1.
Basis of Presentation
Wind Works Power Corp. formerly known as AmMex Gold Mining Corp. (the “Company”) changed its name on March 25, 2009. The Company, incorporated under the laws of the State of Nevada, was primarily engaged in the acquisition and exploration of mining properties, but has since modified its business plan to focus on alternate energy. The Company intends to develop wind parks. It will assemble land packages, secure requisite environmental permitting, provide wind testing by erecting towers to measure wind speed. Subject to favorable wind testing results, it will then apply for a power contract for the number of megawatts (MW) that the project will allow. Once it secures power contracts, management believes that it will be able to lease or sell the wind parks to operating utility companies or companies desiring to purchase wind turbines and erect the necessary power lines.
Effective January 31, 2010, the Company completed the acquisition of Zero Emissions People LLC. According to accounting principles generally accepted in the United States, the above noted acquisition is considered to be a capital transaction in substance, rather than a business combination. That is, the acquisition is equivalent to the issuance of stock by Zero Emissions People LLC for the net monetary assets of the Company accompanied by a recapitalization and is accounted for as a change in capital structure. Accordingly, the accounting for the acquisition is identical to that resulting from a reverse acquisition, except that no goodwill or intangible asset is recorded. All material inter-company balances and transaction have been eliminated. The December 31, 2009 comparative figures are the December 31, 2009 financial statements of Zero Emissions People LLC (note 10).
Going Concern
These consolidated interim financial statements have been prepared on a going concern basis which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. If the going concern assumption were not appropriate for these financial statements then adjustments would be necessary in the carrying value of assets and liabilities, the reported revenue and expenses and the balance sheet classifications used.
The operations of the Company have primarily been funded by the sale of common stock and the issuance of convertible debentures. Continued operations of the Company are dependent on the Company’s ability to complete additional equity financings or generate profitable operations in the future. Management’s plan in this regard is to secure additional funds through future equity financings. While the Company has been successful in the past at raising funds, there can be no assurance that it will be able to do so in the future.
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March 31
2011
|
June 30 2010
|
|
Deficit accumulated during the development stage
|
6,425,262
|
2,531,704
|
|
Working capital (deficiency)
|
(3,246,247)
|
(2,334,532)
|
2.
Significant Accounting Policies
The accompanying unaudited consolidated interim financial statements of the Company have been prepared in accordance with accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the disclosures required by generally accepted accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all of the normal and recurring adjustments necessary to fairly present the interim financial information set forth herein have been included. The results of operations for interim periods are not necessarily indicative of the operating results of a full year or of future years.
These interim financial statements have been prepared in accordance with generally accepted accounting principles in the United States and, with the exception of new accounting pronouncements described in Note 2, follow the same accounting policies and methods of their application as the most recent annual financial statements. These interim financial statements should be read in conjunction with the financial statements and related footnotes included in the Annual Report on Form 10-K of Wind Works Power Corp. for the year ended June 30, 2010.
Cash and cash equivalents
Cash and cash equivalents include cash and highly liquid investments with an original maturity of three months or less.
Fair Value of Financial Instruments
The Company has adopted FASB ASC 820, Fair Value Measurements and Disclosures, which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. The company applies fair value accounting for all financial assets and liabilities and non – financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The Company has adopted FASB ASC 825, Financial Instruments, which allows companies to choose to measure eligible financial instruments and certain other items at fair value that are not required to be measured at fair value. The Company has not elected the fair value option for any eligible financial instruments.
Capitalized Lease Cost
Capitalized lease cost represents the cost of taking over land leases located on the Company’s Grey Highlands Wind Park. Capital lease cost is amortized over the term of the operating leases taken over. During the three months ended March 31, 2011, the Company recognized amortization of $2,674 (2009 - $nil).
Fixed Assets
Fixed Assets are capitalized at cost. Depreciation is recorded on a declining balance basis at a rate of 20% per annum.
2.
Significant Accounting Policies (Continued)
Use of Estimates
The preparation of consolidated interim financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
2.
Wind Farm Developmental Properties
The Company has not yet realized any revenues from its planned operations. It was primarily engaged in the acquisition and exploration of mining properties, but has since modified its business plan to focus on alternate energy. The Company expenses all costs related to the maintenance and exploration of developmental wind farms in which it has secured rights prior to establishment of commercial feasibility. To date, the Company has not established the commercial feasibility of its projects; therefore, all development costs are being expensed. Developmental wind farm acquisition costs are initially capitalized when incurred. The Company assesses the carrying cost for impairment under ASC 360-10 “Accounting for Impairment or Disposal of Long Lived Assets” at each fiscal quarter end. When it has been determined that a wind farm property can be economically developed, the costs then incurred to develop such property are capitalized. Such costs will be amortized using the units-of-production method over the estimated life of the project. If developmental wind farm properties are subsequently abandoned or impaired, any capitalized costs will be charged to operations.
Income Taxes
The Company records income taxes in accordance with ASC 740, using the asset and liability method. Pursuant to ASC 340 the company is required to compute tax asset benefits for net operating losses carried forward. Potential benefits of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future period and accordingly is offset by a valuation allowance. ASC 340 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of tax positions taken into in tax returns.
To the extent interest and penalties may be assessed by taxing authorities on any underpayment of income tax, such amounts would have been accrued and are classified as a component of income tax expense in the consolidated statements of operations.
Foreign Currency Translation
The Company’s functional currency is the United States dollar. The consolidated interim financial statements of the Company are translated to United States dollars in accordance with ASC 830. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the consolidated balance sheet date. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income. Foreign currency transactions are primarily undertaken in Canadian dollars and the European Euro. The Company has not, to the date of these financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.
2.
Significant Accounting Policies (Continued)
The financial statements the subsidiaries are translated to United States dollars in accordance with ASC 830 using period-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues and expenses. Translation gains (losses) are recorded in accumulated other comprehensive income (loss) as a component of stockholders’ equity. Foreign currency transaction gains and losses are included in the statement of operations.
Comprehensive Income
ASC 220, “Reporting Comprehensive Income” establishes standards for the reporting and display of comprehensive income and its components in the financial statements. As at December 31, 2010 and 2009 the Company’s only component of comprehensive income is foreign currency translation adjustments.
Asset Retirement Obligation
The Company has adopted ASC 410-20, “Accounting for Asset Retirement Obligations”, which requires that an asset retirement obligation (“ARO”) associated with the retirement of a tangible long-lived asset be recognized as a liability in the period in which it is incurred and becomes determinable, with an offsetting increase in the carrying amount of the associated asset. The cost of the tangible asset, including the initially recognized ARO, is depleted, such that the cost of the ARO is recognized over the useful life of the asset. The ARO is recorded at fair value, and accretion expense is recognizable over time as the discounted liability is accreted to its expected settlement value. The fair value of the ARO is measured using expected future cash flow, discounted at the Company’s credit-adjusted-risk-free interest rate. To date, no material asset retirement obligation exists due to the early stage of the Company’s wind development projects. Accordingly, no liability has been recorded.
Environmental Protection and Reclamation Costs
The operations of the Company have been, and may in the future be affected from time to time in varying degrees by changes in environmental regulations, including those for future removal and site restoration costs. Both the likelihood of new regulations and their overall effect upon the Company may vary from region to region and are not predictable.
Environmental expenditures that relate to ongoing environmental and reclamation programs are charged against statements of operations as incurred or capitalized and amortized depending upon their future economic benefits. The Company does not anticipate any material capital expenditures for environmental control facilities.
Basic and Diluted Net Loss Per Share
The Company computes net income (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 income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS give effect to all dilutive potential common shares outstanding during the period using the treasury stock 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 shares if their effect is anti dilutive.
2.
Significant Accounting Policies (Continued)
Stock Issued in Exchange for Services
The valuation of the Company’s common stock issued in exchange for services is valued at an estimated fair market value as determined by officers and directors of the Company based upon trading prices of the Company’s common stock on the dates of the stock transactions. The corresponding expense of the services rendered is recognized over the period that the services are performed.
