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EX-32.1 - EXHIBIT 32.1 SECTION 906 - WIND ENERGY AMERICA INC. | frm10k-ex321_weai.htm |
EX-31.1 - EXHIBIT 31.1 SECTION 302 - WIND ENERGY AMERICA INC. | frm10k-ex311_weai.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D. C. 20549
FORM
10-K
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE
SECURITIES EXCHANGE ACT OF 1934
FOR
THE FISCAL YEAR ENDED JUNE 30, 2009
Commission
File No. 0-9996
WIND ENERGY AMERICA
INC.
(Exact
name of registrant as specified in its charter)
Minnesota
|
41-1387074
|
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
12100
Singletree Lane, Suite 100
Eden
Prairie, MN
|
55344
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(952)
746-1313
|
(Registrant's
telephone number)
|
Securities
to be registered under Section 12(b) of the Act: None
Securities
to be registered under Section 12(g) of the Act: COMMON STOCK, $.05
PAR VALUE
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. [ ]
Indicate
by checkmark whether the issuer is not required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act. [ ]
Check
whether the Issuer (1) has filed all reports required to be filed by Section 13
or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES
[X] NO [ ]
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). YES
[] NO [X]
Check if
disclosure of delinquent filers in response to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of Registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. [
]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of "large accelerated filer", accelerated
filer" and "smaller reporting company" in Rule 12b-2 of the Exchange
Act. (Check one):
Large
accelerated filer
|
|
Accelerated
filer
|
|
Non-accelerated
filer
|
|
Smaller
reporting company
|
X
|
Indicate
by check mark whether registrant is a shell company. [ ]
The
aggregate market value of the Common Stock held by non-affiliates of the
Registrant as of September 16, 2009 was approximately $11,315,000 based upon the
closing price of the Registrant's Common Stock on such date.
APPLICABLE
ONLY TO REGISTANTS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING
THE PREDEDING FIVE YEARS:
Check
whether the issuer has filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court. YES [
] NO [ ]
APPLICABLE
ONLY TO CORPORATE REGISTRANTS
There
were 55,624,381 shares of Common Stock outstanding as of October 1,
2009.
DOCUMENTS
INCORPORATED BY REFERENCE: None
Transitional
Small Business Disclosure Format (check one): YES [
] NO [X]
TABLE
OF CONTENTS
PART
I
|
||||
Item
1.
|
Description
of Business
|
4
|
||
Item
1A.
|
Risk
Factors
|
8
|
||
Item
1B.
|
Unresolved
Staff Comments
|
8
|
||
Item
2.
|
Description
of Property
|
8
|
||
Item
3.
|
Legal
Proceedings
|
8
|
||
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
8
|
||
PART
II
|
||||
Item
5.
|
Market
for Company's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
8
|
||
Item
6.
|
Selected
Financial Data
|
9
|
||
Item
7.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
9
|
||
Item
8.
|
Financial
Statements and Supplementary Data
|
12
|
||
Item
9.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosures
|
12
|
||
Item
9A(T).
|
Controls
and Procedures
|
12
|
||
PART
III
|
||||
Item
10.
|
Directors,
Executive Officers and Corporate Governance
|
12
|
||
Item
11.
|
Executive
Compensation
|
14
|
||
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
15
|
||
Item
13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
16
|
||
Item
14.
|
Principal
Accounting Fees and Services
|
16
|
||
PART
IV
|
||||
Item
15.
|
Exhibits,
Financial Statements and Schedules
|
17
|
||
Signatures
|
18
|
PART
I
Item
1. Description of Business
Since
early 2007, the registrant Wind Energy America Inc. (“the Company”) has been
engaged solely in the wind power segment of the alternative renewable energy
industry.
Background
The
Company was founded and incorporated in Minnesota in 1980 under its former name,
Dotronix Inc. For over 25 years, the Company designed, manufactured
and marketed a line of cathode ray tube (CRT) displays and digital signage. In
2005, the Company discontinued its CRT business and began developing
non-prescription healthcare products to be marketed under the PuraMed brand,
which business was conducted through PuraMed BioScience
Inc. (“PuraMed”), a wholly-owned subsidiary Minnesota
corporation. In late 2006, the Company decided to focus entirely on
entering the wind energy business, and accordingly further decided to spin off
its PuraMed business.
Spin-Off
of PuraMed
In
April 2007, the Company completed the spin-off of its PuraMed subsidiary through
a pro rata dividend to all its shareholders on the basis of one common share of
PuraMed for each five common shares of the Company held by its
shareholders. Concurrent with this spin-off, the Company changed its
name from Dotronix Inc. to Wind Energy America Inc. Since the
spin-off, the Company and PuraMed have operated separately, with their
respective assets, managements, businesses, and capital structures being
completely independent from each other.
Strategic
Plan of the Company
The
primary strategy of the Company is to create and manage effectively a large and
diversified portfolio of profitable wind energy assets, both through acquisition
of existing wind farm assets and through development of new wind
farms. Since early 2007, the Company has acquired substantial wind
farm assets including interests in completed wind farms and a significant
“pipeline” of wind farm projects in various stages of design and
development. The Company’s wind energy assets are located primarily
along Buffalo Ridge, a geological formation which extends southeasterly from
eastern South Dakota across southwestern Minnesota and into northwestern
Iowa.
Buffalo
Ridge is well-known in the alternative energy industry for its high quality wind
energy resources.
Besides
the wind power interests now held by the Company in Minnesota and Iowa, the
Company intends to acquire or develop additional wind power assets in various
Midwestern and Great Plains regions of the USA. These regions
targeted by the Company are particularly suitable for generation of electricity
from wind energy since they feature sparsely populated and extensive flat
prairies having high and consistent wind speeds. Moreover, farmers
and ranchers and other rural citizens in these regions generally welcome the
profitable additional revenue-producing “crop” of wind farming along with the
related new “green collar” local jobs.
Purchase
of Boreal Energy Assets
In
December 2007, the Company entered into its principal acquisition which resulted
in its purchase of substantial wind power assets from Boreal Energy Inc.
(“Boreal”), a Minnesota corporation based in suburban St. Paul, which asset
purchase was not formally completed until September 2008. For these assets,
the Company agreed to pay Boreal a total of 28,500,000 shares of the Company’s
common stock. The terms of this Asset Purchase Agreement between
Boreal and the Company provided for the division of Boreal assets into two
categories.
The
first category of Boreal assets purchased by the Company included design and
development rights to a substantial “pipeline” of various wind farm projects in
Upper Midwest and Great Plains regions, which we believe are located in some of
the most favorable wind regimes in North America for generation of
electricity from modern utility-scale wind power turbines. For this
Boreal pipeline of projects, we allocated and paid to Boreal
18,500,000 common shares incident to the first stage closing of
this acquisition which took place in February 2008.
The
second category of Boreal assets consisted of a contingent 15% equity interest
in Navitas Energy Inc. (“Navitas”), a wind power developer which is
majority-owned by Gamesa, a leading Spanish wind turbine manufacturer, for which
we allocated 10,000,000 shares of our common stock. The Boreal asset
purchase agreement, however, granted Boreal the option to exchange this Navitas
equity interest for substituted wind energy assets provided the
Company was satisfied with the value of such exchanged substituted
assets. Pending the evaluation and resolution of this exchange,
the balance of 10,000,000 common shares of the Company were placed in
escrow. Boreal elected to transfer wind energy assets rather than its
Navitas equity interest, and after February 2008, Boreal negotiated and effected
an exchange of its Navitas equity interest for wind power assets satisfactory to
the Company. Although complete transfer documents for this exchange were not
formally completed until September 2008, it was agreed to and reflected in our
financial statements for our fiscal year ending June 30, 2008. Upon
completing this second stage of the purchase agreement, the 10,000,000 escrowed
common shares of our stock were delivered and paid to Boreal. The
wind energy assets substituted for Boreal’s equity interest in Navitas were
determined by us to have a value of at least $11,000,000, which was
approximately the carrying value of the Navitas interest on the
financial records of Boreal. Following is a description of these wind
energy assets received by us which were exchanged by Boreal for its Navitas
equity interest:
two 850kw
(kilowatt) Gamesa G-52 wind turbines and two 2Mw (megawatt) Gamesa G-80 wind
turbines and related equipment located on wind farm projects on Buffalo Ridge in
Minnesota and Iowa;
the
Midwest Center for Wind Energy (MCWE) facility along with the 160 acres where it
is situated in Lincoln County, Minnesota, comprising a modern building of 11,200
square feet including 8 lodging rooms, 4 offices, a large meeting room, a
conference room, a maintenance shop area, and spaces for viewing exhibits on
wind power.
the
Viking Wind Energy project in Martin County MN which if developed could include
a capacity rating of up to 100 megawatts, including meteorological equipment and
permits related to its completed wind studies, all wind data and wind power
capacity forecasts conducted on the property by Navitas, and all interconnection
documents related to the project.
Valuation
of Boreal Assets — Our valuation of Boreal assets was based on a number
of tangible and intangible factors and considerations including the book value
of assets on Boreal’s audited balance sheet, the design or development status of
wind farm projects held by Boreal, recent wind power industry transactions which
reflect value creation amounts paid for completed wind farms and early stage
pipeline projects, and other considerations of the Board of Directors of the
Company. Although many of the valuation factors used by the Company
are quite subjective in nature, the Company believes that its evaluation process
was sound and considered the standard factors and determinations used in the
wind power industry to evaluate wind energy assets. In anticipation
of closing this transaction, Boreal Energy had performed an impairment
assessment under which Boreal wrote down its assets to the readily identifiable
market value of its hard assets including turbines and real estate, which we
considered in our evaluation of Boreal assets. The Company did not
seek or obtain any independent appraisal of the Boreal assets purchased in this
transaction.
