UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

 

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

 

For the fiscal year ended December 31, 2013

 

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

 

For the transition period from ________ to ________

 

Commission file number 0-54360

 

Windstream Technologies, Inc.

(Exact name of registrant as specified in its charter)

 

Wyoming   98-0178621
(State or Other Jurisdiction of   (I.R.S. Employer
Incorporation or Organization)   Identification Number)

 

819 Buckeye Street

North Vernon, Indiana 47265

(Address of principal executive office

 

(812) 953-1481

(Registrant’s telephone number, including area code)

 

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, $0.001 Par Value

(Title of Each Class)

 

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

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [  ] 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 [  ]

 

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 [  ]

 

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. [  ]

 

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. (Check one):

 

Large accelerated filer [  ]   Accelerated filer [  ]
Non-accelerated filer [  ] (Do not check if a smaller reporting company)   Smaller reporting company [X]

 

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

As of June 30, 2013, the aggregate market value of the voting and non-voting common equity held by non-affiliates was not determinable due to the lack of trading of its common stock.

 

The number of shares outstanding of each of the issuer’s classes of common stock, as of March 31, 2014 is as follows:

 

 Class of Securities    Shares Outstanding
Common Stock, $0.001 par value   83,461,899

 

 

 

 
 

 

Windstream Technologies, Inc.

 

TABLE OF CONTENTS

 

PART I        
  Item 1. Business   3
  Item 1A. Risk Factors   22
  Item 1B. Unresolved Staff Comments   28
  Item 2. Properties   28
  Item 3. Legal Proceedings   28
  Item 4. Mine Safety Disclosures   29
PART II        
  Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities   29
  Item 6. Selected Financial Data   30
  Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations   30
  Item 7A. Quantitative and Qualitative Disclosures About Market Risk   35
  Item 8. Financial Statements and Supplementary Data   35
  Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure   36
  Item 9A. Controls and Procedures   37
  Item 9B. Other Information   38
PART III        
  Item 10. Directors, Executive Officers and Corporate Governance   39
  Item 11. Executive Compensation   42
  Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   44
  Item 13. Certain Relationships and Related Transactions, and Director Independence   44
  Item 14. Principal Accounting Fees and Services   45
PART IV        
  Item 15. Exhibits, Financial Statement Schedules   46
SIGNATURES   47
FINANCIAL STATEMENTS   F-1

 

2
 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Statements contained in this annual report include “forward-looking statements” within the meaning of such term in Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements involve known and unknown risks, uncertainties and other factors which could cause actual financial or operating results, performances or achievements expressed or implied by such forward-looking statements not to occur or be realized. Forward-looking statements made in this annual report generally are based on our best estimates of future results, performances or achievements, predicated upon current conditions and the most recent results of the companies involved and their respective industries. Forward-looking statements may be identified by the use of forward-looking terminology such as “may”, “will”, “could”, “should”, “project”, “expect”, “believe”, “estimate”, “anticipate”, “intend”, “continue”, “potential”, “opportunity” or similar terms, variations of those terms or the negative of those terms or other variations of those terms or comparable words or expressions. Potential risks and uncertainties include, among other things, such factors as:

 

  our potential inability to raise additional capital;
     
  disruptions in our business arising from the implementation of our transformational change initiatives and the resulting consequences to our business and results of operations;
     
  increased costs and expenses associated with our transformational change initiatives;
     
  seasonality and fluctuations in our operating results and cash flow;
     
  our inability to pass through cost increases in a timely manner;
     
  risks associated with innovation, including the risk that our new product innovations will not produce sufficient sales to recoup our investment;
     
  fluctuations in energy prices, fuel and related petrochemical costs;
     
  consolidation trends in the alternative energy industry;
     
  competition in our industries;
     
  risks associated with our acquisition strategy;
     
  dependence upon our key executives;
     
  our ability to protect our intellectual property rights;
     
  potential environmental liabilities;
     
  risk associated with international sourcing;
     
  potential dilution from issuance of authorized shares;
     
  Securities and Exchange Commission regulations which affect trading in the securities of “penny stocks;” and
     
  changes in economic conditions, including a general economic downturn or a downturn in the securities markets.

 

Additional disclosures regarding factors that could cause our results and performance to differ from results or performance anticipated by this annual report are discussed in Item 1A. “Risk Factors”. Readers are urged to carefully review and consider the various disclosures made by us in this annual report and our other filings with the U.S. Securities and Exchange Commission (the “SEC”). These reports attempt to advise interested parties of the risks and factors that may affect our business, financial condition and results of operations and prospects. The forward-looking statements made in this annual report speak only as of the date hereof and we disclaim any obligation to provide updates, revisions or amendments to any forward-looking statements to reflect changes in our expectations or future events.

 

PART I

 

ITEM 1. BUSINESS

 

History

 

Windstream Technologies, Inc (formerly Windaus Global Energy, Inc.) (“we” or the “Company”) was originally incorporated as Solarte Hotel Corporation in May 2008 to purchase real estate in the archipelago of Bocas Del Toro, Panama and to develop a luxury eco-lodge hotel on the property. In June 2009 the Company abandoned this business plan and embarked on a new plan to market incorporation services, including US jurisdictions, Panama and other offshore jurisdictions, as a form of estate planning or asset protection for its clients.

 

In October, 2011, a new interim President was appointed to manage the company; this President apparently intended to cause Blue Star to acquire a Spokane, Washington-based company named Blue Star Technologies, as soon as an audit of that entity could be completed. Blue Star Technologies is a replicator of blue ray DVDs. In December 2011 the Board of Directors changed the name of the Company to Blue Star Entertainment Technologies, Inc., in connection with that proposed acquisition. However, no audit was ever completed for Blue Star Technologies, nor were any shares issued or transferred nor any acquisition effected, and that entity remains independently owned and non-affiliated with the Company. In May, 2012, a former operations manager purchased control of the company and became its principal officer.

 

3
 

 

On or about November 27, 2012, we entered into that certain Share Exchange Agreement (the “Original Share Exchange”), by and among the Company, Windaus Global Energy, Inc., a company incorporated pursuant to the laws of the Province of Ontario (“OpCo”) and Maurice and Judy Dechamps, the sole shareholders of OpCo, who are represented by David Worrall (the “Shareholder”), pursuant to which the Company was to acquire all of the outstanding shares of OpCo (the “Opco Stock”) in exchange for the right to receive 36 million shares of the Company’s common stock (the “Windaus Stock”). Prior to the Original Share Exchange, the Company had approximately 24 million shares of common stock issued and outstanding and no shares of preferred stock. For a further discussion of the Original Share Exchange, please refer to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission (the “SEC”) on December 4, 2012.

 

Subsequent to the execution of the Original Share Exchange, on or about December 4, 2012, the Company entered into that certain Technology Transfer Agreement (the “Technology Transfer Agreement”) by and between the Company, as buyer, and OpCo, as seller, whereby the Company sought to acquire certain patent rights and other technology owned by OpCo in exchange for the issuance of approximately 36 million shares of common stock of the Company, and mutually cancel and rescind the Original Share Exchange together with the obligation to issue shares of common stock thereunder. For a further discussion of the Technology Transfer Agreement, please refer to the Company’s Current Report on Form 8-K, filed with the SEC on February 13, 2013.

 

Effective on May 22, 2013 (the “Closing Date” or the “Closing”), the Company entered into that certain Rescission Agreement (the “Rescission Agreement”) by and among the Company, OpCo and the Shareholder. Pursuant to the terms of the Rescission Agreement, the Company has confirmed and ratified the rescission of the Original Share Exchange and the Shareholder agreed to surrender the Windaus Stock held by it, if any, to the Company for cancellation and cancel or terminate any instructions to issue shares to any other recipients, and the OpCo Stock will be returned by the Company to the Shareholder. Furthermore, under the Rescission Agreement, the Technology Transfer Agreement was canceled and terminated and any assets transferred to the Company by OpCo pursuant thereunder were transferred and conveyed back to OpCo.

 

The above description of the Rescission Agreement does not purport to be complete and is qualified in its entirety by reference to the Rescission Agreement, which is attached hereto as Exhibit 2.1 to this Annual Report on Form 10-K.

 

Simultaneously on the Closing Date, the Company entered into that certain Share Exchange Agreement (the “New Share Exchange Agreement”) by and among the Company, WindStream Technologies, Inc., a California corporation (“WindStream”) and certain shareholders of WindStream (the “WindStream Shareholders”). Pursuant to the New Share Exchange Agreement, the Company agreed to exchange the outstanding common and preferred stock of WindStream held by the WindStream Shareholders for shares of common stock of the Company on approximately a 1:25.80 basis. At the Closing there were 955,000 shares of WindStream common stock and 581,961 shares of WindStream preferred stock outstanding. In addition, at the Closing WindStream had outstanding options to purchase 205,000 shares of common stock. Pursuant to the New Share Exchange Agreement, the shares of WindStream common stock and (preferred stock were exchanged for approximately 39,665,899 new shares of the Company’s common stock (24,646,646 common shares for 955,000 shares of common shares and 15,019,253 common shares for 581,961 preferred shares). par value of $0.001 per share. Also approximately 13.4 million shares are reserved for the options to be exercised in the future under WindStream’s stock option plan. At the Closing, the Company had approximately 24 million shares of common stock issued outstanding and no preferred stock. As of the Closing, the holders of the majority shares of common and preferred stock of WindStream exchanged their shares into a majority of the shares of the then issued and outstanding shares of the Company’s common stock.

 

WindStream was originally established in 2008 as a California “C” corporation by Daniel Bates and there was no prior relationship between Mr. Bates or WindStream or any of its officers or directors, on one hand, and the Company or any of its officers or directors, on the other hand.

 

The negotiations between the Company and WindStream began in late February 2013, although no term sheet, letter of intent or other expression or memorialization of terms was executed until the New Share Exchange Agreement was executed and delivered. The share exchange ratio was determined by negotiation and without reference to any third party valuation of either entity. The boards of directors of each company considered the current stock price of Windaus Global Energy, Inc., the current revenues and earnings of each company and the business prospects of each company in establishing the exchange rate in the share exchange.

 

The transaction for which the Form 8-K was filed on May 28, 2013, and the Form 8-K/A was filed on August 16, 2013, was a share exchange and not a merger of two entities. As a result, shareholder approval was not required for the business combination. As is reflected in the New Share Exchange Agreement, the two companies, Windaus Global Energy, Inc. and WindStream Technologies, Inc. were neither merged nor consolidated. The WindStream Technologies, Inc. shareholders simply exchanged their shares for common shares of Windaus Global Energy, Inc. Both companies are still in existence, have their separate tax ID number, etc. and no plan of merger or related documents were filed with the relevant Secretary of State to consummate the transaction. Neither California law (in the case of WindStream Technologies, Inc.) nor Wyoming law (in the case of Windaus Global Energy, Inc.) required that these entities obtain shareholder approval for this type of share exchange transaction.

 

4
 

 

As a result of the New Share Exchange Agreement and the other transactions contemplated thereunder, WindStream is now a majority owned subsidiary of the Company. The share exchange is accounted for as a reverse merger with Windstream being the accounting acquirer. The historical financial statements of WindStream are the historical financial statements and information of the Company as of the date of the merger.

 

The above description of the New Share Exchange Agreement does not purport to be complete and is qualified in its entirety by reference to the New Share Exchange Agreement, which is attached here to as Exhibit 2.2 to this Annual Report on Form 10-K.

 

Overview of Our Business

 

WindStream was established in 2008 to develop, produce and sell a cost effective, wind energy solution focused on the urban setting. WindStream’s management is comprised of seasoned entrepreneurs with extensive experience in building and operating businesses. Collectively, the Company believes that management has the vision as well as experience in technology, science, engineering, the sustainability sector, financial management and sales and marketing to execute on its business plan. WindStream’s mission is to address the issues of building permits, costly installation processes, restrictions on the size of wind turbines, as well as concerns about noise and environmental safety, which management believes has prevented the widespread use of urban wind systems. The American Wind Energy Association reported in 2010 that 90% of all urban wind installations do not move forward due to these issues. In order to define the technology needed, the principals of WindStream consult with wind and fluid dynamics experts from Purdue University, University of Louisville, University of New Hampshire, University of California, Los Angeles, as well as various product designers. The Company has formed alliances with key industry personnel and Universities to expand and execute its technology development and its patent portfolio. WindStream has added key members to its Advisory Board, who are on the leading edge of these technologies and business sectors, and are well known and well versed in the Clean-Tech and alternative energy businesses. These and other efforts resulted in WindStream’sTurboMills ® and SolarMills ® platforms, which are intelligently designed, cost effective, environmentally friendly and conform to existing building codes. WindStream’s products have been designed to supplement the consumer’s traditional utility company provided electrical power supply or provide a distributed energy solution to those that are not grid connected. The goal is to enable individuals, communities and businesses to incrementally reduce their total dependency on the grid and reduce their electrical costs. TurboMills® and SolarMill® offer a smart, low cost and sound solution to the overall grid and fossil fuel-dependency, providing consumers ways to convert to using a clean renewable energy source to supplement current electrical usage.

 

WindStream’s original concept was to create a small wind product (defined as 100KW or less) that could be easily deployed in “urban settings.” The term “urban settling” is quite broad in that it includes population centers of one million or more residents, characterized by high population density and the accompanying elements thereof, such as multi-story buildings, high density housing, small building lots for residential housing and the existence of above ground power and communication lines. As a result, these areas typically have roof top surface and building height and codes that must be considered in the installation of wind turbine systems. Therefore, our target market includes large cities such as Los Angeles, San Diego, Chicago and New York with several million residents and population densities of several thousand people per square mile, as well as many smaller cities throughout the country with populations of at least one million people. We may also target smaller cities with smaller populations, such as Laramie, Wyoming, with population densities of only a thousand or so per square mile, if such cities have the multi-story buildings and high density housing features of larger cities. Although estimates vary, according to the United States Census Bureau, over 80% of Americans live in metropolitan areas. Metropolitan areas are usually synonymous with what people consider “cities”. In these urban settings, residents who seek ways to reduce energy costs and purchase socially responsible products, must consider the applicable building codes, while in more rural communities, residents may construct much larger devices due to the fact that they are not in close proximity to their neighbor and not subject to the same building code restrictions as those found in a more densely populated area. These codes vary from city to city, and our customers are encouraged to review the applicable building codes in their area, but generally these building codes include, among other things, power capacity limits, height limits, blade rotation speed limits, operational noise limits, and minimum distance from power and communication line requirements. While no single product can comply with all applicable regulations regarding rooftop installations, we believe that our products comply with many current applicable building codes and that many of our customers will be able to obtain building permits to install our products by complying with applicable permit processes and without significant construction or alteration of their home/facility. Our clients are responsible for determining if installation of our products complies with codes and regulations applicable to them and for applying for and obtaining all necessary permits.

 

The Company is focused on developing smart technology solutions for renewable energy generation based on the TurboMills ® building-block concept. Our SolarMill ® and TurboMill ® products are a low-cost, highly efficient means of harnessing renewable energy resources in urban and rural environments.