Stock Based Compensation
The Company has adopted the provisions of ASC 718, “Share-Based Payment” which establishes accounting for equity instruments exchanged for employee services. Under the provisions of SFAS ASC 718, stock-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employees’ requisite service period (generally the vesting period of the equity grant).
Convertible Debentures
The Company accounts for convertible debentures in accordance with ASC 470-20. The allocation of proceeds on the issuance of debt with detachable warrants is allocated between the debt and the warrants based on the relative fair value of the two instruments at their time of issuance. Beneficial conversion features embedded in debt instruments are recognized separately according to ASC 470-20-25-5 and are measured at their intrinsic value.
The Fair Value Option for Financial Assets and Financial Liabilities
On July 1, 2008, the Company adopted ASC 820 as it relates to financial assets and financial liabilities. In February 2008, the FASB staff issued ASC 845. ASC 845 delayed the effective date of ASC 820 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The provisions of ASC 845 are effective for the Company’s fiscal year beginning July 1, 2009.
ASC 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This standard is now the single source in GAAP for the definition of fair value, except for the fair value of leased property as defined in ASC 820. ASC 820 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC 820 are described below:
2.
Significant Accounting Policies (Continued)
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Level 1
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Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
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Level 2
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Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
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1.
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Level 3
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Inputs that are both significant to the fair value measurement and unobservable.
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The following table sets forth the Company’s financial assets and liabilities measured at fair value by level within the fair value hierarchy. As required by ASC 820, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
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Fair Value at March 31, 2011
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June 30, 2010
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Assets
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Total
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Level 1
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Level 2
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Level 3
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Total
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$
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$
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$
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$
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$
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Cash equivalents
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81,148
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81,148
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-
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-
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39,263
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Accounts receivable
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105,885
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105,885
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-
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-
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2,498
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Due from shareholder
Loan receivable
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1,850
2,836
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1,850
2,836
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-
-
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-
-
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1,850
-
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Accounts payable and accrued liabilities
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2,995,884
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2,995,884
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-
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-
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2,476,433
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Short term loan
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318,621
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318,621
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-
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-
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100,000
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Convertible debentures
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425,000
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-
|
-
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425,000
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385,216
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The carrying value of accounts receivable, due from shareholder, loan receivable, accounts payable and accrued liabilities, and short term loans approximates their fair value due to their short term nature. The Company’s cash equivalents are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices.
The estimated fair value of the convertible debentures accounted for as liabilities was determined using the relative fair value basis of the convertible debentures and warrants issued. The fair value of the warrants was estimated using the Black-Scholes option-pricing model with the following inputs:
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March 31, 2011
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Risk free interest rate
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0.25 – 0.98%
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Expected life of warrants
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1-2 years
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Expected stock price volatility
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106 - 110%
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Expected dividend yield
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0%
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3.
Accounting Standards Adopted
(i)
Business Combinations
In December 2007, the FASB issued FASB ASC 805 (revised 2007), “Business Combinations” (“ASC 805”). ASC 805 significantly changes the accounting for business combinations in a number of areas including the treatment of contingent consideration, pre acquisition contingencies, transaction costs, in-process research and development, and restructuring costs. In addition, under ASC 805, changes in an acquired entity's deferred tax assets and uncertain tax positions after the measurement period will impact income tax expense. ASC 805 is effective for fiscal periods beginning after December 15, 2008. The Company has adopted ASC 805 on July 1, 2009. This standard will change the accounting treatment for business combinations on a prospective basis.
In December 2007, the FASB issued ASC 810, “No controlling Interests in Consolidated Financial Statements – an amendment of Accounting Research Bulletin No. 51” (“ASC 810”), which establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the non controlling interest, changes in a parent’s ownership interest and the valuation of retained non-controlling equity investments when a subsidiary is deconsolidated. The Statement also establishes reporting requirements that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. ASC 810 is effective for fiscal periods beginning after December 15, 2008. The Company has adopted ASC 810 on July 1, 2009. Adoption of this standard did not have a material impact on the Company’s financial position, results of operations, or cash flows.
(ii)
ASC 815
In March 2008, the FASB issued ASC 815, “Disclosures about Derivative Instruments and Hedging Activities” (“ASC 815”). ASC 815 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. This statement is effective for financial statements issued for fiscal periods beginning after November 15, 2008. The Company has adopted ASC 815 on July 1, 2009. Adoption of this standard
did not have a material impact on the Company’s financial position, results of operations, or cash flows.
(iii) ASC 460
In May 2008, the FASB issued ASC 460, "Accounting for Financial Guarantee Insurance Contracts - an interpretation of FASB Statement No. 60." (“ASC 460”) requires that an insurance enterprise recognize a claim liability prior to an event of default (insured event) when there is evidence that credit deterioration has occurred in an insured financial obligation. This Statement also clarifies how Statement 60 applies to financial guarantee insurance contracts, including the recognition and measurement to be used to account for premium revenue and claim liabilities. Those clarifications will increase comparability in financial reporting of financial guarantee insurance contracts by insurance enterprises. This Statement requires expanded disclosures about financial guarantee insurance contracts. The accounting and disclosure requirements of the Statement will improve the quality of information provided to users of financial statements. ASC 460 will be effective for financial statements issued for fiscal years beginning after December 15, 2008.
The Company adopted ASC 460 on July 1, 2009. Adoption of this standard did not have a material impact on the Company’s financial condition or results of operation.
3.
Accounting Standards Adopted (Continued)
(iv) ASC 855
In May 2009, the FASB issued ASC 855, "Subsequent Events," which establishes general standards for accounting for, and disclosures of, events that occur after the balance sheet date, but before the financial statements are issued or are available to be issued. The pronouncement requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date and whether that date represents the date the financial statements were issued or were available to be issued. ASC 855 is effective with interim and annual financial periods ending after June 15, 2009. The Company adopted ASC 855on July 1, 2009. Adoption of this standard did not have an impact on the Company's results of operations, financial position, or cash flows.
(v) ASC 105-10-05
In July 2009, the FASB issued ASC 105-20-05, "FASB Accounting Standards Codification" ("ASC 105-10-05"), as the single source of authoritative nongovernmental U.S. generally accepted accounting principles (GAAP). The Codification is effective for interim and annual periods ending after September 15, 2009. All existing accounting standards are superseded as described in ASC 105-
10-05. All other accounting literature not included in the Codification is non-authoritative.
Management is currently evaluating the impact of the adoption of ASC 105-10-05 but does not expect the adoption of ASC 105-10-05 to impact the Company's results of operations, financial position, or cash flows.
(vi) ASC 470-20
In May 2008, the FASB issued FSP No. APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP 14-1”). FSP 14-1 applies to convertible debt instruments that, by their stated terms, may be settled in cash (or other assets) upon conversion, including partial cash settlement, unless the embedded conversion option is required to be separately accounted for as a derivative under FASB Statement No. 133. Convertible debt instruments within the scope of FSP 14-1 are not addressed by the existing APB 14. FSP 14-1 would require that the liability and equity components of convertible debt instruments within the scope of FSP 14-1 be separately accounted for in a manner that reflects the entity’s nonconvertible debt borrowing rate. This will require an allocation of the convertible debt proceeds between the liability component and the embedded conversion option (i.e., the equity component). The difference between the principal amount of the debt and the amount of the proceeds allocated to the liability component would be reported as a debt discount and subsequently amortized to earnings over the instrument’s expected life using the effective interest method. FSP APB 14-1 is effective for the Company’s fiscal year beginning July 1, 2009 and will be applied retrospectively to all periods presented. Adoption of this standard is not expected to have a material impact on the Company’s financial position, results of operations, or cash flows.
