce ozone concentrations, particulate emissions and haze and to control mercury emissions, can require conventional energy generators to make significant expenditures, implement pollution control measures or purchase emissions credits to meet compliance requirements. These measures have increased fossil fuel-fired generators’ capital and operating costs and put upward pressure on the market price of energy. Because wind energy producers are price takers in energy markets, these legislative measures effectively serve to make the return on wind energy more attractive relative to other sources of generation.

We believe there is significant support in the U.S. to enact legislation that will attempt to reduce the amount of carbon dioxide produced by electrical generators. Although the ultimate form of the legislation is still being debated, we believe that, based on studies (such as the Congressional Budget Office’s February 2008 study titled “Policy Options for Reducing CO2 Emissions”) and the reaction to various initiatives introduced in Congress over the past few years, the two most likely alternatives are (i) a direct emissions tax; or (ii) a cap-and-trade regime.  We believe either of these alternatives would likely result in higher overall power prices, as the marginal cost of electricity in the U.S. is generally set by generation assets which burn fossil fuels such as oil, natural gas and coal and produce carbon dioxide. As a non-carbon emitter and a market price taker, we are positioned to benefit from these higher power prices.

Growth in the United States’ wind energy market and other renewable energy markets has also been driven by state and federal legislation designed to encourage the development and deployment of renewable energy technologies. This support includes:

Renewable Portfolio Standards (RPS)

In response to the push for cleaner power generation and more secure energy supplies, many states have enacted RPS programs. A RPS (sometimes called a Renewable Energy Standard, or RES), is a program that either: (i) requires state-regulated electric utilities and other retail energy suppliers to produce or acquire a certain percentage of their annual electricity consumption from renewable power generation resources or, (ii) as in the case of New York, designate an entity to administer the central procurement of Renewable Energy Certificates (“RECs”) for the state. Typically, utilities comply with such standards by qualifying for renewable energy credits evidencing the share of electricity that was produced from renewable sources.  These standards have spurred significant growth in the wind energy industry and a corresponding demand for our services.  The enactment of renewable energy portfolio standards in additional states or any changes to existing renewable energy portfolio standards may impact the demand for our services.  Similar to federal incentives as discussed below the elimination of, or reduction in, state governmental policies that support renewable energy could have a material adverse impact on our business, results of operations, financial performance and future development efforts.

According to the Quantitative RPS Data Project and the RPS Summary Map (which provide information about state RPS programs), each published by the Department of Energy Database of State Incentives for Renewables & Efficiency (DSIRE), as of March 2012, twenty-nine states, plus the District of Columbia and Puerto Rico, have legislated renewable energy portfolio standards, and eight more states have adopted voluntary renewable portfolio goals.

Almost every state that has implemented an RPS program will need considerable additional renewable energy capacity to meet its RPS requirements. We believe that much of the forecasted 50,000 megawatt installed wind capacity by 2015 will be driven by current and proposed RPS targets, along with additional demand from states without renewable standards.
  
According to the “Emerging Growth Report 2008”, these mandatory requirements, which are now in place in many states, are forcing electric utilities to be at the forefront of wind power development.

Renewable Energy Certificates (REC).  A REC is a stand-alone tradable instrument representing the attributes associated with one megawatt hour of energy produced from a renewable energy source. These attributes typically include reduced air and water pollution, reduced greenhouse gas emissions and increased use of domestic energy sources. Many states use RECs to track and verify compliance with their RPS programs. Retail energy suppliers can meet the requirements by purchasing RECs from renewable energy generators, in addition to producing or acquiring the electricity from renewable sources. Under many RPS programs, energy providers that fail to meet RPS requirements are assessed a penalty for the shortfall, usually known as an alternative compliance payment. Because RECs can be purchased to satisfy the RPS requirements and avoid an alternative compliance payment, the amount of the alternative compliance payment effectively sets a cap on REC prices. In situations where REC supply is short, REC prices approach the alternative compliance payment, which in several states may reach  approximately $50 per megawatt hour. As a result, REC prices can rival the price of energy and RECs can represent a significant additional revenue stream for wind energy generators.
 
 
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Federal Tax and Economic Incentives

American Recovery and Reinvestment Act of 2009.   On February 13, 2009, the U.S. Congress passed a stimulus package known as the American Recovery and Reinvestment Act of 2009 (the “Recovery Act”).  Approximately $40 billion in spending was appropriated for clean energy initiatives and an additional $20 billion estimated for new and modified tax incentives.  According to a discussion at Windindustry.org, the Recovery Act’s goal opens up new sources of funding for renewable energy at a time when the wind energy industry is set for even more growth.  The Recovery Act contains a number of provisions that focus on the growth of the wind industry.  Some of the pertinent provisions of the Recovery Act include the following: (i) three-year extension of the federal wind energy production tax credit (PTC) so that eligible projects placed in service by the end of 2012 will qualify for the credit; (ii) option for a thirty percent (30%) investment tax credit (ITC) instead of the PTC; (iii) option to convert the ITC into a cash grant for wind projects placed in service before 2013 (“1603 Cash Grant”); (iv)  elimination of the dollar cap on residential small wind and solar for ITC purposes; and (v) additional loan guarantees, bonds and tax incentives.   These programs enacted under the Recovery Act allow community wind farms, such as our Company, to take advantage of funding opportunities created as a result of the initiatives introduced under the Recovery Act.  

The Recovery Act removes the $4,000 cap on small wind credit so taxpayers can now take the full 30% credit for a qualified small wind system.  It also provides for an additional $1.6 billion for Clean Renewable Energy Bonds (CREBs) that are used to finance renewable energy.  Previously, these bonds had been given at 0% interest rate, and the bondholder received a tax credit in lieu of bond interest.

 
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1603 Cash Grant Program.  This program had the potential to attract more investors who may not have enough passive activity income to realize the PTC.  The 1603 Cash Grant program means the value of the ITC can be realized, even if the taxpayer cannot take advantage of the credit.   Which credit a taxpayer uses will depend upon an analysis of the project revenue and cost projections as well as analysis of the investor tax appetite.

Further, on December 17, 2010, President Obama, as part of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, signed into law a one-year extension of the popular renewable energy cash grant in lieu of tax credit program established by Section 1603 of the Recovery Act. To qualify for a cash grant under the extended program, a taxpayer must place "specified energy property" in service in 2009, 2010, or 2011, or after 2011 if construction begins in 2009, 2010, or 2011 provided such property is placed in service by the end of 2012 (for wind projects), 2013 (for closed- and open-loop biomass, geothermal, landfill gas, municipal solid waste, qualified hydropower, and marine and hydrokinetic facilities), or 2016 (for solar projects).

The cash grant program allowed us to enhance our ability to attract equity investors for our community wind projects; however, as noted below, the 1603 Cash Grant program has not been extended.
 
 
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DOE Loan Guarantee Extension.  The Department of Energy received an extension of its authority to provide loan guarantees for qualified technologies under Title XVII of the federal Energy Policy Act of 2005 and an additional $6 billion for this program.  Eligible technologies include electricity-generating renewable energy projects.  Funding for this program has been substantially reduced to $2.5 billion and continues to face challenges, especially due to guarantees made to organizations such as Solyndra.
 
 
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Production Tax Credits (PTC).  The PTC provides wind energy generators with a credit against federal income taxes, annually adjusted for inflation, for the duration of ten years from the date that the wind turbine is placed into service. In 2011, the PTC was $22 per megawatt hour (or 2.2 cents per kilowatt hour).  Wind energy generators with insufficient taxable income to benefit from the PTC may take advantage of a variety of investment structures to monetize the tax benefits.

The PTC was originally enacted as part of the Energy Policy Act of 1992 for wind parks placed into service after December 31, 1993 and before July 1, 1999. The PTC subsequently has been extended six times, but also has been allowed to lapse three times (for periods of three, six and nine months) prior to retroactive extension. Currently, the PTC is scheduled to expire on December 31, 2012.  This expiration date reflects a three-year extension passed under the American Recovery and Reinvestment Act enacted in February 2009.  According to American Wind Energy Association’s “Wind Power Outlook 2010,” a new incentive was added as part of the 2009 expansion of the PTC under the Recovery Act.  This provision as passed gave wind farm developers the option to receive a direct payment from the government, rather than the previously existing PTC.  This provision provided more than $1.5 billion capital to different wind projects in 2009.  According to the AWEA’s “Top 10 for 2011” press release, the year 2011 ended without another extension of the PTC; however, the movement for an extension has gathered momentum as bipartisan legislation seeking to grant a four-year PTC extension was introduced in Congress at the end of 2011.  At the time of this report, an extension has not been passed by Congress.

If the PTC is not extended, a December 2011 report by Navigant Consulting for the AWEA predicted that wind investment projects would decrease by two-thirds.  While this prediction represents a smaller drop than the 73% to 98% drop in wind investment projects which occurred during previous years when the PTC lapsed, it would no doubt still have a negative effect on the wind industry.  For example, the CEO of the AWEA released a February 2012 statement asserting that failure to extend the PTC would result in the loss of 37,000 American jobs.
 
 
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Accelerated Tax Depreciation.   Tax depreciation is a non-cash expense meant to approximate the loss of an asset’s value over time and is generally the portion of an investment in an asset that can be deducted from taxable income in any given tax period. Current federal income tax law requires taxpayers to depreciate most tangible personal property placed in service after 1986 using the modified accelerated cost recovery system, or MACRS, under which taxpayers are entitled to use the 200% or 150% declining balance method depending on the class of property, rather than the straight line method. Under MACRS, a significant portion of wind park assets is deemed to have depreciable life of five years which is substantially shorter than the 15 to 25 year depreciable lives of many non-renewable power supply assets. This shorter depreciable life and the accelerated and bonus depreciation methods result in a significantly accelerated realization of tax depreciation for wind parks compared to other types of power projects. Wind energy generators with insufficient taxable income to benefit from this accelerated depreciation often monetize the accelerated depreciation, along with the PTCs, through forming a limited liability company with third parties.  In addition, the 2010 Tax Relief Act allows 100% bonus depreciation for qualified wind farm assets put in service after September 8, 2010 and before January 1, 2012.  For 2012, bonus depreciation is still available, but the allowable deduction reverts from 100% to 50% of the eligible basis.

Expiration of Certain Federal Tax and Economic Incentives

At the date of this report, Congress has not extended programs such as the production tax credit or cash grant program. These programs, which expire at the end of 2012, provide material incentives to develop wind energy generation facilities.  The uncertainty with respect to extension of these credits and incentives has placed the wind industry in a tentative position.  The development of wind energy projects requires extensive lead time, and the failure of Congress to extend or renew these incentives beyond the current 2012 expiration dates has already interrupted  potential wind energy installations planned for 2013, as developers are shelving plans for wind projects (as discussed above under Production Tax Credits).   We expect that further Congressional delay on action to renew or extend these incentives will likely result in additional deferral of wind energy generation facility development and will likewise negatively impact the demand for wind turbines, towers, and related components.  As a result, the continued Congressional delay or failure to extend or renew these or similar incentives in the future could have a material adverse impact on our business, results of operation, financial performance and future development efforts of wind energy projects.  Thus, we believe it is necessary to evolve and diversify in our asset, product and service portfolio to reduce our exposure to uncertainty related to the extension or renewal of tax incentives and other favorable governmental policies currently supporting the U.S. wind industry.

Federal Legislative/Regulatory Developments

Clean Energy Standard Act of 2012 (proposed legislation).   With the expiration of certain federal tax and economic incentives, it is key to the growth of the renewable energy industry that federal legislation to establish a national clean and/or renewable energy standard remains in consideration.  On March 1, 2012, the Clean Energy Standard Act of 2012 (the “CES”) was introduced by Senator Jeff Bingaman (D-NM) that would create a federal clean energy standard.  The CES proposal would increase the amount of low-carbon power produced in the United States to 80% by 2035.  The CES proposal includes all low-carbon sources of power and relies on utilities holding “clean energy credits” for a certain percentage of their sales, maxing out at 80% in 2035.  According to the Energy Information Administration, a well-designed CES proposal would reduce carbon dioxide emissions in the power sector by 43 percent.  The CES proposal has the support of the energy industry, including the American Wind Energy Association.  We believe as the U.S. energy policy is in a constant state of change, this proposed new legislation would provide long term security and clean energy, benefitting all forms of electric generation, including wind and solar.  There are no assurances that this legislation or any similar legislation will be enacted.

Solar Power Generation
 
Increased global demand for electricity in connection with modern technology and emerging market industrialization has placed a significant burden on the world’s available electricity supply in a vulnerable state, focusing international attention on seeking solutions to maintain access to energy supplies. Solar photovoltaic is a technology by which light is converted into electricity using photovoltaic modules. Solar photovoltaic modules have no moving parts, operate quietly without carbon or other emissions and are capable of short and long-term use with minimal maintenance. Solar energy is renewable and creates no short-term waste and uses almost no water, according to “Solar Generation: Solar Photovoltaic Electricity Empowering the World,” report jointly published by the European Photovoltaic Industry Association (“EPIA”) and Greenpeace International (the “Solar Generation Report”).  The Solar Generation Report states that the “environmental footprint” of solar energy is negligible, as the energy it takes to make a solar power system is typically recouped by the energy costs saved over one to three years. We believe that solar energy, like wind energy, has the potential to achieve the same goals of reducing the world’s dependence on conventional fuels, satisfying the growing demand for energy, enhancing national security by reducing dependence on imported fossil fuels, and reducing greenhouse gas emissions.  Solar energy also has the potential to greatly boost job creation.  In September 2011, a report from the nonprofit Solar Foundation showed that the workers in America’s solar energy have more than doubled – growing from 46,000 workers in 2009 to more than 100,000 in 2011 (as reported by “DOE Highlights Clean Energy Jobs, Announces Major New Energy Efficiency Milestone,” an article posted on the Department of Energy’s website).

 
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Solar energy, like wind energy, provides several advantages over fossil-fuel, nuclear and other forms of renewable power generation. One fundamental benefit is that sunlight, the source of the electricity, is available without any mining or transportation. If sufficient sunlight is available, a facility to generate solar power can be located where the power is needed, thus avoiding the need for, and cost of, lengthy distribution and transmissions lines along with other upgrades to the grid. It is a scalable technology, able to produce power according to load demand and available land or space. It is also delivered on-peak, generating the most power during the time of the day when load typically demands it.

As with wind power generation, the primary potential disadvantage to solar power is that it relies upon an intermittent resource. Unlike some generators, it cannot increase or decrease its productivity at the request of grid operators. It also does not generate power when the modules are not receiving light at certain levels such as night time. Further, solar power requires space for the arrays of solar photovoltaic modules, which can limit its use in urban areas. We believe innovations in energy storage solutions could resolve some of these issues, which is the type of offered by Juhl Renewable Energy Systems. However, unlike wind, the intermittent production of solar power naturally coincides with peak demand for residential power usage, thereby creating value in increasing available power during such peak periods.

At present, many of the leading manufacturers of photovoltaic products are based in China, due, in part, to their ability to manufacture solar photovoltaic modules at a lower cost than their European or United States counterparts (according to the Solar Generation Report). In addition to decreases in photovoltaic module prices, the industry has seen an overall decline in photovoltaic solar costs. The price decline in photovoltaic equipment reflects a more competitive environment, an increase in efficiency of the solar cells, improvements in technology and the economies of scale. We view the shifts in the solar industry as an opportunity for us to develop solar power projects that can generate power at prices which are lower than the retail prices charged by the utilities and provide solutions using solar energy as a back-up power source in the case of a power outage.

According to the U.S. Department of Energy’s “SunShot Initiative,” a program aimed at increasing solar power use and innovation in the U.S., the U.S. is the world’s second largest consumer of electricity, but also has the largest solar resource of any industrialized country.  The SunShot Initiative aims to reduce the total installed cost of solar energy systems by 75% by 2020 through reduction of solar technology costs, reduction of grid integration costs and acceleration of solar deployment.

The SunShot Initiative’s SunShot Vision Study stated that, in 2010, solar energy provided less than only 0.1% of the U.S. electricity demand.  Technical potential, however, for solar energy’s contribution to the U.S. energy demand is enormous.  For example, one estimate suggested that the area required to supply an amount of electricity equivalent to all end-use electricity in the United States using solar power is only about 0.6% of the country’s total land area.

In 2011, the United States was fourth in newly connected solar capacity, according to the EPIA’s Market Report 2011.  The United States was also ranked fourth in the list of the world’s top ten markets for solar power.  In terms of growth, the Solar Energy Industries Association in the Executive Summary for its “U.S. Solar Market Insight: 3rd Quarter 2011” reported that, through the third quarter of 2011, the U.S. solar market had installed more than 1,000 MW of solar capacity (which already surpassed 2010’s installation total of 887 new MW for the year).  According to the Executive Summary for the “U.S. Solar Market Insight: 3rd Quarter 2011” report, much of 2011’s growth in the solar power industry was attributed to the Department of the Treasury’s 1603 program, which further highlights the importance for a strong long-term federal policy with regard to solar energy.