 

5
 

 

The TurboMill ® is a modular, renewable energy system designed and optimized for both on and off grid applications. The products’ modular concept is unique, intelligent, efficient and flexible. It utilizes 3 low-profile (one meter tall) turbines mounted on a single base which can be interconnected to maximize wind energy production in low and turbulent wind environments, commonly found in urban settings. TurboMills ® are highly efficient and produce power from wind speeds as low as four (4) mph. The Company’s patented platform is a cost-effective and highly efficient distributed energy solution currently unmatched in the marketplace

 

Utilizing the same mounting structure, electronics and inverters as the TurboMill ® , the SolarMill ® allows customers in low wind environments to improve their return on investment and access a greater amount of clean, renewable energy. The return on investment, or ROI, for a customer is generally the value of ownership of our products, in terms of energy cost savings, rebates and the like, less the cost of the product. The ROI the customer will experience depends on several factors and varies from installation to installation. The main drivers affecting ROI are the users cost of utility supplied energy and the available renewable resources at the installation site. In the US the average cost of electricity is $0.12 kWh, in Jamaica, that same kWh costs $0.43, so the Jamaican customer will have a 4 times faster payback, approximately. The cost of the device also must be considered in calculating the ROI and we believe that our products are the least expensive renewable energy devices on the market today.

 

The available resources also play an important factor in the calculation of the ROI, the more sun and wind available, the more energy that will be created and the quicker the payback. We recommend a solar irradiance factor of 4 hours per day or more and a wind speed of 4-5 meters per second. Estimates of wind power density are often presented as wind class, ranging from 1 to 7, such as in the Wind Energy Resource Atlas of the United States, with Class 1 having a speed of 0-4.4 meters per second and class 7 having a speed of 7-9.4 meters per second. As stated, our equipment is designed for wind speeds as low 4-5 meters per second, which is in classes 1 and 2.

 

The Company believes that TurboMills ® and SolarMills ® will have a significant impact the quality of life for people around the world that do not have access to energy. In addition, we believe that cities, states, businesses, schools, institutions, the military, and individual homeowners can use our products as an affordable way to reduce their energy costs and lower their carbon footprint.

 

Available Information

 

We file with the SEC our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to reports to be filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended. The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549, on official business days during the hours of 10 a.m. to 3 p.m. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

 

Our corporate headquarters are located at 819 Buckeye Street, North Vernon, Indiana 47265. Our telephone number is (812) 953-1481. We maintain a website at www.windstream-inc.com that links to our electronic SEC filings and contains information about our subsidiaries which is not a part of this report. All the above documents are available free of charge on our website as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the SEC.

 

Pricing

 

The TurboMill and SolarMill products have each been developed to be a very simple system to assemble and install, along the lines of a do-it-yourself “kit.” In doing so, the Company has needed to ensure that the manufacturing process mimics this design methodology to continually reduce costs wherever possible. A vertical manufacturing plan is typical in our market segment and integral to our plans. Also, due to the recent onset of volatility of rare earth metals, and specifically the neodymium market, it has become critical to establish a manufacturing strategy that provides control, security, and cost stability.

 

We have taken and continue to take steps to establish a vertical manufacturing process and reduce manufacturing costs. We are internalizing many processes to grow vertically and remove our dependence on contract manufacturing. Coatings and extrusions (secondary and tertiary processes) have been brought in house, which reduced our Bill Of Materials (BOM) significantly. We plan to continue to increase vertical integration, standardization, Kaizen, and Kanban practices in order to continue to reduce our production costs. Refinements to how the generators are made to how the supporting frames are crafted to the paint line and final assembly are all considered and assessed in order find ways of reducing labor time and subsequently, cost. We intend to add to our manufacturing lines during the next twelve month to increase our throughput and drive costs lower. These improvements will include a “pre-paint” cleaning bath to remove oils and contaminants that come from the stamping process - currently all parts are manually cleaned. A new frame has been designed and is being tested now that will reduce the number of welds required for frame fabrication - this new frame will only need a bending jig manufactured which could dramatically reduce the time to construct a TurboMill or SolarMill frame. A TurboMill® is comprised of roughly 90 components (not including all the populated components in our controller board). Of these components, approximately 50% have proprietary tooling that has been developed and procured to meet production demand. Additional tooling may, in some cases, reduce labor costs or piece part pricing from our suppliers. For example, the tool to create the turbine blade, which has many stations and features as it works its way through the metal stamping process, includes some features in the process that require a “hand transfer” (moving the part from one machine to the next). Additional tooling will be made that will fit into the progressive die and negate the need for the hand transfer, driving down labor costs and adding efficiencies. This same methodology will be implemented on all of the parts that the Company has contracted for and will significantly reduce the points of labor that go into the production costs of the products. Bulk buying of other raw materials can reduce cost and that reduction may be reflected in the price the Company charges for all of its products.

 

6
 

 

Our initial short run of 500 units, with a 30 day lead time, resulted in a BOM for a TurboMill ® of roughly $694. This pricing was required to meet sales opportunities and the current customer demand. By the end of the first 500 unit production run, the cost on a per unit basis has dropped to approximately $460 with higher volume purchasing and longer lead times for delivery. Within the next six to twelve months, subject to increased sales volume, we anticipate further reduction in the BOM to approximately $379. Over a longer period, if we are successful in increasing volume by establishing a global procurement and assembly matrix, we believe that we will have the opportunity to reduce the cost of goods sold further, with the ultimate goal of reduction to approximately $300. The graph below tracks our internal calculation of the BOM of our products as we moved from our prototypes in early 2011 to the current fifth generation of our products:

 

 

 

The TurboMill and SolarMill would benefit equally in reductions in the BOM, but we can provide no assurance, however, that such improvements will be made, or the amount by which any such improvements would lower the BOM. In addition, as the Company increases its sales volume and needs to purchase additional raw materials the cost of these materials may be driven down with the additional purchase power, which could also reduce the BOM. Price adjustments to the TurboMill and SolarMill will be reduced when, as and if the BOM is reduced. Our pricing will be revised continually as the Company our sales increase and our BOM is adjusted due to our cost cutting efforts.

 

Suppliers/Manufacturers

 

The WindStream manufacturing philosophy is based upon the Toyota Production Systems (TPS). The TPS goal is simple by design but the Company’s believes that it will completely differentiate our product from the entire renewable energy market. WindStream production scheme is based on the same “economies of scale” utilized by the automotive and appliance industries.

 

The Company has not committed to any single manufacturer for exclusive rights to produce the components needed to manufacture the TurboMill or SolarMill. Instead, we have many relationships with contract manufacturers that will be expanded upon as we move forward. WindStream developed its products utilizing a design philosophy for its generator, turbine and base that takes advantage of existing materials and components that could be procured from multiple vendors through an established supply chain. We have also invested in the necessary tooling from which many of our component parts are created, stamped, injection molded, thermoformed etc. This gives the Company to ability to move the needed tooling to the chosen manufacturer whenever there is a concern of the Company’s or better pricing is available from a different vendor. For example, the turbines are currently made by a manufacturer in Chicago, Lindy Manufacturing. The tool to create the turbine blade is a progressive tool that is customized for production of our products and can be moved to one or more manufacturers without materially interrupting our manufacturing process. This multiple sourcing model is well known in the manufacturing industry an as such has allowed the Company to forego the need for long term contracts locking the Company into an agreement and pricing structure that may become more favorable later. As a result, the Company anticipates that it will benefit from declining component costs over time as sales volumes increase. The Company has undertaken a comprehensive search to identify the network of suppliers it will utilize for its low-and high-volume of production needs. At this time, the Company does not anticipate having a sole source provider for any critical component.

 

7
 

 

WindStream performed system assembly and pre-production tests at its prior facility in New Albany, Indiana facility. This location served as the Company’s first assembly and distribution location during its initial operating phase. During 2012, the scale of operations increased, and WindStream established a manufacturing facility in North Vernon, Indiana, which is strategically located among some of the world’s best manufacturing and service facilities. This offers the Company the ability to utilize a vast majority of the same tooling and supply facilities that feed GM, Toyota, Honda, Ford, and GE operations. We are also able to reach an employee pool of highly trained tooling and service professionals. These supply and service industry professionals and facilities are seeking to diversify their customer bases to increase their reach into the sustainability industry. We believe that our competitors are not afforded the same opportunity due to location and proximity of the vendor supply base. The Company believes that its facility in North Vernon is sufficient to meet anticipated current production needs. The Company will align with international partners that possess the necessary capabilities for assembly, test and distribution, both in the U.S. and in foreign markets as necessary. The Company has sourced all of the component parts needed for manufacturing from multiple suppliers so that there cannot be disruption to production schedules.”.

 

The Wind Energy Industry

 

Wind energy is abundant, renewable and clean. The World Wind Energy Association reported in [20--] that the availability of wind power in the atmosphere is five times greater than the world’s current energy consumption in all forms per year; yet wind energy currently produces approximately just 1% of the world’s electricity use. Global initiatives to reduce greenhouse gas emissions (“GHG”) combined with the need to become less dependent on fossil fuels to generate power are challenging both public and private sectors worldwide to explore and increase the use of renewable energy sources (solar, wind, waste, etc.). The U.S Department of Energy recently issued a report, “Energy Efficiency and Renewable Energy” (March 12, 2008), outlining initiatives with the goal of having the United States produce 20% of its electrical energy requirement using wind power by the year 2030. The Company believes that worldwide government support coupled with numerous incentives such as subsidies, tax credits and research grants will encourage both public and private sectors to engage and drive significant capital investment into the renewable energy space. Moreover, this movement will challenge the entire renewable energy community to explore more cost-effective and efficient solutions, forge innovations in technologies, and create many new and exciting business opportunities.

 

The Global Wind Energy Council reports that the global wind power generating equipment market is estimated to be worth approximately $36 billion per. The wind power market is currently divided into two major categories:

 

1. Large-scale wind farms; and

2. Small-scale wind systems.

 

Large-Scale Wind

 

Large-scale wind farms involve substantial capital outlays - the average cost of each turbine ranges from $2.2 million to $2.5 million, excluding infrastructure development costs, such as land acquisition and construction. Nonetheless, in economic terms wind energy makes for a compelling investment due to low maintenance and operating costs, equipment and components with at least 20 years of useful life, and clean power output. In addition, government subsidies and incentives to build infrastructures and facilities that can generate clean power and transmit it to the power grid are drawing huge investment dollars and large players like General Electric, Siemens AG, Mitsubishi, United Technologies, and PacifiCorp (controlled by Warren Buffett’s Berkshire Hathaway), among others, to the wind energy marketplace.

 

Small-Scale Wind and the Urban Environment

 

The Company believes that the small wind marketplace is rapidly growing and that we offer a unique product design as a low cost, small footprint solution. According to a study by the American Wind Energy Association published in 2009, the US market for small wind turbines – those with capacities of 100 kW and under – grew 78% in 2008 with an additional 17.3 MW of installed capacity. The Association projected in a 2008 study a 30-fold growth within as little as five years, despite a global recession, for a cumulative US installed capacity of 1,700 MW by the end of 2013.

 

8
 

 

Small wind systems with capacities of 100kW or less are most commonly used as supplemental sources to power homes, farms and small businesses in remote or isolated communities where access to the power grid is limited or non-existent. In many of these hard-to-reach or “off-grid” communities, where the predominant form of power supply comes from diesel or gasoline generators, small wind turbines have often served as supplemental sources to displace diesel fuel consumption costs.

 

WindStream will focus on Class 2 and Class 3 areas of wind power generation. These “small wind” areas cover over 94% of the U.S. Coastal areas, which are population centers, typically have consistent winds for a long period of time and can therefore generate even more power from the same products. “Good wind areas, which cover 6% of the contiguous U.S. land area, have the potential to supply more than one and a half times the current electricity consumption of the United States,” according to an Infinite Energy Resources LLC report in 2013.

 

 

 

 

 

Decentralized Power Generation

 

The ability to generate power and use it on-site or locally is the definition of “Decentralized Power Generation” or power generation that is not supplied by a centralized utility grid. The Company believes that this is how much of the energy needs of hundreds of millions of people will be served in the future because traditional power companies will not run expensive power transmission lines to remote or rural areas to service a small population. More and more, these needs will be met with small-scale distributed solutions. We believe that the development of this market will be similar to the rise of the mobile phone negated the need for expensive infrastructure in the form of transmission lines, distributed energy solutions will follow the same model whereby individuals can now produce their own power at a fraction of the cost of a more traditional delivery system.

 

Additionally, here in the U.S. and in Europe, utilities are being driven by public policy, Renewable Portfolio Standards (RPS) to increase their capacity for renewable resources. Many States have already mandated that utilities secure at least 20% of their energy portfolio from renewable resources. We believe that this energy will be derived primarily from urban energy collection. We do not believe that the large “big wind” solar arrays and wind farms provide a solution because they are expensive and have a high cost of transmission to urban areas. We believe that the most important aspect to urban energy collection is the ability to generate electricity that can be directly consumed at the site of generation. This means that the electricity produced is being effectively used by the consumer at the point of generation, which is significantly less expensive. WindStream’s Products address the problem of transmission by decentralized power generation or point of use generation, via wind and solar power. The Company’s Products cost effectively harness renewable resource and provide benefit to consumers and entities that are focused on accessing and delivering clean energy solutions.

 

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Government Initiatives/Regulation

 

Federal

 

Currently there is no Federal-level regulation that specifically controls the sale, distribution and installation of small wind turbines beyond general small business regulations. The Public Utility Regulatory Policies Act of 1978, or PURPA, requires utilities to interconnect and purchase energy from small wind systems. Individual utilities are permitted to regulate that process.

 

There is a Federal tax credit available to installers of small wind systems. Owners of small wind systems with 100 kW of capacity and less can receive a credit for 30% of the total installed cost of the system, not to exceed $4,000. The credit was available beginning October 3, 2008, the day the bill was signed into law, through December 31, 2016. For turbines used for homes the credit is additionally limited to the lesser of $4,000 or $1,000 per kW of capacity.

 

The American Recovery and Reinvestment Act of 2009 allocated $18.5 billion to fund “Energy Efficiency and Renewable Energy.” In an important step toward realizing the goals set forth by President Obama, the Department of Energy (DoE) has stated that this renewed interest in alternative energy has led the government to look for innovative companies and technologies that can meet the challenges set forth by the administration. One such goal is to find solutions for the supplementation of residential power needs through the use of solar and wind power. Per the DoE, “we are looking for any augmentation of power, using wind as the source that can offset as little as 5% of a home’s power requirement.”

 

State and Local

 

Each state is responsible for regulating the sale, installation and interconnection of alternative energy within their state. There are currently several state level renewable and efficiency incentive programs, as outlined in The Database of State Incentives for Renewables and Efficiencies at www.dsireusa.org. Although we do not believe that our products qualify for any state incentive programs currently, we are directing research and development efforts at product revisions that could allow for certification for potentially several state incentive programs. We can not, however, provide any assurances that we will be able to qualify for such state incentives. We currently sell our products primarily to customers such as municipalities and educational institution that have not expressed interest in incentive programs. If we can obtain state certifications in the future, we may be able to sell our products to customers for whom state incentives are necessary to achieve their targeted return on investment in our products. In addition, state and local incentive programs are being developed rapidly and we believe that such programs in the future will target and benefit wind energy technologies such as ours, although no assurances can be given as the timing or effectiveness on our business of any such programs, if any.