Voting Trust — To ensure that
the Company did not sell or transfer control of its business upon completing the
Boreal asset purchase, the Asset Purchase Agreement required Boreal to enter
into a voting trust provision whereby for a two-year period approximately
10,000,000 common shares of the Company issued in this transaction must be voted
for any shareholder proposal only with the consent of a current director of the
Company. This provision is now moot and no longer material, since a
majority of the common shares of the Company acquired by Boreal in this
transaction have been sold or transferred by Boreal to other persons, none of
whom is a principal shareholder of the Company.
Reasons for Purchasing Boreal
Assets — In reaching a determination to purchase the Boreal assets, the
Board of Directors of the Company considered a number of material factors,
including the following:
* Certain
Boreal ongoing projects provided the Company with immediate access to specific
projects already being developed.
*
Boreal’s proprietary pipeline of wind farm projects provided the Company with
potential future wind energy prospects in leading wind regimes.
* The
Company believed it would be able to attract and access substantial future
capital funding from debt and/or equity financing due to the Boreal
transaction.
* Future
development of Boreal pipeline wind power projects will enable the Company to
become a growing and recognized participant in the rapidly growing wind energy
industry, thus improving the visibility and status of the
Company
as a publicly traded entity.
Wind
Power Opportunity and Industry in the USA
Electric
generating capacity of the USA wind power industry has increased significantly
over the past few years. In 2006, generating electricity from wind
turbines increased almost 30%, and in both 2007 and 2008 there was a
substantially larger annual increase of over 40% in new wind farm developments.
The Company believes that impressive growth levels of wind farm installations
will continue for many future years. There is currently at least
25,000 megawatts of installed wind power capacity in the USA, yet the percentage
of electricity provided by wind power in the country is still only approximately
1% of total electricity demands. One megawatt of rated wind power
capacity produces enough electricity during a typical year to satisfy the
electricity needs of 250-300 residences.
The
USA has enormous wind power resources, far exceeding the more established
European wind regimes. In particular, the huge and sparsely populated flat and
consistently windy plains regions in upper Midwest and Great Plains states
provide virtually unlimited wind power resources. Accordingly, the
Company has focused its strategic business plan toward wind farm acquisition and
development in these plains regions. The Company believes these
regions provide the most accessible wind regimes for its operations,
particularly since they are located relatively near the Company’s base of
operations in the Minneapolis/St. Paul metropolitan area.
Factors
contributing to and driving the rapid growth of wind farm development in the USA
include:
* The
huge wind power potential in the USA has been only slightly exploited,
especially in our targeted Great Plains region. Despite strong recent
growth of wind farm development in the country, actual penetration of ample
USA
wind
power potential is very small, notwithstanding the vast areas of excellent and
untapped wind regimes.
* The
Federal Production Tax Credit (PTC) provides significant credits for ten years
of $.021 per kilowatt hour (kwh) for wind generated electricity.
* A large
and growing demand from utility companies requires them to obtain substantial
power from renewable energy sources in order to satisfy their mandated
requirements to add renewable alternative electricity production
(Renewable
Portfolio Standards), which wind energy is uniquely able to
satisfy.
* Since
the air driving wind turbines is virtually a free fuel source, wind power
provides utilities with a natural hedge against the variable and volatile nature
of fossil fuel costs.
* Wind
power constitutes an important element of our national policy to improve
domestic energy independence by reducing the amount of imported fossil fuels
used by our nation.
* Strong
and growing public pressures are now being exerted on legislative and executive
bodies and politicians to promote and develop “green” alternative
renewable energy sources to combat global warming and other adverse
environmental
effects caused by burning fossil fuels to generate e1ectricity.
Developer’s
Stake Assets Acquired in 2007
During
the second half of 2007, the Company purchased from Northern Alternative Energy
Inc. its subsidiary known as Northern Alternative Shaokatan LLC (“NAE
Shaokatan”). Through this purchase of NAE Shaokatan, the Company
obtained assets known as the “developer’s stake” in various wind farms located
mainly on Buffalo Ridge in southwestern Minnesota. These developer
stake interests in wind farms initially represents only a minimal or immaterial
ownership of the wind farm, but also represents a substantial future ownership
of wind farm revenues upon the occurrence of a specified event commonly known
also as the “flip” date. When such a flip occurs under the terms of
the wind farm ownership agreement, the developer’s stake flips or converts into
a prescribed ownership interest for the remaining life of the wind
farm. Generally this flip does not occur until at least the
expiration of the ten-year federal Production Tax Credit (PTC). When
the flip occurs, the wind farm ownership interests other than the developer’s
stake are decreased in the same amount as the increased developer’s
stake. The Company anticipates that as the future flips of its
developer’s stakes occur, the Company will receive substantial revenues from
these wind energy assets for many years.
Through
its purchase of NAE Shaokatan, the Company obtained the developer’s
stakes in two wind farm groups owned by different principals, the first being
two adjoining wind farms known as Shaokatan Hills and Lakota Ridge, and the
second consisting of 16 small wind farms collectively known as CHI
Energy. The developer’s stakes are identical for Shaokatan Hills and
Lakota Ridge, and likewise the developer’s stakes are the same for all 16 wind
farms of CHI Energy.
The
Company paid to Northern Alternative Energy Inc. a total of $2,500,000 in cash
and 4,000,000 shares of common stock of the Company (valued at $.60 per share)
for NAE Shaokatan, of which $2,300,000 in cash was paid for the developer’s
stakes of Shaokatan Hills and Lakota Ridge, and $200,000 in cash and 4,000,000
shares of common stock of the Company was paid for the developer’s stakes of the
16 wind farms of CHI Energy.
Shaokatan
Hills/Lakota Ridge contain a total of 33 wind turbines on agricultural land,
with Shaokatan Hills having 18 Vestas 660kw wind turbines on 1,000 acres with a
total rated capacity of ll.88 megawatts (MW), and Lakota Ridge having 15 Micon
750kw wind turbines on 640 acres with a total rated capacity of 11.25
MW. During a recent four-year period, these 33 turbines generated
electricity at an average annual rate of approximately 68,000,000 kilowatt hours
(kwh). Lakota Ridge is north of and adjoins Shaokatan
Hills. The developer’s stakes of both Shaokatan Hills and Lakota
Ridge provide a 0.l% ownership in the wind farms until the flip date when they
convert to 80% ownership. The flip for Shaokatan Hills and Lakota
Ridge does not occur until the later of the expiration of the ten-year PTC or
that date when the principal owners receive a prescribed total return on their
investments in the wind farms. The Company believes that the flip
dates for Shaokatan Hills and Lakota Ridge will occur by 2011.
The
16 wind farms of CHI Energy are managed and maintained collectively, and contain
a total of 46 Vestas 660kw wind turbines on various agricultural properties and
having a total rated capacity of 30.36 megawatts (MW). During a
recent four-year period, these 46 turbines generated electricity at an average
annual rate of approximately 93,000,000 kilowatt hours (kwh). These
16 wind farms are situtated in the north end of Lincoln County MN directly north
of Lakota Ridge and in the south end of Lincoln County near the town of Lake
Benton. The developer’s stakes of these 16 wind farms provide initial
ownership of only 0.1% and also contain a dual flip, with ownership increasing
to 30% when the first flip occurs and then further to 49% upon occurrence of the
second flip. The first flip occurs upon the expiration of the
ten-year PTC, and the second flip occurs when certain loan financing covering
the wind farms is satisfied. The Company anticipates that the initial
flip dates for these 16 wind farms will occur during 2010-2011 depending upon
when each wind farm was commissioned, with the second flip occurring
approximately four years after the first flip.
Averill
Wind LLC
In
2007 the Company also acquired a $200,000 equity interest in Averill Wind LLC,
which is a 10 megawatt Minnesota wind farm being developed near Fargo, North
Dakota. Like Buffalo Ridge, the Averill site is located in a
particularly favorable region for wind power resources.
Grand
Sierra Resort Corp. Investment
In July
2006 the Company formed a Minnesota corporate subsidiary, Grand Realty Group
Inc., for the purpose of acquiring an equity interest in Grand Sierra Resort
Corp. (“Grand Sierra”), a private company incorporated in
Nevada. Grand Sierra purchased the Reno Hilton Hotel/Casino complex
in Reno, Nevada in June 2006 from Harrah’s Entertainment Inc. and promptly
changed its name to Grand Sierra Resort & Casino. This Grand
Sierra complex includes a large casino gaming area, hotel rooms, many
condominium units, and various retail businesses. Through certain
warrant rights held by the Company, the Company in 2006 purchased a total of
1,037,500 shares of Grand Sierra common stock for $415,000 representing
approximately an ownership of 1% of Grand Sierra. Although the
Company continues to hold its common stock interest in Grand Sierra, a recent
impairment evaluation of this asset has resulted in the Company’s Grand Sierra
investment being written down to a fair value of only $15,000.
Item
1A. Risk Factors
Not applicable
Item
1B. Unresolved Staff Comments
Not
applicable
Item
2. Description of Property
The wind
farm interests and related assets of the Company have been described in detail
in the foregoing Item 1 of this Annual Report on Form 10-K.