Solar power is also gaining in popularity in the individual U.S. states and cities, as rooftop solar power systems are becoming more prevalent as an energy choice for residences and businesses.  According to “Solar and the City,” an article posted on the Department of Energy’s website, in 2007 San Francisco and Boston each developed online “solar maps,” and New York developed one in 2011.  The “solar maps” are tools that allow people to determine the solar potential of their homes and businesses, and have played a big part in supporting those interested in solar power.  When San Francisco first developed its solar map in 2007, for example, there were only 554 solar installations marked on the map.  Today, that number is 2,073, with a total capacity of 11MW, according to the “Solar and the City” article.  We believe our solar products, based on storage solutions and solar installations, will take advantage of the prevalent climate for solar energy in urban areas where wind projects are not practical.

Growth in Demand for Wind Power and Our Position and Service Offerings
 
Demand for wind power in the United States has grown rapidly (as discussed under Wind Power Generation). We believe that the market for community wind power will be maintained as a model for ongoing installations of wind power given the constraints of transmission capacity and utility power purchases that are currently affecting the growth of larger scale projects.  In addition, we believe that there is impetus in the United States to increase its generation of electrical power through renewable energy means.

 
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The AWEA’s “U.S. Wind Industry Fourth Quarter 2011 Market Report” reported that the new wind projects installed in 2011 added 6,810 megawatts (MW) of generating capacity.  Preliminary estimates indicate that growth in the wind industry in 2012 should be strong as well.  The AWEA, in its “Five trends to watch in 2012” press release, predicts that the wind industry will enter the “boom” phase of the “boom-bust” cycle that the wind industry has been caught in for the past 10 years, based on the amount of wind installation projects under construction at the end of 2011.  Despite this prediction, and despite the increase in new installations in 2011 as compared to 2010, the AWEA cautioned that this continued growth is conditional on U.S. Congressional policies.  A strong long-term federal policy for wind power is needed, according to the “Five trends to watch in 2012” press release and the “Wind Power Outlook 2011” report, both of which were published by the AWEA.

Industry Related Information – Community Wind Projects

Based on our research of data available for U.S. wind farms under 50 MW in size, we believe that there are approximately 260 entities or wind farms that  are part of the community wind approach. This totals about 2,238 MW of community style wind out of the 530 projects in the under 50 MW project category, which totals approximately 6,895 MW.  Although the community wind model is only about 5% of the 46 GW total install base in the U.S. for wind farms, the market has seen a large number of developments, both community owned and corporate.

According to the windustry.org January 2010 newsletter, community wind projects added 544 MW of new energy capacity in 2009. As of January 2010, Windustry.org’s Community Wind Map reported that Community Wind accounted for more than four percent of the overall U.S. wind energy capacity with 1,521 MW out of 35,170 MW total for the country. Overall, new wind energy capacity in the U.S. for 2009 was estimated at nearly 10,000 MW compared to 8,500 MW added in 2008, a record high.

The term “Community Wind” for the statistics cited above refers to locally-owned, commercial-scale wind projects that optimize local benefits. Locally-owned means that one or more members of the local community has a significant direct financial stake in the project other than through land lease payments, tax revenue, or other payments in lieu of taxes.  According to an article titled “Community Wind: Affordable, Abundant, Ready To Deliver” published by Windustry.org, Community Wind projects are an affordable energy source and, despite the necessity for the U.S. to reinvest in and modernize its electricity grid in order to deliver wind power to heavily populated areas, Community Wind projects can be deployed in the states now, without new transmission lines.

States with community wind farm developments, such as California and Minnesota, have continued to increase their wind capacity.  In 2011, California, according to the AWEA’s “U.S. Wind Industry Fourth Quarter 2011 Market Report,” there were 921.3 new megawatts installed.  In Minnesota, there were 541.9 new megawatts installed.  Ohio was the fastest growing state for wind power in 2011, with 101.50 new megawatts installed (representing a 929% growth rate for 2011).  Overall, according to the AWEA’s “U.S. Wind Industry Fourth Quarter 2011 Market Report” and the “Fact Sheets” published for each state by the AWEA, the top ten states for wind power capacity were as follows in 2011:

State
Wind Capacity (MW)
Texas
10,337
Iowa
4,375
California
3,927
Illinois
2,743
Minnesota
2,733
Washington
2,573
Oregon
2,513
Oklahoma
2,007
Colorado
1,800
North Dakota
1,445
 
 
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Increased Demand in WindPower

Growth in wind power is being driven by several environmental, socio-economic and energy policy factors that include:

 
ongoing increases in electricity demand due to population growth and growth in energy-consuming devices such as computers, televisions and air conditioning systems, as coal and oil resources need replacing;
     
 
the fluctuating costs of the predominant fuels required to drive the existing fleet of conventional electric generation such as coal, natural gas, nuclear and oil, especially as recent low (subsidized) wind prices are roughly competitive with natural gas;
     
 
existing and growing legislative and regulatory mandates for “cleaner” forms of electric generation, including state renewable portfolio standards and the U.S. federal tax incentives for wind and solar generation, including the Recovery and Reinvestment Act enacted in February 2009 (although PTCs are set to expire at December 31, 2012, unless extended by Congress) ;
     
 
the expectancy that the Environmental Protection Agency will enact regulations and standards accelerating the retirement of aging coal plants and impacting the life of natural gas plants, thus increasing the need for replacement of resources;
     
 
uncertainty surrounding the growth potential of nuclear power plants;
 
Wind projects have shorter development timeframe than natural gas plants and have greater flexibility to adapt to changing conditions; worldwide concern over greenhouse gas emissions and calls to reduce global warming due to the carbon dioxide produced by conventional electric generation; and newer wind turbine models are becoming more efficient (such as advances in wind turbine blade aerodynamics, development of variable speed generators, advances in remote operation and monitoring systems, improvements in wind monitoring and forecasting tools and advances in turbine maintenance) and offer improved capacity factors, and together with cost competition among suppliers.  Wind power systems have become more competitive with coal and gas on a dollar-per-megawatt-hour basis.
 
Although the wind industry continues to experience growth, it is facing factors and obstacles that have the potential to impede its growth.  Here are factors that impose the greatest challenge:
 
New Transmission Infrastructure. As briefly stated previously, the U.S. needs to reinvest in its energy infrastructure.  The U.S. Department of Energy has identified transmission limitations as the largest obstacle to realizing the economic, environmental and energy benefits. The entire transmission system or grid of the U.S needs to be extensively redesigned and redeveloped. At present, this system consists mostly of small and antiquated distribution lines. To rectify this, a series of new high-voltage transmission lines is needed to transmit electricity from wind facilities to major population centers. Such redevelopment faces several obstacles including significant cost and investment by third parties, federal and state governmental approval, changes in government policy, cooperation from landowners, and time.  According to a Bloomberg.com article, “Electricity Declines 50% as Shale Spurs Natural Gas Glut: Energy,” this lack of transmission infrastructure affects investment in wind power.
 
Access to Transmission Lines. Transmission line operators typically charge generators penalty fees if they fail to deliver electricity when it is scheduled to be transmitted. The purpose of these penalty fees is to punish generators and deter them from using transmission scheduling as a way to gain advantage against competitors. But because wind is variable, a wind farm cannot guarantee delivery of electricity for transmission at a scheduled time. Wind energy needs a new penalty system that recognizes the different nature of wind facilities and allows them to compete more effectively.
 
Government Policy. The growth of renewable energy in the U.S., in particular wind energy, is largely the result of government support and incentives. The loss of these supports and incentives would likely slow or stall further growth and possibly make the construction and operation of wind facilities economically unfeasible.  With the expiration of the Production Tax Credit (the “PTC”) approaching on December 31, 2012, and with no further extension set to be passed by Congress, many wind industry participants, including large-scale developers and operators have either shelved plans for constructing new wind projects or have announced significant employee layoffs due to the uncertainty surrounding the PTC.  The U.S. needs a strong, long-term policy for wind energy.
 
Economic Downturn. Economic downturns generally make it more difficult to explore and use traditional financing options to pay for the cost of a wind farm.
 
Reduced Energy Demand. When demand for electricity decreases, particularly during an economic downturn, wind farms must scale back power or shut down, or be forced to do the same by transmission providers.
 
Excess in Other Sources of Power Generation.  Investment in wind power is affected by other sources of power generation.  For example, according to a Bloomberg.com article, “Electricity Declines 50% as Shale Spurs Natural Gas Glut: Energy,” a recent glut of natural gas has cut electricity prices for the U.S. power industry and, in turn, reduced investment in other types of power, including wind power.  Exelon, for instance, has cancelled plans to expand two nuclear power plants due to the low price of natural gas, and CMS Energy has cancelled plans to build a clean coal plant, with the explanation that the clean coal plant’s $2 million price tag was not financially viable due to low natural gas prices.  Low natural gas prices may only be short-term, however: according to the EIA’s Annual Energy Outlook 2012 publication, natural gas prices are predicted to rise between 33% and 54% due to an increase in exports.
 
 
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Juhl Wind – Full Service Development, Construction, Operations, Ownership and Management of Community Wind Farms

Despite the challenges to the overall wind industry, we believe that we are positioned to experience long-term growth and development of specific community wind farms throughout the United States. We can provide full-scale development of community wind farms across the range of required steps including advice and/or services such as:

 
·
initial feasibility studies and project design;

 
·
formation of required land rights agreements to accommodate turbine placement on each project’s specific farm land;

 
·
assisting in applying for applicable environmental, zoning and building permits for the project;

 
·
studies, design and agreements with utilities (as well as with independent system operators (ISOs), which are organizations formed at the direction or recommendation of the Federal Energy Regulatory Commission (“FERC”) that coordinate, control and monitor the operation of the U.S. electrical power grid) with respect to connection to existing electric power transmission networks;

 
·
turbine selection and delivery coordination;

 
·
negotiation and execution of power purchase agreements;

 
·
access and consultation regarding construction financing;

 
·
coordination of vendor terms, including vendor financing;

 
·
introduction to equity and debt project financing services;

 
·
construction oversight and complete balance of plant construction services;

 
·
project commissioning;

 
·
long-term operations and turbine maintenance services;

 
·
management of wind farm operations; and

 
·
equity ownership.

In addition, we can provide general consulting services to help local stake holders evaluate possible projects and initiate their development. We will often take on the entire development process including virtually all of the services outlined above. As project developer, we arrange every aspect of the development process and receive payment for the services as certain steps are accomplished. After establishing that a project has appropriate wind resource and transmission interconnection, we move on to complete land rights agreements, community limited liability company structures and the power purchase agreement with the local utility.

In 2011, our full service development of a community wind farm was exemplified by our work on the Adams and Danielson wind farms located in Meeker County in West Central Minnesota.  We completed the development and construction oversight of the wind farms, representing nearly 40 MW of wind power generation, in March 2011.  Each project cost approximately $42 million and both were completed and put into commercial operation in mid-March 2011.  We served as the developer and owner’s representative for the construction and commissioning phase of the projects.  Shortly after completing the startup of each wind farm, we received a sub- contract to supply full-scale turbine maintenance services to each system, for an initial two-year term, estimated at approximately $900,000.   The wind farms incorporate one of Juhl Wind’s community-based structures in which ownership is shared with the farmers whose land on which the system is located.  The Adams and Danielson wind farms represent our approach to providing the full range of wind farm services to our customers.

Our Community Wind Farm Portfolio

We believe that we have completed and placed into service more community wind power systems than any other U.S. enterprise. To date, we have developed 21 community wind farms, totaling approximately 195 megawatts of installed power, located primarily in the Buffalo Ridge area of southwestern Minnesota. We selected Buffalo Ridge because of its high altitude (approximately 2,000 feet above sea level) and high average wind speed and access to interconnection facilities, making it, in our opinion, a good location for wind-based energy production.

 
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In addition to the first 21 wind farms developed by us, totaling approximately 195 MW of operating capacity, and we have another approximately 25 community wind projects in various phases of development totaling approximately 405 megawatts of operating capacity.  These projects are primarily located in the states of New York, Minnesota and Nebraska.

A sample of our completed the projects, include but are not limited to the following:
 
       
Project Name
County/Location
MW
Completed
15 completed wind farm developments
Upper Midwest U.S.
118.05
1999 to date
GL Wind
Winona County, MN
5.00
2011
Valley View
Chandler, MN
10.00
2011
Winona County Wind
Winona County, MN
1.50
2011
Danielson Wind
Meeker County, MN
20.00
2011
Adams Wind
Meeker County, MN
20.00
2011
Grant County Wind
Hoffman, MN
20.00
2010
 
TOTAL
194.55
 

A sample of our projects that are in various phases of development as referenced below, include but are not limited to the following:

       
Project Name
County/Location
MW
Phase
Black Oak
Ithaca, NY
15 to 20
Initial Study/Feasibility
Crofton Hills
Murray County, MN
40.00
Construction 2012
Kittson/Marshall
MN
80.00
Financing 2012
Kennedy County
MN
20.00
Financing 2012
 21 additional wind farm projects
Upper Midwest U.S.
245 (approx)
Various Development Stages
 
Note: From time to time some of our projects are not listed publicly due to the preferences of local owner groups or competitive issues facing our business.  However, we strive to provide regular updates to our projects listing via press releases and corresponding updates to our corporate website, www.juhlwind.com.

With respect to the projects that are yet to commence construction, it is difficult to predict the timing of construction as it subject to numerous risks and uncertainties.  Thus, some of the projects listed above may not commence construction until after 2012 or at all.  Even once a project commences operations, it may not meet our original expectations about how much energy it will generate or the returns it will achieve.

Overall, based on our pipeline of projects, we believe that we will develop additional projects and we will add to the number of projects for which we are providing operational oversight. We expect that the continued growth in our project pipeline will act as a key competitive advantage as the community wind power industry grows throughout the United States and Canada.

COMPETITIVE ADVANTAGES/STRENGTHS

We believe that we have a number of competitive advantages in the community wind energy production sector:

Tiered Service Offering Results in Multiple Revenue Streams.  One of our key advantages is that we do not depend solely on one operating subsidiary to produce revenue.  We generate revenue from these operating subsidiaries:
 
 
·
Juhl Renewable Assets is our renewable asset ownership subsidiary, including wind farms, where we utilize our unique knowledge base to acquire new and existing wind farms to build our asset base and provide predictable revenue.
 
·
Juhl Energy Development is our wind farm development subsidiary, where revenue is generated from development, service and construction fees earned from each of the wind farms that we develop, and is recognized as revenue on a completed basis.
 
·
Juhl Energy Services is our wind farm operations and maintenance subsidiary, where revenue is earned from administrative, management and maintenance services agreements and is recognized as the in-field services that are provided.
 
·
Juhl Renewable Energy Systems is our small scale renewable subsidiary, where revenue will be contributed through the sale and installation of renewable energy systems.

Proven Record in Developing Wind Farm Projects.  One of our key advantages is that we have completed 21 community wind farm projects to date, representing approximately 195 megawatts of generating capacity of electricity, and currently have approximately 25 wind farm projects in various developmental stages, representing approximately 405 megawatts of generating capacity of electricity. We expect that when owners of new projects consider retaining a development enterprise, the ability to point to actual projects completed, along with the extensive knowledge base developed and relationships necessary to get the job done, will provide us an edge in winning projects in the future. These relationships include those with utility power purchasers, equity and debt project finance sources, turbine suppliers and contractors.

 
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For community wind projects to be completed successfully, projects must be constructed in a cost-effective manner. In the course of completing 21 projects to date, we have been able to demonstrate to project owners, equity investors and lenders, that we can build wind farms on a cost-effective basis.

As more players get into the renewable energy space, with the transforming industry (especially upon the elimination of PTCs), developers, who have a history in the field, are more likely to prosper in the long-term.

Experienced Management Team.  Led by an industry leader, Dan Juhl, our development team is unmatched in its experience, credibility and track record.

We believe that our experience in developing community wind farms in new market areas and in operating energy companies will enable us to continue to successfully expand our development portfolio. Further, we believe our management’s understanding of deregulated energy markets enables us to maximize the value of our development portfolio. Our team has experience in site selection, market analysis, land acquisition, community relations, permitting, financing, regulation and construction.

Further as we build on our core business through strategic acquisitions or joint ventures with other industry partners on specific projects, our experienced management team’s connections in the industry will be expanded, which will enhance our ability, to review projects that meet our criteria and move forward on those projects.