 

The Company is currently pursuing all sources of government and institutional support in its effort to fully capitalize, market, and promote the Company and its products, including now existing relationships with the Department of Energy, Department of Commerce, the State Department, the World Bank, OPIC, IADB, and EXIM Bank.

 

Sales, Marketing, and Distribution

 

WindStream entered the market with its initial product the TurboMill® and the Company will continue to develop and introduce a suite of products for customers looking to cost effectively reduce their energy costs and overall carbon footprint. These products are powered by “small wind” (Class 2, 3) – typically, wind speeds of 6 meters/sec (13 mph) or below. With ease of installation and a wide variety of uses, TurboMills® can be placed anywhere there is a source of wind power. This power can then be harnessed and converted into a sustainable energy resource.

   

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WindStream is marketing its products and technology solutions to these initial markets:

 

1. Developing Nations: TurboMills ® and SolarMills ® provide a low-cost distributed energy solution including self-contained batteries, a charging port for cell phones, a photovoltaic capture accessory and more;
   
2. Municipalities: City, state and foreign environmental authorities have mandated the reduction of greenhouse gas emissions from their buildings;
   
3. Military/Government: The US Army has a goal of “net-zero energy” consumption by 2030 for all its military bases, installations and residences domestically/internationally. US Gov. buildings must achieve 30% energy efficiency by 2015;
   
4. Institutions: Schools, hospitals, museums, universities, sports stadiums and other structures can reduce their daily energy consumption where traditional wind and solar solutions cannot fit;
   
5. Corporations/Small Businesses: TurboMills ® enable businesses to harvest HVAC exhaust, “wind canyon” effects, and other urban wind energy to reduce their energy use and carbon footprint;
   
6. Residential Customers: Sold directly to consumers, through big box retail outlets for simple, permit-free DIY installation or through professional energy appliance installers;
   
7. Telecom Companies: Provide a cost-effective distributed energy solution to cellular towers and repeaters for off-grid areas enabling Telecom’s to reduce costs and the CAPEX and OPEX of costly diesel generators. In on-grid areas this type of installation improves the Telecom’s quality of service as a fall-back energy solution when the grid is unstable or non-existent; and
   
8. Highway-Energy Harvesting: TurboMills ® placed on center dividers of highways can create new revenue opportunities for state, local and private highway operators, generating an estimated 1MW from vehicle drafts over three miles.

 

The Company has entered into various distribution agreements of which two are: HG Energy for Italy and select countries in the EU and Jamaica Public Service Company (JPSCo) for exclusive rights to distribute the products throughout the Caribbean. Pursuant to these agreements, the distributor may order products from WindStream and the distributor is responsible for all sales and marketing costs and any associated service and maintenance. The products will be ordered under a Purchase Order, and WindStream agrees to delivery dates and then the products are paid for with deposit and final payment FOB Indiana. These agreements have not yet resulted in material purchases or orders. There are several other territories in which similar distribution agreements are being negotiated: India, UAE, Japan, Brazil, Peru, Mexico.

 

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Developing Nations Market

 

There are many countries and regions in the world with limited access to secure reliable and cost efficient power. In India, for example, 80% of the country regularly experiences black-outs and power outages for extended periods of time. There are 1.6 Billion people without access to electricity worldwide, and 400 Million in India alone, according to The Hindustan Times in a 2009 report. The need for basic necessities such as light and clean water is great. Kerosene lamps, which are highly toxic and dangerous, are a common form or indoor lighting.

 

The WindStream Developing Nations product line is a simple, low cost solution to this global problem. Using the same design and technology of the municipal TurboMill ® or SolarMill ® product, and adding a storage device can provide clean, safe and efficient lighting when the sun goes down. A low cost easily installed system can be used to light residences, charge cell phones and other battery driven devices, keep medicines cool in refrigerators, provide consistent energy for schools and other uses. and the Company believes that its products can improve the quality of life for people around the world.

 

To penetrate the Developing Nations market, the Company is pursuing various means to drive sales and distribution:

 

  Partner with key companies in the specific regions;
     
  Develop Joint Ventures;
     
  Establish local manufacturing with its partners;
     
  Secure financing options through:
     
    Government subsidies
       
    Corporate Responsibility Funding
       
    Philanthropic organizations (NGO’s)
       
    United Nations

 

The following is an example of a “basic package” that will be delivered as a Developing Nations product. These packages can be expanded in reaction to demand in specific nations.

 

 

 

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First pilots underway with “Reach the Children Foundation”

deployment in Accra, Ghana – April 2012

 

WindStream has established relationships, made sales and/or shipped product to the following countries:

 

Brazil
     
Peru
     
Argentina
     
India
     
Ghana
     
Kenya
     
Mexico
     
Philippines
     
Jamaica
     
Caribbean
     
Malaysia
     
Italy
     
Germany

 

WindStream has already started developing the initial partnerships in the following territories:

 

Italy: HG Energy
     
India – HBL Power Systems
     
Nordic Countries: Ole Halvorsen
     
Saudi Arabia: Riyahd Renewables
     
Indonesia
     
Liberia
     
Ghana
     
Kenya
     
New Zealand

 

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The Company is looking to expand its relationships with some of these distributors and to look for new ones in other markets. Potential distribution partners will come from the renewable energy field, solar installers, HVAC, satellite installers or any other distribution channel that has access to consumers on a 1 to 1 or B to B level.

 

The Company supports its distribution partners with the sale of products and ancillary equipment to insure the success of its partners and the further expansion of the sales channels. For on-grid sales channels, WindStream will provide the inverters, batteries and accessory equipment as white labeled or OEM products to enable the quick deployment of the entire system architecture. For off-grid applications the same support will be offered to our customers with the addition of providing specialized equipment for specific use cases. WindStream’ technical team had sourced a wide variety of DC powered products that will be supplied to our channel partners as OEM devices which will serve the needs of the customer and maximize the energy created by providing energy efficient DC driven devices cutting down on wasted conversion losses.

 

  Low power refrigerators
     
  LED Lighting
     
  Water Pumps
     
  Fans
     
  Low Power IT equipment

 

Municipal Market

 

WindStream is marketing its products and technology solutions directly to municipalities seeking to reduce their energy costs as well as their green house gas emissions. Currently 22 states have laws mandating the reduction of green house gas emissions. WindStream is distributing products to these local governments that need to comply with state standards. This need in the marketplace provides WindStream with a large target market. In California alone, there are 478 incorporated cities. In the U.S. there are 18,443 cities and 553,000 government owned buildings.

 

The scalability and flexibility of our products design can be leveraged to provide power to operate systems important to municipalities required by State (or Federal) legislation to reduce GHG’s. A system of TurboMills ® or SolarMills ® atop a building will provide consistent, low-cost energy to power lighting, office equipment, signage and more. In many cases, WindStream is being asked to provide proposals to these municipalities and businesses as a way of assisting in their efforts to upgrade a facility to secure a higher LEED certification and demonstrate to their constituents, customers and stakeholders their commitment to sustainability.

 

WindStream has targeted municipalities throughout the country as the first target market as a means of conforming to state laws and reducing GHG. In reaching these markets the Company has achieved the following:

 

Pilot or Full deployment programs with installation at the following sites:

 

  Atlantic Highlands, New Jersey – November 2012
     
  Upton, Indiana, All school building s and the City Community Center - November 2012
     
  Ripley Elementary School, Versailles, Indiana – Installed, October 2012

 

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As these pilot projects progress, the Company is:

 

  Aggressively marketing to additional cities
     
  Creating general awareness for the solution featuring the key attributes of the value proposition to municipalities and companies –

 

    (1) Low cost
       
    (2) Ease of Installation
       
    (3) Decentralized electrical generation
       
    (4) Scalable

 

WindStream believes that through these initiatives it will result in increased sales by the end of 2014.

 

Military/Government

 

The United States Military has announced plans to reach a “net zero” carbon policy by the year 2030. In order to achieve this goal, all branches of the military are making an effort to move to clean renewable energy platforms of all kinds. These platforms will include; solar, geothermal, biofuels and of course wind as well as other technologies. The Company believes that it is uniquely positioned to deploy its TurboMill ® and SolarMill ® products and play am important part in helping the military reach its goals. The near term strategy was recently publicized with the Army, Navy and Air Force each striving for 1 gigawatt of distributed, renewable energy, in the short term.

 

“The DOD's goal of deploying 3 gigawatts (GW) of renewable energy by 2025 is one of the largest commitments to clean energy in history. From the Air Force's recently announced project to install over $1B of distributed solar on bases and installations across the country, to the Army's new Energy Initiatives Task Force (EITF) program that plans to issue PPAs in 2012 for 2GW of power, the services are moving smartly ahead with their plans to spur the development and installation of renewable energy ranging from utility-scale projects to rooftop solar for base housing. New programs are quickly springing up to purchase renewable power for installations -- programs that will require tens of billions of dollars in private investment and finance.”

 

WindStream has already made significant inroads with its first installation of the TurboMill ® for the National Guard. This installation was completed in May 2012 at the National Guard, Sea Girt Training Facility in New Jersey. The installation at the National Guard Base in Sea Girt was an unpaid pilot to prove the efficiency of the product. We are currently in discussion with the Sea Girt base to deploy a full installation. The issues of sole sourcing the product so that Sea Girt may purchase, without needing to publish an RFP, are being considered by the Guard. WindStream is NOT on the GSA schedule. There is no formal contract as of this date, but we believe that this installation will be followed by installations with other National Guard posts in Rhode Island, Indiana and Georgia.

 

 

 

 

 

TurboMills ® uniquely designed for US Military uses

 

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Corporate Market

 

Corporations are aggressively exploring ways in which to adopt alternative energy solutions to supplement their traditional “on grid” acquisition of energy. They are motivated by two factors, the opportunity to reduce ever increasing energy costs, as well as the need to demonstrate a commitment to alternative energy solutions as a supplement to their on grid energy supply.

 

More and more, companies have used the triple bottom line as the driving factor in their public policy messaging. This adoption of a very visible alternative energy practice (TurboMills ® on roof lines) will demonstrate an environmental commitment to stockholders, employees and the communities in which they do business.

 

As with municipalities, WindStream is marketing directly to corporations. Companies are solicited for sales by WindStream’s in house sales and marketing staff as well as via direct marketing programs to the increasingly identified position of “Director of Sustainability Practices”.

 

Important Progress:

 

  Pilot agreement in place with Entra Eiendom - Norway’s largest property owner – Installation – June 2012 - Installed
     
  Pilot agreement in place with Endesa - Spain’s national utility– Installation – June 2012 - Installed
     
  Pilot agreement in place with ALPRO of installations throughout Mexico - Shipped
     
  Pilot agreement with Ivy Tech Collage, Lafayette, Indiana - Installed
     
  Pilot installation in Atlantic Highlands, New Jersey - Installed

 

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The Company believes that there are over 4 million commercial buildings in the U.S. alone that can benefit from the installation of the Company’s Products.

   

 

 

 

Entra Eiendom – Oslo, Norway

 

Residential Market

 

The modular concept of our products allows considerable scalability and flexibility to leverage the power delivery solution across many different household electrical applications – from small electronic devices such as cell phone chargers, video cameras, iPods, game consoles and laptops to outdoor lighting systems or small air-conditioning units. The electricity generated by a platform of TurboMills ® or SolarMills ® will be transferred directly to the home grid or stored to a battery or other storage device whereby it can provide a reliable alternate power source to numerous household devices.

 

Depending on power needs, consumers can customize their own alternate power supply system using wind power generated from their own environment, increase hard-dollar savings by reducing the electricity costs usually paid to the local utility companies, earn tax-credits from the government, and positively impact global efforts to reduce greenhouse gas (GHG) emissions. The solution is practical and the technology is affordable, efficient, easy-to-use, easy-to-maintain, easy-to-replace, and can be used to supplement a consumer’s power need.

 

The Company intends to distribute our products to the consumer/residential market through the following potential channels:

 

  Traditional retail partner distribution
     
    Home Depot
       
    Lowes
       
    WalMart
       
    Sears
       
  Distribution through local utility companies
     
    Sales are made to a local utility who then resells, installs and maintains TurboMills ® for their existing customer base.
       
  Establish partnerships with residential solar installers and networks
     
  E-Commerce/Direct Sales through online retailers and Company’s website
     
    Amazon.com
       
    eBay
       
    and all “green” online storefronts

 

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WindStream believes that TurboMills ® and SolarMills ® can be placed on rooftops and windowsills, walls and fence lines, in gardens or patios and immediately begin supplementing a customer’s electrical needs. This “supplementation” will directly benefit the consumer with energy cost savings while reducing demand on the public electrical grid..

 

The installation procedures of the products are simple and efficient. We believe that as consumers see TurboMills ® and SolarMills ® appearing on city buildings and roadways they will be exposed to the products and purchase though a direct-sales model online and through affiliate web sites, and then move into traditional retail channels as awareness grows. We believe that this “do it yourself” model will help drive consumer uptake and drive exposure and brand awareness. The products will come with all necessary hardware for installation and hookup to the home power system Because of its small size and footprint, consumers may install TurboMills ® , while not needing permits from a city planning office. The potential size of this market is enormous as there are approximately 110,000,000 homes in the United States.

 

 

 

Telecom Market

 

Communication towers in most Developing Nations all suffer from the same problem – they rely on energy that is:

 

  Inconsistent
     
  Unreliable
     
  Expensive
     
  Diesel Generated Powered

 

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WindStream has recognized this problem and has developed an inexpensive, highly efficient solution, for generating clean renewable energy, leveraging our micro-wind technology and cost effective manufacturing capabilities. The SolarMill ® will provide renewable energy to the towers’ energy storage system, significantly reducing the need for Diesel operation.

 

The WindStream products enable TELCO’s and Operators to dramatically lower their OPEX, increase coverage areas (rural, off-grid) and improve network reliability and up-time.

 

Diesel power generation systems are a well established technology with well documented parameters for fuel consumption and Operation /Maintenance cost. This depth of experience makes it relatively simple to establish schedules that will avoid fuel outages and assure maximum equipment reliability. There are more than an estimated 400,000 communication towers in India alone.

 

Highway Market

 

“Wind burst” created by vehicles passing by medians on roadways, through tunnels and over bridges can provide consistent wind power on a regular basis, and can generate an estimated 1MW for every 3 mile segment of installed Highway TurboMills ® . TurboMills ® set up on top of center dividers throughout the country can power highway lighting systems, call boxes, and emergency services as well as provide excess generated electricity back to the grid.

 

Energy harvested using natural wind currents and the “wind burst” or draft from moving vehicles can be harnessed to provide clean power to our electrical grids. This use of the TurboMills ® design will not only harness the untapped energy created by a passing vehicle but also translate the fossil fuel burned in an internal combustion engine into usable electrical energy. This application is estimated to generate utility scale power with minimal cost of transmission due to the proximity and ease of grid connection from the highway.

 

WindStream will deploy its highway version of the TurboMill ® technology in parallel with its current marketing focus of Municipalities and light industry. In doing so, the Company has secured pilot test sites that will benefit from the installation of the TurboMill ® system. (see appendix) These pilot installations will enable WindStream to collect valuable data that will be used to drive additional sales and installations of this new energy platform.