The real
estate acquired by the Company via the Boreal asset purchase consisted of the
Midwest Center for Wind Energy facility which is located on 160 acres in Lincoln
County, Minnesota, legally described as follows:
The Northwest
Quarter of Section 29, Township 111, Range 46,
Lincoln
County, Minnesota;
which real
estate the Company sold and leased back in November 2008 pursuant to a
transaction described in Item 7 of this Annual report on Form 10-K under the
title “Liquidity and Resources.”
Item
3. Legal Proceedings
None.
Item
4. Submission of Matters to a Vote of Security Holders
Only one matter was submitted to a vote
of security holders of the Company during the fourth quarter of fiscal year
ended June 30, 2009, which was the approval by shareholders of the Company in
April 2009 of an increase in authorized common shares from 50,000,000 to
100,000,000 common shares.
PART
II
Item
5. Market for Company's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
The Company's common stock trades on
the Over the Counter ("OTC") Bulletin Board under the symbol WNEA.OB, which
bulletin board quotation system is administered by NASDAQ.
The following table sets forth, for the
periods indicated, the quarterly high and low closing prices for the Company’s
common stock quoted on the OTC Bulletin Board, which quotes represent prices
between dealers and do not include adjustments for retail mark-up, mark-down or
commission and may not represent actual transactions.
Year
Ended
June
30, 2009
|
Year
Ended
June
30, 2008
|
|||||||||||
High
|
Low
|
High
|
Low
|
|||||||||
Quarter
ended September 30
|
$
|
1.20
|
$
|
0.20
|
$
|
3.43
|
$
|
1.70
|
||||
Quarter
ended December 31
|
0.40
|
0.15
|
2.58
|
1.68
|
||||||||
Quarter
ended March 31
|
0.35
|
0.24
|
2.24
|
0.95
|
||||||||
Quarter
ended June 30
|
0.28
|
0.22
|
1.40
|
1.05
|
As
of September 30, 2009, the Company had approximately 435 shareholders of
record. The Company did not declare or pay any cash dividends on its
common stock during the last two fiscal years ended June 30, 2009 and 2008, and
does not expect to pay any cash dividends for the foreseeable
future. The foregoing number of record shareholders does not include
beneficial owners whose shares were held of record by nominees or
broker-dealers, and accordingly the number of record shareholders does not bear
any relationship to the number of beneficial owners of the Company's common
stock.
There
were no issuer repurchases by the Company during the fiscal year ended June 30,
2009.
Item
6. Selected Financial Data
Not applicable.
Item
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read
in conjunction with our audited financial statements and related footnotes
included in this Form 10-K. Our financial statements included herein
have been prepared in accordance with United States Generally Accepted
Accounting Principles (US GAAP).
Forward-Looking Statements
This Annual Report on Form 10-K
contains "forward-looking statements" within the meaning of the Securities
Exchange Act of 1934 and the Securities Act of 1933. Forward-looking
statements typically contain words "may," "will," "expect," "anticipate,"
"continue," "estimate," "project," "intend," or similar other
words. Statements expressing expectations regarding our future
business and prospects or projections we make relating to our properties,
revenues and earnings are typical of such forward-looking
statements.
All forward-looking statements are
subject to the risks and uncertainties inherent in attempting to predict future
results and activities. Our actual results may differ materially from
those projected, stated or implied in our forward-looking statements as a result
of many factors including, but not limited to, our overall industry environment,
our ability to raise sufficient capital for planned wind energy asset purchases
and project development, effectiveness of our acquisition and development
activates, efficient operation of our wind energy assets, prevailing energy
prices, government regulatory matters, competitive pressures, general economic
conditions and our financial condition.
Our forward-looking statements relate
only as of the date made by us. We undertake no obligation to update
or revise any such statements to reflect new circumstances or unanticipated
events as they occur, and you are urged to review and consider all disclosures
we make in this and other reports.
Comparison
of Results of Operations for Fiscal Years Ended June 30, 2009 and
2008
Revenues – There were revenues
of $99,503 for fiscal year 2009 compared to no revenues for fiscal year
2008. Fiscal 2009 revenues constituted rental income derived from the
lodging and meeting rooms at the Midwest Wind Energy Center.
General
and Administrative Expenses – These expenses include administrative,
management, and professional services and fees, which expenses in total
increased from $933,939 for fiscal year 2008 to $l,625,050 for fiscal year
2009. These increased selling, general and administrative expenses in
fiscal year 2009 were primarily due to greater expenses connected with the
increased management, administrative and development expenses incurred in fiscal
2009 to support and commence development of the various wind energy assets
purchased in late fiscal 2008.
Impairment and
Abandonment Expense - The Company expensed $426,757 for impairment and
abandonment of assets in fiscal year 2009 compared to none in fiscal year
2008. Most of such 2009 expense related to the large impairment taken
on the Grand Sierra Resort investment.
Net Operating
Loss – Net operating loss for fiscal year 2008 was $(933,939) compared to
a net operating loss of $(l,952,304) for fiscal year
2009. This substantial loss increase of $(l,018,365) in fiscal year
2009 was due to the overall increases in administrative, general and
professional expenses to support and commence development of newly acquired wind
energy assets along with the substantial impairment expensed against the Grand
Sierra Resort investment.
Net Loss –
Net loss for fiscal year 2008 was $(937,499) compared to a net loss of
$(1,889,475) for fiscal year 2009. Net loss comparisons
for the two fiscal years were virtually the same as the above net operating loss
comparisons. Fiscal year 2009 also included net interest income of
about $80,000 related to the sale/leaseback of the Midwest Wind Energy
Center.
Securities Issued
for Compensation - The Company issued or
granted common stock and warrants for compensation in the total amount of
$509,429 in fiscal year 2008 compared to $608,150 in fiscal year 2009.
.
Certain Cash Flow
Comparisons
Investing
activities related to purchase of and investments in wind energy properties
included $875,375 in fiscal year 2008 compared to $974,622 in fiscal year
2009. Proceeds from the sale of fixed assets in fiscal year 2009 in
the amount of $1,374,474 derived from the MWEC sale/leaseback
transaction.
Cash
flows from financing activities included sales of common stock in fiscal year
2008 in the amount of $1,137,942 and in fiscal year 2009 in the amount of
$653,994.
Overview
and Plan of Operation
The
Company was founded and incorporated in Minnesota in 1980 to engage in
manufacturing and marketing cathode ray tube (CRT) displays and digital
signs. Due to continuing losses in that business for a number of
years, the Company discontinued its CRT business by the end of 2005, and then in
2006 began developing and marketing non-prescription healthcare products under
the PuraMed brand. The PuraMed business was conducted through a
wholly-owned subsidiary Minnesota corporation, PuraMed Bioscience
Inc. In April 2007, the Company completed a spin-off of its PuraMed
Bioscience Inc. subsidiary to all its shareholders on a pro rata dividend basis,
and since the spin-off, the Company and PuraMed BioScience Inc. have operated
completely independent from each other. In early 2007, the
Company also entered the wind power industry as its sole business and incident
thereto changed its corporate name from Dotronix, Inc. to Wind Energy America
Inc.
During
2007, the Company acquired substantial interests in various wind farms primarily
located on Buffalo Ridge in southwestern Minnesota. These interests
represented the “developer’s stake” in various wind farms containing a total of
79 modern wind turbines having a total rated capacity of 53.5 megawatts (53,500
kilowatts) which collectively generate approximately 160,000,000 kilowatt hours
(kWh) of electricity annually. Acquisition by the registrant of the
developer’s stakes in this core holding of Buffalo Ridge wind farms accomplished
a major step toward the strategic goal of the registrant to create a substantial
and diversified portfolio of wind power assets.
During
2008, the Company purchased substantial additional tangible and intangible wind
power assets from Boreal Energy Inc. for 28,500,000 shares of common stock of
the Company, which Boreal asset purchase was fully reflected on the financial
statements of the Company for the fiscal year ending June 30, 2008.
All
such purchases of wind energy assets acquired during 2007 and 2008 by the
Company are described in further detail in Item 1 of this Annual Report on Form
10-K.
The
strategic goal of the Company over the coming years is to acquire and develop a
broad portfolio of wind power assets located principally in certain Midwestern
and upper Great Plains regions of the USA. These regions are
particularly suitable for generation of renewable energy since they feature flat
prairies having high and consistent wind speeds. Moreover, there is
no material NIMBY (not-in-my-back-yard) factor to contend with in these targeted
regions such as is frequently encountered in more populous areas of the
country.
Liquidity
and Capital Resources
Sale/Leaseback of Wind Energy Center
– In order to fund working capital, development expenses and satisfy
certain bank payments during much of fiscal year 2009, the Company
entered into a sale/leaseback transaction in November 2008 for the Midwest Wind
Energy Center (MWEC) which was owned by the Company from its purchase of Boreal
assets. Funding from this sale/leaseback transaction has been
utilized by the Company to satisfy bank debt secured by the MWEC property, to
purchase parts and materials to begin upgrading and commissioning the Gamesa
turbines owned by the Company in Minnesota and Iowa, to make ongoing installment
bank payments on Iowa wind farms, and for certain working capital
purposes. A detailed description of the sale and leaseback terms of
this transaction is contained in Footnote J to the Company’s unaudited financial
statements included in its second quarter Form 10-Q report filed with the SEC on
February 20, 2009.