Established Local Presence.  In the Midwest U.S. markets where we are active, our management team maintains local presence and promotes community stakeholder involvement. By maintaining our principal office in Pipestone, Minnesota and satellite offices in Minneapolis, Minnesota and Chicago, Illinois, and becoming involved in local community affairs, we develop a meaningful local presence, which we believe provides us with a significant advantage when working through the local permitting processes and helps to enlist the support of our local communities for wind farms. We believe that our local approach has enabled us to secure approvals and support for our projects in regions that have historically voiced opposition and has given us a significant advantage over competitors, who are not as active in the local communities in which we are developing wind farms. Our management’s active participation in the state and local regulatory and legislative processes has led to the growth of community wind across the Midwest.

We plan to use that credibility that has been built in the local communities to expand our presence outside of the Midwest U.S. market, where we can take advantage of higher electricity rates.

Turbine Access.  We maintain good working relationships with turbine suppliers who are actively marketing turbine equipment in our market area, with extensive experience to determine suitability of turbine technologies for our projects.   In order to continue to survive long term in this industry, we need to continue to control costs.  Thus, the ability to purchase turbines in bulk, possibly through a frame agreement, provides access to the lowest price.  Further, in many of our wind farm projects, we have been willing to use technology of new turbine manufacturing entrants, which proves reliability and favorable access to the supply chain to provide lenders with comfort in terms of financing a project.  Further, newer wind turbine models are more efficient and offer improved capacity factors with prices continuing to fall to record levels.

Ownership-Sharing Structure with Land Owners.  Through our community wind approach, we involve local stakeholders (such as farmers) by working with them to establish a limited liability company that extends ownership to the participants along with the initial equity investor. Landowners are critical to any wind farm because wind turbines must be placed in open areas requiring a large amount of land necessary to “harvest the wind.” Turbines are typically placed on a small plot of land, and less than one acre is removed from normal use (such as farming or grazing) for each 50 acres of wind resource captured. Turbines must be spaced a certain minimum distance apart to avoid “shadowing” each other and reducing power output. By integrating the land owners into the land rights and ownership structures, we can allow a wind-enabled farm to more than double the annual net income from cultivation or grazing.  As a project developer, we assist in finding financing, securing the contract with a utility to buy the electricity produced, negotiating a turbine supply agreement, constructing the system, and operating the wind farm.

As an established leader of community wind power, we have been able to offer what we believe is a unique ownership-sharing formula with landowners and local communities that provide us with an ongoing competitive advantage in this large and open sector of the wind energy arena.  Some of the key advantages of our approach are driven by the fact that our projects are medium-sized which provide the following key benefits:

 
·
the 1 to 50 megawatt size of our wind farm projects benefit from a lower cost per megawatt of installed power and are quicker to build, which provides for a higher return on investment;

 
16

 
 
 
·
the development of these projects secures economic benefits to the local community bringing construction, legal and regulatory work to rural areas by engaging local land owners, engineers, bankers and contractors to assist in the building and maintenance of the projects;

 
·
the development of these community wind farm projects lend itself to easier land aggregation for the building of the wind farms;

 
·
easier and less expensive transmission and, in general, projects which are much easier to build.  End users generally receive electricity through an already established local utility grid;

 
·
the landowner and local community retain more by sharing ownership with the developer and excluding external interests, which creates a more sustainable energy future; and

 
·
easier to obtain regulatory permits and to secure project financing through established and/or local resources due to the size of each project.
 
In addition, while mega-wind projects have gained wide attention, we believe we are uniquely positioned as the only publicly-traded community wind power company in the U.S. committed to and building projects in the 1 – 50 megawatt sector, which has received considerable attention in the industry.  This market is largely overlooked by larger developers.  This oversight provides an opportunity to rapidly increase our market share and expansion plans.  We believe such advantages outweigh the higher transactional costs as a small community project must cover comparable costs over a smaller number of turbines with less electrical production and sales.

Strategic Acquisition Subsidiary – Juhl Renewable Assets.   We formed an acquisition subsidiary, Juhl Renewable Assets, which is our vehicle for strategic acquisitions that supplement our core business, to take advantage of the growth occurring in the community wind industry.  Our strategic acquisition plan actively focuses on the following: (i) acquisition of additional wind service businesses, including other operation and maintenance providers and wind consulting providers; (ii) acquisition of ownership of existing wind farms that fit our distributed generation model and the size range of projects we typically develop; and (iii) acquire or joint venture with other industry partners on specific projects, where we can share the various elements of fees and profits, including development fees, general construction, management, and operations and maintenance.  To date, we have acquired significant interests, through Juhl Renewable Assets, in Woodstock Hills, Winona, and Valley View wind farm projects.

 
·
Woodstock Hills Wind Farm.  On April 28, 2011, Juhl Wind paid $400,000 to acquire a 99.9% ownership interest in a 10.2 megawatt wind farm, Woodstock Hills, located in Woodstock, Minnesota. The Woodstock Hills wind farm has been operating as a wind energy generation facility since 1999 and had been originally developed by the Company’s CEO, who remains the .1% minority interest member.  On May 6, 2011, we transferred our entire interest in Woodstock Hills to Juhl Renewable Assets, pursuant to a transfer and assignment agreement.  The Woodstock Hills wind farm entered into a power purchase agreement (PPA) with Northern States Power (NSP) in 1997.  The agreement, among other things, requires NSP to purchase all of the electricity output from the Woodstock Hills wind energy generation facility over a 30-year period following its commercial operation date at rates provided in the agreement.  The commercial operation date has been deemed to be May 1, 2004.  

 
·
Winona Wind Farm.  On October 13, 2011, the individual project owners of the Winona Wind Holdings, LLC, which owns 100% of Winona County Wind, LLC, the operator of a 1.5 megawatt wind-powered electric generating facility in Winona County, Minnesota, sold their 100% ownership interest to our subsidiary, Juhl Energy Development, for $5,000.  Subsequently on December 31, 2011, Juhl Energy Development transferred its interest in the Winona wind farm to Juhl Renewable Assets and has increased its investment to approximately $100,000.  The Winona wind farm entered into a PPA with NSP in 2010.  The agreement, among other things, requires NSP to purchase all of the electricity output from the Winona wind energy generation facility over a twenty year period following its commercial operation date at rates provided in the agreement.  The commercial operation date has been deemed to be October 27, 2011.

 
·
Valley View Wind Farm.  On November 30, 2011, Juhl Renewable Assets purchased interests in Juhl Valley View, LLC, which equates to a 36.6% voting interest in Juhl Valley View, LLC and has an additional 13.9% voting power through a voting trust arrangement with three other investors.    Pursuant to a subscription agreement, Juhl Valley View, LLC agreed to invest all subscription amounts received as part of the offering into Valley View Wind Investors, LLC, which owns 99% financial rights and 49% governing rights of Valley View Transmission, LLC, which operates the 10 MW Valley View wind farm.  The Valley View farm entered into a PPA with NSP in 2009.  The agreement, among other things, requires NSP to purchase all of the electricity output from the Valley View wind energy generation facility over a twenty year period following its commercial operation date at rates provided in the agreement.  The commercial operation date has been deemed to be November 30, 2011.  The Valley View entity will be included in the financial statements as a consolidated variable interest entity.

 
17

 
 
Juhl Renewable Assets also made a $400,000 investment in PVPower, Inc. (“PVPower”).  PVPower is complementary to Juhl Renewable Energy Systems and is focused on the sale of solar power products, including photovoltaic solar panel and modules from multiple solar panel manufacturers, solar inverters, solar charge controllers, and deep cycle solar batteries through non-traditional sales channels, specifically through a distributor network over the Internet.

Further, we intend to issue shares of preferred stock in Juhl Renewable Assets to investors, in order to fund our strategic acquisition operations.  This will avoid delays and difficulties of obtaining financing from traditional lending sources and continue to provide access to financing especially with the lack of PTC driven financing going forward.

Significant Milestones for Juhl Wind

Since becoming a public company in 2008, we have achieved several significant milestones:

 
·
we have secured institutional investments of over $7 million available for use as working capital;

 
·
we acquired NextGen which specializes in smaller scale wind turbine and solar systems.  This acquisition brings smaller wind turbine and solar expertise to the Company to enhance and expand our existing community wind power product and service offerings; in turn, we received $1 million during 2009 and 2010 from a licensing and distribution arrangement for the NextGen technology.  We have now formed a wholly-owned subsidiary, Juhl Wind Renewable Systems, to build upon our core business of consumer related energy products, including small wind turbines and solar products;

 
·
we completed the development on 7 wind farms totaling 77.25 MW of installed wind power:  
 
Ø
20 MW Grant County wind farm; commissioned in 2010;
 
Ø
1.5 MW wind farm commissioned in 2011 in Winona County, MN;
 
Ø
10 MW wind farm commissioned in 2011 in Chandler, MN (Valley View project);
 
Ø
5 MW wind farm commissioned in 2012 in Winona County, MN for Gundersen Lutheran health systems;
 
Ø
two wind farms in Meeker County totaling 40 MW,  commissioned in March 2011; and
 
Ø
.75 MW Woodstock Muni wind farm, commissioned in 2010;

 
·
we have worked to align ourselves with environmentally-friendly concerned investors and non-traditional banking institutions to provide financing options for investment in our projects, as well as with traditional bank financing;

 
·
we have entered into strategic relationships with industry partners to continue our ability to develop projects in our pipeline.  These relationships with turbine suppliers, a wind consulting firm and others will benefit our continued growth in the community wind power industry with the development and completion of further community wind power projects;

 
·
we have formed an acquisition subsidiary, Juhl Renewable Assets, in order to supplement our core business by acquiring complementary wind service businesses, ownership of existing wind farms, and joint venturing with other industry partners on specific project; to date, Juhl Renewable Assets made its first initial investment in the Valley View wind farm, and subsequent investments in Woodstock Hills and Winona wind farms.  Juhl Renewable Assets also made an investment in PVPower, which is focused on the sale of solar power products, including photovoltaic solar panel and modules from multiple solar panel manufacturers, solar inverters, solar charge controllers, and deep cycle solar batteries through non-traditional sales channels, specifically through a distributor network over the Internet;

 
·
we assisted in the application and receipt of a U.S. Stimulus Grant of $12,564,150 for the 20 megawatt Grant County Wind Project in the fourth quarter of 2010.  The grant was issued by the U.S. Treasury Department in accordance with the American Recovery and Reinvestment Act of 2009.  The proceeds of the grant went toward partial payments of construction financing arranged by Juhl for the community wind project;
 
 
·
we assisted in the application and receipt of a U.S. Stimulus Grant of approximately $1,413,000 for the 1.5 megawatt Winona County Wind Project in the first quarter of 2012.  The grant was issued by the U.S. Treasury Department in accordance with the American Recovery and Reinvestment Act of 2009.  The proceeds of the grant primarily went toward payment of construction costs for the project, now owned by Juhl Renewable Assets;
 
 
·
we assisted in closing of permanent equity financing for the Grant County and Meeker County projects totaling approximately $90 million in March 2011, and the completion of a $13 million construction and financing for the Valley View project in March of 2011;

 
·
we completed a 4.95 MW wind farm project for Gundersen Health System in Winona County, Minnesota.  It is the first-of-its kind wind farm in North America to be constructed to specifically address the energy concerns of a large regional health organization.  This is an example of how we are partnering with large and industrial organization projects, such as Gundersen Health System, to help such organizations realize their goals of becoming energy independent;

 
18

 
 
 
·
we assisted in the application and receipt of a U.S. Stimulus Grant of approximately $6,284,000 for the 10 megawatt Valley View Project in the last quarter of 2011.  The grant was issued by the U.S. Treasury Department in accordance with the American Recovery and Reinvestment Act of 2009.  The proceeds of the grant primarily went toward payment of turbine and construction costs for the project;

 
·
during 2011, Juhl Renewable Assets invested $2.3 million in three operating wind farms and is now consolidating these entities in its financial statements as a part of a new operating segment called Wind Farm Ownership and Operation; and
 
 
·
we signed a development services agreement with Black Oak Wind Farm located near Ithaca, NY, which is a proposed 15 to 30 MW facility.  This is the first wind farm where we have expanded our development services outside of the Midwest region.  This allows us to diversify our development portfolio by adding projects throughout North America and in regions that generally experience higher electric rates.

GROWTH STRATEGIES/OPPORTUNITIES

Our growth strategy continues to evolve as we continue to provide the full range of services across each phase of development of a wind farm project, but also focus on providing broader services to a wind farm project which include construction and development of wind farms, providing maintenance services for existing wind farms, and achieving additional growth through targeted acquisitions.

Wind Farm Development, Construction and Management Services:

Our growth strategy is anchored by the competitive advantage of our portfolio of completed projects coupled with the projects we currently have under development. One component of our plan is to continue to provide the full range of services across each phase of development, including construction and management, which enhances our ability to add value to a project, which we expect will grow our revenue and profitability.

In addition to growing our revenue per project, we will continue to grow our projects under development by utilizing competitive strengths and taking advantage of market conditions to build long-term growth, as follows:

 
·
We are targeting 5 to 50 megawatt wind farm projects.  In the State of Minnesota alone, industry experts have suggested there exist over 6,000 megawatts of achievable electricity utilizing our community wind power model.  Thus, we expect to increase our capacity by entering regional markets through organic development and strategic acquisitions of existing wind farms that meet our criteria (as discussed below).   For our organic development, upon entering a market we work to become a leading wind energy operator and an influential voice within the region. In these cases, we strive to develop projects in-house from the initial site selection through construction and operation.

 
·
In addition to development, we are focusing on providing an overall service component that includes construction and development management by developing relationships with contractors, turbine suppliers, and financing partners in the wind farm industry.  In addition to such service component, we are also expanding our services to include turbine maintenance services for wind farms in the Upper Midwest.  We are growing our service business, through our operations and maintenance subsidiary, Juhl Energy Services.  By way of example, Juhl Energy Services is currently providing wind farm maintenance on the Adams and Danielson wind farms located in Meeker County in West Central Minnesota (as discussed herein).

 
·
We plan to expand business relationships within the investment community both in the U.S. and abroad in order to assist project owners in obtaining construction financing and end project equity and debt financing for project developments. This will include introductions to local owners to raise capital in private or public equity funds that might invest in the wind project developments.

 
·
We expect to create relationships as a community stakeholder. We prioritize the creation of strong community relationships that we believe are essential to generating support and securing land and permits necessary for our wind farms. Our team works closely with the landowners who will host the wind farms to ensure that they fully understand the impact of the turbines. Throughout the development process, we assess and monitor the community’s receptiveness and willingness to host a wind farm in the project area. This proactive involvement in the community also enables us to submit permit applications that comply with local regulations while addressing local concerns.

 
·
Although we see opportunity to expand our pipeline of projects in the Upper Midwest, we are also actively looking to diversify our development portfolio by adding projects throughout North America and in regions that experience higher electric rates.  In 2012, we entered into a development agreement in the State of New York on a 15 to 30 megawatt wind generation facility.

 
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·
We expect to work with governmental agencies to help us incentivize the creation of community wind farms and their ability to obtain power purchase agreements, and offer favorable tax treatment for owners and investors.  Further, we intend to use tax equity financing arrangements in order to monetize the value generated by production tax credits (or alternatively, investment tax credits or treasury cash grants) and accelerated tax depreciation that are available to wind generation projects.

 
·
We will continue to strive to attract, train and retain the most talented people in the industry. As we continue to grow our business, we will need to attract, train and retain additional employees. We believe that our management team will be instrumental in attracting new and experienced talent, such as engineers, developers and meteorology experts. We plan to provide extensive training and we believe that we offer an attractive employment opportunity in the markets in which we operate.

 
·
We believe that the formation of Juhl Renewable Assets will provide us the ability in the future to provide supplemental funding to our wind farm development projects.  This will allow us to more quickly bring projects through the early development and construction stages.

Growth through Targeted Acquisitions:

·
We will focus on growth through targeted acquisitions, to increase our capacity of wind farm projects in our pipeline, and grow our revenue and profitability.  We now actively seek acquisitions to strengthen our business in the following areas:
 
Ø
targeting other segments of our industry, such as additional wind service businesses, including operation and maintenance providers and wind consulting providers;
 
Ø
developing a strategy where we may acquire ownership of existing wind farms that fit our distributed generation model and the size range of projects we typically develop (under 100 MW); and
 
Ø
acquiring or participating in joint ventures with other industry partners on specific projects (given that so many other independent developers have been unable to move projects in their own pipeline); preferred model is to contract for a joint venture on projects that can share with us the various elements of fee and profit, including development fee, general construction, construction management and operations and maintenance.
 