(ii) ASC 860
In June 2009, the FASB issued ASC 860, “Accounting for Transfers of Financial Assets—an amendment of FASB Statement” (“ASC 860”). ASC 860 is intended to establish standards of financial reporting for the transfer of assets to improve the relevance, representational faithfulness, and comparability. ASC 860 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2009. The Company adopted ASC 860 on July 1, 2010. The Company has determined that the adoption of ASC 860 has no impact on its consolidated interim financial statements.
4.
Recent Accounting Pronouncements
(i) ASC 810
In June 2009, the FASB issued ASC 810, “Amendments to FASB Interpretation No. 46(R)” (“ASC 810”). ASC 810 eliminates the exception to consolidate a qualifying special-purpose entity, changes the approach to determining the primary beneficiary of a variable interest entity, and requires companies to more frequently re-assess whether they must consolidate variable interest entities. Under the new guidance, the primary beneficiary of a variable interest entity is identified qualitatively as the enterprise that has both (a) the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance, and (b) the obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity. ASC 810
becomes effective for the Company’s fiscal 2011 year-end and interim reporting periods thereafter. The Company does not expect ASC 810 to have a material impact on its financial statements.
5.
Related Party Transactions
At March 31, 2011, the Company had a balance owing from a shareholder of $1,850 (2010 – $1,850) pertaining to funds held in trust. The amount is due on demand, unsecured, and bears no interest.
At March 31, 2011, the Company had a loan payable from an officer of $218,621 (20010 - $nil). The amount is due on demand, unsecured, and bears a 10% interest.
During the nine months ended March 31, 2011, the Company issued 9,000,000 shares (2009 – nil) related to the acquisition of Zero Emissions valued at nil (2009 – nil) which was a company related to the Company by way of directors, officers and shareholders in common.
During the period ended March 31, 2011, directors received payments of $57,320 (20010 – nil) for services rendered.
During the period ended March 31, 2011, a company owned by a director received payments of $71,361 (2009 – nil) for project development.
At March 31, 2011, the Company had payables to officers and directors of $95,476 (2010 – nil) for services rendered.
At March 31, 2011, the Company had accrued a payable to a company related by way of directors, officers and shareholders in common of $81,650 (2009 – nil) related to the acquisition of interests in six wind projects (Note 12 vi).
At March 31, 2011, the Company had a payable to a company related by way of directors in common of $450,000 (2009 – nil) related to the acquisition of a 50% interest in the Settlers Landing wind project (Note 12 vii).
All transactions with related parties are made in the normal course of business and measured at carrying value.
6.
Non-Cash Transactions
There were no income taxes paid during 2010 or 2009. During the period ended March 31, 2011, the company entered into certain non-cash operating activities as follows:
During the three months ended March 31, 2011, the Company issued 195,000 common shares at $0.40 for a total fair market value of $78,000 for services. $39,000 has been recognized as stock based compensation, and $39,000 has been included in prepaid expenses.
During the three months ended March 31, 2011, the Company issued 543,750 shares valued at $163,125 from the conversion of convertible debentures.
7.
Fixed Assets
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|
|
|
|
|
|
|
|
|
|
|
Cost
Opening Balance
|
Additions During the Year
|
Accumulated Depreciation
|
Net Book Value at March 31, 2011
|
Net Book Value at June 30, 2010
|
|
|
|
|
|
|
|
6,038
|
$ -
|
$ 907
|
$ 5,131
|
$ 6,038
|
During the period ended March 31, 2011, total additions to property, plant and equipment were $ nil (2010- $ nil). During the period ended March 31, 2011 the Company recorded depreciation of $298.
8.
Convertible Debentures
On November 25, 2009 the Company issued $992,000 of convertible debt in a subscription agreement between the Company and a group of investors. The debt carries an interest rate of 10% annually, due upon the maturity date, November 30, 2010. The debt may be converted into shares of common stock at a conversion price of $0.70 per share. In conjunction with the debt, the Company also issued warrants to purchase 1,000,000 warrants with an exercise price of $1.00 per share that expire on November 30, 2011. The fair value of the warrants is $0.53 per share as calculated using the Black-Scholes method. Assumptions include the stock price at $1.14 with a maturity date of 1 year and an interest rate of 0.48%. The debt carries a beneficial conversion feature, which along with the relative fair value of the warrants, resulted in a debt discount of $967,076 which was recorded against the convertible debt and offset in additional paid in capital. During the year ended June 30, 2010, the Company recognized $241,769 of accretion interest on the debt.
On April 29, 2010, the Company agreed to modify to the terms of the convertible debentures listed above. Under the modified debentures, the conversion price of the debentures was reduced to $0.40 per share. In addition, the warrant exercise price was reduced to $0.50 per share and the expiry date of the warrants was extended to November 30, 2012.
As a result of the above modification, the Company reported a loss of $564,130 for the extinguishment of debt relative to the original beneficial conversion feature and debt discount. At April 29, 2010, a new debt discount of $992,300 was recorded against the convertible debt and will be amortized as interest expense over the life of the debt. The discount on this debt was fully accreted in the period ended December 31, 2010.
During the period ended December 31, 2010 the Company received notice of conversion for $492,300 in principle of convertible debentures resulting in the issuance of 1,250,000 shares of common stock. An additional 95,548 shares valued at $38,219 were issued for interest owing on these converted debentures.
8.
Convertible Debentures (Continued)
On March 31, 2010 the Company issued $275,000 of convertible debt in a subscription agreement between the Company and a group of investors. The debt carries an interest rate of 10% annually, due upon the maturity date, March 31, 2011. The debt may be converted into shares of common stock at a conversion price of $0.40 per share. In conjunction with the debt, the Company also issued warrants to purchase 575,000 common shares with an exercise price of $0.75 per share that expire on March 31, 2012. The fair value of the warrants is $0.21 per share as calculated using the Black-Scholes method. Assumptions include the stock price at $0.59 with a maturity date of 1 year and effective interest rate of 0.96%. The debt carries a beneficial conversion feature, which along with the relative fair value of the warrants, resulted in a debt discount of $214,421 which was recorded against the convertible debt and offset in additional paid in capital. During the three months ended March 31, 2011 the Company recognized $53,605 of accretion interest on the debt.
During the year ended June 30, 2010 the Company received notice of conversion for $25,000 in principal of convertible debentures resulting in the issuance of 62,500 shares of common stock.
On August 31, 2010 the Company issued $150,000 of convertible debt in a subscription agreement between the Company and a group of investors, of which $50,000 is receivable. The receivable amount was received during the period ended December 31, 2010. The debt carries an interest rate of 10% annually, due upon the maturity date, February 28, 2011. The debt may be converted into shares of common stock at a conversion price of $0.40 per share. In conjunction with the debt, the Company also issued warrants to purchase 300,000 common shares with an exercise price of $0.50 per share that expire on August 31, 2012. The fair value of the warrants is $0.26 per share as calculated using the Black-Scholes method. Assumptions include the stock price at $0.57 with a maturity date of 1 year and effective interest rate of 0.25%. The debt carries a beneficial conversion feature, which along with the relative fair value of the warrants, resulted in a debt discount of $115,105 which was recorded against the convertible debt and offset in additional paid in capital. During the three months ended March 31, 2011 the Company recognized $38,368 of accretion interest on the debt.
On March 28, 2011 the Company received notice of conversion for $150,000 in principal of convertible debentures resulting in the issuance of 500,000 restricted shares of common stock. $13,125.00 of interest was paid in association with the notice of conversion resulting in the issuance of an additional 43,750 restricted shares of common stock.