Future Funding - In order to
effectively develop its wind power assets, the Company will need to continue
obtaining substantial funding through debt or equity sources, or sale of wind
energy assets, or more than one of these sources. There is no
assurance, however, that the Company can obtain its needed development and
working capital funding through further sale of its securities, or any available
debt sources, or sale of any assets. If the Company cannot raise
substantial funding as planned, it will be unable to implement its business plan
effectively and most likely will be unable to become profitable or satisfy its
working capital needs in the future. The Company currently only has
enough working capital to support its management and administrative expenses
until the end of 2009.
Critical
Accounting Policies
The
preparation of financial statements requires the Company to make estimates and
judgments affecting its reported amounts of assets, liabilities, revenues and
expenses, and related disclosures. On an ongoing basis, management of
the Company will evaluate these estimates and judgments, which are based on
historical experience, observance of industry trends, information from industry
and governmental sources, and certain assumptions believed to be reasonable
under the circumstances. Actual results may differ materially from
these estimates under different assumptions or conditions. Following
are certain accounting policies affecting the Company’s more significant
judgments and estimates used in the preparation of its financial
statements:
Stock-Based
Compensation – The Company expenses stock-based
compensation issued to its management or others for goods and services provided
to the Company. The fair value of any securities issued for goods or
services is expensed over the period in which the related goods or services are
received. Equity instruments issued by the Company for goods and
services have been for common shares or common stock purchase warrants, which
are fully vested, non-forfeitable, and either fully paid or exercisable at the
date of grant. Regarding any option or warrant grants, the Company
determines their fair values using the Black-Scholes model of
valuation.
Impairment
Evaluations – After the end of each fiscal year, the Company conducts an
impairment evaluation of its material assets, including current assumptions
regarding when the Company will receive future revenues from wind farms in which
it owns developer’s stake interests and the estimated amounts of such future
revenues. If the results of any such impairment analysis
indicates that recorded values for any assets have declined a material amount,
the Company will adjust its recorded valuations on a discounted cash flow basis
to reflect any such decline in value in its financial statements. A
brief description of material impairment evaluations for the fiscal year ending
June 30, 2009 are as follows:
Boreal Assets - These assets
included the Midwest Energy Center (MWEC) and adjoining land, four Gamesa wind
turbines totaling 5.7 megawatts of rated capacity, the Viking wind project in
southern Minnesota, and a pipeline of potential wind energy projects in various
locations. We have not attributed any value to the pipeline of
prospects on our balance sheet, although we believe the pipeline has significant
intangible value. Based on our experience and available industry
information, it is our belief that wind turbine development costs range from
$l.7-$2 Million per megawatt. As measured against this development
cost standard, the four Gamesa turbines alone are worth approximately the amount
of value we are stating on our balance sheet for all such Boreal
assets. Accordingly, we believe there has not been any impairment of
the Boreal assets as of June 30, 2009.
Developer’s Stake Assets
- Based on definite and consistent electricity generation results
over the past years for Shaokatan Hills, Lakota Ridge and CHI Energy wind farms,
we determined that as of June 30, 2009 there was no impairment to our various
developer’s stakes in these wind farms which are stated at their cost value to
us. We measure any possible impairment of these assets using
reasonable “present value” determinations based on projected future revenues
from them after they “flip” and are converted to substantial ownership
interests. Our estimated present values for these developer’s stake
assets as of June 30, 2009 was at least equal to their aggregate cost
to us as stated in our financial statements. Accordingly, we have not
recognized any impairment to their cost basis value as of June 30,
2009.
Averill Wind – Regarding the
minority interest owned by us in Averill Wind LLC, a 10-megawatt wind farm
project being developed in western Minnesota, we account for Averill on its cost
basis to us of $200,000. We have recently discussed the future
continued development of Averill with its principal equity owners who are
seeking additional funding to complete Averill. We expect that
Averill will still be developed when a suitable source of capital is obtained,
and accordingly we do not believe any impairment of our Averill investment is
necessary as of June 30, 2009.
Grand Sierra Resort - During
the fiscal year ended June 30, 2009, seriously depressed market and devaluation
conditions occurred throughout the country for recreational condominium units
such as those at the Grand Sierra Resort development in Reno,
Nevada. The principals of Grand Sierra have informed us that they
have been unable to sell enough condominium units at Grand Sierra to provide
them with ongoing and necessary working capital, and they do not expect any
future improvement in the depressed nature of their local real estate market for
condominiums. Accordingly, we wrote down the Grand Sierra investment
from its cost basis of $415,000 to $15,000, resulting in an impairment of
$400,000 as of June 30, 2009.
Off-Balance
Sheet Arrangements
The
Company has no off-balance sheet arrangements.
Item
8. Financial Statements and Supplementary Data
Financial
statements are attached following the signature page and numbered beginning with
page F-1.
Item
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
None.
Item
9A(T). Controls and Procedures
As
of the end of the period covered by this report, the Company conducted an
evaluation, under the supervision and with the participation of its principal
executive officer and principal financial officer, of the Company’s disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1034 (Exchange Act)). Based on this
evaluation, the principal executive officer and principal financial officer
concluded that the Company's disclosure controls and procedures are effective to
ensure that information required to be disclosed by the Company in reports that
it files or submits under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in Securities and Exchange
Commission rules and forms. There were no changes in the Company's
internal controls over financial reporting that occurred during the period
covered by this report that have materially affected, or are reasonably likely
to materially affect, the Company's internal control over financial
reporting.
Management's
Annual Report on Internal Control over Financial Reporting
Management
of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act. The Company's internal control over financial
reporting is designed 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. Because of inherent limitations, a system of internal
control over financial reporting may not detect or prevent misstatements, no
matter how well conceived and operated. Moreover, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate due to changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Management
of the Company assessed the effectiveness of the Company's internal control over
financial reporting as of June 30, 2009. In making this assessment,
management considered criteria of the Committee of Sponsoring Organizations of
the Treadway Commission (COSO) which include the five components of control
environment, risk assessment, control activities, information/communication, and
monitoring. Based on this assessment, management believes that the
Company has maintained effective internal control over financial reporting as of
June 30, 2009. This report on Form 10-K does not include an
attestation report of the Company's registered public accounting firm regarding
internal control over financial reporting. Management's report was
not subject to attestation by the Company's registered public accounting firm
pursuant to temporary rules of the SEC that permit the Company to provide only
management's report in this annual report.
PART
III
Item
10. Directors, Executive Officers and Corporate
Governance
The directors of the Company serve
until their successors are elected or appointed and shall
qualify. Executive officers are elected by the Board of Directors and
serve at the discretion of the directors. There are no family
relationships among the directors and executive officers of the
Company.
Executive officers and directors of the
Company are as follows:
Name
|
Age
|
Position
|
||
Donald
Blakstad
|
50
|
Chairman
and Director
|
||
Robert
A. Williams
|
72
|
Director
|
||
Robert
O. Knutson
|
72
|
Managing
Director and CFO
|
||
Melvin
E. Wentz
|
62
|
Director
|
Constantine
Buzunis 51 Director
Brian P.
Hill
46 Director
Donald Blakstad has been a
director and Chairman of the Board of the Company since June 2009, and he
currently provides management and financing services to the Company under a
written consulting agreement. Mr. Blakstad has many years of
experience in founding, developing and managing small to large private
companies. In particular, he was the founder, principal owner and CEO
of two large affiliated long-distance telephone companies headquartered in San
Diego, which provided worldwide retail telephone services for many years to a
large national and international customer base. Mr. Blakstad grew his
telephone service business from start-up to having over l,000,000 customers in
2000 when his business was sold to a large telephone service
provider. Since 2000, Mr. Blakstad has been engaged primarily in
managing his personal real estate holdings and diverse corporate equity
portfolio.
Robert A. Williams has been a
director of the Company since April 2007. Mr. Williams is the founder
and a principal owner of Bobby and Steve's Auto World, which owns and operates
eight gas/service stations with full service garages and towing services in the
Minneapolis/St. Paul metropolitan region. Mr. Williams also is a
member of the City Council of Columbia Heights, Minnesota.
Robert O. Knutson has been a
principal officer and/or director of the registrant since April 2007, being a
director from then until September 2009, and having been CEO/CFO of the
registrant from April 2007 until February 2008 and Managing Director/CFO since
October 2008. Mr. Knutson has practiced general and corporate law in
the metropolitan Minneapolis area independently since 1971, and prior thereto he
was an associate attorney with the downtown Minneapolis law firm of Dorsey &
Whitney. Mr. Knutson also is a director of Viper Powersports Inc., a
publicly-traded manufacturer of premium custom cruiser motorcycles sold under
the Viper brand.
Melvin E. Wentz, a director of
the Company since October 1, 2009, is the Chief Executive Officer of Novairus
Energy, LLC, which has developed a large pipeline of early-stage wind power
projects located mainly in prime wind resource areas of western states of the
U.S. Mr. Wentz has over 30 years of extensive and diversified
experience in engineering, construction, project development, financing,
management and operation of many electric power generation projects in the U.S.,
China, India and other countries, which projects have included wind energy,
biomass, hydro, geothermal, coal and natural gas power generation
facilities. From 1995-2001, Mr. Wentz was a senior executive
including being President, of Enserch Development and TXU Development,
subsidiaries of Enserch and Texas Utilities, respectively. He
also managed a portfolio of at least 10 electricity generating facilities
including wind farms. His overseas development experience includes
three coal-fired generation projects of 386 MW in China, a joint venture between
New Zealand and Indonesian companies to develop a 300 MW geothermal plant in
Indonesia, and project development and sale of a 250 MW gas-fired plant in
India. From 1990-1995 Mr. Wentz was Senior Investment Manager of a
major finance division of Westinghouse Electric, where he assumed a leading role
in structuring and financing over 200 MW (megawatts) of wind energy
projects.