Consumer-focused renewable energy products – smaller on-site wind power and solar systems:

Juhl Renewable Energy Systems provides renewable energy systems and specializes in advanced conservation technologies focused on smaller scale wind and solar systems.  Juhl Renewable Energy Systems is focused on the sales and installation of Juhl Wind’s on-site renewable energy systems - including Solarbank™, a proven on-site solar system; Powerbank™, a simple on-site backup power system; and a newly designed wind turbine in prototype stage, which we consider one of the industry’s most advanced medium scale wind turbines at approximately 35 kW.  Juhl Renewable Energy Systems handles projects from start to finish, including design, sales, financing and service.  Juhl Wind plans to provide several financing structures including its ongoing system ownership at customer sites while delivering guaranteed operations and savings to end-user customers.

Juhl Renewable Energy Systems will capitalize on Juhl’s extensive experience with a wide variety of energy saving and environmentally-sound production systems such as small wind, solar, back-up power, and stand alone power systems.  Juhl Renewable Energy Systems will operate as our consumer-focused renewable energy products subsidiary.  Juhl Renewable Energy Systems will build upon our diverse experience to enable it to assist the energy consumer to control, and in some cases eliminate, their ever burdensome energy costs.  Juhl Renewable Energy Systems supports a transition to a sustainable energy economy which relies on clean, renewable resources to satisfy societal needs.  Juhl Renewable Energy Systems can present the energy consumer with modern options in terms of cost effectiveness, performance, and reliability.

Juhl Renewable Energy Systems current product line includes the following:
 
 
·
Solarbank™.  Juhl Wind has developed a “SolarBank™ System” which offers one of the most advanced controlled solar system in the market.  Solarbank™ allows the customer the assurance and confidence that power will be available when needed most.  It is designed to give businesses and homeowners the ability to store up to 72 hours of emergency power in the event of a power failure.  This back-up power system works automatically and instantaneously.  When a power outage occurs, the control relay station automatically taps into the energy reserve stored by the SolarBank™ System and can run several loads for 24-72 hours.  Solar modules are designed to convert sunlight into electricity at the highest possible efficiency and are used to charge storage batteries to provide power for remote homes, recreational vehicles, electric cars, boats, telecommunications systems and other consumer and commercial applications.  Additional benefits are the ease of installation, operation, and maintenance; results of several years of improvements to the core design of the system, which has been installed and operating for 6 years.
 
 
·
Powerbank™.   Powerbank™ is Juhl Wind's proven on-site backup power system, offering energy insurance and confidence to customers.  Powerbank™ ensures that power will be available to customers when grid power is at increased rates, or unavailable.
 
Historically, our wholly-owned subsidiary, NextGen, has sold refurbished turbines as part of our smaller on-site wind power products.   Currently, NextGen is only maintaining its current inventory of refurbished turbines and does not expect to sell any refurbished turbines going forward.
 
 
20

 
 
Long-Term Survival in Industry – Ability to Add Value and be Cost Effective

For long term survival in the renewable energy space, especially wind, we continue to be adaptable to the changing conditions of the U.S. wind industry and market, increasingly diversifying our offerings, in order to reduce our exposure to the extension or renewal of tax incentives and other favorable governmental policies currently supporting the U.S. wind industry.  Other areas where we believe we can add value to a wind farm project (in addition to our core development, maintenance and management services) is the continued research and development in the following areas:

 
·
Distributed generation facilities that allow power users to operate ‘behind the meter’ ;
 
·
dedicated storage facilities to help address intermittency on the transmission systems; and
 
·
design of project to meet very specific needs of output purchasers.

Sales and Marketing

We derived approximately 83% of our  revenue in 2011 from six customers mostly as a result of the wind farm construction activities, and 79% of our revenue in 2010 was from five customers as a result of wind farm construction activities.

Historically, Juhl Energy Services and Juhl Energy Development have not relied on any direct sales or marketing efforts for wind farm development and management, but have gained exposure through trade publications, word of mouth, and industry conferences. We currently have a pipeline of projects we believe will last at least two years and it is being supplemented on an on-going basis without direct selling efforts. We anticipate being able to add a significant number of projects to this pipeline driven primarily by Dan Juhl, John Mitola and an expanding development team, trade publications, industry events and word of mouth. Our web site, www.juhlwind.com, also serves as a marketing tool. If, at some point, management determines the pipeline of potential customers is less than anticipated or desired, or if we are unable to sustain our desired rate of growth and expansion with these sales and marketing methods, we will reevaluate the sales and marketing efforts and address the issue at that time.

We are currently utilizing a combination of internal direct selling efforts as well as third party distributors for the sale of consumer-owned renewable energy products.  We plan to increase our efforts to establish sales channels through qualified dealers who demonstrate technical knowledge in the renewable energy marketplace, and have sales expertise and financial stability to deliver small scale wind turbine and solar-related systems.
  
Intellectual Property

We depend on our ability to develop and maintain the proprietary aspects of our technology to distinguish our products from our competitors’ products. To protect our proprietary technology, we rely primarily on a combination of confidentiality procedures. It is our policy to require certain employees and consultants to execute confidentiality agreements and invention assignment agreements upon the commencement of their relationship with us. These agreements provide that confidential information developed or made known during the course of a relationship with us must be kept confidential and not disclosed to third parties except in specific circumstances and for the assignment to us of intellectual property rights developed within the scope of the employment relationship.

We have no patents, licenses, franchises, concessions or royalty agreements, other than a July 2009 manufacturing license arrangement with an Ohio company that includes the use of NextGen’s proprietary software controlling the power electronics of the NextGen wind turbine unit and other related documentation. The term of the manufacturing license arrangement is twenty years and does not allow the licensee to access the software or provide such software to any other party.

Currently, we have two pending trademark applications with the United States Patent and Trademark Office for Solarbank and Powerbank.

Competition

Within the U.S. wind power market itself, there is a high degree of competition, with growth opportunities in all sectors of the industry regularly attracting new entrants. Juhl Wind is subject to competition from energy marketers, public utilities, and other independent power producers, in particular providers of renewable energy.  These companies may have competitive advantages as a result of scale, the location of their generation facilities, greater access to credit and other financial resources, lower cost structure, greater ability to withstand losses and larger staffs.

The enactment of the American Recovery and Reinvestment Act in February 2009 had provided a greater tax incentive for companies in the renewable energy industry, which provided an incentive for developers to enter in the wind power development market, who will have an overall increased need for wind turbines.  However, as noted, the production tax credits and other tax grants under the American Recovery and Reinvestment Act, have, to date, not been extended.  We believe this is likely to impede new development from new entrants.

 
21

 
 
With the termination of the PTCs and other cash grant programs under the American Recovery and Reinvestment Act, the opportunity to develop wind farm projects is likely to diminish from levels in the past.  Without the tax incentives, developers with cash flow from existing projects and are well capitalized will be able to continue to develop projects.  Further, the developers with projects that generate a higher capacity of energy will be able to spread capital costs over a larger production base, which is an advantage over our community wind farm target of 5 to 50 MWs.  Finally, developers who are able to access project financing as the elimination of the PTCs would shift from unleveraged tax equity to more traditional financing, where companies with large balance sheets would have an advantage with traditional project lenders.  Developers, such as Juhl Wind, would also need to continue to pursue alternative financing arrangements, such as vendor financing for construction, as we have successfully done in the past.

With the expiration of the PTCs, the cost of wind turbines becomes a key component to control costs in this transition time of the industry.  Typically, the capital cost of purchasing turbines has been high.  However, the average price for wind energy equipment, including turbines, continues to fall based on the production of newer wind turbine models and increased competition of manufacturers in China and reached its lowest price in the second half of 2011.  Thus, each wind farm developer will need to have the funding now to take advantage of the low turbine prices.  As stated above, the more capitalized developers will be able to fund the purchases of the turbines and control costs of the wind development projects.

In addition to the cost of turbines, new entrants in the wind power development market face certain barriers to entry.  There is increased difficulty and uncertainty in obtaining long-term power purchase contracts from utilities, even in the face renewable energy portfolio standards in over 30 states.  Other significant factors include the cost of land acquisition, the availability of transmission lines, land use considerations and the environmental impact of construction and operations. Finally, another critical barrier to entry into the wind power development business is the necessary experience required to bring projects to the point where they are able to secure agreements with respect to connecting to the existing electricity transmission network, power purchase agreements and project financing for construction.

We are aware of a few companies that are working in the community wind power area and which management views as being competitive with certain aspects of our company.  Given Juhl’s industry standing and the number of existing projects, we do not view this as a threat or potential disruption to our business.

With respect to the production and sale of consumer-owned renewable energy products, there are numerous businesses operating in the U.S. that are associated with the manufacturing, sales, distribution and installation of products and services. The competition in this field is not dominated by any one particular company or group of companies.

Suppliers
 
As the primary operating equipment for our wind farm development projects, wind turbines are integral to our wind project development.  As compared with demand for wind turbines, there are a limited number of turbine suppliers, which limits the current production capacity.   Thus, the cost of wind turbines represents the majority of our wind energy project investment costs.  
 
Wind turbines come in a variety of sizes, depending upon the use of the electricity. A large, utility-scale turbine described above may have blades over 40 meters long, meaning the diameter of the rotor is over 80 meters (nearly the length of a football field). The wind turbines might be mounted on towers 80 meters tall (one blade would extend half way down the tower), produce 1.8 megawatts of power (1800 kilowatts), supply enough electricity for 600 homes and cost over $1.5 million. Wind turbines designed to supply part of the electricity used by a home or business is much smaller and less costly. A residential or farm-sized turbine may have a rotor up to 15 meters (50 feet) in diameter mounted on a metal lattice tower up to 35 meters (120 feet) tall. These turbines may cost from as little as a few thousand dollars for very small units and up to $80,000 excluding installation costs.
 
The principal suppliers to our wind farm projects primarily consist of suppliers of wind turbines, wind turbine parts and various electrical supplies and services relating to wind turbine operation. We also source, as needed, wind studies and electrical engineering expertise from outside suppliers. With respect to wind turbines and related items, to date, our principal suppliers have been Suzlon Energy Limited, Alstom Power and Vestas Wind Support Systems A/S for turbines; Fagen, Inc. for subcontracted construction services, and Abaris EC, LLC, Echo Group, Inc., Muth Electric Inc. and Motion Industries, Inc. for electric services and supplies. We have used WindLogics, Inc. and AWS Truewind for wind studies and Consulting Engineer Group, Inc. and Hoerauf Consultants, Inc. for specialized electrical engineering. Our business is not dependent on any one supplier and our list of suppliers is changing and expanding on an ongoing basis as the market for wind power continues to expand and new suppliers enter with advanced products, technologies and services.

Customers

Our wind farm projects sell electricity and associated RECs primarily to local utilities under multi-year power purchase agreements, or PPAs. A PPA is a contract that provides for the purchase of power at an agreed-upon price for a period of time, which is typically 20 years for wind projects.  For the year ended December 31, 2011, the electrical production we sold to Northern States Power Company d/b/a Xcel Energy represented 100% of our sales.  This PPA typically provides for a 20 year-term in the agreement from the electric utility. The utility normally maintains ownership of any Renewable Energy Certificates (“green tags”) that are associated with the power generated by the projects.  Since the primary cost of wind power is the initial capital cost of the system, each wind farm benefits from a steady stream of reliable revenue and cash flow for decades.

 
22

 
 
Government Regulation

Overview – Utility Regulation

Traditionally, utility markets in the United States have been highly regulated. The U.S. power industry is currently in transition as it moves toward a more competitive environment in wholesale and retail markets. The commercial viability of wind power will increasingly depend upon pricing as the trend toward deregulation continues.
 
Our operations are subject to extensive regulation. To the extent of our involvement in project development, construction, ownership, operation and maintenance of wind farms, including the sale of electricity to utilities, we are subject to energy, environmental and other governmental laws and regulations by various federal, state and local government agencies. The federal government regulates the use of electric energy, capacity and the wholesale sale and transmission of electricity in interstate commerce and regulates certain environmental matters. States and local governments regulate the construction of electricity generating and transmission facilities, the intrastate sale of electricity, and environmental matters.   Below is a brief summary of some of the pertinent laws that are applicable to our business, but such disclosure is not exhaustive of all such laws that we come into contact with operating our business.  

Federal Energy Regulatory Commission
 
 As a company that generates electricity through our wind farm projects, our projects may be subject to government regulation as “public utilities” by the Federal Energy Regulatory Commission (the “FERC”) under the Federal Power Act of 1935 (the “FPA”).    The FERC regulates as "public utilities" those entities that own or operate facilities used for the wholesale sale of electric energy in interstate commerce.
 
Certain small power production facilities may qualify as "qualifying facilities" ("QFs") if the wind powered generating facility has a generating capacity of 80 MW or less.   QFs whose primary source is renewable energy such as wind have the right to sell energy or capacity to a utility through an interconnection agreement and is exempt from certain laws  including, but not limited to,  rate regulation and reporting and accounting requirements of the FPA, for facilities with a generating capacity of 30 MW or less.  However, the FERC must first find that a QF has non-discriminatory access to wholesale energy markets having certain characteristics, including non-discriminatory transmission and interconnection services provided by a regional transmission entity in certain circumstances with respect to its exemption from rate regulation.  For any of our projects that may be non-exempt from the jurisdiction of the FERC, such projects would be subject to rate regulation and the obligation to obtain FERC rate schedules for wholesale sales of energy and capacity.   
 
Most of our wind development projects have a generating capacity of 80 MW or less and qualify as QFs and are exempt from most aspects of FERC regulation.  

Minnesota Public Utility Commission
 
A majority of our wind farm projects are subject to the rules and regulations under the jurisdiction of the Minnesota Public Utility Commission’s Energy Facilities Unit (the “Minnesota Utility Commission”), which manages state oversight of proposals to construct energy facilities in Minnesota, which include wind power generation plants and facilities. The Minnesota Utility Commission’s jurisdiction may include a state Certificate of Need and/or a state Site or Route Permit. Applications for projects subject to the Minnesota Utility Commission’s jurisdiction, such as wind power generation power facilities, are filed with the Minnesota Utility Commission in compliance with Minnesota state statues and administrative rules.  The Minnesota Utility Commission's procedures for review of proposed energy facilities incorporate compliance with the Minnesota Environmental Policy Act and provide for broad spectrum public participation, including timely public notice and multiple opportunities for public comment.  The Minnesota Utility Commission's decisions preempt local jurisdictional authority.
 
Environmental Regulation
 
As part of our wind farm development, including construction management and system operations, we oversee the installation of wind turbines and construction of transmission lines and related facilities, including access roads and substations.   As such, we are subject to numerous restrictions and requirements under federal and state environmental laws and regulations with respect to our operations which affect the timing, cost, location, design, construction and operation of new facilities.  In certain circumstances, such laws and regulations require us to obtain and maintain permits and approvals and incur an environmental review process, which may include performing environmental impact studies on the location of the project.  Compliance with these regulations requires a significant investment of time by our employees and imposes substantial costs on our company.   
 
 
23

 
 
In any event, our failure to comply with these laws and regulations, including the failure to obtain the necessary permits, may result the denial or revocation of permits or authorizations to proceed with a project.  Further in some instances failure to comply with such laws and regulations may result in the assessment of administrative, civil and criminal penalties.   
 
In order to comply with these laws and regulations and to obtain the necessary permits, we incur costs in the ordinary course of business.  At the time of this report, we do not consider such compliance costs to be material capital expenditures.  However, future changes to federal and state environmental laws may require us to expend more of our capital to comply with such laws.  
 
 Some of the regulations, to which we are or may be subject to include the following:
 
Federal Clean Water Act
 
The Federal Clean Water Act protects the waters of the United States, including wetlands and streams.  Regulations under the Clean Water Act govern critical operating parameters at generating facilities. In connection with our projects, we may be required to obtain permits for the discharge of dredged or fill material into U.S. waters, or for water discharges, such as storm water runoff associated with construction activities.  
 
Federal Bureau of Land Management Permits
 
To date, none of our wind farm projects have been developed on BLM lands.  However, as we expand, some of our projects may be sited on BLM lands.  In that case, as developer of the project, we would be required to obtain rights-of-way from the BLM.  In order to obtain such a permit, we would need to demonstrate that our wind farm project would protect environmental and archeological resources.  
 
Endangered Species Act and Migratory Bird Treaty Act
 
In the event that our wind farm projects require a permit from a federal agency, such agency would also consider the impact on endangered species and their habitat under the Endangered Species Act, which prohibits and imposes stringent penalties for harming endangered species and their habitats. Due to the size and operation of our wind turbines, and the potential harmful impact on birds, our projects also need to comply with the Migratory Bird Treaty Act and the Bald and Golden Eagle Protection Act, which protect migratory birds and bald and golden eagles and are administered by the U.S. Fish and Wildlife Service. State and federal agencies may also require ongoing monitoring or mitigation activities as a condition to approving a project, and may even refuse to issue a permit if the mitigation options are insufficient to address the risks to birds.
 