The above convertible debenture liabilities are as follows:
|
|
|
|
|
|
|
|
March 31, 2011
|
June 30, 2010
|
|
March 31, 2010 convertible debentures payable
|
$ 275,000
|
$ 250,000
|
|
April 29, 2010 convertible debentures payable
August 31, 2010 convertible debentures payable
Conversion of April 29, 2010 convertible debentures
|
992,300
150,000
(492,300)
|
992,300
-
-
|
|
|
Conversion of March 31 2010 convertible debentures
|
(150,000)
|
|
|
Repayment of April 29 2010 convertible debentures
|
(200,000)
|
|
|
Repayment of August 31, 2010 convertible debentures
|
(150,000)
|
|
Total convertible debentures payable
|
425,000
|
1,242,300
|
|
Less: unamortized discount on March 31, 2010 convertible debentures payable
|
-
|
(148,298)
|
|
Less: unamortized discount on April 29, 2010 convertible debentures payable
Less: unamortized discount on August 31, 2010
convertible debentures payable
|
-
-
|
(708,786)
-
|
|
Net convertible debentures payable
|
$ 425,000
|
$ 385,216
|
9.
Short Term Loan
Short term loans of $318,621 are unsecured, non-interest bearing and are due on demand except for $218,621 which bears interest at 5% per annum.
10.
Share Capital
Total authorized share capital of the Company is as follows:
200,000,000 Common shares with a par value of $0.001
During the period ended March 31, 2011:
a)
The Company issued 500,000 restricted shares valued at $150,000 for debenture conversions and 43,750 restricted shares valued at $13,125 for interest owing on these converted debentures.
b)
The Company issued 195,000 restricted shares of the company at forty cents for a total consideration of $78,000 for services rendered.
The following share purchase warrants were outstanding at March 31, 2011:
|
|
|
|
|
|
|
|
|
|
Weighted Average Exercise price
|
|
Number
of warrants
|
|
Weighted Average Remaining
contractual life (years)
|
|
Balance beginning of year
|
|
0.64
|
|
1,975,000
|
|
2.39
|
|
Warrants issued from convertible debentures
|
|
0.50
|
|
300,000
|
|
1.75
|
|
Warrants issued from private placement
|
|
0.50
|
|
375,000
|
|
1.75
|
|
Outstanding and exercisable at March 31, 2011
|
|
0.60
|
|
2,650,000
|
|
1.55
|
The Company uses the Black-Scholes option valuation model to value warrants granted. The Black-Scholes model was developed for use in estimating the fair value of traded warrants. The model requires management to make estimates, which are subjective and may not be a representative of actual results. Changes in assumptions can materially affect estimates of fair values. For purposes of the calculation, the following assumptions were used:
|
|
|
|
|
March 31, 2011
|
June 30, 2010
|
|
Risk free interest rate
|
0.23%
|
0.48% - 0.96%
|
|
Expected life of warrants
|
1.5 year
|
1 year
|
|
Expected stock price volatility
|
151.95%
|
110.8%
|
|
Expected dividend yield
|
0%
|
0%
|
11.
Employee Stock Option Plan
On July 12, 2007, the board and shareholders approved the 2007/2008 Stock Incentive & Compensation Plan thereby reserving 6,000,000 common shares for issuance to employees, directors and consultants. The significant details of the plan are as follows:
·
All employees and consultants of the company are eligible to be granted stock options;
·
May issue up to 6,000,000 common shares;
·
Options shall not be priced at less than 100% of the FMV of common stock at the date of grant;
·
Maximum life of option is 10 periods;
·
Options are non-transferable, may only be exercised;
·
Options expire on termination of employment.
On October 19, 2009, the board granted 1,000,000 stock options expiring December 31, 2012 to officers and directors of the company vesting immediately at an exercise price of $0.85. During the period ended December 31, 2010, the Company approved the reduction of exercise price from $0.85 to $0.50 for the remaining options resulting in a stock based compensation expense of $28,000 as calculated using the Black Scholes model.
Changes in the Company’s stock options for the period ended March 31, 2011 are summarized below:
|
|
|
|
|
|
|
|
|
|
|
Number
|
Weighted Avg. Exercise Price
|
Weighted Avg. Years to
Expiry
|
|
Balance, beginning of Year
|
1,000,000
|
$ 0.85
|
2.25
|
|
Cancelled
|
(200,000)
|
-
|
-
|
|
Issued
|
200,000
|
$0.50
|
1.75
|
|
Balance March 31, 2011
|
1,000,000
|
$ 0.50
|
1.75
|
Stock Based Compensation
The Company uses the Black-Scholes option valuation model to value stock options granted. The Black-Scholes model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. The model requires management to make estimates, which are subjective and may not be representative of actual results. Changes in assumptions can materially affect estimates of fair values. For purposes of the calculation, the following assumptions were used:
|
|
|
|
|
March 31, 2011
|
June 30, 2010
|
|
Risk free interest rate
|
0.26%
|
0.60%
|
|
Expected dividend yield
|
0%
|
0%
|
|
Expected stock price volatility
|
157%
|
110%
|
|
Expected life of options
|
2 years
|
1 year
|
During the period ended March 31, 2011 the Company recognized stock based compensation expense in the amount of $ 393,305 (2010: $84,838).
12.
Acquisitions, Option Agreements and Power Contract Applications
As at March 31, 2011, the Company had capitalized wind development project costs as follows:
|
|
|
|
|
|
|
|
|
March 31, 2011
|
June 30, 2010
|
|
Skyway 126 (Note 12 i)
|
1,997,468
|
1,997,468
|
|
Zero emissions people (Note 12ii)
|
570,760
|
570,760
|
|
Sunbeam (Note 12 vi)
|
571,650
|
571,650
|
|
Settlers Landing (Note 12 vii)
|
497,500
|
497,500
|
|
Burg 1 (Note 12 x)
|
685,815
|
263,357
|
|
Burg II (Note 12xi)
|
236,500
|
-
|
|
German project (Note 12xiii)
|
6,198
|
-
|
|
EFI Joint Venture (Note 12xii)
|
-
|
-
|
|
|
4,565,891
|
3,900,735
|
(i)
Skyway 126
On October 23, 2009 the Company announced it had signed an agreement to acquire a 70% controlling interest in Skyway 126 Wind Energy Inc. in exchange for two million restricted shares of Wind Works’ common stock. Skyway 126 is a 10 megawatt (MW) project located in Grey-Highlands Township, Ontario, Canada.
(ii)
Zero Emission People
On October 28, 2009 the Company announced it had signed a share exchange agreement whereby it will acquire all of the outstanding equity interests in Zero Emission People (“ZEP”), which includes 10 wind energy development projects totaling 375 megawatts (MW). As consideration, the Company will issue thirty-one million shares of its common stock pursuant to the following schedule (Note 13):
- 5,000,000 shares of common stock on January 15, 2010 (issued)
- 9,000,000 shares of common stock on August 15, 2010 (issued)
- 9,000,000 shares of common shares on August 15, 2011
- 8,000,000 shares of common shares on August 15, 2012
The acquisition by Wind Works of Zero Emissions People is deemed to be a reverse acquisition. Wind Works (the legal acquirer) is considered the accounting acquiree and Zero Emissions People (the legal acquiree) is considered the accounting acquirer. The combined financial statements of the combined entity are in substance be those of Zero Emissions People, with the assets and liabilities, and revenues and expenses of Wind Works being included effective from the date of consummation of Share Exchange Transaction. Wind Works is deemed to be a continuation of business of Zero Emissions People. The outstanding common stock of Wind Works prior to the Share Exchange Transaction will be accounted for at their net book value and no goodwill will be recognized.
12.
Acquisitions, Option Agreements and Power Contract Applications (Continued)
On February 3, 2010 the Company announced that it had successfully closed the acquisition of Zero Emissions People effective Jan. 31, 2010.
On January 31, 2010, in an addendum to the share exchange agreement between the Company and Zero Emission People LLC, it was agreed that any provisions in regards to considerations in shares made in the joint venture agreement and option agreements entered into on September 18, 2009 will be superseded by the share exchange agreement of October 28, 2009. Both parties further acknowledged that any amount of shares issued by the Company as consideration as per provisions contained in any of the previous agreements shall be subtracted from the overall amount of shares due under the share exchange agreement if such a previous issuance does concern a project that is part of both the agreement under which the shares were issued previously and the share exchange agreement.