 

The steps needed to successfully execute this model are:

 

  Develop a profile of a likely highway installation target
       
    Geography
       
    Political structure
       
    Purchasing policy and practice
       
    Existing green commitment
       
    Existing green investment
       
    Ability to easily engage with decision makers
       
    Likelihood of funding or ability to assist in securing funding
       
    Readily apparent decision process
       
  Defined highway(s) (Circuito Exterior Mexiquense and Supervia Poniente, ) to be used as a pilot roadway to collect data
     
    Site Analysis
       
    Traffic Flow and Monitoring
       
    Interaction between the TurboMill and the highway’s existing grid
       
  Deploy the TurboMill ® system for the specific highway to be piloted
     
    Environmental challenges
       
    Safety issues
       
    Power off-loading considerations
       
  Secure a Power Purchase Agreement (PPA) with the local utility (if needed)

 

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Once this pilot has been undertaken and if successful, the Company will target other States, Countries, Utilities and Government institutions to market this new energy harvesting system and expand its reach and use cases. Just as vehicle draft on highways can drive TurboMills ® so can vehicles in tunnels (the Chunnel-26 miles in length), subway systems, trains, and rail systems.

 

 

 

 

 

WindStream has held discussions with potential clients for this product offering focusing on two business models for its highway product:

 

  Lease highway right of ways from State and Local Highway Divisions and sell the generated power to the local utilities through a Power Purchase Agreement. This model provides a huge amount of decentralized energy to utilities in the areas where it is needed most and a new revenue stream for local governments.
     
  Sell TurboMills ® on a “Per-Unit” basis to Departments of Transportation for use, and installation allowing the owner to sell the power created to a local utility.

 

There are over 4,000,000 miles of highway in the U.S. alone

 

Competition

 

The Company competes generally with all energy suppliers and manufacturers of energy producing equipment. The Company directly competes with manufacturers and suppliers of other vertical axis wind turbine (“VAWT”) systems, such as WePower Sustainable Energy Solutions, Windside production Ltd., Mariah Power and OregonWind Inc., as well as indirectly with traditional horizontal axis wind turbine (“HAWT”) wind turbines. To a lesser extent, the Company competes with providers of solar-thermal and solar-photovoltaic energy production. A significant disadvantage for the Company is that several competitors have longer operating histories and significantly more financial resources. However, we do not believe that we have significant competition in the integrated Hybrid (wind and solar) device class.

 

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The renewable energy market, particularly the “small wind” power generation sector, is considered to be relatively new and under-developed. Crucial elements of the competitive landscape such as definitive leadership, industry standards, competitive pricing, and customer expectations, etc. have yet to be shaped or fully defined – thus the barrier to entry is considered to be moderate and based on the ability to secure leading edge technological, operational, marketing and financial expertise.

 

This new emerging marketplace provides a unique and time sensitive opportunity for the WindStream product introduction. We believe that our key competitive advantages include:

 

  First mover advantage within the small wind/micro wind market
     
  Simple and straightforward solutions help reduce green house gases
     
  Customers can scale power generation incrementally
     
  Customers can scale investment incrementally
     
  Lower cost per kWh than other products or fuel sources
     
  Portability
     
  Aesthetically appealing products
     
  Patented technology

 

The modular or block unit concept is designed to be efficient and low-cost to manufacture. The Company believes that it has secured the most efficient and cost-effective means to mass-produce and market the TurboMills ® and SolarMills ® , in order to offer the lowest price per unit or lower cost per kWh than its competitors.

 

Intellectual Property

 

Trademarks and Trade Secrets

 

We rely on a combination of trademark, copyright and trade secret laws to establish and protect our proprietary rights. We will also use technical measures, confidentiality agreements and non-compete agreements to protect our proprietary rights.

 

The management of WindStream recognizes the importance of a defensible position for its technology as it enters the marketplace and as such has filed for patent protection in the United States and key international markets. In October of 2009, WindStream Technologies filed its first patent applications with the United States Patent and Trademark Office (USPTO). This provisional patent covered the Company’s core invention that of a modular and scalable wind energy device. The patent application has been approved by the USPTO, August 2012.

 

The current approved patent: “Modular Wind Energy Unit with Simple Electrical Connections” # US 8,536,720 B2 defines the technology for interconnecting 2 or more turbines and generators in a single base and then interconnecting the units in series to create a scalable renewable energy system. This concept allows the Company a clear intellectual property advantage over competitors that are looking to design and create similar devices, maximizing and leveraging the shared components of a singular system. The intellectual property rights of the Company are being expanded upon though CIP (Continuation In Part) filings further extending the scope of coverage.

 

The provisional patent was followed by Utility filings as well as international coverage through the Patent Cooperation Treaty. (PCT) The Company has subsequently filed unique applications in the following markets:

 

  European Union
     
  Brazil
     
  Peru
     
  India
     
  Australia
     
  Korea
     
  Japan

 

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In addition to its core patent filing the Company is preparing additional applications further protecting the technology and the manufacturing processes that have been developed as a means of driving down cost and improving the quality of the products. The additional patent protection will cover the Turbine geometry, Turbine manufacturability, Generator design and manufacturability, electronic control circuitry as well as surround the existing technologies and application with impediments to our competition.

 

Employees

 

The Company currently has 30 full-time employees. The Company considers its employee relations to be good, and to date has not experienced a work stoppage due to a labor dispute. None of the Company’s employees are represented by a labor union. For further information see section 5.02 below.

 

Wind and Solar Resources

 

Wind and Solar resource information is available for almost every region and country in the world and has proven to be very accurate for the estimation of the power generated from a deployment of the WindStream products. This information can be gained from many sources and WindStream has chosen to use data that has been compiled by the National Renewable Energy Lab (NREL) (www.nrel.gov) Typically, WindStream looks for countries with a mean wind speed of greater than 5m/s and a solar resource in excess of 4 kWh’s a day. If both of these parameters are met, coupled with a cost of energy greater than $0.20 kWh than the return on the investment, without government incentives, will be well under the desired 10 year payback period most consumers, commercial property owners and government/municipalities are looking for.

 

ITEM 1A. RISK FACTORS

 

You should carefully consider the risks described below together with all of the other information included in this report before making an investment decision with regard to our securities. The statements contained in or incorporated into this offering that are not historic facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. If any of the following risks actually occurs, our business, financial condition or results of operations could be harmed. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.

 

RISKS RELATED TO OUR BUSINESS

 

We are a new entrant into the small wind turbine industry without profitable operating history.

 

Our operating subsidiary, WindStream, has been in existence for approximately five years. Our limited operating history means that there is a high degree of uncertainty in our ability to: (i) develop and commercialize our products; (ii) achieve market acceptance of our products; (iii) respond to competition; or (iv) operate the business, as management has not previously undertaken such actions as a company. Additionally, even if we do implement our business plan, we may not be successful. No assurances can be given as to exactly when, if at all, we will be able to recognize profits high enough to sustain our business. We face all the risks inherent in a new business, including the expenses, difficulties, complications, and delays frequently encountered in connection with conducting operations, including capital requirements. Given our limited operating history, we may be unable to effectively implement our business plan which would result in a loss of your investment.

 

We expect to derive our future revenues from sales of our systems, however, the realization of these revenues is highly uncertain. We continue to devote substantial resources to expand our sales and marketing activities, further increase manufacturing capacity, and expand our research and development activities. As a result, we expect that our operating losses will increase and that we may incur operating loss. The Company’s ability to achieve profitability depends upon many factors, including its ability to develop and commercialize products. There can be no assurance that the Company will ever achieve any significant revenues or profitable operations.

 

If we cannot establish and maintain relationships with distributors, we may not be able to increase revenues. .

 

In order to increase our revenues and successfully commercialize our systems, we must establish and maintain relationships with our existing and potential distributors. A reduction, delay or cancellation of orders from one or more significant distributors could significantly reduce our revenues and could damage our reputation among our current and potential customers. We have signed three distribution agreements throughout the United States and international locations. The agreements have no termination penalties and not all of the distributors are currently active.

 

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We do not have sufficient cash on hand. If we do not generate sufficient revenues from sales among other factors, we will be unable to continue our operations .

 

We estimate that within the next 12 months we will need substantial cash and liquidity for operations, and we do not have sufficient cash on hand to meet this requirement. Although we are seeking additional sources of debt or equity financings, there can be no assurances that we will be able to obtain any additional financing. We recognize that if we are unable to generate sufficient revenues or obtain debt or equity financing, we will not be able to earn profits and may not be able to continue operations.

 

There is limited history upon which to base any assumption as to the likelihood that we will prove successful, and we may not be able to continue to generate enough operating revenues or ever achieve profitable operations. In the event that we are not able to secure financing, we may have to scale back our development plans or cease operations.

 

Raising needed capital in the future may be difficult as a result of our limited operating history.

 

When making investment decisions, investors typically look at a company’s historical performance in evaluating the risks and operations of the business and the business’s future prospects. Our limited operating history makes such evaluation and an estimation of our future performance substantially more difficult. As a result, investors may be unwilling to invest in us or such investment may be on terms or conditions which are not acceptable. If we are unable to secure such additional finance, we may need to cease operations.

 

RISKS RELATED TO THE COMPANY

 

There is serious doubt regarding our ability to continue as a going concern.

 

WindStream has a history of recurring losses from operations and has an accumulated deficit of $10,480,672 as of December 31, 2013. Management is unable to predict if and when we will be to generate positive cash flow. As a result, there is substantial doubt about our ability to continue as a going concern. Our plan regarding these matters is to raise additional debt and/or equity financing to allow us the ability to cover our current cash flow requirements and meet our obligations as they become due. There can be no assurances that financing will be available or if available, that such financing will be available under favorable terms.

 

In the event that we are unable to generate adequate revenues to cover expenses and cannot obtain additional financing in the near future, we may seek protection under bankruptcy laws.

 

If we are unable to raise sufficient capital, we may not be able to pay our key suppliers.

 

Our ability to pay key suppliers on time will allow us to effectively manage our business. Currently we have a large outstanding liability with our product manufacturer that is inhibiting us from receiving additional units at this time. In addition, we have other large outstanding accounts payable with key suppliers that may inhibit the Company from receiving system product in the future.

 

If we experience quality control problems or supplier shortages from component suppliers, our revenues and profit margins may suffer .

 

Our dependence on third-party suppliers for components of our systems involves several risks, including limited control over pricing, availability of materials, quality and delivery schedules. Any quality control problems or interruptions in supply with respect to one or more components or increases in component costs could materially adversely affect our customer relationships, revenues and profit margins.

 

International expansion will subject us to risks associated with international operations that could increase our costs and decrease our profit margins.

 

International operations are subject to several inherent risks that could increase our costs and decrease our profit margins including:

 

  reduced protection of intellectual property rights;
     
  changes in foreign currency exchange rates;
     
  changes in a specific country’s economic conditions;
     
  trade protective measures and import or export requirements or other restrictive actions by foreign governments; and
     
  changes in tax laws.

 

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Increases in the cost and restrictions on the availability of raw materials could adversely affect our financial results.

 

Our products include rare materials such as Neodymium. The availability or cost of such commodities may fluctuate widely due to government policy and regulation. To the extent that any of the foregoing or other unknown factors increase the prices of such commodities or materials and we are unable to increase our prices or adequately hedge against such changes in a manner that offsets such changes, the results of its operations could be materially and adversely affected. Similarly, if supplier arrangements and relationships result in increased and unforeseen expenses, our financial results could be materially and adversely impacted.

 

Higher energy costs and other factors affecting the cost of producing, transporting, and distributing our products could adversely affect our financial results.

 

Rising fuel and energy costs may have a significant impact on the cost of operations, including the manufacture, transportation, and distribution of products. Fuel costs may fluctuate due to a number of factors outside of our control, including government policy and regulation and weather conditions. Additionally, we may be unable to maintain favorable arrangements with respect to the manufacturing costs of our products as a result of the rise in costs of procuring raw materials and transportation by our manufacturers. This may result in increased expenses and negatively affect operations.

 

Our inability to protect our patents and proprietary rights in the United States and foreign countries could materially adversely affect our business prospects and competitive position

 

Our success depends on our ability to obtain and maintain patent and other proprietary-right protection for our technology and systems in the United Stated and other countries. We may rely on a combination of patent, trademark, copyright and trade secret laws to establish and protect our proprietary rights. We will also use technical measures, confidentiality agreements and non-compete agreements to protect our proprietary rights. We may however not be able to secure significant protection for service marks or trademarks that we obtain. If we are unable to obtain or maintain these protections, we may not be able to prevent third parties from using our proprietary rights. Our inability to protect our intellectual property from others may impede our brand identity and could lead to consumer confusion.

 

If we cannot effectively increase and enhance our sales and marketing capabilities, we may not be able to increase our revenues.

 

We need to further develop our sales and marketing capabilities to support our commercialization efforts. If we fail to increase and enhance our marketing and sales force, we may not be able to enter new or existing markets. Failure to recruit, train and retain new sales personnel, or the inability of our new sales personnel to effectively market and sell our systems, could impair our ability to gain market acceptance of our systems.

 

We rely on key personnel and, if we are unable to retain or motivate key personnel or hire qualified personnel, we may not be able to grow effectively.

 

Our success depends in large part upon the abilities and continued service of our executive officers and other key employees, particularly Mr. Daniel Bates, President, Mr. Ryan Keating, Chief Financial Officer, and Mr. Travis Campbell, Chief Operating Officer. There can be no assurance that we will be able to retain the services of such officers and employees. Our failure to retain the services of our key personnel could have a materially adverse effect on our business. In order to support our projected growth, we will be required to effectively recruit, hire, train and retain additional qualified management personnel. Our inability to attract and retain the necessary personnel could have a materially adverse effect on our business.

 

We may not be able to effectively control and manage our growth, which would negatively impact our operations.

 

If our business and markets grow and develop it will be necessary for us to finance and manage expansion in an orderly fashion. We may face challenges in managing the expansion of our business and in integrating any acquired businesses with our own. Such eventualities will increase demands on our existing management, workforce and facilities. Failure to satisfy increased demands could interrupt or adversely affect our operations and cause administrative inefficiencies.

 

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We may be unable to successfully execute our identified business opportunities or other business opportunities that we determine to pursue.

 

We currently have a limited corporate infrastructure. In order to pursue business opportunities, we will need to continue to build our infrastructure and operational capabilities. Our ability to do any of these successfully could be affected by any one or more of the following factors:

 

  our ability to raise substantial amounts of additional capital if needed to fund the implementation of our business plan;
     
  our ability to execute our business strategy;
     
  the ability of our products to achieve market acceptance;
     
  our ability to manage the expansion of our operations and any acquisitions we may make, which could result in increased costs, high employee turnover or damage to customer relationships;
     
  our ability to attract and retain qualified personnel;
     
  our ability to manage our third party relationships effectively; and
     
  our ability to accurately predict and respond to the rapid market changes in our industry and the evolving demands of the markets we serve.

 

Our failure to adequately address any one or more of the above factors could have a significant impact on our ability to implement our business plan and our ability to pursue other opportunities that arise.

 

Our technology competes against other small wind turbine technologies. Competition in our market may result in pricing pressures, reduced margins or the inability of our systems to achieve market acceptance.