National Historic Preservation Act
 
In addition, federal agencies may consider a wind farm project's impact on historic or archeological resources under the National Historic Preservation Act and may require us to conduct archeological surveys or take other measures to protect these resources.
 
Other State and Local Programs
 
In addition to federal requirements, we are subject to a variety of state environmental review and permitting requirements. Minnesota, where many of our wind farm projects are located or are being developed, have laws that require state agencies to evaluate our wind farm projects for impacts on environmental, wildlife, historic sites, water resources and agricultural, before granting permits.  Such requirements typically consist of obtaining a special use or conditional use permit under the provisions of the applicable land use ordinance.  

Employees

As of March 20, 2012, we employed 20 full-time employees and no part-time employees, excluding employees and consultants of any affiliated companies that are not at least 50%-owned subsidiaries of ours. None of our employees are subject to a collective bargaining agreement and we believe that relations with our employees are very good. We also frequently use third-party consultants to assist in the completion of various projects. Third parties are instrumental to us in keeping the construction and development of projects on time and on budget.
 
ITEM 1A RISK FACTORS

Not applicable for smaller reporting companies.

ITEM 1B UNRESOLVED STAFF COMMENTS

Not applicable for smaller reporting companies.

 
24

 
 
ITEM 2 PROPERTIES

Our corporate office is located at 1502 17th Street SE, Pipestone, Minnesota 56164.  During the third quarter of 2011, we moved our corporate headquarters from 996 190th Avenue, Woodstock, Minnesota 56186.   Our corporate office consists of a 5,300 square foot commercial building that previously housed the production, warehousing and general and administrative purposes of our NextGen subsidiary.   We also have entered into a one year lease for $3,000 per month for purposes of office and meeting space in Minneapolis, Minnesota. We maintain a shared office location in Chicago, Illinois with only nominal rent expense to us.  Two other employees maintain suitable home office arrangements without charge to us.
 
Juhl Wind and its subsidiaries maintain properties which are adequate for their operations.  At December 31, 2011, the electric generation facilities represented approximately 85%, of Juhl Renewable Assets’ gross investment in electric utility plant in service.

Generation Facilities.  At December 31, 2011, Juhl Wind, through its subsidiary Juhl Renewable Assets, held ownership interests in the following electric generating facilities:

         
Juhl Wind Facilities
Location
Geographic Region
Fuel
Total Facility Capability (MW)1
Winona Wind Farm2
Winona County, MN
Upper Midwest
Wind
1.5
Woodstock Hills Wind Farm3
Woodstock, MN
Upper Midwest
Wind
10.2
Valley View Wind Farm4
Murray County, MN
Upper Midwest
Wind
10
Total
     
21.7

1 Represents total facility capability; Juhl Renewable Assets’ net ownership interest in facility capacity exists to the same extent as its ownership interest in such facility
2 Juhl Renewable Assets owns 100% of Winona Wind Holdings, LLC, which owns 100% of Winona County Wind, LLC, the operator of a 1.5 megawatt wind farm.
3 Juhl Renewable Assets owns 99.9% of this wind facility
4 Juhl Renewable Assets owns 32.6% in this wind facility (specifically, Juhl Renewable Assets has a 36.6% voting interest in Juhl Valley View, LLC, and has an additional 13.9% voting power through a voting trust agreement with three other investors.  Juhl Valley View, LLC owns 99% financial rights and 49% governing rights of Valley View Transmission, LLC, which operates the Valley View wind farm).

Character of Ownership
Juhl Renewable Assets has a controlling interest in these wind farms.  Such wind farms are not owned in fee and encumbered by liens securing various financings.  Additionally, a majority of Juhl Wind’s generating facilities are located on leased land from owners of private property.

ITEM 3 LEGAL PROCEEDINGS

In March 2012, we received an order of judgment that we believe will greatly diminish the impact of a  a complaint was filed in March 2011 by a freight supplier claiming that the Company had not paid amounts due under contractual arrangements for delivery of wind turbine generator components along with additional unreimbursed costs in that regard. The Company believes that any settlement in this matter will not have a material effect on the financial position or operations of the business.

ITEM 4 MINE SAFETY DISCLOSURES
 
Not applicable.
 
 
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PART II
 
ITEM 5 MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information
 
Our shares of common stock are currently quoted and listed for trading on the OTC Bulletin Board under the symbol JUHL.  Our symbol prior to the closing of our share exchange transaction on June 24, 2008, was MHSC.  No trades, however, were ever made with respect to shares of MH & SC, Incorporated common stock prior to the share exchange transaction.  
  
The following table sets forth the high and low closing prices for our common stock for the periods indicated as reported by the OTC Bulletin Board:
 
   
Year ended December 31,
 
Quarter
 
2009
   
2010
   
2011
 
   
High
   
Low
   
High
   
Low
   
High
   
Low
 
First
   
2.45
     
1.71
    $ 2.18     $ 1.55     $ 1.50     $ 0.70  
Second
   
2.35
    $ 1.55     $ 2.15     $ 1.70     $ 1.73     $ 0.92  
Third
   
2.45
    $ 1.92     $ 1.80     $ 1.20     $ 1.11     $ 0.79  
Fourth
   
2.01
    $ 1.81     $ 1.40     $ 1.05     $ 0.94     $ 0.41  
 
On December 30, 2011, the closing price of our common stock, as reported by the OTC Bulletin Board, was $0.85 per share.
 
These bid prices represent prices quoted by broker-dealers on the OTC Bulletin Board.  The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions, and may not represent actual transactions.

Holders
 
As of March 20, 2012, there were 22,194,978 shares of our common stock outstanding and approximately 41 holders of record of our common stock.  However, we believe that there are significantly more beneficial holders of our common stock as many beneficial holders hold their stock in “street name.”

Dividend Policy
 
We do not expect to pay a dividend on our common stock in the foreseeable future.  The payment of dividends on our common stock is within the discretion of our board of directors, subject to our certificate of incorporation.  We intend to retain any earnings for use in our operations and the expansion of our business.  Payment of dividends in the future will depend on our future earnings, future capital needs and our operating and financial condition, among other factors.

Unregistered Sales of Securities
 
Warrant Exercise.  On June 29, 2009, the Company entered into a warrant amendment agreement with the holders of the Company’s Class A warrants, whereby the holders and the Company agreed that such warrants would be exercisable solely for the Company’s new Series B Convertible Preferred Stock (Series B).  Furthermore, the holders agreed to exercise 2,036,840 of the Series A warrants for an equal number of Series B Convertible Preferred shares for approximately $2,339,000 in cash and a subscription note receivable in the amount of $196,710. The note was paid to the Company in December 2009.

Warrant Exchange.   On June 30, 2009, we entered into a securities exchange agreement with the holders of our Series A, Series B and Series C Warrants pursuant to which the holders agreed to exchange all of their outstanding (i) remaining Series A Warrants to purchase 543,159 shares of our Series B convertible preferred stock, (ii) Series B warrants to purchase 2,580,000 shares of our common stock at $1.50 per share and (iii) Series C Warrants to purchase 2,580,000 shares of our common stock at $1.75 per share for an aggregate of 4,570,166 shares of our Series B convertible preferred stock.  No cash consideration was paid in connection with the exchanges. The exchange was conducted in reliance on the exemption from registration afforded by Section 3(a)(9) under the Securities Act and corresponding provisions of state securities laws.  Such securities may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements and certificates evidencing such shares contain a legend stating the same.

2009 Options Grant.   On June 29, 2009, we granted one of our directors options to purchase 500,000 shares of our common stock outside of our 2008 Incentive Compensation Plan at $2.00 per share, with 166,666 options immediately exercisable, 166,667 options vesting on June 29, 2010 and 166,667 options vesting on June 29, 2011.  The options and underlying shares of common stock were not registered under the Securities Act, or the securities laws of any state, and were issued in reliance on the exemption from registration afforded by Section 4(2) and Regulation D under the Securities Act and corresponding provisions of state securities laws.  Such securities may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements and certificates evidencing such shares contain a legend stating the same.

 
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Warrant Issuance to Consultants.   On October 1, 2009, we issued warrants to purchase 100,000 shares of common stock to a consultant in exchange for consulting services in the areas of business management, business development, corporate strategy and capital funds for operating companies and emerging growth enterprises provided to us.  The warrants were not registered under the Securities Act, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration afforded by Section 4(2) under the Securities Act and corresponding provisions of state securities laws, which exempts transactions by an issuer not involving any public offering.  Such securities may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements and certificates evidencing such shares contain a legend stating the same.

2011 Options Grant.  On June 1, 2011, we granted options to three directors to purchase an aggregate of 30,000 shares of our common stock which vested on December 31, 2011 and remain unexercised. The options were awarded under our 2008 Incentive Compensation Plan and, subject to the terms of the Incentive Compensation Plan, allow for exercise in accordance with the terms of each individual grant. The options and underlying shares of common stock issuable upon exercise of the options were not registered under the Securities Act, or the securities laws of any state, and were issued in reliance on the exemption from registration afforded by Section 4(2) and Regulation D under the Securities Act and corresponding provisions of state securities laws.  Such securities may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements and certificates evidencing such shares contain a legend stating the same.
 
Repurchase Program of Issuer’s Common Stock
 
On October 11, 2010, the Company’s Board of Directors authorized John Mitola, our President, to enter into a repurchase program which would allow the Company to purchase up to $200,000 of shares of its common stock from and after October 12, 2010 until the expiration of the program.
 
Pursuant thereto, on October 12, 2010, the Company entered into a trading plan in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the "Act"), to facilitate repurchases of its common stock (the "Rule 10b5-1 plan").  The Rule 10b5-1 plan became effective on October 13, 2010 and had a termination date of December 31, 2010.   The Rule 10b5-1 plan authorized repurchases of its common stock up to $200,000 of shares of common stock. The Company was authorized to repurchase shares under its stock repurchase program, if at all, through open market purchases in accordance with Rule 10b-18 of the Act or pursuant to additional Rule 10b5-1 plans.  The number of shares to be repurchased and the timing of the repurchases were to be based on the level of available cash and other factors, including market conditions, the terms of any applicable 10b5-1 plans and self-imposed black-out periods.
 
The Rule 10b5-1 plan allows the Company to execute trades during periods when it would ordinarily not be permitted to do so because of its possible possession of material non-public information, because of insider trading laws or due to self-imposed trading blackout periods. A broker chosen by the Company has the authority, under the prices, terms and limitations set forth in the Rule 10b5-1 plan, including compliance with Rule 10b-18 of the Act, to repurchase shares on the Company's behalf. Because the repurchases under the Rule 10b5-1 plan are triggered by certain share prices, there is no guarantee as to the exact number of shares that will be repurchased under the Rule 10b5-1 plan, or that there will be any repurchases at all pursuant to the Rule 10b5-1 plan.
 
On January 13, 2011, the Company’s Board of Directors adopted an Amendment to the Rule 10b5-1 plan (the “Amended Plan”).  The Amended Plan extended the termination date to March 31, 2011.  Further on March 31, 2011, the Company’s Board of Directors approved an amendment to the Rule 10b5-1 plan to extend the termination date to December 31, 2011.  Then, on April 11, 2011, the Company’s Board of Directors increased the amount allocated under the Rule 10b5-1 plan from $200,000 to $250,000.   Such update to the Amended Plan was publicly announced on April 13, 2011.  All other terms of the Rule 10b5-1 plan remain in full force and effect.

Transactions made pursuant to the Amended Plan, for the quarter ended December 31, 2011 are contained in the following table.
 
ISSUER PURCHASES OF EQUITY SECURITIES
 
Period
 
(a) Total Number of Shares (or Units) Purchased
   
(b) Average Price Paid per Share (or Unit)
   
(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs
   
(d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
 
October 1 through October 31, 2011
    2,500     $ 0.80       2,500     $ 31,035  
November 1 through November 30, 2011
    -       -       -     $ 31,035  
December 1 through December 31, 2011
    -       -       -     $ 31,035  
Total
    2,500               2,500          
  
 
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Transfer Agent

Our transfer agent is Empire Stock Transfer, 1859 Whitney Mesa Dr., Henderson, NV  89014.

ITEM 6 SELECTED FINANCIAL DATA

Not applicable for smaller reporting companies.

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

You should read the following description of our financial condition and results of operations in conjunction with the financial statements and accompanying notes included in this Report beginning on page F-1.

Overview
 
Juhl Wind is an established leader in community wind power development and management, focused historically on wind farm projects throughout the United States.  We handle all aspects of wind project development, through our operating subsidiaries, including full development and ownership of wind farms, general consultation on wind projects, construction management of wind farm projects and system operations and maintenance for completed wind farms, which results in multiple revenue streams.  Our primary focus has been to build 5 MW to 80 MW wind farms that are jointly owned by local communities, farm owners, environmentally concerned investors, and our Company.  The wind farms are connected to the general utility electric grid to produce clean, environmentally-sound wind power. Our development of community wind power systems results in landowners owning a portion of the long term equity in the wind farm that resides on their land.  We pioneered community wind power systems, in developing the currently accepted financial, operational and legal structure providing local ownership of medium to large scale wind farms.  Since 1999, we have completed 21 wind farm projects, accounting for approximately 195 megawatts of wind power that currently operate in the Midwest region of the United States, and we provide operation management and oversight to wind generation facilities generating approximately 107 megawatts, through our subsidiary, Juhl Energy Services.  We are presently engaged in various aspects of the development of approximately 25 new wind farm projects in the United States totaling approximately 405 megawatts of wind power.
 
How We Operate

The Company groups its operations into three business segments–Wind Farm Development and Management, Wind Farm Ownership and Operation, and Consumer-Owned Renewable Energy products.  The Company's business segments are separate business units that offer different products. The accounting policies for each segment are the same as those described in the summary of significant accounting policies. Corporate assets include: cash and cash equivalents, short-term investments, deferred income taxes, and other assets.

Our wind farm development projects most commonly involve a fee contract with entities specially formed by local farmers upon whose land the wind turbines are installed. Revenue is also derived from our work in the development of wind farms throughout the development process including four major components: feasibility studies, development fees, operations and management oversight and construction contract revenue.

We hold contract rights, are involved with projects in development and under negotiation, and provide development activities in the wind power industry. Once wind farms are operational, we seek contract rights to provide administrative services agreements which call for management and administrative services to be provided to the operating wind farm, along with turbine and balance of plant maintenance services.  Our assets include five development services agreements, twelve projects in early development stages, and three agreements to conduct wind power feasibility studies.
 
The Wind Farm Ownership and Operation segment includes the sales of electricity generated from wind energy facilities, who have long-term, take-or-pay power purchase contracts with a utility purchaser. The electricity sales are typically billed on a monthly basis to the utility. The wind farms have operational expenses that generally include turbine and balance of plant maintenance fees, equipment repairs, land lease payments, administrative expenses, and debt service costs.
 
Due to the anticipated increased demand for electricity from alternative energy sources in 2012 and beyond, we believe the demand for wind energy developments and consumer-owned renewable energy products will be stable or will increase in the foreseeable future (even if the production tax credits expire). Our revenues have grown on an annual basis beginning in 2009; however, revenue will continue to be subject to shifts in timing due to project development delays resulting from our ability to obtain financing and the construction season in the Upper Midwest climate.
 
 
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Factors Affecting Our Operating Results

Demand

Political factors have stressed the importance of renewable energy and U.S. energy independence, causing the demand for wind power in the United States to grow rapidly.  We believe that the market for community wind power will be maintained as a model for ongoing installations of wind power given the constraints of transmission capacity and utility power purchases that are currently affecting the growth of larger scale projects.   Although development of wind farms has been incentivized over the past 20 years by the PTCs and that the PTC’s are now set to expire, we believe there is impetus in the United States to increase its generation of electrical power through renewable energy means.
 