(iii)
Honelles
On November 9, 2009 the Company announced it had signed an option agreement to acquire a 100% interest in Honelles, a 10 megawatt wind energy project located in Belgium, from a company controlled by a former director of the Company. In consideration for the 100% interest, Wind Works must make an initial cash payment of $100,000 on January 15, 2010 and a further cash payment of $375,000 on March 15, 2010. On May 28, 2010 the option was extended and payments deferred to October 31, 2010. On September 30, 2010 the Company decided to not exercise its options on this project as it was not considered part of the strategic focus on Germany, Canada and the United States.
(iv)
Ecsed
On November 11, 2009 the Company announced it had signed an option agreement to acquire a 100% interest in Ecsed, a 50 megawatt wind energy project located in Hungary, from a company controlled by a former Director of the Company. In consideration for the 100% interest, the Company must make an initial cash payment of $125,000 on January 15, 2010 and a further cash payment of $375,000 on March 15, 2010. On May 28, 2010, the option was extended and payments deferred to October 31, 2010. On September 30, 2010 the Company decided to not exercise its options on this project as it was not considered part of the strategic focus on Germany, Canada and the United States.
(v)
Halas
On October 27, 2009 the Company signed an option agreement to acquire a 100% interest in Halas, a three phase 85 megawatt wind energy project located in Hungary, from a company controlled by a former director of the Company. The consideration for the 100% interest is to be determined. On May 28, 2010 the option was extended to October 31, 2010. On September 30, 2010 the Company decided to not exercise its options on this project as it was not considered part of the strategic focus on Germany, Canada and the United States.
(vi)
Sunbeam
On November 27, 2009 the Company signed an agreement whereby it acquired a 50% interest in another 6 wind energy projects totaling 80 megawatts (MW) located in Ontario, with an option to increase its interests to 100%, from Sunbeam LLC, a related party. All 6 projects submitted power contract applications on November 30th under the new Feed-in Tariff program of the Ontario Power Authority. The agreement calls for the issuance of 1,200,000 restricted common shares of the Company’s stock, and payment in cash of $300,000 CDN on April 30, 2010 (Note 5).
12.
Acquisitions, Option Agreements and Power Contract Applications (Continued)
On June 5, 2010 the cash payment portion of the agreement was amended to defer the due date to within 30 days upon written request by the selling party but no earlier than Sept. 30, 2010. The Company issued 1,200,000 common shares during the year ended June 30, 2010 related to the acquisition of these projects (Notes 5, 10).
On March 10, 2011 the Company made a cash payment of $105,000 to Sunbeam for 50% of the required Clean Breeze Grafton payment. It also paid $100,000 to Sunbeam as a partial payment toward the $750,000 outstanding.
(vii)
Settlers Landing
On November 6, 2009 the Company announced it had signed an agreement to acquire an additional 50% interest in the Settlers Landing Wind Park to give it a 100% interest in the project. As part of the acquisition of Zero Emission People, announced October 28, 2009, the Company acquired a 50% interest in Settlers Landing, a 10 megawatt wind energy project located near Pontypool, in Ontario, Canada. The agreement calls for the issuance of 300,000 restricted common shares of the Company’s stock, and the payment in cash of $450,000, the latter subject to milestones. The affect of payment is as follows:
Milestone 1:
The payment of $225,000 upon the earlier of: within 30 days of award of FIT/power contract or latest July 30, 2010.
Milestone 2:
The payment of $225,000 within 90 days upon award of a FIT/power contract.
On July 5, 2010 the cash payment portion of the agreement was amended to defer the due date to within 30 days upon written request by the selling party but no earlier than Sept. 30, 2010
.
As at June 30, 2010, $450,000 has been accrued as an account payable pursuant to this acquisition (Note 5).
During the year ended June 30, 2010 the Company issued 300,000 common shares related to the acquisition of this project (Notes 5, 10).
(viii)
St. Thomas
On April 1, 2010 the Company signed an exclusive option agreement with Sunbeam LLC, an affiliated entity, to purchase 100% of EB Farms LLC for 250,000 shares of the Company’s restricted common stock. The grant of the common stock was fully vested and non-refundable at the time of issuance Sunbeam LLC owns the rights to a 100MW wind energy project. The option had to be exercised by June 1, 2010. The Company chose not to exercise its option.
(ix)
EFI Energy Farming
On May 17, 2010 the Company signed an option agreement with EFI Energy Farming International GmbH, an affiliated entity. The option gives the Company the right to purchase up to 50% of several wind generation projects in Germany with a nameplate capacity of between 36 and 40 MW subject to obtaining construction permits according to all necessary approvals. The option cost was 100,000 euros, which has been paid. Wind Works can obtain the 50% equity interest upon payment of an additional 2,600,000 euros. Payment terms for the remaining 2.6 million euros will be based upon achieving agreed upon milestones to be set forth in a definitive agreement.
12.
Acquisitions, Option Agreements and Power Contract Applications (Continued)
As at March 31, 2011, the definitive agreement had not been established.
(x)
Burg 1
On June 8, 2010 the Company signed an agreement to purchase a 100% interest in the 4 MW project Burg 1 located near Magdeburg for a total cash payment of 900,000 euros plus the sales tax if applicable. The agreement called for an initial payment of 450,000 euros by June 15, 2010, a second payment of 225,000 euros no later than Jan. 15, 2011 and a final payment of 225,000 euros no later than April 30, 2011. On July 9, 2010 an amendment to the original agreement was executed whereby 300,000 euros were to be paid by July 9, 2010, 94,000 euros were paid by Sept. 15, 2010 and 56,000 euros are to be paid by Nov. 15, 2010. As at December 31, 2010, $450,000 euros ($646,665 USD) has been paid pursuant to this agreement. Terms affecting the two 225,000 euro payments in 2011 were not changed.
On April 13, 2010 the Company announced it had been offered seven power purchase agreements totaling 80 MW by the Ontario Power Authority.
On January 27, 2011 the Company announced
that its wholly-owned German affiliate, Wind Works Development GmbH, signed a construction organization and equipment procurement agreement with EFI Energy Farming International GmbH to organize construction of Wind Park Burg I. Wind Park Burg I is the first phase of a 2-phase, 10MW wind energy project located near Magdeburg in the eastern part of Germany. Debt financing of the 10 Million Euro Project for Phase 1 was confirmed and announced by Wind Works on December 3, 2010. Under terms of the construction agreement, Wind Works has now ordered two Enercon E82 2MW turbines. Start of construction is expected in June 2011 and the turbines are expected to be operational by Q4, 2011.
(xi)
Burg II
On September 7, 2010 the Company signed an option agreement to purchase a 50% interest from Aquavent Gesellschaft für regenerierbare Energien GmbH (“Aquavent”) in the Burg II Wind Project, a 6MW project located near Magdeburg, Germany. The project area has been secured and permitting is ongoing. Once construction permits have been obtained the project would be eligible for a Feed-in Tariff rate of 9.52 cents/kWh over a 20-year term. For 150,000 shares of the Company’s common stock (issued during the period ended December 31, 2010 valued at $64,500), the Company obtains an option for 90 days to buy Aquavent`s 50% share in the project for 750,000 Euros payable in cash and/or shares at the Company`s discretion as agreed to in a definitive agreement. In the event a BIMSCH permit cannot be obtained for the project within 18 months Aquavent shall deliver a similar project as a replacement to the Company, or, at the Company`s sole discretion, the Company may request reimbursement of any instalments paid by the Company to Aquavent (or cancellation of any share certificates issued). To enable closing of this agreement, the Company issued 200,000 common shares for $86,000 during the period ended December 31, 2010.