 

We compete against several companies seeking to address the small wind turbine market. We may be unable to compete successfully against our current and potential competitors, which may result in price reductions, reduced margins and the inability to achieve market acceptance. The current level of market penetration for small wind turbines is relatively low and as the market increases, we expect competition to grow significantly. Our competition may have significantly more capital than we do and as a result, they may be able to devote greater resources to take advantage of acquisition or other opportunities more readily. Many of our competitors have been in business for a significantly longer period of time than we have and have learned manufacturing techniques which can aid in efficiently producing their products. Additionally, many of these companies have successfully acquired a loyal customer base that would be difficult for us to compete with. Such customers may be unwilling to purchase our products due to brand loyalty or uncertainty in the highly competitive market in which we compete.

 

Inability to Maintain Quality Control

 

All of our manufacturing is outsourced. Although we have entered into supply agreements specifying certain minimum acceptable quality standards, there is no assurance that our current quality assurance procedures will be able to effective monitor compliance. Additionally, in the event that we expand our operations and increase our output volume, including securing additional manufacturers, there is no assurance that we will be able to adequately maintain quality controls or that our current process is scalable.

 

RISKS RELATED TO THE STOCK

 

You will experience dilution of your ownership interest because of the future issuance of additional shares of our common stock and our preferred stock.

 

In the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of our present stockholders. We are currently authorized to issue an unlimited number of shares of capital stock pursuant to Wyoming law.

 

We may also issue additional shares of our common stock or other securities that are convertible into or exercisable for common stock in connection with hiring or retaining employees or consultants, future acquisitions, future sales of our securities for capital raising purposes, or for other business purposes. The future issuance of any such additional shares of our common stock or other securities may create downward pressure on the trading price of our common stock. There can be no assurance that we will not be required to issue additional shares, warrants or other convertible securities in the future in conjunction with hiring or retaining employees or consultants, future acquisitions, future sales of our securities for capital raising purposes or for other business purposes, including at a price (or exercise prices) below the price at which shares of our common stock are trading.

 

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Our executive officers and directors will continue to beneficially own the majority of our outstanding Common Stock.

 

As of the date of this Report, our executive officers and directors beneficially own approximately 31% of our outstanding common stock, including approximately 29% of our outstanding shares that are beneficially owned by our chief executive officer and sole director, Daniel Bates. As a result, our chief executive officer may have substantial influence over all matters submitted to shareholders for approval.

 

We do not expect to pay dividends.

 

We have never declared or paid any cash dividends or distributions on our capital stock. We currently intend to retain our future earnings, if any, to support operations and to finance expansion and therefore we do not anticipate paying any cash dividends on our common stock in the foreseeable future.

 

The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors, and will depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements, and other factors as the board of directors considers relevant. There is no assurance that future dividends will be paid, and, if dividends are paid, there is no assurance with respect to the amount of any such dividend. If the Company does not pay dividends, the Company’s common stock may be less valuable because a return on an investor’s investment will only occur if the Company’s stock price appreciates.

 

Although publicly traded, the trading market in our common stock has been substantially less liquid than the average trading market for a stock quoted on the OTCBB and this low trading volume may adversely affect the price of our common stock.

 

The trading market in our common stock has been substantially less liquid than the average trading market for companies quoted on the OTCBB. The lack of an active market will impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market will also reduce the fair market value of your shares. An inactive market may also impair our ability to raise capital by selling shares of capital stock and may impair our ability to acquire other companies or technologies by using Common Stock as consideration.

 

If we fail to establish and maintain an effective system of internal control, we may not be able to report our financial results accurately or to prevent fraud. Any inability to report and file our financial results accurately and timely could harm our reputation and adversely impact the trading price of our Common Stock.

 

Effective internal control is necessary for us to provide reliable financial reports and prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business and reputation with investors may be harmed. As a result, our small size and any current internal control deficiencies may adversely affect our financial condition, results of operation and access to capital. We have not performed an in-depth analysis to determine if historical un-discovered failures of internal controls exist, and may in the future discover areas of our internal control that need improvement.

 

The market price of our common stock is volatile, leading to the possibility of its value being depressed at a time when you want to sell your holdings.

 

The market price of our common stock is volatile, and this volatility may continue. Numerous factors, many of which are beyond our control, may cause the market price of our common stock to fluctuate significantly. These factors include:

 

  our actual or anticipated changes in our earnings, fluctuations in our operating results or our failure to meet the expectations of financial market analysts and investors;
     
  changes in financial estimates by us or by any securities analysts who might cover our stock;
     
  speculation about our business in the press or the investment community;
     
  significant developments relating to our relationships with our customers or suppliers;
     
  stock market price and volume fluctuations of other publicly traded companies and, in particular, those that are in the advertising industry;

 

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  customer demand for our products;
     
  investor perceptions of our industry in general and our company in particular;
     
  the operating and stock performance of comparable companies;
     
  general economic conditions and trends;
     
  major catastrophic events;
     
  announcements by us or our competitors of new products, significant acquisitions, strategic partnerships or divestitures;
     
  changes in accounting standards, policies, guidance, interpretation or principles; and
     
  loss of external funding sources.

 

Securities class action litigation is often instituted against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs to us and divert our management’s attention and resources. Moreover, securities markets may from time to time experience significant price and volume fluctuations for reasons unrelated to operating performance of particular companies. For example, in October 2008, the securities markets in the United States, China and other jurisdictions experienced the largest decline in share prices since the “Black Monday” crash on October 19, 1987. These market fluctuations may adversely affect the price of our common stock and other interests in our company at a time when you want to sell your interest in us.

 

A decline in the price of our shares of common stock could affect our ability to raise further working capital and adversely impact our operations.

 

A prolonged decline in the price of our shares of common stock could result in a reduction in the liquidity of our shares of common stock and a reduction in our ability to raise capital. Any reduction in our ability to raise equity capital in the future would force us to reallocate funds from other planned uses and would have a significant negative effect on our business plans and operations, including our ability to develop our business and continue our current operations. If the stock price declines, there can be no assurance that we can raise additional capital or generate funds from operations sufficient to meet our obligations.

 

We may be subject to penny stock regulations and restrictions which may limit a stockholder’s ability to buy and sell our stock on the secondary market.

 

The SEC has adopted regulations which generally define so-called “penny stocks” to be an equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. As of the date of this report, the closing bid and asked price for our common stock was less than $5.00 per share, which designates it as a “penny stock”. As a “penny stock”, our common stock may become subject to Rule 15g-9 under the Exchange Act, or the “Penny Stock Rule”. This rule imposes additional sales practice requirements on broker-dealers that sell such securities to persons other than established customers and “accredited investors” (generally, individuals with a net worth in excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together with their spouses). For transactions covered by Rule 15g-9, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to sale. As a result, this rule may affect the ability of broker-dealers to sell our securities and may affect the ability of purchasers to sell any of our securities in the secondary market.

 

For any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in a penny stock, of a disclosure schedule prepared by the SEC relating to the penny stock market. Disclosure is also required to be made about sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.

 

There can be no assurance that our common stock will qualify for exemption from the Penny Stock Rule. In any event, even if our common stock were exempt from the Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any person from participating in a distribution of penny stock, if the SEC finds that such a restriction would be in the public interest. The penny stock rules could discourage investors from purchasing our common stock and thereby limit its marketability.

 

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FINRA sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.

 

In addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority, or FINRA, promulgates rules that require a broker-dealer, when providing investment recommendations, must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status and investment objectives. Under interpretations of these rules, FINRA believes that there is a high probability that low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend their customers buying our common stock, which may limit ability of our investors to buy and sell our stock and hence have an effect on the market for our shares.

 

Stockholders should have no expectation of any dividends.

 

The holders of our common stock are entitled to receive dividends when, as and if declared by the board of directors out of funds of the Company legally available for the payment of dividends. To date, we have not declared nor paid any cash dividends. The board of directors does not intend to declare any dividends in the near future, but instead intends to retain all earnings, if any, to finance the development and expansion of our business and operations. Accordingly, investors must be prepared to rely on sales of their common stock after price appreciation to earn an investment return, which may never occur. Investors seeking cash dividends should not purchase our common stock. Any determination to pay dividends in the future will be made at the discretion of our board of directors and will depend on our results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board deems relevant.

 

An investment in our common stock is highly speculative.

 

An investment in our common stock is highly speculative and may result in the loss of an investor’s entire investment. Only potential investors who are experienced in high risk investments and who can afford to lose their entire investment should consider an investment in our common stock. Additional risks not currently known to us or that we currently deem immaterial may also impair our operations.

 

Our annual or special meeting of stockholders may be taken by written consent without a meeting.

 

According to the Company’s Bylaws, any action required to be taken at any annual or special meeting of stockholders of a corporation, or any action which may be taken at any annual or special meeting of such stockholders, maybe taken without a meeting, without prior notice, and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. As such, not every one of our stockholders could vote on matters submitted to the stockholders for approval unless annual or special meetings were hold.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 2. PROPERTIES

 

The Company maintains its principal office at 819 Buckeye Street, North Vernon, Indiana 47265, pursuant to a lease entered into effective August 1, 2011. The Company’s current office and manufacturing space consists of approximately 50,000 square feet and is believed to be suitable and adequate to meet current business requirements.

 

ITEM 3. LEGAL PROCEEDINGS

 

From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these, or other matters, may arise from time to time that may harm our business.

  

The Company is currently engaged in two cases which do not have a material effect on the Company’s operations. The first is a case between WindStream and a prior vendor that, at one time, supplied components for the Company’s products. As a result of this vendors disruption in the Company’s supply chain the Company has sought out and secured other, more reliable sources for the needed raw materials and has not seen a disruption in its final product output. The second case is a Trademark infringement issue that relates to the Company name, WindStream Technologies and prior use. Both of these cases are being litigated by the Company’s attorneys and expect to be concluded shortly.

 

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There are no material proceedings to which any director or officer, or any associate of any such director or officer, is a party that is adverse to our Company or any of our subsidiaries or has a material interest adverse to our Company or any of our subsidiaries. No director or executive officer has been a director or executive officer of any business which has filed a bankruptcy petition or had a bankruptcy petition filed against it during the past ten years. No director or executive officer has been convicted of a criminal offense or is the subject of a pending criminal proceeding during the past ten years. No director or executive officer has been the subject of any order, judgment or decree of any court permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities during the past ten years. No director or officer has been found by a court to have violated a federal or state securities or commodities law during the past ten years.

 

In addition, there are no material proceedings to which any affiliate of our Company, or any owner of record or beneficially of more than five percent of any class of voting securities of our Company, is a party that is adverse to our Company or any of our subsidiaries or has a material interest adverse to our Company or any of our subsidiaries. Currently there are no legal proceedings pending or threatened against us. We are not currently involved in any litigation that we believe could have a materially adverse effect on our financial condition or results of operations.

 

There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company or any of our subsidiaries, threatened against or affecting our Company, our common stock, any of our subsidiaries or of our Company’s or our Company’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

However, from time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

PART II

 

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

 

Market for Our Common Stock

 

Our common stock is quoted on OTCQB, which is part of the OTC Market Group's quotation system, maintained by the Financial Industry Regulatory Authority (“FINRA”), under the symbol “SOLH,” however, there have been no reported sales during fiscal 2102 or 2103.

 

Approximate Number of Holders of Our Common Stock

 

As of March 31, 2014, we had approximately 83.4 million shares of common stock issued and outstanding. There are approximately 60 beneficial owners of our common stock. Because some of our common stock is held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.

 

Our registrar and transfer agent for our common stock is OTC Stock Transfer, Inc., telephone number 801-272-7272.

 

Dividend Policy

 

The Company has not declared any dividends since incorporation and does not anticipate doing so in the foreseeable future. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.

 

Warrants

 

As of March 31, 2014, there are outstanding warrants to purchase 9,106,000 million shares of our common stock at prices ranging from $0.05 to $0.50 per share.

 

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Options

 

As of March 31, 2014, there were outstanding options granted by the Company to purchase an aggregate of 10,110,640 shares of the Company’s common stock adjusted for reverse merger exchange ratios (upon exercise, shares of Company common stock will be issuable at the exchange rate referenced in the New Share Exchange Agreement, or 1:25.808).

 

Securities Authorized for Issuance Under Equity Compensation Plans

 

Currently, there is no equity compensation plan in place.

 

Recent Sales of Unregistered Securities

 

We have not offered or sold any unregistered securities that were not previously disclosed in a quarterly report on Form 10-Q or in a current report on Form 8-K.

 

Purchases of Our Equity Securities

 

No repurchases of our common stock were made during the fourth quarter of our fiscal year ended December 31, 2013.

 

ITEM 6. SELECTED FINANCIAL DATA

 

Not applicable.

 

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

 

This annual report on Form 10-K and other reports filed by Windaus Global Energy, Inc. (the “Company”) from time to time with the SEC (collectively, the “Filings”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the Filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks relating to the Company’s business, industry, and the Company’s operations and results of operations. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

 

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.

 

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. The following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this report.

 

Basis of Presentation

 

The following management’s discussion and analysis is intended to provide additional information regarding the significant changes and trends which influenced our financial performance for the years ended December 31, 2013 and 2012.

 

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Overview

 

WindStream has designed and manufactures a patented small-wind and hybrid (wind and solar) renewable energy device that is suitable for on or off grid installations in the urban or rural setting. The Company operates out of its 50,000 sq. ft. facility in North Vernon, Indiana. It has recently secured an Export Insurance Policy from the Export Import Bank of the United States, (EXIM) allowing it to offer financing terms to its overseas buyers. The company is actively marketing and selling its products to customers all over the world.

 

Plan of Operations

 

WindStream has identified 2 significant markets for the sale of its products in the near term:

 

1. Areas of the world where energy is inconsistent or non-existent (e.g., India, Africa, Latin America and Asia)
   
2. Areas of the world where energy costs are high

 

These two drivers present a majority of the world’s population and as such the Company is finding great success in penetrating these markets with its highly efficient, low cost devices. The Company is setting up distribution partnerships with key companies and individuals in these markets in order to more quickly establish a presence and generate revenue from these territories.

 

Revenues

 

We generate substantially all of our net sales from the sale of small wind and hybrid products, the TurboMill and SolarMill respectively.

 

Cost of Sales

 

Our cost of sales includes the cost of raw material and components such as stamped metal parts contained in the turbine blades and generator housings, injection molded components and electronic circuitry and other components. Other items contributing to our cost of sales are the direct assembly labor and manufactured overhead from our component suppliers. Overall, we currently expect our cost of sales per unit to decrease as we ramp production lots in the future to meet the product demands from our customers.

 

Gross Profit

 

Gross profit is affected by numerous factors, including our average selling prices, distributor discounts, foreign exchange rates, and our manufacturing costs. Another factor impacting gross profits is the ramp of production going forward. As a result of the above, gross profits may vary from quarter to quarter and year to year.

 

Research and Development

 

Research and development expense consists primarily of salaries and personnel-related costs and the cost of products, materials and outside services used in our process and product research and development activities.

 

Selling, General and Administrative

 

Selling, general and administrative expense consists primarily of salaries and other personnel-related costs, professional fees, insurance costs, travel expense, other selling expenses as well as share based compensation expense relating to stock options. We expect these expenses to increase in the near term, both in absolute dollars and as a percentage of net sales, in order to support the growth of our business as we expand our sales and marketing efforts, improve our information processes and systems and implement the financial reporting, compliance and other infrastructure required by a public company. Over time, we expect selling, general and administrative expense to decline as a percentage of net sales as our net sales increase.