Constantine Buzunis, a
director of the Company since September 24, 2009, is a Senior Litigator with the
San Diego law firm of Neil, Dymott, Frank, McFall &
Trexler. Since joining Neil Dymott in 1986, Mr. Buzunis has
specialized in general civil litigation including personal injury, premises and
product liability, construction accidents and defects, and other tort liability
areas. His extensive professional legal experience includes serving
terms on the California State Bar Board of Governors, President and Director of
the California Young Lawyers Association, and Director and Secretary of the San
Diego Defense Lawyers Association. Mr. Buzunis is admitted to
practice law in state and federal courts of California and Michigan, the federal
Ninth Circuit Court of Appeals, and the U.S. Supreme Court. He also
is a member of the Board of Directors of Gulf & Pacific Equities Corp., a
publicly-traded Canadian Real Estate Investment Trust.
Brian P. Hill, a director of
the Company since October 1, 2009, is Chief Development Officer of Novairus
Energy, LLC, and is currently involved in assemblying multiple early-stage wind
power projects for Novairus in Wisconsin, Wyoming, and
Pennsylvania. Mr. Hill has over 25 years extensive experience in
project development and management of various types of power generation
facilities. Since 1999, he has been employed primarily as a
consultant while providing key project development services to various power and
wind industry leaders such as Airtricity North America, Duke Energy, TXU, FPL
Energy, Exelon and others. His many accomplishments in wind power
development include being project manager for construction of a 40.5 MW wind
farm in New York State using GE wind turbines, managing early stage construction
of a 250 MW wind power project in Texas, lead developer of an Iowa wind farm
project, and managing early-stage development for proposed wind farms in
Illinois and Michigan. Mr. Hill’s many years of hands-on
development of wind power projects includes interconnection and transmission
evaluation, selection and procurement of wind turbine types, wind resource
evaluation, turbine siting, handling zoning and permitting matters,
and leasing and royalty negotiations with landowners. Mr.
Hill has earned widespread recognition as an expert in power development and has
published and presented papers at several industry conferences.
Audit
Committee
The
Company does not have a separately designated audit committee, but rather the
entire Board of Directors serves as its audit committee.
Section
16(a) Beneficial Ownership Compliance
Section
16(a) of the Securities Exchange Act of 1934 requires executive officers and
directors, and persons who beneficially own more than 10% of the Company’s
common stock, to file initial reports of ownership and reports of changes in
ownership with the Securities and Exchange Commission. Based on the
Company’s review of copies of Section 16(a) forms and representations from these
persons, the Company believes that such persons have complied with such filing
requirements during the fiscal year ended June 30, 2009, except that Boreal
Energy Inc., a principal shareholder, failed to file forms relating to transfers
of common stock of the Company effected by Boreal during such fiscal
year.
Code
of Ethics
The
Company has adopted a Code of Ethics and Business Conduct (the "Code") which
applies to the business conduct of the principal executive officer, principal
financial officer, principal accounting officer and controller. This
Code is available to any shareholder of the Company who sends a written request
for a paper copy to:
Attn: Robert
O. Knutson
Wind
Energy America Inc.
12100
Singletree Lane, Suite 100
Eden
Prairie, MN 55344
If
the Company makes any substantive amendments to the Code or grants any waiver
therefrom, including any implicit waiver from a provision of the Code for any
directors or executive officers, the nature of such waiver or amendment will be
disclosed by the Company in a Current Report on Form 8-K.
Item
11. Executive Compensation
The
following table sets forth the cash and non-cash compensation for the last two
fiscal years awarded to or earned by the Chief Executive Officer (CEO) of the
Company. No officer of the Company received annual compensation
exceeding $100,000 for either of the past two fiscal years ended June
30.
Summary
Compensation Table
Name
and Position
|
Fiscal
Year
|
Salary
|
Bonus
|
Stock
Award(shs)
|
Warrants(shs)
|
Other
Compensation
|
||||||||||||
Robert
O. Knutson,
CEO/Managing
Director(1)
|
2009
|
$
|
25,000
|
$
|
0
|
120,000
|
(2)
|
100,000(3)
|
$
|
28,000
|
(2)
|
|||||||
2008
|
32,000
|
0
|
120,000
|
(2)
|
0
|
16,000
|
(2)
|
|||||||||||
Darrel
Kluge, CEO(1)
|
2009
|
40,000
|
0
|
75,000
|
(4)
|
100,000(3)
|
0
|
|||||||||||
2008
|
16,000
|
0
|
0
|
0
|
0
|
|||||||||||||
(1)
During this fiscal two-year period, Mr. Knutson served as CEO from July 2007 to
February 2008; Mr. Kluge served as CEO from March 2008 to September 2008; and
Mr. Knutson served as Managing Director (principal executive officer) from
October 2008 to July 2009.
(2) In
February 2008 Mr. Knutson was awarded severance payments of $4,000 and 20,000
restricted common shares monthly for 12 months, for which he performed
considerable management and legal services for the Company during fiscal years
2008 and 2009.
(3) In
fiscal 2009, Messrs. Kluge and Knutson each received five-year warrants to
purchase 100,000 shares of common stock of the Company exercisable at $.30 per
share.
(4) Mr.
Kluge was granted 75,000 restricted common shares incident to his resignation as
CEO in 2008.
Option
Grants during Fiscal Year 2009
There
were no grants of stock options to executive officers of the Company during the
fiscal year ending June 30, 2009, nor were there any SAR grants to these persons
during such fiscal year.
Outstanding
Options or Option Exercises during Fiscal Year 2009
None
of the persons in the foregoing summary compensation table holds or owns any
outstanding stock option or SAR grant for common stock of the registrant, and
also none of these persons exercised any stock options or SAR grants during the
fiscal year ended June 30, 2009.
Compensation
of Directors
For
their services as a director of the Company during fiscal year ended June 30,
2009, in February 2009 the directors of the Company were awarded five-year
warrants to purchase a total of l,250,000 common shares exercisable
over five years at $.30 per share.
Subsequent
to fiscal year 2009, the following transactions occurring in September 2009
involved compensation to directors:
i)
Rory Artig resigned as a director of the Company and Constantine Buzunis was
concurrently appointed to replace Mr.
Artig
as a director. Mr. Artig was granted 50,000 restricted common shares
in consideration for his past services as a
director,
and Mr. Buzunis, for his agreement to serve as a director, was granted 250,000
restricted common shares and a five-
year
warrant to purchase an additional 250,000 common shares exercisable at the
public market price per common share at the
date
of grant.
ii)
In consideration for his serving as the Chairman and a director of the Company
and his reorganization efforts and expenses on
behalf
of the Company, Donald Blakstad was granted a
five-year warrant to purchase 10 Million common shares
exercisable
at
the public market price per common share at the date of grant.
iii)
Steven A. McMichael, Robert O. Knutson and Robert A. Williams were granted
five-year warrants to purchase a total of
6,000,000
common shares exercisable at the public market price per common share at the
date of grant, which included
warrants
for 2,500,000 shares for each of Messrs. McMichael and Knutson and
warrants for 1,000,000 shares for Mr.
Williams.
Concurrently, Mr. McMichael and Mr. Knutson agreed to resign from the Board of
Directors of the Company
effective
October 1, 2009.
Item
12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
The
following table sets forth, as of September 30, 2009, certain information whith
respect to beneficial ownership of common stock of the Company, by all executive
officers and directors of the Company, by each person known by the Company to
own beneficially more than 5% of its outstanding common stock, and by all
officers and directors of the Company as a group. Each person named
in this table has sole voting and investment power with respect to all shares of
common stock beneficially owned by such person. Unless otherwise
indicated, the address of each listing shareholder is 12100 Singletree Lane,
Suite 100, Eden Prairie, MN 55344. Beneficial ownership of the
persons set forth in this table is determined in accordance with the rules of
the Securities and Exchange Commission.
Shares
Beneficially Percent
of Shares
Name
of Beneficial
Owner Owned Outstanding
Robert
A.
Williams(1) 2,193,933 3.8%
Robert
O. Knutson
(2) 3,415,000 5.8%
Donald
Blakstad
(3) 10,600,000 15.9%
Constantine
Buzunis
(4) 500,000 0.8%
Steven
A. McMichael
(5) 3,477,167 5.9%
All
directors and officers
as
a group (5
persons) 20,186,100
32.2%
Boreal
Energy
Inc. 9,587,500 17.1%
1058
Centreville Circle
Vadnais
Heights, MN 55127
Julie
T. Jaunich
(6) 7,350,377 13.1%
9
Red Forest Way
North
Oaks, MN 55127
_______________________________________________
|
(1)
|
Includes
1,350,000 shares underlying stock purchase warrants and 248,233 shares in
the record name of Robert A. Williams
Trust.
|
|
(2)
|
Includes
3,100,000 shares underlying stock purchase warrants. Mr.
Knutson resigned as a director effective October l,
2009.
|
|
(3)
|
Includes
10,500,000 shares underlying stock purchase
warrants.
|
(4)
Includes 250,000 shares underlying stock purchase warrants.