On September 21, 2010 the Company signed an option agreement with EFI Energy Farming International GmbH (EFI) to acquire the remaining 50% interest in the 6 MW Wind Park Burg Phase II. The Company now has an option to acquire a 100% interest in the project. For 1,000,000 shares of restricted Wind Works stock, the Company obtains an option for 90 days to buy EFI`s 50% share in the project for 750.000 Euros payable in cash and/or shares at the Company`s discretion as agreed to in a definitive agreement. In the event a BIMSCH permit cannot be obtained for the project within 18 months EFI shall deliver a similar project as a replacement to the Company, or, at the Company`s sole discretion, the Company may request reimbursement of any instalments paid by the Company to
EFI (or cancellation of any share certificates issued). During the period ended December 31, 2010 the Company issued 200,000 common shares valued at $86,000.
12.
Acquisitions, Option Agreements and Power Contract Applications (Continued)
(xii)
Joint venture with EFI
On September 17, 2010 the Company entered into a joint venture agreement with EFI Energy Farming International GmbH (“EFI”). The joint venture intends to develop a 20 megawatt wind energy project in Wassertruedingen, Germany. The joint venture will be owned on a 50/50 basis. Total cost to the Company will be 1.5 million Euros (approximately $1.959 million based on the current exchange rate) of which the Company has paid a total of 100,000 Euros ($136,120 USD) representing a down payment for the first project milestone. Equity ownership in the joint venture will be subject to achieving and fulfilling the funding and project milestones. The project area has been secured and permitting is ongoing. Once construction permits have been obtained the project would be eligible for a Feed-in Tariff rate of 9.52 cents/kWh over a 20-year term.
On December 13, 2010 the Company announced that this wind energy project in Germany had been sold to a third party investor. As a result the Company will receive payment of 190,000 Euros over a twelve month period of which 100,000 Euros ($136,120 USD) has been received as recovery of cost.
(xiii)
German project
As at December 31, 2010, the Company invested 4,370 Euro towards Roecken.
(xiv)
Purchase and sale agreement with Premier Renewable Energy
On March 3, 2011 the Company announced it signed a Purchase and Sale Agreement with Premier Renewable Energy Ltd. (PRE) to sell 5 wind energy projects in Ontario totaling 50 megawatts (MW). The closing of the sale is subject to certain conditions, including the approval of the Ontario Power Authority. The 5 projects (“Projects”), each totaling 10MW, are: Clean Breeze, Cloudy Ridge, Settlers Landing, Snowy Ridge, and Grey Highlands. All 5 projects were awarded power contracts under the OPA Feed-in Tariff program in April 2010 where Wind Works was awarded power contracts totaling 80MW. Terms of the agreement provided for PRE assuming all costs to develop, construct, and operate the Projects.
13.
Contingencies
The Company has accrued contingent liability of $100,000CAD, which was due thirty days upon signing a Feed-In Tariff contract with Ontario Power Authority pertaining to its Grey-Highlands wind energy project. The amount is payable to a company that originally owned the Grey-Highlands property operating lease agreement.
The Company may be required to make additional lease payments based on (a) the number of meteorological towers and/or (b) megawatt of turbine installed on its land leases. The contingent payments are not determinable at this time.
The Company has royalty payments contingent on gross revenue from the sale of units of electricity sold pertaining to its land leases. Total contingent payments required to be made under this agreement are not determinable at this time.
14.
Commitments
On January 27, 2011, the Company signed a financing, marketing and construction organization agreement with EFI Energy Farming International GmbH for Project Burg 1, with payments of 220,000 Euros according to development milestones.
The following are expected lease payments regarding the Company’s operating land leases:
|
|
|
|
|
|
2010
|
$ -
|
|
2011
|
$ 71,846
|
|
2012
|
$ 35,247
|
|
2013
|
$ 9,062
|
|
2014
|
$ 5,961
|
|
There after
|
$ 118,720
|
15.
Subsequent Events
On April 12, 2011 the Company announced it acquired a 75% interest in Thunder Spirit, a 150 megawatt (MW) wind energy project located in North Dakota. Terms of the acquisition of the 75% interest in the project include payment of the $260,000 interconnection deposit, which has been made to the Midwest ISO, as well as development costs to get the project ready for construction.
On April 19, 2011 the Company announced it signed a contract with REpower Systems AG for the delivery, installation and maintenance of 15 REpower MM92 type turbines in a special cold climate version for two wind farms totaling 30 megawatts of installed power. The wind farms, to be named “Whispering Woods” (10 MW) and “Ganaraska” (20 MW), will be located in Southern Ontario
’
’s Oshawa region. Both the Ganaraska and Whispering Woods wind parks projects have been awarded a Feed-In Tariff power purchase contract by the Ontario Power Authority and environmental studies are currently being completed for each project.
On April 28, 2011 the Company announced it signed agreements and closed on the sale of a 50% interest in Wind Park Burg 1, a 4 megawatt (MW) wind project located in Germany to a private investor group - 860,000 Euro (approx. $ 1.2 Million) as a down-payment with further payments to follow based on milestones. Wind Works will earn a 1.5% royalty on gross revenues of the wind farm with the potential to increase the royalty interest to 2.5% based on performance.
. Following the sale, Wind Works will retain a 50% ownership of the project, and will continue to manage its ongoing development.
On May 16, 2011 the Company announced it gave notice terminating the Asset Purchase Agreement (the “Agreement”) dated March 3, 2011 with Premier Renewable Energy, Inc. (“Premier”). The Agreement contemplated the sale of five of the Company’s wind energy projects in Ontario, Canada totaling 50 megawatts. The five wind parks were: Settlers Landing, Snowy Ridge, Grey Highlands, Cloudy Ridge and Clean Breeze. According to the Agreement Premier was supposed to pay certain development costs which they failed to do. The Agreement was therefore terminated for cause. Since the agreement with Premier has been terminated, we will be required to return to Premier a total of $961,000 representing the return of Premier’s refundable deposit. This amount is included in accounts payable and accrued liabilities at March 31, 2011. Except as set forth herein, there is no further liability to either Wind Works or Premier as a result of the termination of the agreement.
Item 1A.
Risk Factors
There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the period ended June 30, 2010.
I
tem 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operation
THE FOLLOWING DISCUSSION OF THE RESULTS OF OUR OPERATIONS AND FINANCIAL CONDITION SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND THE NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT
.
Background
Our business strategy is to pursue opportunities in wind energy. We intend to develop wind farms We will assemble land packages (“Wind Farms”), secure requisite environmental permitting, provide wind testing for a one year period by erecting towers to measure wind speed. Subject to favorable wind testing results, we then apply for power contracts for the number of megawatts (MW) that our land position will allow. Once we secure power contracts, we believe that we will be able to lease or sell the Wind Farms to operating utility companies or companies desiring to purchase wind turbines and erect the necessary power lines.
The development of a wind farm involves many steps and can take years before coming to fruition. Development in this context means the securing and maintenance of land sites for the proposed turbine locations by ways and according to the terms of the respective land lease or easement agreements, planning and conducting of all necessary environmental studies such as environmental screenings, noise assessments, visual assessments and avian and floral assessments assemblance which is required for the Environmental approval. Environmental approval is necessary to obtain building permit for the wind farms. Further development encompasses liaison with various Aboriginal and First Nations groups as well as consultations with provincial and federal agencies in order to obtain any permits that may be required for any such project.
In addition to environmental approval and consultations we have to engage in the planning and commissioning of all technical reports and engineering drawings and layouts of the planned projects in regards to the construction of the actual wind farm and any auxiliary structures such as transmission lines that are necessary to operate the wind farm. Wind energy engineers must prepare a three stage site implementation program
The first stage of the program involves locating the ideal placement for the wind turbines and determining which type of wind turbine can provide the optimal results for the wind farms. The second stage of the program involves building access roads to the property and constructing transmission lines which can be connected to the power grid. The final stage of the site implementation program is determining the final yield assessment which occurs after a power purchase agreement is signed with a local utility.