 

Other Expenses

 

Interest expense, net of amounts capitalized, is incurred on various debt financings as well as the amount recorded for the derivative liability associated with convertible notes and warrants. Any interest income earned on our cash, cash equivalents and marketable securities is netted in other expenses as it is immaterial.

 

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Use of Estimates

 

Our discussion and analysis of our financial condition and results of operations are based upon our audited consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, net sales and expenses and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to inventories, intangible assets, income taxes, warranty obligations, marketable securities valuation, derivative financial instrument valuation, end-of-life collection and recycling, contingencies and litigation and share based compensation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

 

Recent Developments

 

  ACC Limited, South Asia’s largest cement manufacturer. PILOT APPROVED . 2-3 MW’s are now being planned for commercial deployment
     
  WindStream Technologies, India established July 2013 - Multiple MW projects being negotiated India - BBNL – government project to bring internet connectivity to rural India. 250,000 WIFI hotspots being deployed.
     
  Jamaica – product to be distributed and installed by the Jamaican Utility Company, JPS Co. The first purchase order has been issued.
     
  EXIM Bank Export Insurance Policy in place.
     
  New distribution agreements being formalized.

 

Results of Operations for the Years Ended December 31, 2013 and 2012, in Aggregate

 

    December 31, 2013     December 31, 2012  
Sales   $ 895,561     $ 237,237  
Cost of sales     1,491,166       428,374  
Gross (loss)     (595,605 )     (191,137 )
Research and Development Expenses     402,273       1,181,094  
General and Administrative Expenses     3,307,972       1,525,535  
Operating Expenses     3,710,245       2,706,629  
Other Income (Expense)     (538,703 )     433,748
Net Loss   $ (4,844,553 )   $ (2,464,018 )

 

Sales - Net sales for the twelve months ended December 31, 2013, were $895,561, compared to $237,237 for the twelve months ended December 31, 2012. The increase in sales is due to the success of the Company’s efforts to obtain international customers in 2013.

 

Cost of sales - During twelve months ended December 31, 2013, cost of sales was $1,491,166 compared to $428,374 for the twelve months ended December 31, 2012. The dollars are higher due to increased sales in 2013 versus 2012 and the gross profit percentage improved due to increased sales and thus manufacturing activities, which resulted in greater efficiency in 2013 compared to 2012.

 

Operating Expenses

 

Research and Development - Research and Development for the twelve months ended December 31, 2013, were $402,273, as compared to $1,181,094 for the twelve months ended December 31, 2012. The change is primarily attributable to the decrease in development activities in 2013 as the Company’s products became commercialized and available for sale.

 

General and Administrative Expenses – General and Administrative for the twelve months ended December 31, 2013, were $3,307,972, as compared to $1,525,535 for the twelve months ended December 31, 2012. The increase is due primarily to the payment of Company stock to a consultant for services during 2013, $1,505,000, which did not occur in 2012.

 

Total Operating expenses for the twelve months ended December 31, 2013 were $3,710,245, as compared to $2,706,629 for the twelve months ended December 31, 2012.

 

We anticipate that as our operations increase our research and development expenses may increase because we believe that maintaining state of the art products is a key to our continued success, however, we believe that such expenses will constitute a lower percentage of our operating budget as much of our initial development efforts have been completed. We expect to achieve economies of scale in our general and administrative expenses as our operations increase as much our administrative expenses are fixed costs, such as salaries of key personnel and rent. As a result, while we may need to hire additional personnel as operations increase, we believe that the increases in general and administrative expenses will be at a lower rate than the increase in revenues.

 

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Other Income (Expense) - Other income (expense) for the twelve months ended December 31, 2013 was ($538,703), as compared to $433,748 for the twelve months ended December 31, 2012. The increase is primarily attributable to various government issued credits and grants that were received in 2012, but not in 2013 as well as the amortization of the debt discount and the amortization of deferred financing costs, which are included in interest expense for the year ended December 31, 2013. These costs did not occur in 2012.

 

Results of Operations for the Years Ended December 31, 2013 and 2012, Domestic

 

Sales - Net sales for the twelve months ended December 31, 2013, in the domestic segment were $34,746, compared to $46,440 for the twelve months ended December 31, 2012. The decrease in sales is due to the success of the Company’s efforts to obtain additional international customers in 2013.

 

Cost of sales - During twelve months ended December 31, 2013, cost of sales in the domestic segment were $57,854 compared to $83,856 for the twelve months ended December 31, 2012. The dollars are lower due to reduced domestic sales.

 

Results of Operations for the Years Ended December 31, 2013 and 2012, International

 

Sales - Net sales for the twelve months ended December 31, 2013, in the international segment were $860,815, compared to $190,797 for the twelve months ended December 31, 2012. The increase in sales is due to the success of the Company’s efforts to obtain international customers in 2013.

 

Cost of sales - During twelve months ended December 31, 2013, cost of sales in the international segment were $1,433,312 compared to $344,518 for the twelve months ended December 31, 2012. The dollars are higher due to increased sales, as well as improved manufacturing efficiencies with the higher sales in 2013 compared to 2012.

 

As a result of the foregoing, for the twelve months ended December 31, 2013 and 2012, the Company reported a net loss of $4,844,553 and $2,464,018, respectively. The change in net loss between the twelve months ended December 31, 2013 and 2012 was primarily attributable to a higher level of sales in 2013 compared to 2012 as well as the payment of Company stock to a consultant for services during 2013, approximately $1,505,000, which did not occur in 2012. The amortization of the debt discount and deferred financing costs resulted from transaction which occurred in 2013 and are included in Operating Expense in 2013. These transactions and related costs did not occur in 2012.

 

In its audited financial statements as of December 31, 2013 and 2012, the Company was issued an opinion by its auditors that raised substantial doubt about the ability of to continue as a going concern based on the Company’s current financial position. The Company’s ability to achieve and maintain profitability and a positive cash flow is dependent upon our ability to successfully develop and market our products and our ability to generate revenues.

 

The following table provides selected financial data about the Company as of December 31, 2013 and 2012. For detailed financial information, see the accompanying financial statements.

 

    December 31, 2013     December 31, 2012  
Cash   $ 203,534     $ 4,022  
Total assets     2,136,688       897,137  
Total liabilities   $ 4,349,341     $ 3,892,023  
Stockholder deficit   $ (2,212,653 )   $ (2,994,886 )

 

Liquidity and Capital Resources

 

The following table summarizes total current assets, liabilities and working capital at December 31, 2013 compared to December 31, 2012:

 

    December 31, 2013     December 31, 2012     Increase/(Decrease)  
Current Assets   $ 1,776,758     $ 401,695     $ 1,375,063  
Current Liabilities   $ 3,173,428     $ 2,843,476     $ (329,952 )
Working Capital   $ (1,396,670 )   $ (2,441,781 )   $ 1,045,111  

 

As of December 31, 2013, we had negative working capital of $1,396,670 which was an improvement period to period as compared to negative working capital of $2,441,781 as of December 31, 2012. The improvement was due primarily to improved cash flow from operations and increased sources of financing.

 

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Net cash used in operating activities for the years ended December 31, 2013 and 2012 was $3,729,528 and $1,367,781 respectively. The increase in cash used in operating activities was primarily related to the sale of products in the first year of the Company’s sales activities and increases in related working capital.

 

Net cash used in all investing activities for the year ended December 31, 2013 was $38,734 as compared to $27,055 for the year ended December 31, 2012.

 

Net cash obtained through all financing activities for the year ended December 31, 2013, was $3,967,774, as compared to $1,192,750 for the year ended December 31, 2012. The Company received proceeds from convertible debt, borrowings on the line of credit and short term debt from related parties and issuance of common stock in the year ended December 31, 2013 and proceeds from short term debt, short term debt from related parties and issuance of preferred stock in the year ended December 31, 2012. The estimated working capital requirement for the next 12 months is $1,000,000 with an estimated burn rate of $100,000 per month. As reflected in the accompanying financial statements, the Company had cash of $203,534 at December 31, 2013 and $4,022 at December 31, 2012.

 

The ability of the Company to continue its operations is dependent on Management's plans, which include the raising of capital through debt and/or equity markets with some additional funding from other traditional financing sources, including term notes, until such time that funds provided by operations are sufficient to fund working capital requirements. The Company may need to incur additional liabilities with certain related parties to sustain the Company’s existence.

 

The Company will require additional funding to finance the growth of its current and expected future operations as well as to achieve its strategic objectives. The Company believes its current available cash along with anticipated revenues may be insufficient to meet its cash needs for the near future if it does not receive the anticipated additional funding. There can be no assurance that financing will be available in amounts or terms acceptable to the Company, if at all. In that event, the Company would be required to change its growth strategy and seek funding on that basis, if at all.

 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Recent Accounting Pronouncements

 

There are no recent accounting pronouncements that are expected to have an effect on the Company’s financial statements.

 

Critical Accounting Policies

 

Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.

 

Our significant accounting policies are summarized in Note 2 of our financial statements. While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report.

 

We believe the following critical accounting policies and procedures, among others, affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of WindStream Technology, Inc. and its subsidiaries, WindStream Energy Technologies Pvt Ltd. and WindStream Technologies Latin America S.A. All material intercompany balances have been eliminated in consolidation.

 

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Basic and Diluted Net Loss per Share

 

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

 

Stock Based Payments

 

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

 

Deferred Financing Costs

 

Costs associated with the issuance of debt is capitalized as deferred financing costs and amortized into interest expense using the effective interest method over the life of the related debt. At December 31, 2013 and December 31, 2012 unamortized deferred financing costs incurred totaled $37,529 and $0, respectively. Amortization of deferred financing costs, which has been included interest expense, was for the years ended December 31, 2013 and 2012 approximately $52,000 and $0, respectively .

 

Research and Development

 

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

 

Related parties

 

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

 

          Payments due by period:              
          Less than                 More than  
Contractual Obligations:   Total     one year     1-3 years     3-5 years     5 years  
                               
Short term convertible notes payable   $ 550,000     $ 550,000                          
Short term debt - related party   $ 187,500     $ 187,500                          
Short term debt - third parties, includes:                                        
Line of credit with a bank   $ 500,000     $ 500,000                          
Notes payable to various individuals   $ 400,000     $ 400,000                          
Total short term debt - third parties   $ 900,000     $ 900,000                          
                                         
Notes payable, including interest   $ 1,778,155     $ 361,502     $ 1,416,653                  

 

Off Balance Sheet Arrangements:

 

We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as “special purpose entities” (SPEs).

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not Applicable.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Not Applicable.

 

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

 

(a) Dismissal of Independent Registered Public Accounting Firm

 

On October 25, 2013, our board of directors dismissed MaloneBailey, LLP (“MaloneBailey”), as the Company’s independent registered public accounting firm. MaloneBailey had been preciously retained on May 16, 2013.

 

MaloneBailey’s report on the financial statements for the fiscal years ended December 31, 2012 and 2011, contained no adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principle, other than for a going concern.

 

During the fiscal the years ended December 31, 2012 and 2011, and in the subsequent interim period through October 25, 2013, the date of dismissal of MaloneBailey, there were no disagreements with MaloneBailey on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of MaloneBailey, would have caused them to make reference to the subject matter of the disagreements in its reports on the financial statements for such year. During the fiscal years ended December 31, 2012 and 2011, and in the subsequent interim period through October 25, 2013, the date of dismissal of MaloneBailey, there were no reportable events as defined in Item 304(a)(l)(v) of Regulation S-K,

 

We have provided a copy of the above disclosures to MaloneBailey and requested MaloneBailey to provide it with a letter addressed to the U.S. Securities and Exchange Commission stating whether or not MaloneBailey agrees with the above disclosures. A copy of MaloneBailey’s response letter is attached hereto as Exhibit 16.2.

 

Previously, on August 12, 2013, our board of directors dismissed Weinberg & Company, P.A. (“Weinberg”), as our independent registered public accountant. :

 

Weinberg’s report on the financial statements for the fiscal years ended June 30, 2012 contained no adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principle, other than for a going concern.

 

During the fiscal the year ended June 30, 2012, and for the period May 28, 2008 (inception) to June 30, 2012, and in the subsequent interim period through August 12, 2013, the date of dismissal of Weinberg, there were no disagreements with Weinberg on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Weinberg, would have caused them to make reference to the subject matter of the disagreements in its reports on the financial statements for such year. During the fiscal years ended June 30, 2012 and 2011, and in the subsequent interim period through August 12, 2013, the date of dismissal of Weinberg, there were no reportable events as defined in Item 304(a)(l)(v) of Regulation S-K.

 

We have provided a copy of the above disclosures to Weinberg and requested Weinberg to provide it with a letter addressed to the U.S. Securities and Exchange Commission stating whether or not Weinberg agrees with the above disclosures. A copy of Weinberg’s response letter is attached hereto as Exhibit 16.1.

 

(b) New Independent Registered Public Accounting Firm

 

On October 25, 2013, our board of directors approved the engagement of Hartley Moore Accountancy Corporation (“Hartley Moore”), as the Company’s new independent registered public accounting firm.

 

During the fiscal years ended December 31, 2012 and 2011, and the subsequent interim period prior to the engagement of Hartley Moore, the Company has not consulted Hartley Moore regarding (i) the application of accounting principles to any specified transaction, either completed or proposed; (ii) the type of audit opinion that might be rendered on the Company’s financial statements, and either a written report was provided to the registrant or oral advice was provided that the new accountant concluded was an important factor considered by the registrant in reaching a decision as to the accounting, auditing or financial reporting issue; or (iii) any matter that was either the subject of a disagreement (as defined in Item 304(o)(l)(iv)) or a reportable event (as defined in Item 304(a)(l)(v)).

 

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ITEM 9A. CONTROLS AND PROCEDURES

 

Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(e) and I5d-I5(e) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive officer and principal financial officer and effected by our board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:

 

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

 

Because of our inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Our management assessed the effectiveness of our internal control over financial reporting as of December 31,2013. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework.

 

Evaluation of Disclosure Controls and Procedures.

 

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-I5(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

We carried out an evaluation under the supervision and with the participation of management, including our Chief Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2013, the end of the period covered by this Annual Report on Form 10-K. for the year ended December 31, 2013. Based on that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were not effective during the 2013 fiscal year at the reasonable assurance level, as a result of a material weakness primarily related to a lack of a sufficient number of personnel, other than our Principal Financial Officer, with appropriate training and experience in accounting principles generally accepted in the United States of America, or GAAP. As a result, we did not adequately test whether our financial activity level controls or our information technology general controls were operating sufficiently to identify a deficiency, or combination of deficiencies, that may result in a reasonable possibility that a material misstatement of the consolidated financial statements would not be prevented or detected on a timely basis. While Management has reviewed the consolidated financial statements and underlying information included in this Annual Report on Form 10-K in detail and believes the procedures performed are adequate to fairly present our financial position, results of operations and cash flows for the periods presented in all material respects, the deficiency in accounting personnel that existed in fiscal 2013 led to an error in the original accounting of the estimated fair market value of certain of our options and warrants in the statement of operations. We will therefore restate our consolidated financial statements and other financial information for the quarter ended September 30, 2013 to correct this isolated accounting issue.