(5)
Includes 3,000,000 shares underlying stock purchase warrants, 100,000 shares
owned of record by his wife, and 285,000
shares derived from his ownership of shares of Boreal Energy Inc. Mr.
McMichael resigned as a director effective
October 1, 2009.
(6)
Includes 3,710,319 shares of record in the Julie T. Jaunich Trust.
Equity
Compensation Plan Information
In
June 2007 the Company terminated all existing equity compensation plans
including a 1999 Employee Plan and a 1991 Non-Employee Director
Plan. The Company currently does not have any equity compensation
plan.
Item
13. Certain Relationships and Related Transactions, and Director
Independence
Following are certain material
transactions between the registrant and related parties.
Boreal Energy Inc., a
Minnesota corporation, acquired 28,500,000 shares of common stock of the Company
incident to a purchase of Boreal’s wind energy assets by the Company in
2008. One of the terms of this asset purchase agreement between the
Company and Boreal Energy Inc. provided Boreal Energy Inc. the right to appoint
one member to the Board of Directors of the Company.. Steven A.
McMichael served on the Board of Directors for over a year as the appointed
director of Boreal Energy Inc.
Another term of the asset purchase
agreement between the Company and Boreal Energy Inc. provided that a director
of the Company is entitled to vote one-half of the common shares of
the Company received by Boreal Energy Inc. for a period of two
years. The Company no longer regards this of any value since it is
unlikely that the Company will hold a meeting of shareholders until after the
two-year period expires for such voting rights.
Director
Independence – The Company is not a listed issuer and thus not subject to
any director independence requirements of any exchange or inter-dealer quotation
system. The Company believes, however, that a majority of the
directors of the Company are independent directors.
Item
14. Principal Accounting Fees and Services
Child, Van Wagoner & Bradshaw, PLLC
has acted as the Company's independent accounting firm for the fiscal years
ended June 30, 2009 and 2008, including performing the audit of the Company for
these two fiscal years and the reviews of the Company's quarterly financial
statements for this two year period. The aggregate fees billed by
Child, Van Wagoner & Bradshaw, PLLC for these auditing and review services
are as follows:
Fiscal
2009
|
Fiscal
2008
|
|||||
Audit
and review fees
|
$
|
26,080
|
$
|
14,318
|
||
Audit-related
fees
|
6,927
|
0
|
||||
Tax
fees
|
0
|
0
|
||||
All
other fees
|
0
|
0
|
The Company’s
Board of Directors, acting as its audit committee, reviews and approves all
audit and permissible non-audit services performed by its independent accounting
firm. Incident to its review of non-audit fees and its appointment of
Child, Van Wagoner & Bradshaw, PLLC as the Company's independent accounting
firm, the Board of Directors of the Company considered whether the provision of
such services is compatible with maintaining independence.
PART
IV
Item
15. Exhibits, Financial Statements and Schedules
The
financial statements of registrant required to be included in this annual report
are included herein in a separate financial statement section at the end of this
Annual Report on Form 10-K beginning at page F-1.
Following
is an Exhibit Index for the exhibits either filed with or incorporated by
reference to this Annual Report on Form 10-K.
Exhibit Index
3.1 Articles
of Incorporation (incorporated by reference to registrant’s Annual Report
on
Form 10-KSB for year ended June 30, 1988).
3.2 Bylaws
of registrant amended through January 12, 2004 (incorporated by
reference to registrant’s Annual Report on Form 10-KSB for year ended
June
30, 2004).
3.3 Amendment
to Articles of Incorporation as of March 31, 2007 (incorporated by
reference to registrant’s Current Report on form 8-K of April 5,
2007).
3.4 Amendment
to Articles of Incorporation as of April 25, 2009 (incorporated. by
reference to registrant’s Schedule l4C Information Statement filed March
20,
2009)
4.1 Specimen
certificate representing registrant’s Common Stock (incorporated by
reference to Exhibit 3(a) of Amendment No. 2 to registrant’s Form
S-18
Registration Statement, File No. 2-71333C).
10.37 Warrant
for Purchase of Grand Sierra Common Stock (incorporated by
reference
to registrant’s Current Report on Form 8-K filed May 15, 2006)
10.38
Asset Purchase Agreement between Dotronix, Inc. and Accelerated
Drug
Delivery, LLC (incorporated by reference to registrant’s Current Report on
Form
8-K filed April 11, 2006).
10.39 Condominium
Marketing Agreement between registrant and Grand Sierra
Resort Corp. (incorporated by reference to registrant’s Annual Report on
Form
10-KSB for year ended June 30, 2007).
10.40 Distribution
Agreement for Spin-Off of subsidiary of registrant, PuraMed
BioScience Inc., a Minnesota corporation (incorporated by reference
to registrant’s Current Report on Form 8-K filed March 20, 2007)
10.41 Purchase
Agreement between registrant and Northern Alternative Energy
Shaokatan LLC (incorporated by reference to registrant’s Current Report
on
Form 8-K filed June 20, 2007)
10.42
|
Asset Purchase Agreement between registrant and Boreal Energy,
Inc.(incorporated
|
by reference to registrant’s Current Report on
Form 8-K filed December 18, 2007)
10.43
|
Sale/Leaseback transaction for Midwest Wind Energy Center between
registrant
|
and
Trident Holding Group Inc. (incorporated by reference to
registrant’s
Quarterly Report on Form l0-Q. filed February 20,
2009).
l0.44 Management
consulting agreement between registrant and Donald Blakstad
(incorporated by reference to Current Report on Form 8-K filed July 13,
2009).
31.1
Certification of Principal Executive Officer/Principal Financial Officer
pursuant to
Sarbanes-Oxley Act of 2002 (filed herewith).
32.1
|
Certification of Principal Executive Officer/Principal Financial Officer
pursuant to Section 906 of
Sarbanes-Oxley Act of 2002 (filed
herewith).
|
Signatures
Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
WIND
ENERGY AMERICA INC.
|
|||
Date: October 16
, 2009
|
By
|
/s/ Robert
O. Knutson
|
|
Robert
O. Knutson, Managing
Director/CFO
|
Pursuant
to requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Date
: October 16, 2009
|
Signature
|
||
By
|
/s/ Robert
O. Knutson
|
||
Robert
O. Knutson
(principal
executive officer)
(principal
financial officer)
|
Date:
October 16, 2009
|
|||
By
|
/s/ Robert
A. Williams
|
||
Robert
A. Williams, Director
|
Date:
October 16,
2009 By
/s/ Donald Blakstad,
Director
Donald
Blakstad, Director
Date:
October 16,
2009 By
/s/ Constantine
Buzunis, Director
Constantine
Buzunis, Director
Douglas
W. Child, CPA
Marty D.
Van Wagoner, CPA
J. Russ
Bradshaw, CPA
William
R. Denney, CPA
Russell
E. Anderson, CPA
Scott L.
Farnes
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The
Board of Directors and Stockholders of
Wind
Energy America, Inc.
Eden
Prairie, MN
We have
audited the accompanying consolidated balance sheets of Wind Energy America,
Inc. (the “Company”) as of June 30, 2009 and 2008, and the related statements of
operations, stockholders’ equity, and cash flows for the years ended June 30,
2009 and 2008. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration
of internal control over financial reporting, as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such
opinion. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Wind Energy America, Inc. as
of June 30,
2009 and 2008, and the related statements of operations, stockholders’ equity
and cash flows for the years ended June 30, 2009 and 2008, in conformity with
accounting principles generally accepted in the United States of
America.
/s/
Child, Van Wagoner & Bradshaw, PLLC
Child,
Van Wagoner & Bradshaw, PLLC
October
16, 2009
Salt Lake
City, Utah
1284 W.
Flint Meadow Dr. #D
Kaysville,
Utah 84037
Telephone
801.927.1337
Facsimile
801.927.1344
5296 S.
Commerce Dr. #300
Salt Lake
City, Utah 84107
Telephone
801.281.4700
Facsimile
801.281.4701
Suite B,
4F
North
Cape Commercial Bldg.
388
King’s Road
North
Point, Hong Kong
www.cpaone.net
F-1
WIND
ENERGY AMERICA, INC.