After we have secured the required licensing, and paid any required fees we intend to secure power contracts with local utilities. At this time, we do not intend to become a wind energy producer. Rather, we will develop the wind park for sale to wind energy producers. Our business model is to assemble a land package, secure regulatory approval, provide engineering studies, build the required infrastructure and finally enter into power purchase agreements with local utilities. When we sell our wind farms, we will be offering buyers a complete turnkey package. Purchasers will be required to purchase the wind turbines. Following the installation of the wind turbines, purchasers will then be able to sell wind power electricity pursuant to the terms and conditions of the power purchase agreements. We are currently in negotiations for the sale of several of our wind parks.
WIND POWER
Industry Overview
In today’s society, wind power and alternative energy are becoming a fast growing force along with the “Go Green” attitude. Renewable energy is produced using resources that are naturally replenished, such as wind, sunlight, geothermal heat, tides and biofuels. Technologies that produce energy from these renewable sources (other than biofuels) are often referred to as “clean” or “green” as they produce few, if any, pollutants that negatively impact the environment. Comparatively, fossil fuels such as coal, natural gas and oil are exhaustible and release greenhouse gases such as carbon dioxide or other pollutants into the atmosphere during energy production. As a result of increased environmental awareness, the deployment of renewable energy technologies has grown rapidly during the past several years. According to the Energy Information Administration, 37% of new U.S. power generation capacity in 2007 consisted of renewable technologies, compared with only 2% in 2003. This increase is expected to continue in both the United States and Canada. It is anticipated that renewable energy capacity in North America is expected to grow by a compounded annual growth rate between 9% and 11% through 2025. At this rate, the United States and Canada could supply 25% of its electrical energy requirements with renewable energy by 2025.
Wind energy is the fastest-growing renewable energy generation technology worldwide due to its cost efficiency, technological maturity and the wide availability of wind resources. It has been suggested that wind power has the greatest potential among all renewable energy technologies for further growth in North America. Although the United States and Canada have hydroelectric and geothermal resources, many potential hydroelectric sites have already been developed and geothermal production is confined by geographical limitations to only certain areas. In contrast, the available untapped wind resources across North America remain vast. Additionally, other renewable energy technologies, such as solar power, are currently less economically attractive than wind energy, and others, such as biofuels, emit particulates which have a greater negative impact on the environment than wind energy.
Wind Energy Fundamentals
The term “wind energy” refers to the process used to generate electricity through wind turbines. The turbines convert wind’s kinetic energy into electrical power by capturing it with a three blade rotor mounted on a nacelle that houses a gearbox and generator. When the wind blows, the combination of the lift and drag of the air pressure on the blades spins the blades and rotor, which turns a shaft through the gearbox and generator to create electricity.
Wind turbines are typically grouped together in what are often referred to as “wind parks.” Electricity from each wind turbine travels down a cable inside its tower to a collection point in the wind park and is then transmitted to a substation for voltage step-up and delivery into the electric utility transmission network, or “grid.” Today’s wind turbines can efficiently generate electricity when the wind speed is between 11 and 55 miles per hour.
A key factor in the success of any wind park is the profile and predictability of the wind resources at the site. Extensive studies of historical weather and wind patterns have been performed across North America and many resources, in the forms of charts, graphs and maps, are available to wind energy developers. The most attractive wind park sites offer a combination of land accessibility, power transmission, proximity to construction resources and strong and dependable winds.
When wind energy developers identify promising sites, they perform detailed studies to provide greater certainty with respect to the long-term wind characteristics at the site and to identify the most effective turbine strategy. The long-term annual output of a wind park is assessed through the use of on-site wind data, publicly available reference data and sophisticated software. Wind speeds are estimated in great detail for specific months, days or even hours, and are then correlated to turbine manufacturers’ specifications to identify the most efficient turbine for the site. Additional calculations and adjustments for turbine availability (which is principally affected by planned and unplanned maintenance events), wake effects (wind depletion caused by turbines sited upwind), blade soiling and icing and other factors are made to arrive at an estimate of net expected annual kilowatt hour electricity production at the site.
Wind development determines the MW capacity of a project. Generally, MW for projects are decided as follows: Generally, the location (land) where the wind farm is located allows for a certain number of turbines to be fitted on to the projects land due to setbacks from houses roads and other buildings or infrastructure items. Also turbines create a noise parameter which circles out a portion of the land and which parameter has to be fitted in with the setbacks towards any structure. (Generally, in Ontario at least 550m from a house. Most ordinances prohibit more than 45 decibel in an inhabited structure at any time). Wind turbines have a nameplate capacity of generally 1.5-2.5 MW. By using the land and the turbine model you create a layout which is used to determine whether these turbines fit within the layout and how many turbine sites must be secured under an easement agreement.
Financial Statements
On January 31, 2010 we acquired all of the outstanding equity interests in Zero Emissions. We have treated this transaction as a reverse merger with by Zero Emissions, as the former shareholders of Zero Emissions now own a majority of the Company’s issued and outstanding shares of common stock. As a result of the foregoing transaction, the acquisition is considered to be a capital transaction in substance, rather than a business combination.
Accordingly, the accounting for the acquisition is identical to that resulting from a reverse acquisition, except that no goodwill or intangible asset is recorded. All material inter-company balances and transaction have been eliminated and the financial statements presented are those of Zero Emissions . Wind Works is deemed to be a continuation of the business of Zero Emissions.
Comparison of Operating Results for the Three and Nine Months ended March 31, 2011 and March 31, 2010 and from May 2, 2008 (“Inception”) to March 31, 2011.
We have not generated revenues from operations. For the three and nine months ended March 31, 2011, we recognized income of $42,404 and $139,694 all of which is attributable to non-refundable deposits. We generated $529 in interest income for the nine months ended March 31, 2011.
Operating Expenses
For the three and nine months ended March 31, 2011 our operating expenses totaled $1,242,508 and $4,033,781 as compared to $397,788 and $444,058 for the comparable periods in 2010. Total expenses since Inception were $6,565,485.
Our single largest expense item for the three months ended March 31, 2011 was project development costs totaling $472,125 and $972,989 for the nine months ended March 31, 2011. This compares to $40,384 for the comparable periods in 2010. The acquisition and developments of the wind farms is the primary reason for the significant increase in project development costs. Project development costs since Inception totaled $1,574,411.
Professional fees incurred in connection with our ongoing reporting obligations with the Commission as well as professional fees incurred with respect to the acquisition and development of various projects continue to represent a significant portion of our ongoing operating expenses. For the three and nine months ended March 31, 2011 we incurred $154,148 and $376,654 in professional fees as compared to $47,474 in the comparable period(s) in 2010. Professional fees since Inception totaled $512,512.
For the three and nine month period ended March 31, 2011 consulting fees totaled $356,555 and $1,368,846. Consulting fees for the comparable periods in 2010 totaled $29,661 and since Inception have totaled $1,826,044.
For the three months and nine months ended March31, 2011 we incurred accretion interest expense totaling $91,972 and $984,705. We had no accretion interest expense for the comparable periods in 2010. Total accretion expense since Inception was $1,575,748.
Interest and service charges totaled $40,179 and $122,458 for the three and nine months ended March 31, 2011 as compared to $186,345 for the comparable periods in 2010. Interest and service charges since Inception totaled $171,137.
There were no other significant line item expenses except as set forth above.
Net Income (loss)
Our Net Loss for the three and nine months ended March 31, 2011 totaled $(1,200,104) and $(3,893,558) as compared to a Net Loss of $(397,788) and $(444,058) for the comparable period in 2010. Our Net Loss since Inception totaled $(6,425,262). For the three months ended March 31, 2011 we recorded a credit of $23,134 as a result of foreign currency exchange which resulted in a comprehensive loss for the period of $(1,176,970) and a comprehensive loss for the nine months ended March 31, 2011 totaling $(3,887,457). Our comprehensive loss since Inception totaled $(6,419,862).
We will require additional capital to fully implement our business plan. In the past, we have used debt and equity financing. More recently, we have used our interests in various wind farms as collateral for any loans or required deposits for our wind farms that have been awarded feed-in-tariffs.