Growth in wind power is being driven by several environmental, socio-economic and energy policy factors that include:

 
ongoing increases in electricity demand due to population growth and growth in energy consuming devices such as computers, televisions and air conditioning systems, as coal and oil resources need replacing;
     
 
the fluctuating costs of the predominant fuels required to drive the existing fleet of conventional electric generation such as coal, natural gas, nuclear and oil, especially as recent low (subsidized) wind prices are roughly competitive with natural gas;
     
 
existing and growing legislative and regulatory mandates for “cleaner” forms of electric generation, including state renewable portfolio standards and the U.S. federal tax incentives for wind and solar generation, including the Recovery and Reinvestment Act enacted in February 2009 (although PTCs are set to expire at December 31, 2012, unless extended by Congress) ;
     
 
the expectancy that the Environmental Protection Agency will enact regulations and standards accelerating the retirement of aging coal plants and impacting the life of natural gas plants, thus increasing the need for replacement of resources;
     
 
uncertainty surrounding the growth potential of nuclear power plants;
     
 
wind projects have shorter development timeframe than natural gas plants and have greater flexibility to adapt to changing conditions;
     
  worldwide concern over greenhouse gas emissions and calls to reduce global warming due to the carbon dioxide produced by conventional electric generation; and
     
  newer wind turbine models are becoming more efficient (such as advances in wind turbine blade aerodynamics, development of variable speed generators, advances in remote operation and monitoring systems, improvements in wind monitoring and forecasting tools and advances in turbine maintenance) and offer improved capacity factors, and together with cost competition among suppliers,  wind power systems have become more competitive with coal and gas on a dollar-per-megawatt-hour basis
 
In light of these factors and the resulting increase in demand for wind power, we believe that we are positioned to experience significant year-over-year growth and development of specific community wind farms throughout the United States. We can provide full-scale development of wind farms across the range of required steps including performing initial feasibility studies, assisting in power purchase agreement negotiations, arranging equity and debt project financing, providing equipment and  construction services, and managing operations.  Further, we will continue to develop our capabilities in the renewable energy space with development our solar projects.

Debt and Equity Financing Markets

Although demand for wind power is likely to increase for reasons described above, arranging project financing, particularly construction financing, has become increasingly difficult. The timing of the Company’s construction and turbine supply revenues associated with the development of wind farms is heavily impacted by the ability to complete debt and equity financing arrangements.

Wind farm development projects are dependent on the ability to raise debt and equity financing to fund the turbine and substation components, construction costs and other development expenses. We assist project owners in identifying sources of debt and equity capital as a part of our development efforts. We have expended significant efforts on behalf of our construction-ready wind farm projects to identify sources of debt and equity financing in order to proceed to the actual construction phase. The debt and equity sources include some financiers who are based in foreign countries and have experience in wind energy projects. It is our belief that many community wind farm project owners and developers across the U.S. are facing similar difficulties in arranging project financing as well, particularly construction financing. The difficulties in obtaining project financing is  especially  evident within banking institutions who have liquidity issues resulting from the recent recessionary conditions and a banking crisis that has led to U.S. government bailout programs in 2008. In light of the difficulties in arranging project financing, we are observing that turbine suppliers are also becoming a source of capital in the construction financing of wind farm projects. We expect credit conditions to improve and we will assist project owners in examining federal and loan guarantee programs as an additional means of securing project financing.
 
 
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Our wind farm development projects are financed with a combination of debt, tax equity financing and other equity capital. At the initial stage of a project's development, we use a combination of equity capital and turbine supply loans to cover development expenses and turbine costs. Turbine supply loans are employed to finance a majority of the cost of a project's turbines. Once a project moves to the construction phase, we use a combination of equity capital and construction loans to finance the construction of the project, and also using our balance sheet and the resources of subcontractors for funding balance of plant and start-up costs.  Proceeds from the construction loans are typically used to fund construction and installation costs as well as to retire the turbine supply loans. Finally, once a project is complete and commercial operations begin, we permanently finance the project through a combination of term loans, tax equity financing transactions or other fixed-rate mezzanine capital, the proceeds of which are used to retire the construction loans and pay other service providers.
 
Further, we expect that with the elimination of the PTCs on December 31, 2012 (unless an extension is passed by Congress), financing will shift from unleveraged tax equity to more traditional project financing which has proven difficult.  Thus, alternative financing arrangements, such as vendor financing for construction costs, will become imperative in any wind development project, which is a type of financing we have used for a number of our projects

We believe that we have the ability to raise additional preferred stock monies through our subsidiary, Juhl Renewable Assets, and deploy this capital into our future project developments, and that there is sufficient interest by individual investors and private equity funds that desire to make renewable energy investments with a fixed rate of return.

Site Selection
 
Wind is intermittent and electricity generated from wind power can be highly variable. Good site selection and advantageous positioning of turbines on a selected site are critical to the economic production of electricity by wind energy. In our experience, the primary cost of producing wind-powered electricity is the turbine equipment and construction cost. As an intermittent resource, wind power must be carefully positioned into the electric grid along with other generation resources and we believe Juhl Wind has demonstrated the expertise necessary to work with local electric utilities to affect the proper integration plan.  As such, we intend to continue to identify new sites to produce wind energy through the community wind power model throughout the United States and Canada with a focus on the Midwestern region of the U.S.
 
Site selection also includes identification of sites that we believe may be suitable for development, and basic analysis of site viability for wind development projects. We make initial assessments of potential sites for our community wind farms based on a number of criteria, including topography; wind resource suitability; construction access; access to transmission networks; site size; land ownership; and environmental, zoning and other local and state laws and regulations. We make these assessments taking into account our business and operating strategy. We then proceed with an initial environmental screening, usually conducted on the basis of public available information and sometimes supplemented with a site visit by a qualified professional to identify environmentally sensitive areas. Once a site passes this initial review, we begin more detailed site-specific environmental assessments in connection with our permitting efforts, and establish constraints for turbine siting and civil and site engineering. These typically include detailed mapping and other studies, all aimed at ensuring that we may safely operate a potential project without detrimental impact on the local environment.
 
Our site selection effort is based on establishing close working relationships with local permitting authorities, communities and other local stakeholders, such as farmers. We believe that by entering into dialogue with these groups early, we are better able to incorporate local concerns into our site assessment, leading to effective permit applications and expedited completion of our projects.  We believe our ability to understand and interpret site information has been and will continue to be a key factor in our success in identifying desirable project sites for our community wind farm developments.  

Basis of Presentation
 
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles and the rules and regulations of the SEC.

We acquired the wind farm development and management business of Juhl Energy Development and Juhl Energy Services, and Juhl Energy Development and Juhl Energy Services became our wholly-owned subsidiaries.  For accounting purposes, Juhl Energy Development was the acquirer in the share exchange transaction, and consequently the transaction is treated as a recapitalization of the company.  Juhl Energy Services was accounted for in a manner similar to pooling of interests due to common control ownership.
 
 
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In October 2008, we acquired all of the issued and outstanding shares of common stock of NextGen.  Our acquisition of NextGen was accounted for in a manner similar to pooling of interests due to common control ownership. The assets and liabilities of NextGen were combined at historical cost for the portion (54%) under common control and at fair value for the non-controlling interest.  The activities of NextGen are included in the accompanying consolidated financial statements.

On May 19, 2010, we formed Juhl Renewable Assets, Inc. ("Juhl Renewable Assets" formerly Juhl Wind Asset Investment, Inc. and Juhl Wind Project Lending, Inc.), in the state of Delaware, as our wholly-owned subsidiary.   Juhl Renewable Assets revenue and expense activities will be reported on our financial statements on a consolidated basis in a similar manner as to Juhl Energy Services, Juhl Energy Development and NextGen.  

On April 29, 2011, we acquired 99.9% of the membership interests of Woodstock Hills LLC (“Woodstock Hills”), a 10.2 MW wind energy facility.  The financial activities of Woodstock Hills have been consolidated into our financial statements subsequent to the purchase date.
 
On October 13, 2011, Juhl Renewable Assets became a 100% equity owner in Winona Wind Holdings, LLC (“WWH”), which in turn owns 100% of the Winona County Wind, LLC (“WCW”), the operator of a 1.5 MW wind energy facility. Prior to this acquisition, we had been consolidating the financial activities of WCW as a variable interest entity.  The financial activities of WWH and WCW were already incorporated into our consolidated financial statements prior to this acquisition.
 
Generally accepted accounting principles require certain variable interest entities (“VIE”s) to be consolidated if a party with an ownership, contractual, or other financial interest in the VIE (a variable interest holder) has the power to direct the VIE’s most significant activities and the obligation to absorb losses or right to receive benefits of the VIE that could be significant to the VIE. A variable interest holder that consolidates the VIE is called the primary beneficiary.  Upon consolidation, the primary beneficiary generally must initially record all of the VIE’s assets, liabilities, and non-controlling interests at fair value and subsequently account for the VIE as if it were consolidated based on majority voting interest. Juhl Wind has determined that  Valley View Transmission, LLC (“Valley View”), a 10 MW wind farm that reached commercial operation in November 2011, is a VIE and that Juhl Wind is the primary beneficiary. Our financial statement footnotes describe in more detail the considerations made in determining that Valley View is a VIE, including the equity investment made in the Valley View project at the time of commercial operation.

Woodstock Hills, Valley View and Winona are wind energy generating facilities and in that regard, those activities are considered a new segment in our financial statement disclosures called Wind Farm Ownership and Operation.

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included in this report.

Significant Accounting Estimates
 
We review all significant estimates affecting our consolidated financial statements on a recurring basis and record the effect of any necessary adjustment prior to their publication. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of consolidated financial statements; accordingly, it is possible that actual results could differ from those estimates and changes to estimates could occur in the near term. The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of the contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. The Company uses estimates and assumptions in accounting for the following significant matters, among others: revenue recorded from the development agreements and construction contract revenue; realizability of accounts and promissory notes receivable; valuation of deferred tax assets, stock based compensation and warrants, asset retirement obligations, determination of the primary beneficiary of a variable interest entity, derivative instruments, and other contingencies. Revenue from the development agreements is adjusted to reflect actual costs incurred by the project upon the commercial operation date.  Accordingly, actual revenue may differ from previously estimated amounts, and such differences may be material to the financial statements. The Company periodically reviews estimates and assumptions, and the effects of any such revisions are reflected in the period in which the revision is made.
 
Our management has discussed the development and selection of these significant accounting estimates with our board of directors and our board of directors has reviewed our disclosures relating to them.

Results of Operations – Year ended December 31, 2011 Compared to Year ended December 31, 2010

Overview

Our general activity during the first half of 2011 was primarily focused on completing the financing and commissioning of two community wind farm projects in Meeker County, Minnesota, Adams and Danielson, comprising 40 MW of wind power,  together with completing financing arrangements for the following  two projects:  1)  financing of the 20 MW Grant County wind farm, which had reached commercial operation in August 2010, and 2)  the construction and financing for the 10 MW Valley View and 1.5 MW Winona wind farm projects.  Further, we completed the strategic acquisition of the majority ownership of the 10.2 MW Woodstock Hills wind farm and reached an agreement to sell our development rights to a Nebraska project. The completion of financing arrangements for the Grant County, Adams and Danielson projects resulted in our ability to recognize approximately $5.1 million in development fee revenue.

 
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In the last half of 2011, we expended significant efforts necessary to complete construction and financing for the 10MW Valley View wind farm project, and construction completion of two wind farm projects in Winona County, the 5 MW GL Wind project and the 1.5 MW Winona wind farm project.  We made approximately $2 million of equity investments into the Winona and Valley View wind farm projects through our subsidiary, Juhl Renewable Assets, and in addition to possessing ownership interests we are also providing administrative services and balance of plant maintenance. We also assisted Valley View and Winona in obtaining the 1603 U.S. Treasury grants which funded approximately 30% of the project costs.

At December 31, 2011, we had no community wind farm projects under construction.  We continue to provide development services for various wind energy projects in our development pipeline and obtaining rights to co-develop future projects with other developers who do not have the capital, reputation and resources necessary to complete their project opportunities.  This will include evaluating opportunities with corporations who are interested in purchasing power as a part of green energy initiatives within their corporate strategy.

During 2011, we continued the prototype testing of a 33 kw class wind turbine and development of the Solarbank product line. Our revenues from this operating segment were insignificant during 2011 and we expect to increase our competitive market position in 2012 as we introduce these products and build distribution capabilities.
 
We acquired equity interests in 21.7 MW of wind farms during 2011 and as a result, our consolidated financial statements now reflect a significant increase in balance sheet assets and liabilities. We have included these investments in a new segment called Wind Farm Ownership and Operation.
 
Revenue
 
Total revenue increased by approximately $9,310,000, or 148.5%, from approximately $6,268,000 for the year ended December 31, 2010, to approximately $15,578,000, for the year ended December 31, 2011.

A comparison of our revenue for the years ended December 31, 2011 and 2010 is as follows:
 
   
December 31,
2011
   
December 31,
2010
   
Change
   
% Change
 
JEDI:
                       
  Wind farm development
  $ 8,288,191     $ 255,538     $ 8,032,653       3143.4 %
   Construction
    5,242,048       4,648,616       593,432       12.8  
JESI:
                               
  Management and maintenance
    1,076,798       583,827       492,971       84.4  
NextGen/JRES:
                               
   Small scale solar and wind
    364,816       780,162       (415,346 )     (53.2 )
JRA:
                               
   Electricity Sales
    605,804       -0-       605,804    
inf
 
          Total
  $ 15,577,657     $ 6,268,143     $ 9,309,514       148.5 %
 
 
Juhl Energy Development (JEDI)

Wind farm development revenue, increased by approximately $8,033,000 from approximately $256,000 for the year ended December 31, 2010 to approximately $8,288,000 for the year ended December 31, 2011.  The increase in revenue over the year ended December 31, 2010 is primarily attributable to wind farm development fee revenue earned from five wind farm projects that completed construction and financing arrangements during 2011, and one additional project where we recognized approximately $1,679,000 in net proceeds from the sale of our development work-to-date for cash. There was only one completed project in 2010.

Our construction revenues increased by approximately $593,000 over 2010.  This increase in construction contract revenue in 2011 is primarily related to having four construction projects (51.5 MW) during the year ended December 31, 2011 compared to two projects (21 MW) under construction during the year ended December 30, 2010. Two of the four projects in 2011 were limited to construction advisory services arrangements.
 
At December 31, 2011, we had no projects under construction and as such, our wind farm development and construction revenues for 2012 are dependent on our ability to develop and construct two late-stage development projects comprising 7 MW.  We do expect that the Crofton Hills wind farm, which we sold our development rights in 2011, will be completed in 2012 and therefore allow the recognition of $500,000 of deferred revenue.

 
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Juhl Energy Services (JESI)

Revenue from wind farm administration, management and maintenance service increased by approximately $493,000 over 2010.  The increase is primarily attributable to $317,000 of increased turbine maintenance service contract revenues from three new wind farms in 2011, where we provided turbine maintenance revenues to 51 MW of wind farms in 2011 compared to 11 MW of wind farms in 2010. In addition, our management services revenues increased by $189,000 over 2010 as a result of adding one new wind farm administrative services contract. JESI currently has administrative services agreements for approximately 107 MW of wind farms, of which 22 MW relate to companies whose revenues are eliminated in consolidation.
 
We expect that our 2012 revenues will increase by $150,000 as a result of getting a full year run rate on existing service contracts that commenced in 2011. In addition, we have made bid proposals on existing wind farms for maintenance services and to the extent we are successful in our bids, our revenues will grow accordingly.
 
Juhl Renewable Assets (JRA)
 
In 2011, we acquired ownership in three wind farms (Woodstock Hills, Winona County and Valley View) and our consolidated financial statements include the operations of these entities. In 2010, we had no significant ownership investments in wind farms.
 
Revenue for electricity sales in 2011 was $605,000.  This amount was adjusted downward by $300,000 during 2011 based on the use of an accounting revenue recognition policy that reduces the current billing amounts to the average rate over the remainder of the power purchase contract and the accounting over a unfavorable PPA contract.

Next Generation Power Systems/Juhl Renewable Energy Systems (NextGen/JRES)
 
Revenues from the sales and services of small scale wind and solar products and services decreased by approximately $415,000 for the year ended December 31, 2011 from December 31, 2010.  The $415,000 decrease which was primarily related to a lower sales volume by NextGen of refurbished wind turbines (8 units in the period ended December 31, 2010 versus 3 units over the same period in 2011). NextGen has discontinued selling refurbished small turbine units and revenues will decrease as a result except for periodic maintenance services.  The JRES subsidiary is in the process of completing a new turbine design and testing of a new prototype model, and as such, its revenues will be delayed until design and test activities are completed within the next twelve months. JRES is also seeking to build revenue streams from the Solarbank product line but any significant revenues will probably not occur until 2013 as we seek to enhance our production and distribution capabilities.
 
Cost of Goods Sold
 
Costs of goods sold increased by approximately $1,123,000, or 22.9% in 2011, from approximately $4,894,000 for the year ended December 31, 2010 to approximately $6,017,000 for the year ended December 31, 2011.  The increase of $1,123,000 in cost of goods sold for the year ended December 31, 2011 is primarily attributable to the inclusion of wind farm operating costs of $502,000 (including depreciation) whereas there were none in 2010;  a $500,000 project payment made to Grant County local owners for their participation and assistance in project matters and completion of the wind farm;  increased construction costs  and maintenance services expenses attributable to a growth in revenue volume; and offset by approximately $530,000 in reduction in cost of sales related to reduction in the amount of NextGen small turbine sales.   Cost of goods sold amounts will fluctuate on a comparative basis since a substantial amount of the project costs are incurred in the first three months of the project construction period.
 