 

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Remediation of Material Weaknesses. A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard No. 5), or combination of control deficiencies, that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. While management believes that the Company’s financial statements previously filed in the Company’s SEC reports have been properly recorded and disclosed in accordance with US GAAP, we have designed and plan to implement, or in some cases have already implemented, the specific remediation initiatives described below:

 

  We have retained additional accounting personnel, and continue to enhance our internal finance and accounting organizational structure.
     
  We have hired a third party consultant who has the required background and experience in accounting principles generally accepted in the United States of America and with SEC rules and regulations.
     
  We are in the process of further enhancing the supervisory procedures to include additional levels of analysis and quality control reviews within the accounting and financial reporting functions.
     
  We are in the process of strengthening our internal policies and enhancing our processes for ensuring consistent treatment and recording of reserve estimates and that validation of our conclusions regarding significant accounting policies and their application to our business transactions are carried out by personnel with an appropriate level of accounting knowledge, experience and training.

 

While we now believe that these material weaknesses have been substantially resolved, we will continue our remediation efforts during fiscal 2014.

 

This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to such attestation pursuant to rules of the Securities and Exchange Commission that permits us to provide only management’s report in this Annual Report.

 

Changes in Internal Control over Financial Reporting

 

No changes in the Company’s internal control over financial reporting have come to management’s attention during the Company’s last fiscal quarter that have materially affected, or are likely to materially affect, the Company’s internal control over financial reporting.

 

Attestation Report of our Registered Public Accounting Firm

 

This annual report does not include an attestation report of our independent registered public accounting firm regarding internal controls over financial reporting because we are a “smaller reporting company.” Our management’s report was not subject to attestation by our independent registered public accounting firm pursuant to the rules of the Sec that permit us to provide only management’s report in this annual report.

 

ITEM 9B. OTHER INFORMATION

 

Not applicable

 

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PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Directors and Executive Officers

 

The following table sets forth the names, ages and positions held with respect to each Director and Executive Officer of the Company as of the date of this Annual Report.

 

Name   Age   Position   Director Since
Daniel Bates   56   Chief Executive Officer and Chairperson of the Board   2012
Ryan Keating   40   Chief Financial Officer   n/a
Travis Campbell   38   Chief Operating Officer   n/a

 

The business address of our officers and directors is c/o WindStream Technologies, 819 Buckeye Street, North Vernon, Indiana 47265. Set forth below is a summary description of the principal occupation and business experience of each of our directors and executive officers for at least the last five years.

 

Each Director serves until our 2014 annual stockholders meeting and until their respective successors are duly elected and qualified or earlier resignation or removal.

 

Dan Bates, Chief Executive Officer and Chairman of the Board, age 55

 

Mr. Bates, age 55, combines over 20 years of experience in the technology sector. Since 2008, Mr. Bates has served as President and CEO of WindStream Technologies, Inc., an alternative energy company focused on developing renewable energy products for urban and rural settings. Prior to joining WindStream, Mr. Bates was President of Avant Interactive, an Internet video company providing interactive video technology to television networks, advertising agencies and video publishers, from 2001 to 2006.

 

The Board believes that Mr. Bates’ extensive senior management experience and entrepreneurship will be a significant factor in the Company’s growth as a leader in the renewable energy sector.

 

Travis Campbell, Chief Operating Officer, age 37

 

Mr. Campbell has over 15 years of work experience in the private and public sectors, and extensive executive management experience in municipal government, international operations, business development, and finance. Mr. Campbell began his professional career as Executive Director of the Jennings County Economic Development Commission where he developed and provided financial incentive packages to international companies as an effort to promote job growth, trade, and capital investment in the local community. His work in Economic Development served as the foundation for his growth into business development and international operations. While working for private companies such as Toyota Automatic Loom Works, LTD. and Ota Heavy Industries, LTD., he led operational teams and established global counterweight production in China, Japan, North America, and Europe. During his tenure at TAL/OTA, he was tasked with managing the U.S. sales market and generated the majority of the company’s revenue. In 2005, Mr. Campbell explored his interest as an entrepreneur and built a $30 million brokerage and logistics company. Mr. Campbell holds a Bachelor of Arts Degree in Political Science and Economics from Butler University.

 

Ryan Keating, Chief Financial Officer, age 40

 

Mr. Keating has over 15 years experience in the financial leadership, strategic planning and business management environment - almost exclusive focus in technology and medical device industries. Mr. Keating began his professional career as an investment advisor at Morgan, Lockwood & Sym in Boston, MA in 1994 and was a senior associate at PriceWaterhouseCoopers in San Francisco from 1997-1999. In 2000, he joined Salomon Smith Barney in San Francisco, CA as an analyst. Also in 2000, Mr. Keating founded the Keating Consulting Group, where he assists companies through strategic or expansionary financial and business endeavors as interim CFO, including financial/cash management and operational controls, business plan generation, strategic mergers and acquisition advisory, financial projections and scenario simulation, competitive environment analysis, investor presentations, company valuation, business development, and fund raising efforts. His consulting group also provides controller, accounting, bookkeeping and human resource consulting. Mr. Keating holds a Bachelor of Science Degree in Business Administration from the Boston University School of Management.

 

Identification of Certain Significant Employees

 

We have no employees who are not executive officers, but who are expected to make a significant contribution to our business.

 

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Family Relationships

 

There are no family relationships between any directors or officers of the Company.

 

Involvement in Certain Legal Proceedings

 

To the best of our knowledge, none of our directors or executive officers has, during the past ten years:

 

1. had any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
   
2. been convicted in a criminal proceeding or is a named subject to a pending criminal (excluding traffic violations and other minor offenses);
   
3. been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities, futures, commodities or banking activities; or
   
4. been found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.

 

Compliance with Section 16(a) of the Exchange Act

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers, directors and beneficial owner of more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission statements of ownership and changes in ownership. The same persons are required to furnish us with copies of all Section 16(a) forms they file. We believe that, during fiscal 2013, all of our executive officers, directors and beneficial owner of more than 10% of a registered class of our equity securities complied with the applicable filing requirements except, messrs. Bates, Campbell and Keating filed their initial Forms 3 in March 2014.

 

In making these statements, we have relied upon examination of the copies of all Section 16(a) forms provided to us and the written representations of our executive officers, directors and beneficial owner of more than 10% of a registered class of our equity securities.

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers, directors and beneficial owner of more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission statements of ownership and changes in ownership. The same persons are required to furnish us with copies of all Section 16(a) forms they file. We believe that, during fiscal 2013, all of our executive officers, directors and beneficial owner of more than 10% of a registered class of our equity securities complied with the applicable filing requirements.

 

In making these statements, we have relied upon examination of the copies of all Section 16(a) forms provided to us and the written representations of our executive officers, directors and beneficial owner of more than 10% of a registered class of our equity securities.

 

Code of Business Conduct and Ethics

 

A Code of Business Conduct and Ethics is a written standard designed to deter wrongdoing and to promote (a) honest and ethical conduct, (b) full, fair, accurate, timely and understandable disclosure in regulatory filings and public statements, (c) compliance with applicable laws, rules and regulations, (d) prompt reporting of violations of the code to an appropriate person and (e) accountability for adherence to the Code. We are not currently subject to any law, rule or regulation requiring that we adopt a Code of Business Conduct and Ethics. The Company has not adopted a written code of ethics.

 

Director Independence

 

We are not subject to listing requirements of any national securities exchange or national securities association and, as a result, we are not at this time required to have our Board comprised of a majority of “independent directors,” nor is our sole director considered to be independent under the definition of independence used by any national securities exchange or any inter-dealer quotation system.

 

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Leadership Structure

 

Our chairman of the board of directors also serves as our chief operating officer. Our board of directors does not have a independent director. Our board of directors has determined that its leadership structure is appropriate and effective in light of the limited number of individuals in our management team and that we currently only have one director. Our board of directors believes having a single individual serve as both chairman and chief executive officer provides clear leadership, accountability and promotes strategic development and execution as our company executes our strategy. Our board of directors also believes that there is a high degree of transparency among the board of directors and company management.

 

Risk Management

 

Our board of directors oversees the risk management of our company and each of our subsidiaries. Our board of directors regularly reviews information provided by management in order for our board of directors to oversee the risk identification, risk management and risk mitigation strategies. Our board considers, as appropriate, risks among other factors in reviewing our strategy, business plan, budgets and major transactions.

 

Committees of Our Board of Directors

 

The Board of Directors has no nominating, or compensation committee, and does not have an “audit committee financial expert”. Our board of directors currently acts as our audit committee. There are no family relationships among members of management or the Board of Directors of the Company.

 

Director Nomination Process

 

In evaluating director nominees, our board of directors will consider, among others, the following factors:

 

Integrity

Independence

Diversity of viewpoints and backgrounds

Extent of experience

Length of service

Number of other board and committee memberships

Leadership qualities

Ability to exercise sound judgment

 

The Company is currently seeking additional members for its board of directors.

 

Compensation Committee Interlocks and Insider Participation

 

The Company does not currently have a compensation committee.

 

Employment Agreements

 

Section 5.02(e) is hereby incorporated by reference.

 

DIRECTOR COMPENSATION

 

Currently our directors serve without compensation.

 

41
 

 

ITEM 11. EXECUTIVE COMPENSATION

 

Summary Compensation Table

 

The following table sets forth information concerning all compensation awarded to, earned by or paid during fiscal years 2013 and 2012, to the Daniel Bates, our Chief Executive Officer, Ryan Keating, our Chief Financial Officer, and Travis Campbell, our Chief Operating Officer (the “Named Executive Officers”):

 

Name and
Principal
Position
  Year   Salary
($)
    (1)
Bonus
($)
    (2) Stock
Awards
($)
    Options
Awards
($)
    Non-Equity
Incentive Plan
Compensation
($)
    Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($)
    (3) All Other
Compensation
($)
    Total
($)
 
Daniel Bates,
Chief Executive Officer and Director
  2013     123,706       -       -       147,500       -       -       -       271,206  
    2012     123,076       -       -       -       -       -       -       123,076  
                                                                     
Ryan Keating,
Chief Financial Officer
  2013     50,000       -       -       -       -       -       -       50,000  
    2012     50,000       -       -       -       -       -       -       50,000  
                                                                     
Travis Campbell,
Chief Operating Officer
  2013     62,115       -       -       25,000       -       -       -       87,115  
    2012     62,115       -       -       -       -       -       -       62,115  
                                                                     
David Worrall,
Former Chief Executive Officer and Former Director
  2013     -       -       -       -       -       -       -       -  
    2012     -       -       -       -       -       -       -       -  

  

 

(1) No bonus was paid to the Named Executive Officers in fiscal 2013, 2012 and 2011.
   
(2) As required by SEC rules, amounts in the column “Stock Awards” present the aggregate grant date fair value of awards made each year computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification™ 718 Compensation—Stock Compensation (“FASB ASC 718”). The grant date fair value of each of the executives’ award is measured based on the closing price of our common stock on the date of grant.
   
  These amounts do not reflect whether the recipient has actually realized or will realize a financial benefit from the awards. Under generally accepted accounting principles, compensation expense with respect to stock awards granted to our employees, executives and directors is generally recognized over the requisite services period. The SEC’s disclosure rules previously required that we present stock award information based on the amount recognized during the corresponding year for financial statement reporting purposes with respect to these awards. However, the recent changes in the SEC’s disclosure rules require that we now present stock award amounts using the grant date fair value of the awards granted during the corresponding year.

 

No Stock Awards have been issued to the Named Executive Officers.

 

42
 

  

Employment Contracts

 

We currently have no employment contracts with Named Executive Officers.

 

Retirement Benefits

 

Currently, we do not provide any employees, including our named executive officers any company sponsored retirement benefits other than a state pension scheme in which all of our employees in China participate.

 

Outstanding Equity Awards at Fiscal Year-End

 

The following table sets forth information for the named executive officers regarding the number of shares subject to both exercisable and unexercisable stock options, as well as the exercise prices and expiration dates thereof, as of December 31, 2013.

 

    Number of Securities
underlying
Unexercised
Options (#)
Exercisable (1)
    Number of Securities
underlying
Unexercised
Options (#)
Unexercisable
    Option Exercise
Price ($/Sh)
    Option
Expiration
Date
                       
Daniel Bates     2,950,000       -       0.05     July 28, 2013
Travis Campbell     822,600       -       0.07     January 8, 2022
                            to July 28, 2013

 

(1) The fair value of these options was estimated at the date of grant, January 9, 2012 using the Black-Scholes option-pricing model. See Footnote 11 for a listing of assumptions used in the valuation.

 

Equity Compensation Plan Information

 

The following table gives Information about out Common Stock that may be issued upon the exercise of options and rights as of December 31, 2013.

  

    (a) Number of securities
to be issued
upon the exercise of
outstanding options,
warrants and rights
    (b) Weighted-average
exercise price of
outstanding options,
warrants and rights
    (c) Number of securities
remaining available
for future
issuance under equity
compensation plans
(excluding securities
reflected in column (a))
 
                   
Approved     -       -       -  
Not Approved     19,216,640       0.24       19,216,640  
                         
      19,216,640       0.24       19,216,640  

 

The following table sets forth information regarding grants of awards to the Named Executive Officers during the year ended December 31, 2013:

 

    Grant Date   All Other Option
Awards: Number
of Securities
Underlying
Options (#) (1)
    Exercise or Base
Price of Options
Awards ($/share)
    Grant Date Fair
Value of Stock
and Option
Awards
    Closing Price on
Grant Date
($/share)
                           
Daniel Bates   July 28, 2013     250,000       0.25       11,928     N/A
Ryan Keating   July 28, 2013     200,000       0.25       9,543     N/A

 

43
 

 

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

 

Security Ownership of Certain Beneficial Owners and Management

 

The following tables set forth information as of March 31, 2014, regarding the beneficial ownership of our common stock (a) by each stockholder who is known by the Company to own beneficially in excess of 5% of our outstanding common stock; (b) by each of the Company’s officers and directors; (c) and by the Company’s officers and directors as a group. Except as otherwise indicated, all persons listed below have (i) sole voting power and investment power with respect to their shares of common stock, except to the extent that authority is shared by spouses under applicable law, and (ii) record and beneficial ownership with respect to their shares of stock.

 

Name and Address of Beneficial Owner(1)   Shares (2)     Shares
Underlying
Convertible
Securities (2)
    Total Percent
of Class
 
                   
Dan Bates, CEO     17,342,980       2,750,000       26 %
Ryan Keating, CFO             1,103,280       1.5 %
Travis Cambell, COO             1,596,840       2 %
All executive officers and directors as a group     17,342,980       5,450,120       29.5 %
Blue Sky Projects LLC     3,935,720             5 %
John Owen     4,206,785             6 %

 

* Less than one percent.
   
(1) Except as otherwise indicated, the persons named in this table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws where applicable and to the information contained in the footnotes to this table. Unless otherwise indicated, the address of the beneficial owner is WindStream Technologies, Inc., 819 Buckeye Street, North Vernon, Indiana 47265.
   
(2) Pursuant to Rules 13d-3 and 13d-5 of the Exchange Act, beneficial ownership includes any shares as to which a shareholder has sole or shared voting power or investment power, and also any shares which the shareholder has the right to acquire within 60 days, including upon exercise of common shares purchase options or warrants. There are approximately 77 million shares of common stock issued and outstanding as of September 27, 2013.