Our Net Loss per share for the three and nine months ended March 31, 2011 totaled $(0.03) and $(0.10) as compared to a Net Loss of $(0.01) and $(0.02) for the comparable periods in 2010.
On a going forward basis, there can be no assurance that we will be able to secure additional capital or if available, on commercially acceptable terms. Until such time as we can fully implement our business plan, it is unlikely that we will be able to reverse our continuing losses in which case you may lose your entire investment.
Liquidity and Capital Resources
Assets and Liabilities
At March 31, 2011 we had cash and cash equivalents totaling $81,148 and prepaid expenses totaling $289,942 and accounts receivable total $105,885. We also have a value added tax receivable of $14,433. Total current assets at March 31, 2011 were $493,258. At June 30, 2010 we had cash totaling $39,263, prepaid expenses totaling $625,961, VAT receivable totaling $57,545 and accounts receivable totaling $2,498. Total current assets at June 30, 2010 were $727,117
.
Prepaid expenses consist primarily of common stock issued for services to be rendered as well as listing fees and prepaid rent.
The significant increase in our accounts receivable is primarily attributable to payments due related to our wind farms.
Our long term assets at March 31, 31, 2011 totaled $4,604,429 of which $4,565,891 was attributable to our wind projects. Long term assets at June 30, 2010 totaled $3,945,484 of which $3,900,735 is attributable to our wind projects.
Total assets at March 31, 2011 were $5,302,687 as compared to $4,672,601 at June 30, 2010.
Our current liabilities at March 31, 2011 totaled $3,739,505 consisting primarily of accounts payable and accrued liabilities totaling $2,995,884, convertible debentures totaling $425,000 and short term loans totaling $318,621. Current liabilities at June 30, 2010 totaled $3,061,649 consisting of $2,576,433 in accounts payable, $385,216 in convertible debentures and $100,000 in short term loans.
We have a working capital deficit at March 31, 2011 (current assets less current liabilities) of $3,246,247 as compared to a working capital deficit of $2,334,532 at June 30, 2010. Continued operations are dependent on our ability to complete additional equity financings or generate profitable operations. Management’s plan in this regard is to secure additional funds through future debt or equity financings. While we have been successful in the past at raising funds, there can be no assurance that it will be able to do so in the future.
Unless we secure additional funding to meet our short term capital requirements, there can be no assurance that we will be able to implement our business plan. If we are unable to pay our liabilities as they become due, and our creditors are not willing to defer payments, we may be required to seek protection from creditor claims.
Off-Balance Sheet Arrangements
We are not currently a party to, or otherwise involved with, any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Subsequent Events:
On April 28, 2011 we sold a 50% equity interest in Wind Park Burg 1, a 4 megawatt wind project located in sales. We have retained a 50% equity interest in the project and will continue to manage its ongoing development. The agreement provides for payment of 860,000 Euros (approximately $1.2 million). Additional payments will be made based on achieving certain milestones. Wind Works will receive a 1.5% royalty based on revenues which may increase to 2.5% based on performance.
Item 3.
Quantitative and Qualitative Disclosure About Market Risk
Not applicable
.
Item 4.
Controls and Procedures
(a)
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) and determined that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q. The evaluation considered the procedures designed to ensure that the information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and communicated to our management as appropriate to allow timely decisions regarding required disclosure.
(b)
Changes in Internal Control over Financial Reporting
During the period covered by this Quarterly Report on Form 10-Q, there was no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(d) and 13d-15(d) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
(c)
Inherent Limitations of Disclosure Controls and Internal Controls over Financial Reporting
Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Projections of any evaluation or effectiveness to future periods are subject to risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
+
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings.
None.
Item 2.
Unregistered Sales of Equity Securities.
During the quarter ended March 31, 2011 we issued a total of 738,750 shares of our common stock; a total of 195,000 shares valued at $0.40 per share were issued for services 0and 543,750 shares valued at $163,125 from the conversion of convertible debt.
At all times relevant:
- the sale was made to a sophisticated or accredited investor;
- we gave the purchaser the opportunity to ask questions and receive answers concerning the terms and conditions of the offering and to obtain any additional information which we possessed or could acquire without unreasonable effort or expense that is necessary to verify the accuracy of information furnished;
- at a reasonable time prior to the sale of securities, we advised the purchaser of the limitations on resale of the securities; and
- neither we nor any person acting on our behalf sold the securities by any form of general solicitation or general advertising
In issuing the foregoing securities, we relied on the exemptive provisions of Section 4(2), Regulation D and/or Reg S of the Securities Act.
Item 3.
Defaults upon senior securities.
None.
Item 4.
Removed and Reserved.
Item 5.
Other information
None.
Item 6.
Exhibits
Exhibit No.
Description
-----------
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3.1.**
Certificate of Incorporation
3.2.**
Certificate of Amendment to Certificate of Incorporation
3.3.**
Bylaws
3.4**
Form of Convertible Debenture
3.5**
Form of Warrant
3.6**
Form of Option
10.1**
Investment Agreement with Kodiak Capital Group, Inc.
10.2**
Registration Rights Agreement with Kodiak Capital Group, Inc.
10.3**
Share Exchange Agreement between Wind Works Power Corp. and Zero Emission People, LLC
10.4**
Addendum to Share Exchange Agreement with Zero Emission
10.5**
Joint Venture Agreement with Sunbeam, LLC
10.6**
Share Exchange Agreement with Skyway 126 Inc.
14**
Code of Business Conduct and Ethics
21**
Subsidiaries of Registrant
31.1*
Section 302 Certification of the Principal Executive Officer *
31.2 * Section 302 Certification of the Principal Financial Officer *
32.1 * Section 906 Certification of Principal Executive Officer *
32.2 *
Section 906 Certification of Principal Financial and Accounting Officer *
*
Filed herewith
**
Previously filed
SIGNATURES
Pursuant to the requirements 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.
Wind Works Power Corp.
Date: May 23, 2011
By: /s/ Ingo Stuckmann
--------------------------------
Ingo Stuckmann
Chief Executive Officer
Date: May 23, 2011
By:/s/ W. Campbell Birge
---------------------------------
Chief Financial Officer
EXHIBIT 31.1
OFFICER'S CERTIFICATION PURSUANT TO SECTION 302 OF SARBANES OXLEY ACT
I, Ingo Stuckmann, certify that:
1.
I have reviewed this quarterly report on Form 10-Q for the quarter ended March 31, 2011for Wind Works Power Corp.:
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;
4. The issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the issuer's internal control over financial reporting that occurred during the issuer's most recent fiscal quarter (the issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the issuer's internal control over financial reporting; and
5. The issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer's internal control over financial reporting.
Date: May 23, 2011 By: /s/ Ingo Stuckmann
-------------------------
Ingo Stuckmann
Chief Executive Officer
EXHIBIT 31.2
OFFICER'S CERTIFICATION PURSUANT TO SECTION 302 OF SARBANES OXLEY ACT
I, W. Campbell Birge, certify that:
1.
I have reviewed this quarterly report on Form 10-Q for the quarter ended March 31, 2011 for Wind Works Power Corp. ;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;
4. The issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the issuer's internal control over financial reporting that occurred during the issuer's most recent fiscal quarter (the issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the issuer's internal control over financial reporting; and
5. The issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer's internal control over financial reporting.
Date: May 23, 2011
By: /s/ W. Campbell Birge
----------------------------------
W. Campbell Birge
Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Wind Works Power Corp. (the "Company") on Form 10-Q for the period ended March 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned, in the capacities and on the dates indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
3. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Date: May 23, 2011
By: /s/ Ingo Stuckmann
------- -----------------
Ingo Stuckmann
Chief Executive Officer
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Wind Works Power Corp. (the "Company") on Form 10-Q for the period ended March 31, 2011, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned, in the capacities and on the dates indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
3. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Date: May 23, 2011
By: /s/ W. Campbell Birge
------------------------------
W. Campbell Birge
Chief Financial Officer