Gross margins increased by approximately $8,187,000, which is primarily attributable to the increase in development fee revenue noted above. Expenses related to development fee revenue are primarily payroll costs that are shown in the operating expense section.

Operating Expenses
 
General and Administrative Expenses.  General and administrative expenses increased by approximately $520,000, or 32.3%, from approximately $1,610,000 for the year ended December 31, 2010 to approximately $2,130,000 for the year ended December 31, 2011. For purposes of financial statement reporting at December 31, 2011, we have now combined investor relations expense as part of general and administrative operating expense.  The increase of $520,000 for the year ended December 31, 2011 was primarily attributable to an increase in investor relations expense of approximately $417,000  Such increase was due to our expanded investor relations communications to increase exposure of Juhl Wind as a result of our increased wind farm development and acquisition activities.  We incurred increased expenses in the area of legal and professional fees of approximately $107,000 as a result of our three wind farm acquisitions, registration statement, and involvement with the higher level of wind farm development and construction activity.

In addition, we note that our general and administrative expenses decreased for the year ended December 31, 2011 by approximately $73,000 due to prior year costs associated with the investigation of the small wind turbine manufacturing and distribution considerations, and we experienced expense increases of $83,000 and $40,000 in 2011 for advertising and travel, respectively.

Payroll and Employee Benefits.  Payroll and employee benefits expenses decreased by approximately $152,000, or 6.3%, from approximately $2,427,000 for the year ended December 31, 2010 to approximately $2,275,000 for the year ended December 31, 2011.  The $152,000 decrease over the twelve months ended December 31, 2011 was primarily attributable to a decrease of $214,000 in non-cash stock based compensation expense, offset by payments of approximately $45,000 to two officers who delayed a pay rate increase in 2010 to assist the Company with cash flow.  The overall employee count increased by two employees over 2010, primarily in the maintenance services area, and payroll related to maintenance services employees are considered as a part of cost of goods sold.

 
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Wind Farm Administration Expenses.  Wind farm administration expenses represent costs that we incur to perform administrative services with respect to our management services contracts, as well as the general and administrative expenses incurred directly within the three wind farm entities that we are consolidating.  Wind farm administration expenses increased by approximately $184,000, or 220.4%, from approximately $84,000 for the year ended December 31, 2010 to approximately $268,000 for the year ended December 31, 2011.  The increase in expenses resulted primarily attributable to the following:  1) $129,000 in contractual payments made to local owners of the Grant County Wind project for project management purposes, and 2) inclusion of the Woodstock Hills, Valley View and Winona wind farm management and maintenance expenses of $53,000 to operate the wind farm since the April 29, 2011 acquisition date, including depreciation.
   
Other Income (expenses). Other income and expenses for the year ended December 31, 2011 include approximately $361,000 and $362,000 of interest income and interest expense, respectively, with respect to the promissory notes receivable and payable held in conjunction with the construction of the Grant County, Valley View and Winona wind farms. In 2011, we recorded a $320,000 loss for our share of net losses from Valley View between the time of our original equity investment in March 2011 and prior to the time of the acquisition in November 2011.  We also recorded a $320,000 gain related to remeasuring the original book value of our Valley View equity investment to fair value as a result of consolidating Valley View.
 
Operating Income (Loss)
 
Our operating income increased by approximately $7,634,000, or 278.0%, from an operating loss of approximately $2,746,000 for the year ended December 31, 2010 to operating income of approximately $4,888,000 for the year ended December 31, 2011.  The increase in operating income for the year ended December 31, 2011 is primarily attributable to the increase in development fee revenue of $8,033,000 earned from the completion of five wind farm developments and the sale of development work-to-date on one project, and approximately $430,000 revenue earned from two construction advisory services contracts.
 
Net Income (Loss)
 
Net income increased by approximately $4,842,000, or 269.0%, from a net loss of approximately $1,800,000 for the year ended December 31, 2010 to approximately $3,042,000 for the year ended December 31, 2011.  The increase in net income over the period ended December 31, 2011 is largely attributable to the increase in revenue sources noted under revenue and operating income sections above.

The net loss in the year period ended December 31, 2010 is indicative of the inconsistent revenue patterns of our wind farm development services business as revenue recognition is significantly impacted by the timing of the development fee revenue.

Changes in the Financial Condition for the Period ended December 31, 2011

Accounts Receivable
 
Traditional credit terms are extended to customers in the normal course of business. We perform ongoing credit evaluations of our customers’ financial condition and generally require no collateral. Accounts receivable of $2,065,000 at December 31, 2011 includes approximately $1,635,000 for construction activities of a 4.95 MW wind farm.  The December 31, 2010 accounts receivable balance included approximately $3.2 million, of which approximately $3.1 million was converted into a promissory note receivable with Valley View in March 2011 in conjunction with the closing of the project’s construction and bridge loan financing, and the note balance was either paid in 2011 or eliminated in consolidation.
 
We classified the $6,284,000 U.S. Treasury cash grant receivable for the Valley View wind farm as a separate line item in our financial statements. This receivable was collected in March 2012.

Property and Equipment

As of December 31, 2011 and December 31, 2010, we held $25,846,000 and $489,000 in net book value of property and equipment, respectively. The significant increase is related to the acquisition of $25,681,000 in wind turbine assets of the Woodstock Hills, Valley View and Winona wind farms in 2011. The wind farm assets were booked at fair value at the time of the acquisition for the Woodstock Hills and Valley View entities, and at book value for Winona due to common control.     Other assets included in property and equipment includes land, buildings, office equipment, shop equipment and service vehicles.

Liquidity and Capital Resource

Juhl Wind, as a holding company, does not directly operate or have any ownership in any revenue-producing generation facilities. Thus, it has no material assets other than the stock of its subsidiaries and depends upon transfers of funds from its subsidiaries to meet its obligations.

 
34

 
 
At December 31, 2011, we carried approximately $6.2 million in cash and short term-investments on the balance sheet (excluding restricted cash).   However, approximately $382,000 of the short-term investments has been designated as security for the bank notes payable of approximately $377,000 and therefore has been reflected in current assets as a restricted short-term investment on the consolidated balance sheet.  In order to provide additional protection to our cash reserves, we have obtained a $1.5 million letter of credit facility that provides security for the deposits that may not otherwise be insured through the Federal Deposit Insurance Corporation.  

Our cash position improved by approximately $4.5 million over 2010 as a result of the completion of five wind farm development projects and related financings in 2011, together with the sale of the development rights and work-to-date on one other project. These events significantly enhanced our liquidity and capital resources, but we did provide for certain guarantees and warranties in conjunction with these events as we have mentioned in the financial statement footnotes and under Off-Balance Sheet Arrangements below.
 
During 2011, we made equity investments in three wind farms totaling 21.7 MW for a combined investment of approximately $2.3 million. Our net outlay of cash for these investments was approximately $600,000, and the remainder was accomplished by converting approximately $1,700,000 of our earned construction or development fees from the underlying projects.  We had not previously owned any wind farms prior to 2011. We expect to continue investigating wind farm acquisition opportunities as the marketplace appears to have owners, such as utilities or large developers, who are interested in selling projects where tax benefits have been depleted or simply that the ownership interests are no longer a fit for the organization.
 
Our investment in three wind farms during 2011 allows us to take advantage of accelerated depreciation deductions, or bonus depreciation, for federal income tax purposes. This provides us with significant benefits to offset our taxable income sources in 2011, and will provide net operating loss deductions in future years.
 
Development fees have represented a significant component of our revenue streams in the past.  Such fees are premised on contractual agreements and the ultimate realizability of these revenues are dependent on reaching commercial operation and final financing of wind farm projects. This does cause the timing of our revenue streams to be inconsistent as we are dependent on successful construction conditions such as weather as well as assisting in the closing of funding which normally has numerous legal conditions.

We will continue our internal efforts to assist our project owners in arranging financing terms for each project under development.  The ability to assist project owners with obtaining debt and equity financing is a material factor in producing our future development fee revenue streams and cash flow. We expect that we will be required to obtain interim vendor financing from turbine suppliers or a BOP subcontractor, and we are typically required to grant a security interest to those suppliers.  The security agreement allows the supplier to step-into our developer rights that we have to the project entity, after a passage of time typically 180 days from project completion.

Future Growth and Financing

Due to the anticipated increased demand for power from renewable energy sources in 2012 and beyond, we believe the demand for our services will increase in the foreseeable future.  Based on our anticipated level of revenues, we believe that funds generated from existing contractual agreements, together with existing cash resources, will be sufficient to finance our operations and planned capital expenditures through the next 24 months.  We will seek to obtain additional sources of recurring revenue from maintenance, administrative and services businesses through writing new business or undertaking additional mergers or acquisitions, and reduce the inconsistent revenue patterns that we see in our wind farm development business.

We will continue to pursue new community wind farm developments in order to maintain an active backlog of projects, including distributed generation projects that involve corporate businesses that, like utilities, express a desire to purchase electricity produced by wind farms on long-term contracts. However, we cannot assure that actions will be successful. Should revenue decline to a level significantly below our current expectations, we would reduce capital expenditures and implement cost-reduction initiatives which we believe would be sufficient to ensure that funds generated from operations, together with existing cash and funds available from borrowing under any open credit agreement.

In conjunction with our financing activities as described above, we believe that we would be able to more quickly bring wind farm projects through the early development and construction stages if we were able to access a funding mechanism that we could utilize in sponsoring wind farm developments.  Like much of the U.S. economy that relies on extension of credit, the community wind industry in general has experienced difficulties in obtaining sources of funding from the current equity and debt financing marketplace, as cited above under “Factors Affecting Our Operating Results”.  

On April 29, 2011, we filed a Form S-1 registration statement with the Securities and Exchange Commission for the purpose of seeking a continuous offering of up to 10,000,000 shares of our common stock. The registration statement targets a per share price of $1.25, and is based on market conditions.  The ultimate price of the shares will be determined by management and the board of directors of the Company based upon the status of the Company’s balance sheet and corporate objectives. We intend to use the offering proceeds to fund our strategic growth initiatives, including acquisitions complementary to our business, such as wind farm management and turbine maintenance services, and general corporate purposes. The Securities and Exchange Commission declared such prospectus effective on May 13, 2011.

 
35

 
 
The formation of Juhl Renewable Assets provides us with the ability to acquire ownership of existing wind farms that fit our distributed generation model and the size range of products that we typically develop.  We believe that the ownership of community wind farms will provide an ability to expand our services to wind farm operations and to create recurring, repeatable annual revenue streams for our business model.  At the current time, we have made investments into the 10 MW Valley View wind farm (February 2011), 10.2 MW Woodstock Hills wind farm (April 2011), and 1.5 MW Winona wind farm (October 2011).

In February 2012, the Company entered into a non-binding letter of intent with a regional engineering firm setting forth the basis for a possible acquisition by Juhl Wind of 100% of the ownership of the Target Company.  Execution of a definitive agreement is conditioned upon satisfactory completion of due diligence and the approval of such an agreement by the board of directors of Juhl Wind. We expect that this acquisition, if completed, will allow us to grow our revenues profitably and provide a contribution margin toward our corporate spend.
 
Net Cash – Operating Activities
Net cash provided by operating activities increased by approximately $7,095,000, from the net cash used in operating activities of approximately $1,620,000 for the year ended December 31, 2010 to net cash provided by operating activities of approximately $5,475,000  for the year ended December 31, 2011. The change in net cash provided by operating activities of $7,095,000 is primarily due to the collection of wind farm development and construction advisory fees from the Meeker County wind projects of approximately $4,200,000, collection of the Grant County wind farm development fee of approximately $1,700,000 and receipt of $1,700,000 in net proceeds from the sale of development work-to-date on the Crofton Hills wind project, together with increased gross margins from maintenance and construction activities.   In addition, we have worked with our primary construction subcontractors to either defer payments via a promissory note or payments outside a normal 30 day operation cycle.  We will continue to manage payments of accounts payable related to project-related expenses to coincide with billings on these projects and to obtain temporary financing arrangements, if considered necessary, to provide cash for project construction.
 
Net Cash – Investing Activities
Net cash used in investing activities decreased by approximately $259,000, from the net cash used in investing activities of approximately $550,000 for the year ended December 31, 2010 to net cash used in investing activities of approximately $291,000  for the year ended December 31, 2011.   The decrease is primarily attributable to the receipt in 2011 of a $1,413,000  cash grant received in December 2011 from the U.S. Treasury relating to the Winona wind farm project, and offset by net cash investments made to acquire the Woodstock Hills, Valley View and Winona wind farms of $219,000, a $280,000 purchase of a minority equity interest investment in a unrelated company, and $205,000 in property additions unrelated to wind farms. We made similar amounts of cash payments of approximately $1,100,000 in both 2011 and 2010 for project development costs (primarily the Winona project).
 
Net Cash – Financing Activities
Net cash flow used in financing activities increased by approximately $592,000, from the net cash flow provided from financing activities of approximately $14,000 for the year ended December 31, 2010 to net cash used in financing activities of approximately $578,000 for the year ended December 31, 2011. The increase in cash used for financing activities is primarily attributable to using cash to make approximately $143,000 of stock repurchases relating to our October 2010 stock buyback program,  $183,000 cash dividend payments to a Series A Preferred Stock shareholder for two quarterly dividend payments,  $320,000 of principal payments on nonrecourse debt and bank notes, and offset by $180,000 in cash raised from the sale of a new issue of preferred stock by our subsidiary, Juhl Renewable Assets.   In addition, there were new bank borrowings in 2011 of approximately $704,000 relating to the closing of the Valley View loan, and approximately all of these proceeds together with an additional $102,000 (combined total $806,000) were used in increasing  lender-controlled escrow reserves. We do not anticipate paying future quarterly dividends in cash on the Series A Preferred Stock.  Payments on the nonrecourse debt will increase to approximately $800,000 in 2012 as the current year does not include a full year of payments. 
 
Impact of Inflation

We expect to be able to pass inflationary increases on to our customers through price increases, as required, and do not expect inflation to be a significant factor in our business.

Seasonality

Although our operating history is limited, we do not believe our services are seasonal except for future wind farm construction revenue which may be impacted by climate in the Upper Midwest.

 
36

 
 
Off-Balance Sheet Arrangements

As mentioned above in the Liquidity and Capital Resources section, we have made certain guarantees of indebtedness or offered indemnifications of warranties and representations in conjunction with the funding activities of the Valley View and Grant County wind farms.

In conjunction with the credit facility in the Grant County project, the Company has agreed for a limited period of time to indemnify the new equity investor with respect to certain representations and warranties made in conjunction with the equity purchase, including potential liabilities for Section 1603 Treasury Grant recapture or tax liabilities attributable to the period prior to the closing date. 

The Company agreed to guarantee certain payments to investors in the Valley View wind farm project as set forth below:

 
·
the timely payment of any and all guaranteed payments required to be paid to  preferred membership investors (who contributed approximately $2.5 million)  as they may become due under the respective LLC operating agreements, and the timely payment of any and all amounts payable upon exercise of a put right by such preferred members.  The put right is under not under the Company’s control and may occur either in two years or in certain cases, ten years.  The Company does  have up to six months from the date that to make such Put Right Payment, and should Juhl Wind fail to make the Put Right Payment within such six month period, the principal amount owed by the Company is subject to a penalty of an additional 10%.
 
·
The Company has agreed, with respect to a put right made available to one of the Common Members in the Valley View project (who contributed $500,000) to redeem any of its units then held by the Purchaser for a price in cash equal to the present value of the (i) estimate future distributions to be made to Purchaser net of (ii) estimated future income allocations for which no distributions are projected to be made (“Put Right Purchase Amount”).  If the Company fails to pay in full the put right purchase amount in cash on the due date, the Company shall issue a promissory note with a maturity date not exceeding 36 months and pay interest thereon.
 
·
In March 2011,  the Company had guaranteed the payment obligations of Valley View Transmission to its turbine supplier under a Turbine Supply Agreement between such parties.   The maximum liability was $1,800,000 if warranty obligations survive a five-year term as described in such Turbine Supply Agreement, or $1,275,000 if warranty obligations are not extended for such five year period, as set forth in such Turbine Supply Agreement.   The payments required under the Turbine Supply Agreement have now been met in connection with the equity raise and the Company’s  guaranty in favor of the turbine supplier has been terminated.
 
·
The Company has made certain representations and warranties with regard to indemnifications in conjunction with the funding activities of the Valley View and Grant County wind farms, including potential liabilities for Section 1603 Treasury Grant recapture or tax liabilities attributable to the period prior to the closing date.  
 