|
||||||
CONSOLIDATED
BALANCE SHEETS
|
||||||
ASSETS
|
June
30, 2009
|
June
30, 2008
|
||||
Current
Assets:
|
||||||
Cash
|
$
|
-
|
$
|
97,459
|
||
Accounts
Receivable – Affiliated Parties
|
-
|
27,867
|
||||
Total
Current Assets
|
-
|
125,326
|
||||
Property,
Plant and Equipment
|
||||||
Building
|
-
|
1,992,905
|
||||
Land
|
-
|
320,000
|
||||
Equipment
|
8,260,295
|
6,771,600
|
||||
Accumulated
Depreciation
|
-
|
-
|
||||
Net
Property, Plant and Equipment
|
8,260,295
|
9,084,505
|
||||
Mortgage
Receivable
|
1,600,000
|
-
|
||||
Investments
in Wind Energy Power Projects
|
5,342,103
|
5,275,375
|
||||
Investment
in Grand Sierra Resort Corporation
|
15,000
|
415,000
|
||||
Total
Assets
|
$
|
15,217,398
|
$
|
14,900,206
|
||
LIABILITIES AND EQUITY
|
||||||
Current
Liabilities:
|
||||||
Checks
written in Excess of Cash in Bank
|
$
|
5,110
|
$
|
-
|
||
Accounts
Payable and Related Party Payable
|
40,498
|
11,146
|
||||
Accrued
Liabilities
|
10,516
|
31,108
|
||||
Note
Payable
|
107,236
|
10,000
|
||||
Convertible
Notes
|
114,152
|
94,152
|
||||
Total
Current Liabilities
|
277,512
|
146,406
|
||||
Sale/Leaseback
Rent Accrual
|
117,333
|
-
|
||||
Sale
Leaseback Deferred Gain
|
651,402
|
-
|
||||
Total
Liabilities
|
1,046,247
|
146,406
|
||||
Equity:
|
||||||
Preferred
Stock: no par value, authorized 10,000,000 shares, none
issued
|
-
|
-
|
||||
Common
Stock: $.05 par value, authorized 100,000,000 shares, 54,696,165 and
49,854,862 shares outstanding as of June 30, 2009 and June 30, 2008,
respectively
|
2,734,808
|
2,492,743
|
||||
Additional
Paid-in Capital
|
29,464,524
|
28,399,763
|
||||
Accumulated
Deficit
|
(18,028,181)
|
(16,138,706)
|
||||
Total
Equity
|
14,171,151
|
14,753,800
|
||||
Total
Liabilities and Equity
|
$
|
15,217,398
|
$
|
14,900,206
|
||
See
accompanying notes to the consolidated financial
statements.
|
F-2
WIND
ENERGY AMERICA INC.
|
||||||
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
||||||
For
the Years Ended June 30, 2009 and 2008
|
||||||
2009
|
2008
|
|||||
Revenue:
|
||||||
Rental
Income
|
$
|
99,503
|
$
|
-
|
||
Expenses:
|
||||||
General
& Administrative
|
551,199
|
66,068
|
||||
Professional
Fees
|
335,441
|
298,837
|
||||
Management
Fees
|
738,410
|
569,034
|
||||
Impairment
and Abandonment Expense
|
426,757
|
-
|
||||
Total
Expenses
|
2,051,807
|
933,939
|
||||
Net
Operating Loss
|
(1,952,304)
|
(933,939)
|
||||
Other
Income and Expenses:
|
||||||
Interest
Income
|
80,000
|
-
|
||||
Amortization
of Deferred Gain
|
30,298
|
-
|
||||
Warrant
and Debt Discount Expense
|
(34,331)
|
-
|
||||
Interest
Expense
|
(13,138)
|
(3,560)
|
||||
Total
Other Income and Expenses:
|
62,829
|
(3,560)
|
||||
Net
loss
|
$
|
(1,889,475)
|
$
|
(937,499)
|
||
Per
Share Data:
|
||||||
Net
Loss per Common Share :
|
$
|
(0.04)
|
$
|
(0.03)
|
||
Weighted
Average Shares Outstanding
|
50,938,797
|
33,322,696
|
||||
See
accompanying notes to the consolidated financial
statements.
|
F-3
WIND
ENERGY AMERICA INC.
|
|||||||||||||
CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY
|
|||||||||||||
For
the Years Ended June 30, 2009 and 2008
|
|||||||||||||
Common
Stock
|
Paid-In
Capital
|
Accumulated
Deficit
|
|||||||||||
Shares
|
Amount
|
Total
Equity
|
|||||||||||
Balances
at June 30, 2007
|
15,764,843
|
$
|
788,242
|
$
|
16,972,388
|
$
|
(15,201,207)
|
$
|
2,559,423
|
||||
Common
stock issued for cash , @ $1.25 per share , net of commissions of
$31,500
|
324,000
|
16,200
|
357,300
|
-
|
373,500
|
||||||||
Common
stock issued for cash , @ $.30 per share , conversion of
warrant
|
100,000
|
5,000
|
25,000
|
-
|
30,000
|
||||||||
Common
stock issued for cash , @ $.75 per share , net of commissions
of $20,073
|
735,986
|
36,801
|
495,118
|
-
|
531,919
|
||||||||
Common
stock issued for compensation , @ $.67 per share
|
75,000
|
3,750
|
46,250
|
-
|
50,000
|
||||||||
Common
stock issued for investment in Chi Energy Wind Farm valued at $.60 per
share
|
4,000,000
|
200,000
|
2,200,000
|
-
|
2,400,000
|
||||||||
Common
stock issued for compensation , @ $.90 per
share
|
85,000
|
4,250
|
72,250
|
-
|
76,500
|
||||||||
Common
stock issued in Boreal transaction @ $.32 per share
|
28,500,000
|
1,425,000
|
7,659,505
|
-
|
9,084,505
|
||||||||
Common
stock issued for cash , @ $.75 per share
|
270,033
|
13,500
|
189,023
|
-
|
202,523
|
||||||||
Warrants
issued for compensation , @ $.77 per share
|
-
|
-
|
382,929
|
-
|
382,929
|
||||||||
Net
loss for the year ended June 30, 2008
|
-
|
-
|
-
|
(937,499)
|
(937,499)
|
||||||||
Balances
at June 30, 2008
|
49,854,862
|
2,492,743
|
28,399,763
|
(16,138,706)
|
14,753,800
|
||||||||
Common
stock issued for cash , @ $.75 per share
|
116,666
|
5,833
|
81,667
|
-
|
87,500
|
||||||||
Common
stock issued for cash , @ $.30 per share
|
204,900
|
10,245
|
51,000
|
-
|
61,245
|
||||||||
Common
stock issued for cash , @ $.15 per share
|
1,926,664
|
96,333
|
192,667
|
-
|
289,000
|
||||||||
Common
stock issued for compensation
|
365,000
|
18,250
|
96,750
|
-
|
115,000
|
||||||||
Common
stock issued for cash , @ $.125 per share
|
1,730,000
|
86,500
|
129,750
|
-
|
216,250
|
||||||||
Common
stock issued for note and interest
|
69,000
|
3,450
|
6,900
|
-
|
10,350
|
||||||||
Cashless
exercise of warrants
|
429,073
|
21,454
|
(21,454)
|
-
|
-
|
||||||||
Warrants
issued for compensation
|
-
|
-
|
493,150
|
-
|
493,150
|
||||||||
Warrants
issued and beneficial conversion feature on convertible
debt
|
-
|
-
|
34,331
|
-
|
34,331
|
||||||||
Net
loss for the year ended June 30, 2009
|
-
|
-
|
-
|
(1,889,475)
|
(1,889,475)
|
||||||||
Balances
at June 30, 2009
|
54,696,165
|
$
|
2,734,808
|
$
|
29,464,524
|
$
|
(18,028,181)
|
$
|
14,171,151
|
||||
See
accompanying notes to the consolidated financial
statements.
|
F-4
WIND
ENERGY AMERICA, INC.
|
||||||
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
||||||
For
Years Ended June 30, 2009 and 2008
|
||||||
2009
|
2008
|
|||||
Cash
Flows used in Operating Activities:
|
||||||
Net
Loss
|
$
|
(1,889,475)
|
$
|
(937,499)
|
||
Adjustments
to reconcile Net Loss to net cash used in Operating
Activities
|
||||||
Depreciation
Expense
|
20,130
|
-
|
||||
Stock
Warrants Issued for Compensation
|
493,150
|
382,929
|
||||
Non-Cash
Interest Expense
|
3,847
|
-
|
||||
Warrant
and Debt Discount Expense
|
34,331
|
-
|
||||
Impairment
and Abandonment Expense
|
424,200
|
-
|
||||
Stock
Issued for Services
|
115,000
|
126,500
|
||||
Amortization
of Deferred Gain
|
(30,298)
|
-
|
||||
Changes
in Operating Assets and Liabilities:
|
||||||
Decrease
in Accounts Receivable
|
27,867
|
2,133
|
||||
Increase
in Accounts Payable and Accrued Liabilities
|
127,706
|
42,082
|
||||
Net
Cash used in Operating Activities
|
(673,542)
|
(383,855)
|
||||
Cash
Flows used in Investing Activities:
|
||||||
Purchase
of Property and Equipment
|
(883,694)
|
-
|
||||
Proceeds
from Sale of Fixed Assets
|
1,374,474
|
-
|
||||
Investments
in Wind Energy Assets
|
(90,928)
|
(875,375)
|
||||
Net
Cash provided by (used in) Investing Activities
|
399,852
|
(875,375)
|
||||
Cash
Flows provided by Financial Activities:
|
||||||
Proceeds
from Sale of Common Stock
|
653,995
|
1,137,942
|
||||
Proceeds
from Long-Term Convertible Notes
|
30,000
|
104,152
|
||||
Proceeds
from Notes Payable
|
22,000
|
-
|
||||
Repayments
of Notes Payable
|
(529,764)
|
-
|
||||
Net
Cash provided by Financing Activities
|
176,231
|
1,242,094
|
||||
Net
Increase (Decrease) in Cash and Cash Equivalents
|
(97,459)
|
(17,136)
|
||||
Cash
and Cash Equivalents at Beginning of Year
|
97,459
|
114,595
|
||||
Cash
and Cash Equivalents at End of Year
|
$
|
-
|
$
|
97,459
|
||
Supplemental
Non Cash Flow Information:
|
||||||
Cash
Paid During the Year for:
|
||||||
Interest
Expense
|
$
|
9,291
|
$
|
3,560
|
||
Income
Taxes
|
$
|
-
|
$
|
-
|
||
Acquisition
of Fixed Assets with Note Payable
|
$
|
605,000
|
$
|
-
|
||
Common
Stock issued for Cashless Exercise of Warrants
|
$
|
10,350
|
$
|
-
|
||
Common
Stock issued for Wind Projects
|
$
|
-
|
$
|
11,484,505
|
||
See
accompanying notes to the consolidated financial
statements.
|
F-5
WIND
ENERGY AMERICA INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
Ended June 30, 2009 and 2008
A. NATURE
OF BUSINESS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Company History –
Wind
Energy America, Inc. (formerly Dotronix, Inc), and ("the Company"), was founded
in 1980 as a Minnesota corporation. Since 2007, the Company has focused its
efforts entirely on the development and acquisition of wind energy assets for
electric power production. As Dotronix,
Inc., the Company designed manufactured and marketed cathode ray tube ("CRT")
displays, which CRT business was discontinued in 2005 when it became
unprofitable. In 2006 the Company acquired PuraMed products and
created PuraMed BioScience, Inc. (“PuraMed”) as a subsidiary which was spun-off
on April 12, 2007. PuraMed now trades separately as a publicly held
company.