 

Changes in Control

 

There are no arrangements known to us, including any pledge by any person of our securities, the operation of which may at a subsequent date result in a change in control of the Company.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

 

Short Term Debt - Related Parties

 

The President and a board member of the Company has lent money to the Company under the terms of an unsecured note which is due on demand. During the year ended December 31, 2013, the Company president advanced the Company $62,000 to fund operations and the Company repaid $27,500 of the total amount that was advanced.

 

During the year ended December 31, 2012, the Company president advanced the Company $203,000 to fund operations and the Company repaid $50,000 of the total amount that was advanced.

 

During 2012, the Board member loaned the Company $100,000 to fund operations and the Company did not repay any of the $100,000 loaned. During 2013, the Board member resigned.

 

Related Party Transaction Policy

 

We do not have a related party transaction policy.

 

44
 

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

 

Hartley Moore, Accountancy Corp. is our Principal Independent Registered Public Accountants engaged to audit our financial statements for the fiscal years ended December 31, 2013. MaloneBailey was our Principal Independent Registered Public Acountants for the year ended December 31, 2012. The following table shows the fees that we paid or accrued for the audit and other services provided by Hartley Moore, Accountancy Corp. and MaloneBailey, for the fiscal years ended December 31, 2013 and 2012.

 

Fee Category   2013     2012  
Audit Fees-MaloneBailey   $ 44,600     $ --  
Audit Fees-Hartley Moore   $ 3,500     $ --  
Audit-Related Fees   $ --     $ --  
Tax Fees   $ --     $ --  
All Other Fees   $ --     $ --  

 

Audit Fees

 

This category consists of fees for professional services rendered by our principal independent registered public accountant for the audit of our annual financial statements, review of financial statements included in our quarterly reports and services that are normally provided by the independent registered public accounting firms in connection with statutory and regulatory filings or engagements for those fiscal years.

 

Audit-Related Fees

 

This category consists of fees for assurance and related services by our principal independent registered public accountant that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under “Audit Fees”. The services for the fees disclosed under this category include consultations concerning financial accounting and reporting standards.

 

Tax Fees

 

This category consists of fees for professional services rendered by our principal independent registered public accountant for tax compliance, tax advice, and tax planning.

 

All Other Fees

 

This category consists of fees for services provided by our principal independent registered public accountant other than the services described above.

 

45
 

 

 

PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

(a) The following consolidated financial statements are filed as a part of this Form 10-K:

 

(i)   Reports of Independent Registered Public Accounting Firms   F-2, F-3
(ii)   Consolidated Balance Sheets, December 31,2013 and 2012   F-4
(iii)   Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2013, 2012 and 2011   F-5
(iv)   Consolidated Statement of Stockholders’ (Deficit) Equity for the years ended December 31, 2013, 2012 and 2011   F-6
(v)   Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012 and 2011   F-7
(vi)   Notes to Consolidated Financial Statements   F-8

 

(b) The following Exhibits are filed as part of this Annual Report on Form 10-K:

 

Exhibit
No.
  Description
     
2.1   Form of Rescission Agreement, effective as of May 22, 2013, by and among Windaus Global Energy, Inc., a Wyoming corporation, Windaus Global Energy, Inc., a Canadian corporation (“OpCo”), and Maurice and Judy Dechamps, the sole shareholders of OpCo, who are represented by David Worrall (as filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed on May 23, 2013).
2.2   Form of Share Exchange Agreement, effective as of May 22, 2013, by and among Windaus Global Energy, Inc., WindStream Technologies, Inc. and the shareholders of WindStream Technologies, Inc. (as filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed on May 23, 2013).
3.1   Certificate of Continuation (as filed as Exhibit 3.4 to the Company’s Current Report on Form 8-K/A, filed on February 14, 2013). 
3.2   Memorandum and Articles of Association (as filed as Exhibit 3 to the Company’s Registration Statement on Form F-1, file number 333-152294, filed on July 11, 2008).
3.3   Resolution amending Memorandum (as filed as Exhibit 3.2 to the Company’s Form 10-12G, filed on June 13, 2012).
3.4   Amended and Restated Articles of Incorporation of WindStream Technologies, Inc. (as filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on May 23, 2013). 
3.5   Amended and Restated Bylaws of WindStream Technologies, Inc. (as filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed on May 23, 2013).
4.1   Form of Convertible Promissory Note (as filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on May 23, 2013).
4.2   Form of Warrant (as filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed on May 23, 2013).
10.1   Form of distribution agreement with HG Energy (as filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K/A, filed on November 1, 2013).
10.2   Form of distribution Agreement with Jamaica Public Service Company (as filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K/A, filed on November 1, 2013).
     
21.1   Subsidiaries of the registrant.*
31.1   Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2   Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1   Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2   Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101.INS   XBRL Instance Document**
101.SCH   XBRL Taxonomy Extension Schema Document**
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document**
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document**
101.LAB   XBRL Taxonomy Extension Labels Linkbase Document**
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document**

 

 

 

* Filed herewith

 

** In accordance with Regulation S-T, the XBRL-related information on Exhibit No. 101 to this Annual Report on Form 10-K shall be deemed “furnished” herewith and not “filed.”

 

46
 

 

SIGNATURES

 

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

 

 

  WINDSTREAM TECHNOLOGIES, INC.
     
Date: April 10, 2014 By:  /s/ Daniel Bates
  Name: Daniel Bates
  Title: Chief Executive Officer
(Principal Executive Officer)
(Principal Financial Officer)
(Principal Accounting Officer)

 

47
 

 

EXHIBIT INDEX

 

Exhibit
No.
  Description
     
2.1   Form of Rescission Agreement, effective as of May 22, 2013, by and among Windaus Global Energy, Inc., a Wyoming corporation, Windaus Global Energy, Inc., a Canadian corporation (“OpCo”), and Maurice and Judy Dechamps, the sole shareholders of OpCo, who are represented by David Worrall (as filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed on May 23, 2013).
2.2   Form of Share Exchange Agreement, effective as of May 22, 2013, by and among Windaus Global Energy, Inc., WindStream Technologies, Inc. and the shareholders of WindStream Technologies, Inc. (as filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed on May 23, 2013).
3.1   Certificate of Continuation (as filed as Exhibit 3.4 to the Company’s Current Report on Form 8-K/A, filed on February 14, 2013). 
3.2   Memorandum and Articles of Association (as filed as Exhibit 3 to the Company’s Registration Statement on Form F-1, file number 333-152294, filed on July 11, 2008).
3.3   Resolution amending Memorandum (as filed as Exhibit 3.2 to the Company’s Form 10-12G, filed on June 13, 2012).
3.4   Amended and Restated Articles of Incorporation of WindStream Technologies, Inc. (as filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on May 23, 2013). 
3.5   Amended and Restated Bylaws of WindStream Technologies, Inc. (as filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed on May 23, 2013).
4.1   Form of Convertible Promissory Note (as filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on May 23, 2013).
4.2   Form of Warrant (as filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed on May 23, 2013).
10.1   Form of distribution agreement with HG Energy (as filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K/A, filed on November 1, 2013).
10.2   Form of distribution Agreement with Jamaica Public Service Company (as filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K/A, filed on November 1, 2013).
     
21.1   Subsidiaries of the registrant.*
31.1   Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2   Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1   Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2   Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101.INS   XBRL Instance Document**
101.SCH   XBRL Taxonomy Extension Schema Document**
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document**
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document**
101.LAB   XBRL Taxonomy Extension Labels Linkbase Document**
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document**

  

 

 

* Filed herewith

 

** In accordance with Regulation S-T, the XBRL-related information on Exhibit No. 101 to this Annual Report on Form 10-K shall be deemed “furnished” herewith and not “filed.”

 

48
 

  

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

Windstream Technologies, Inc.    
     
Reports of Independent Registered Public Accounting Firms   F-2, F-3
     
Consolidated Balance Sheets, December 31,2013 and 2012   F-4
     
Consolidated Statements of Operations for Fiscal Years Ended December 31, 2013 and 2012   F-5
     
Consolidated Statements of Stockholders (Deficit) Equity for Fiscal Years Ended December 31, 2013 and 2012   F-6
     
Consolidated Statements of Cash Flows for Fiscal Years Ended December 31, 2013 and 2012   F-7
     
Notes to Consolidated Financial Statements for Fiscal Years Ended December 31, 2013 and 2012   F-8

 

F- 1
 

 

 

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Shareholders of

Windstream Technologies, Inc.

 

We have audited the accompanying consolidated balance sheet of Windstream Technologies, Inc. (fka Windaus Global Energy, Inc.). (the Company) as of Deccmber 31, 2013, and the related Consolidated statements of operations, stockholders’ (deficit) equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit 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 Windstream Technologies, Inc. (fka Windaus Global Energy, Inc.) as of December 31, 2013, and the results of their operations and their cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company had an accumulated deficit at December 31, 2013, recurring net losses, and a working capital deficit at December 31, 2013, which raises substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ Hartley Moore Accountancy Corporation  
Anaheim, California  
   
April 9, 2014  

 

F- 2
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The Board of Directors

Windstream Technologies, Inc.

North Vernon, Indiana

 

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

 

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

 

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

 

/s/ MaloneBailey, LLP  
www.malone−bailey.com  
Houston, Texas  
   
August 16, 2013  

 

F- 3
 

 

WINDSTREAM TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS

 

    December 31, 2013     December 31, 2012  
ASSETS                
CURRENT ASSETS                
Cash   $ 203,534     $ 4,022  
Accounts receivable, net     401,549       24,933  
Inventories     946,805       295,023  
Prepaid expenses     187,341       77,717  
Deferred financing costs     37,529        
TOTAL CURRENT ASSETS     1,776,758       401,695  
                 
Property and equipment, net     352,430       487,942  
OTHER ASSETS                
Deposits     7,500       7,500  
TOTAL ASSETS   $ 2,136,688     $ 897,137  
                 
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY                
CURRENT LIABILITIES                
Accounts payable   $ 742,482     $ 1,021,312  
Accounts payable - related parties           41,705  
Accrued liabilities     789,338       676,256  
Short term Convertible Notes Payable, net of discount of $219,979 and $0, respectively     330,021        
Short term debt - related parties     187,500       253,000  
Short term debt - third parties     900,000       499,750  
Current maturities of note payable     224,087       351,453  
TOTAL CURRENT LIABILITIES     3,173,428       2,843,476  
LONG TERM LIABILITY                
Note payable, non-current     1,175,913       1,048,547  
TOTAL LIABILITIES     4,349,341       3,892,023  
STOCKHOLDERS’ DEFICIT                
Series A Convertible Preferred stock; $0 par value; 500,000 shares authorized; 0 and 83,053 shares issued and outstanding, respectively           740,000  
Seed 1 Convertible Preferred stock; $0 par value; 35,000 shares authorized; 0 and 35,000 shares issued and outstanding, respectively           35,000  
Seed 2 Convertible Preferred stock; $0 par value; 500,000 shares authorized; 0 and 463,908 shares issued and outstanding, respectively           1,521,353  
Preferred stock, no par value, unlimited shares authorized; no shares issued and outstanding            
Common stock; $0.001 par value; unlimited shares authorized; 83,461,899 and 24,646,646 shares issued and outstanding, respectively     83,462       24,647  
                 
Additional paid in capital     8,184,557       320,233  
Accumulated deficit     (10,480,672 )     (5,636,119 )
TOTAL STOCKHOLDERS’ (DEFICIT) EQUITY     (2,212,653 )     (2,994,886 )
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY   $ 2,136,688     $ 897,137  

 

The accompanying notes are an integral part of these consolidated financial statements .

 

F- 4
 

 

WINDSTREAM TECHNOLOGIES, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

 

    For the Year     For the Year  
    Ended     Ended  
    December 31, 2013     December 31, 2012  
SALES   $ 895,561     $ 237,237  
                 
COST OF GOODS SOLD     1,491,166       428,374  
                 
GROSS (LOSS)     (595,605 )     (191,137 )
                 
OPERATING EXPENSES:                
Research and development     402,273       1,181,094  
General and administrative expenses     3,307,972       1,525,535  
                 
TOTAL OPERATING EXPENSES     3,710,245       2,706,629  
                 
LOSS FROM OPERATIONS     (4,305,850 )     (2,897,766 )
                 
OTHER INCOME (EXPENSE)                
Grant, incentive and credits income           600,000  
Other expense     (800 )     5,915  
Interest expense, net     (537,903 )     (172,167 )
                 
TOTAL OTHER INCOME (EXPENSE)     (538,703 )     433,748  
                 
NET LOSS   $ (4,844,553 )     (2,464,018 )
                 
Net Loss Per Share - Basic and Diluted   $ (0.07 )   $ (0.10 )
                 
Weighted Average Shares Outstanding - Basic and Diluted     71,716,392       24,646,640  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

F- 5
 

 

WINDSTREAM TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY

 

    Series A Preferred Shares     Seed 1 Preferred Shares     Seed 2 Preferred Shares     Common Stock    

Additional

Paid in

    Accumulated        
    Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Capital     Deficit     Total  
                                                                   
Balance - December 31, 2011     -     $ -       35,000     $ 35,000       463,908     $ 1,521,353       24,646,646     $ 24,647     $ 160,640     $ (3,172,101 )     (1,430,461 )
                                                                                         
Series A Preferred shares issued for cash     77,441       690,000       -       -       -       -       -       -       -       -       690,000  
                                                                                         
Series A Preferred shares issued for accrued expenses     5,612       50,000       -       -       -       -       -       -       -       -       50,000  
                                                                                         
Stock option expense     -       -       -       -       -       -       -       -       159,593       -       159,593  
                                                                                         
Not loss for the year     -       -       -       -       -       -       -       -       -       (2,464,018 )     (2,464,018 )
                                                                                         
Balance - December 31, 2012     83,053     $ 740,000       35,000     $ 35,000       463,908     $ 1,521,353       24,646,646     $ 24,647     $ 320,233     $ (5,636,119 )     (2,994,886 )
                                                                                         
Reverse merger adjustment     (83,053 )     (740,000 )     (35,000 )     (35,000 )     (463,908 )     (1,521,353 )     15,019,253       15,019       2,281,334       -       -  
                                                                                         
Common stock issued in connection with reverse merger     -       -       -       -       -       -       24,000,000       24,000       (56,116 )     -       (32,116 )
                                                                                         
Stock option and warrant expense     -       -       -       -       -       -       -       -       452,352       -       452,352  
                                                                                         
Common stock issued for services     -       -       -       -       -       -       4,360,000       4,360       1,500,894       -       1,505,254  
                                                                                         
Warrants issued to convertible debt holders     -       -       -       -       -       -       -       -       253,486       -       253,486  
                                                                                         
Beneficial conversion feature on convertible debt     -       -       -       -       -       -       -       -       274,649       -       274,649  
                                                                                         
Warrant issued for deferred financing costs     -       -       -       -       -       -       -       -       48,203       -       48,203  
                                                                                         
Offering costs     -       -       -       -       -       -       -       -       (109,042 )     -       (109,042 )
                                                                                         
Common stock issued to stockholders     -       -       -       -       -       -       15,436,000       15,436       3,218,564       -       3,234,000  
                <