Aside from these arrangements, we believe that there are no off-balance sheet arrangements between us and any other entity that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
 
Critical Accounting Policies

The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires our management to exercise its judgment. We exercise considerable judgment with respect to establishing sound accounting policies and in making estimates and assumptions that affect the reported amounts of our assets and liabilities, our recognition of revenues and expenses, and disclosures of commitments and contingencies at the date of the financial statements.
 
On an ongoing basis, we evaluate our estimates and judgments. We base our estimates and judgments on a variety factors including our historical experience, knowledge of our business and industry, current and expected economic conditions, the composition of our products/services and the regulatory environment. We periodically re-evaluate our estimates and assumptions with respect to these judgments and modify our approach when circumstances indicate that modifications are necessary.
 
While we believe that the factors we evaluate provide us with a meaningful basis for establishing and applying sound accounting policies, we cannot guarantee that the results will always be accurate. Since the determination of these estimates requires the exercise of judgment, actual results could differ from such estimates. A description of significant accounting policies that require us to make estimates and assumptions in the preparation of our consolidated financial statements is as follows:

Revenue Recognition.

Turbine Sales and Service.

Turbine sales occur from small scale wind turbines that are internally re-manufactured and sold by the Company, or through purchase and resale of larger scale wind turbines to wind farm project owners. Revenue from the sale of small scale wind turbines are recognized upon shipment to the customer as transfer of ownership and risk of loss have been transferred to the customer. Deposits received from customers are included as deferred revenue until shipment occurs. Revenues from the sale of larger scale wind turbines are generally recognized in conjunction with the construction services percentage of completion accounting discussed below. Commencement of revenue recognition is only after turbine erection activities have begun.  Turbine services include time-and-material arrangements related to existing installations of wind turbine equipment.  Revenue is recognized upon completion of the maintenance services.

 
37

 
 
Licensing Agreements.

Revenues earned from licensing agreements are amortized straight line over the term of the agreement.
  
Wind Farm Consulting, Development and Management Services:
 
Consulting Services
 
Consulting services fees are primarily fixed fee arrangements of a short-term duration and are recognized as revenue on a completed contract basis.

Wind Farm Development Services
 
The Company normally earns a development service fee from each of the wind farm projects that it develops in cooperation with wind farm investors. These development services arrangements are evaluated under authoritative guidance relating to “Revenue Arrangements with Multiple Deliverables,” which addresses certain aspects of accounting by a vendor for arrangements under which the vendor will perform multiple revenue generating activities.

The development services fee revenue is recognized as follows:
 
Proceeds received upon the signing of a Development Services Agreement (generally 10% of the total expected development fee) are amortized over the expected period of the development process, which is generally three years. The amortization period is re-assessed by management as new timelines are established for the project in-service date, and the amortization period is adjusted. The remaining proceeds are allocated to the following deliverables based on vendor specific objective evidence (“VSOE”) of each item: 1) achievement of a signed Power Purchase Agreement (“PPA”) with an electrical utility, and 2) final commissioning of the wind farm turbines.  Management has determined that these deliverables have stand-alone value, and performance of the undelivered services are considered probable and in the control of the Company.
 
Wind Farm Management Services
 
Revenues earned from administrative, management and maintenance services agreements are recognized as the services are provided. The administrative and management services agreements call for quarterly payments in advance or arrears of services rendered based on the terms of the agreement. The administrative and management services payments in advance are carried as deferred revenue and recognized monthly as services are performed. Maintenance services are generally billed on a time and materials basis.  Revenues from services work are recognized when services are performed.

Wind Farm Construction Services
 
We recognize revenue on construction contracts on the percentage of completion method with costs and estimated profits included in contract revenue as work is performed. Construction contracts generally provide that customers accept completion of progress to date and compensate us for services rendered measured in terms of units installed, hours expended or some other measure of progress. We recognize revenue on both signed contracts and change orders. A discussion of the treatment of claims and unapproved change orders is described later in this section. Percentage of completion for construction contracts is measured principally by the percentage of costs incurred as part of the balance of plant contract (which excludes the wind turbines) and accrued to date for each contract to the estimated total cost for each contract at completion. We generally consider contracts to be substantially complete upon departure from the work site and acceptance by the customer. Contract costs include all direct material (excluding wind turbines), labor and insurance costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs. Changes in job performance, job conditions, estimated contract costs and profitability and final contract settlements may result in revisions to costs and income and the effects of these revisions are recognized in the period in which the revisions are determined. Provisions for total estimated losses on uncompleted contracts are made in the period in which such losses are determined. The balances billed but not paid by customers pursuant to retainage provisions in construction contracts will be due upon completion of the contracts and acceptance by the customer. Based on the Company’s experience with similar contracts in recent years, the retention balance at each balance sheet date will be collected within the subsequent fiscal year.

Electrical power sales
 
Electrical power sales to a utility purchaser are recognized as electrical energy is produced.   In accordance with generally accepted accounting principles, revenue levelization is required whenever there is a variable pricing arrangement such as the PPA with Woodstock Hills.  This requires that the revenue be levelized over the term of the agreement.  The revenue recognized is the lesser of the amount billable under the contract, or the amount determined by the megawatt hours made available during the period multiplied by the average revenue per megawatt hour over the life of the PPA.

 
38

 
 
The Woodstock Hills wind farm credited with producing Renewable Energy Credits (REC’s). These have a market value, and we recognize revenue on the sale of such credits as revenue when sold on the open market.

Variable Interest Entities

The Company has determined that one of its wind farm projects are variable interest entities (“VIE”).  The footnotes to our consolidated financial statements provide our analysis and judgments with respect to whether or not the Company should consider consolidation of these VIE’s into our financial statements. We have consolidated one VIE because we believe that we had implicit power to significantly impact the economic performance of the limited liability company associated with that wind farm project.

ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable for smaller reporting companies.
 
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
Juhl Wind, Inc.
Consolidated Financial Statements
December 31, 2011 and 2010
 
 
Page Number
Report of Independent Registered Public Accounting Firm
F-1
 Consolidated Balance Sheets
F-2
 Consolidated Statements of Operations
F-3
 Consolidated Statement of Changes in Stockholders’ Equity
F-4
Consolidated Statements of Cash Flows
F-5
Notes to Consolidated Financial Statements
F-6
 
 
39

 
 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
Board of Directors and Stockholders
Juhl Wind, Inc. and Subsidiaries
Pipestone, Minnesota
 
We have audited the accompanying consolidated balance sheets of Juhl Wind, Inc. and Subsidiaries (the “Company”) as of December 31, 2011 and 2010, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2011. Juhl Wind, Inc. and Subsidiaries’ management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Juhl Wind, Inc. and Subsidiaries as of December 31, 2011 and 2010, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2011 in conformity with accounting principles generally accepted in the United States of America.
 
 
/s/ Boulay, Heutmaker, Zibell & Co. P.L.L.P.
 
   Certified Public Accountants                        
 
Minneapolis, Minnesota
March 30, 2012
 
 
F-1

 
 
JUHL WIND, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2011 AND 2010
             
   
DECEMBER 31,
   
DECEMBER 31,
 
   
2011
   
2010
 
             
ASSETS
           
             
CURRENT ASSETS
           
Cash
  $ 5,251,148     $ 645,596  
Restricted cash
    335,793       110,016  
Short-term investments and accrued interest receivable
    564,927       626,879  
Short-term investments - restricted
    382,269       418,654  
Accounts receivable
    2,064,939       3,198,632  
Grant receivable- U.S. Treasury 1603 cash grant
    6,284,476       -  
Promissory note receivable, including interest
    -       5,264,093  
Inventory
    270,873       1,636,234  
Reimbursable project costs
    -       415,029  
Costs and estimated profits in excess of billings
    -       661,418  
Other current assets
    664,955       138,971  
Current deferred income taxes
    108,000       1,289,000  
Total current assets
    15,927,380       14,404,522  
                 
PROPERTY AND EQUIPMENT, Net
    25,846,403       488,889  
                 
OTHER ASSETS
               
Deferred income tax asset
    -       348,000  
Investment, at cost
    400,000       -  
Escrow cash reserves for contractual commitments
    900,870       -  
Loan financing costs, net
    13,607       -  
Project development costs
    283,141       2,851,450  
Total other assets
    1,597,618       3,199,450  
                 
TOTAL ASSETS
  $ 43,371,401     $ 18,092,861  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
                 
CURRENT LIABILITIES
               
Accounts payable
  $ 3,828,276     $ 1,105,360  
Short-term notes payable
    2,964,703       411,167  
Accrued liabilities
    1,097,338       519,252  
Customer deposits
    68,448       26,940  
Income taxes payable
    90,000       -  
Deferred revenue - license arrangement and other
    628,833       275,571  
Promissory notes payable, including interest
    4,576,063       10,328,008  
Derivative liabilities- interest rate swap
    199,946       -  
Current portion of nonrecourse debt
    737,167       -  
Total current liabilities
    14,190,774       12,666,298  
                 
LONG-TERM LIABILITIES
               
Nonrecourse debt, net of current portion
    10,650,328       -  
Derivative liabilities- interest rate swap
    812,553       -  
Deferred revenue - license arrangement and 1603 Grant, net of current portion
    2,186,089       879,000  
Deferred revenue - power purchase contract
    3,720,373       -  
Deferred income taxes
    157,000       -  
Total long-term liabilities
    17,526,343       879,000  
                 
REDEEMABLE PREFERRED MEMBERSHIP INTERESTS
    2,543,635       -  
                 
CUMULATIVE PREFERRED STOCK OF SUBSIDIARY
    180,000       -  
                 
STOCKHOLDERS' EQUITY
               
Controlling interest in equity:
               
Preferred Stock, 20,000,000 shares authorized Series A convertible preferred stock - $.0001 par value, 4,820,000 issued and outstanding as of December 31, 2011 and 2010
    2,527,731        2,527,731  
Series B convertible preferred stock - $.0001 par value, 5,966,792 and 6,567,006 issued and outstanding at December 31, 2011 and 2010, respectively
    11,392,403       12,819,116  
Common Stock - $.0001 par value; 100,000,000 shares authorized, 22,059,803 and 21,235,485 issued and 21,870,199 and 21,177,505 outstanding December 31, 2011 and 2010, respectively
    2,206       2,123  
Additional paid-in capital
    8,550,435       6,679,294  
Treasury stock, 189,604 and 57,980 shares held by the Company at December 31, 2011 and 2010, respectively
    (218,965 )     (73,926 )
Accumulated deficit
    (14,650,814 )     (17,475,835 )
Noncontrolling interest in equity
    1,327,653       69,150  
Total stockholders' equity
    8,930,649       4,547,563  
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  $ 43,371,401     $ 18,092,861  
 
The accompanying notes to the Consolidated Financial Statements are an integral part of this statement.
 
F-2

 
 
 
 
 JUHL WIND INC.
 CONSOLIDATED STATEMENTS OF OPERATIONS
 FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
 
   
2011
   
2010
 
                         
                         
REVENUE
  $ 15,577,657       100.0 %   $ 6,268,143       100.0 %
                                 
COST OF GOODS SOLD
    6,017,327       38.6       4,894,481       78.1  
                                 
GROSS PROFIT
    9,560,330       61.4       1,373,662       21.9  
                                 
OPERATING EXPENSES
                               
General and administrative expenses
    2,130,167       13.7       1,609,871       25.7  
Payroll and employee benefits
    2,274,497       14.6       2,426,817       38.7  
Wind farm administration expenses
    267,783       1.7       83,583       1.3  
Total operating expenses
    4,672,447       30.0       4,120,271       65.7  
                                 
OPERATING INCOME (LOSS)
    4,887,883       31.4       (2,746,609 )     (43.8 )
                                 
OTHER INCOME (EXPENSE)
                               
Interest income
    422,396       2.7       655,468       10.5  
Interest expense
    (486,908 )     (3.1 )     (687,024 )     (11.0 )
Loss in fair value of interest rate swap
    (5,214 )     (0.0 )     -       0.0  
Loss from equity method investment
    (320,166 )     (2.1 )     -       0.0  
Gain on previously held equity interest
    320,014       2.1       -       0.0  
Total other expense, net
    (69,878 )     (0.4 )     (31,556 )     (0.5 )
Investment
                               
INCOME (LOSS) BEFORE INCOME TAXES
    4,818,005       31.0       (2,778,165 )     (44.3 )
                                 
INCOME TAX BENEFIT (EXPENSE)
    (1,776,000 )     (11.4 )     978,000       15.6  
                                 
NET INCOME (LOSS)
    3,042,005       19.6       (1,800,165 )     (28.7 )
                                 
LESS NET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTEREST
    7,897       -       (16,978 ) #     (0.3 )
                                 
NET INCOME (LOSS) ATTRIBUTED TO JUHL WIND, INC.
  $ 3,034,108       19.6 %   $ (1,783,187 ) #     (29.0 ) %
                                 
PREFERRED DIVIDENDS
    416,629               390,955          
                                 
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS
  $ 2,617,479             $ (2,174,142 )        
                                 
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC AND DILUTED
    21,658,433               21,132,144          
                                 
NET INCOME (LOSS) PER SHARE - BASIC AND DILUTED
  $ 0.12             $ (0.10 )        
 
The accompanying notes to the Consolidated Financial Statements are an integral part of this statement.
 
F-3

 
 JUHL WIND INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
 
 
 
           
Convertible
 
Convertible
             
Total
         
           
Preferred Stock
 
Preferred Stock
 
Additional
         
Stockholders'
 
Non-
 
Total
 
   
Common Stock
 
Series A
 
Series B
 
Paid-In
 
Treasury
 
Accumulated
 
Equity-
 
Controlling
 
Stockholders'
 
   
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Capital
 
Stock
 
Deficit
 
Juhl Wind
 
Interest
 
Equity
 
                                                   
                                                   
BALANCE
December 31, 2009
    20,982,860   $ 2,098     4,820,000   $ 2,527,731     6,567,006   $ 12,819,116   $ 6,089,361   $ -   $ (15,692,648 ) $ 5,745,658   $ -     5,745,658  
                                                                           
Net loss
    -     -     -     -     -     -     -     -     (1,783,187 )   (1,783,187 )   (16,978 )   (1,800,165 )
                                                                           
Stock-based compensation
    -     -     -     -     -     -     589,868     -     -     589,868           589,868  
                                                                           
Series A preferred stock dividend paid in common stock
    252,625     25     -     (390,955 )   -     -     390,930     -     -     -           -  
                                                                           
Series A Preferred dividends
    -     -     -     390,955     -     -     (390,955 )   -     -     -     -     -  
                                                                           
Minority interest in Winona County
    -     -     -     -     -     -     -     -     -     -     86,128     86,128  
                                                                           
Common stock purchased pursuant to Stock Repurchase Plan
    -     -     -     -     -     -     -     (73,926 )   -     (73,926 )   -     (73,926 )
                                                                           
BALANCE  - December 31, 2010
    21,235,485     2,123     4,820,000     2,527,731     6,567,006     12,819,116     6,679,204     (73,926 )   (17,475,835 )   4,478,413     69,150     4,547,563  
                                                                           
Net income
    -     -     -     -     -     -     -     -     3,034,108     3,034,108     7,897     3,042,005  
                                                                           
Stock-based compensation
    -     -     -     -     -     -     375,451     -     -     375,451           375,451  
                                                                           
Series A preferred stock dividend paid in common stock
    224,104     23     -     (207,542 )   -     -     207,519     -     -     -           -  
                                                                           
Series A preferred stock dividend paid in cash
                -     (183,413 )   -     -           -     -     (183,413 )         (183,413 )
                                                                           
Issuance of common stock upon conversion of Series B Preferred Stock
    600,214     60     -     -     (600,214 )   (1,426,713 )   1,426,653     -     -     -           -  
                                                                           
Series A preferred dividends
    -     -     -     390,955     -     -     (207,542 )   -     (183,413 )   -     -     -  
                                                                           
Dividends on subsidiary preferred stock paid in cash
    -     -     -     -     -     -     -     -     (490 )   (490 )         (490 )
                                                                           
Dividends paid on preferred membership interests in wind farms
    -     -     -     -     -     -     -     -     (25,184 )   (25,184 )         (25,184 )
                                                                           
Capital contributions to consolidated entities by noncontrolling interests
    -     -     -     -     -     -     -     -     -     -     1,319,756     1,319,756  
                                                                           
Reclassification of prior noncontrolling interest due to acquisition
    -     -     -     -     -     -     69,150     -     -     69,150     (69,150 )   -  
                                                                           
Common stock purchased pursuant to stock repurchase plan
    -     -     -     -     -     -     -     (145,039 )   -     (145,039 )   -     (145,039 )
                                                                           
BALANCE  -December 31, 2011
    22,059,803   $ 2,206