Consolidation
Policy
The
consolidated financial statements include the Company and its wholly owned
subsidiary Northern Alternative Energy Shaokatan, LLC, a Minnesota limited
liability company. (“NAE Shaokatan”). NAE Shaokatan holds the
developer’s interest in two groups of wind farms, one group being two adjoining
wind farms known as Shaokatan Hills LLC and Lakota Ridge LLC, and the other
group being 16 small wind farms which are managed collectively and known as CHI
Energy. These member interests do not participate in the revenues, operations,
or net income of the particular wind farm LLCs until the developer’s interest
converts or “flips” into a material interest. A detailed description
of these developer’s interests owned by the Company is contained in Item 1 of
the report on Form 10-K of which these financial statements are an integral
part.
Critical
Accounting Estimates
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenue and expenses during the reporting
period.
The
Company’s investments are stated at the lower of cost or fair value in
accordance with Statement of Financial Accounting Standards (“SFAS”)
No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”
(“SFAS 144”). The carrying value of the Company's investments in Grand
Sierra Resort Corp. and its Wind Energy Assets are carried at cost.
F-6
Recent
Accounting Pronouncements
SFAS
141(R)
In
December 20007 the FASB issued SFAS 141 (R) for acquiring companies in business
combinations to recognize the assets acquired, the liabilities assumed and any
non controlling interests of the acquiree at fair market value on the
acquisition date. Acquisition costs are expensed in the period incurred or
services are rendered. Income tax settlements are reflected as adjustments
to goodwill prior to the adoption of SFAS 141. Income tax settlements subsequent
to the adoption of SFAS (141) shall impact income tax expense at the time of
their reversal. SFAS 141 (R) is effective after December 15, 2008. The
Company believes its accounting for the Boreal transaction complies with the
provisions of SFAS 141.
SFAS 157
In
September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements” (“SFAS 157”). SFAS 157 provides guidance for using fair
value to measure assets and liabilities. SFAS 157 also responds to
investors’ requests for expanded information about the extent to which a company
measures assets and liabilities at fair value, the information used to measure
fair value, and the effect of fair value measurements on earnings. SFAS 157
will be effective for the Company’s fiscal year beginning July 1, 2008. The
Company is currently reviewing the effect SFAS 157 will have on its
financial statements; however, energy prices which dictate the costs of
competing electrical projects will directly impact the fair market value of our
Wind Energy Assets.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities, Including an Amendment of FASB
Statement No. 115” (“SFAS 159”). SFAS 159 permits entities to
choose to measure certain financial assets and liabilities at fair value.
Unrealized gains and losses on items for which the fair value option has been
elected will be reported in earnings. SFAS 159 will be effective for the
Company’s fiscal year beginning July 1, 2008. The
Company is currently reviewing the effect SFAS 159 will have on its
financial statements; however, it is not expected that it will have a material
impact on the Company’s consolidated financial position, results of operations
or cash flows.
SFAS
160
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests
in Consolidated Financial Statements, an Amendment to ARB No. 51”
(“SFAS 160”). Under the provisions of SFAS 160, a noncontrolling
interest in a subsidiary, or minority interest, must be classified as equity and
the amount of consolidated net income specifically attributable to the minority
interest must be clearly identified in the consolidated statement of operations.
SFAS 160 also requires consistency in the manner of reporting changes in
the parent’s ownership interest and requires fair value measurement of any
non controlling interest retained in a deconsolidation. SFAS 160 will
be effective for the Company’s fiscal year
beginning July 1, 2009. As
the Company has no revenue to date to reflect for its interests, it is trying
determining when the equity method, if applicable, will apply to the impact
of the adoption of SFAS 160. The Company has ownership in several limited
liability company wind farms. Most of these LLC’s limit the participation of the
developer-member in the revenues or earnings of the limited liability
corporations until the non developing members have been paid
back their investments. Based upon current projections the Company will begin
participating in the earnings of the LLC’s in late 2010 and years thereafter.
These LLC developer interests are currently reflected at their cost to the
Company, whose acquisition price was largely determined via a discounted cash
flow model of the value of the future earnings of these
LLC’s.
F-7
SFAS
161
In May
2009, the FASB issued SFAS 161, which establishes disclosure and accounting
requirements for subsequent events occurring after the balance sheet date, but
before the financial statements are issued. The Company has been in compliance
with the provisions of SFAS 161.
FSP 107-1 & SFAS
157-4
In April
2009, The FASB approved FSP 107-1 and SFAS 157-4 for interim and annual periods
after June 15, 2009. This FSP requires public companies to provide more
frequent disclosures about the fair market value of their financial instruments.
The Company has no hedges, derivative instruments, swaps, collars, power
generation or other financial instruments which would require mark to market
accounting. SFAS 157-4 amends SFAS 157 and utilizes a two step model for
determining whether an asset is active and if inactive, is it involved in a
distressed transaction. Disclosure requirements involve details of the valuation
techniques utilized. Until the Company matures in size, and utilize more complex
financial models, it will most likely not be impacted by these
standards.
Cash
Equivalents
The
Company considers all highly liquid debt instruments purchased with a maturity
of three months, included but not limited to its corporate checking account, or
less to be cash equivalents.
Stock
Options and Warrants
The
Company did not issue any stock options in the fiscal years ending June 30 2009
and 2008. Stock warrants were issued for compensation in the amount of $493,150
and $382,929 in fiscal 2009 and 2008 respectively.
Depreciation
Expense
The
majority of the Company’s assets have not been placed in service as of June 30,
2009 and therefore have not been depreciated. The only depreciation expense
recorded on the Company’s books related to the building (
Midwest Wind Energy Center) which was sold in a sale-leaseback
transaction in October, 2008. The Company depreciated the building on the
straight line method over 40 years during its ownership.
F-8
Impairment
Expense
The
Company reviews its assets on at least an annual basis for potential economic
impairment. As the majority of the Company’s assets have not been placed in
service as of June 30, 2009 it must evaluate the remaining costs to complete the
projects as well as the currently capitalized costs. The Company’s wind assets,
when completed, have a megawatt generating capacity which determines their
current economic value. This value is generally determined via a discounted cash
flow analysis of the future electric revenues, net of the costs
of operating the wind turbines. The Company believes its Wind assets can be
completed at costs that are less than their current economic value. Wind assets
that generate electricity can generally be sold in a marketplace based upon
their discounted cash flows.
The
Company recorded a $400,000 impairment charge for its Grand Sierra Resort
investment which is involved in the commercial real estate development and
gaming industries in Reno, Nevada, due to deteriorating economic conditions in
both industries. The Company also abandoned a wind energy project with a
capitalized cost of $26,757in the fiscal year end June 30, 2009.
Fair
Value of Financial Instruments
Cash,
receivables, accounts payable and accrued liabilities are carried at amounts
that reasonably approximate their fair value due to the short-term nature of
these amounts.
The
carrying value is reviewed periodically or when factors indicating impairment
are present. The impairment loss is measured as the amount by which the carrying
value of the assets exceeds the fair value of the assets.
Basic
loss per common share is computed by dividing net loss by the weighted average
number of common shares outstanding. Diluted loss per common share is not shown,
as the exercise of stock options and warrants using the treasury stock method
are dilutive to the computation of loss per share.
Reclassifications
Certain
reclassifications were made to the 2008 consolidated financial statements to
conform to the current year format.
B. WIND
ENERGY OPERATIONS
In
February 2008, Boreal Energy Inc. (“Boreal”) obtained a majority interest (58 %)
of the Company at the time the Company acquired Boreal’s wind energy assets for
28,500,000 common shares of the Company. Push down accounting was
utilized to value the tangible assets of Boreal conservatively at a market value
of $ 9,084,503. An unaudited financial statement of Boreal at June
30, 2008 would have reflected assets of $11,550,376, equity of $ 8,337,673,
revenues of $1,456,526 and a net loss $(1,716,034). The major tangible asset of
Boreal was its investment in Navitas Energy, Inc. which was valued at
$11,384,721. During 2008 this Navitas ownership interest was exchanged for
assets of Navitas. The principal Boreal shareholders have since liquated a
majority of the common shares of the Company obtained when the Boreal assets
were sold to the Company, and they are no longer involved with Company and its
business. The Company did not absorb the personnel or operations of Boreal in
the transaction, nor did the Company assume any liabilities of
Boreal.
F-9
In early
2007, the Company purchased a $200,000 equity interest in Averill Wind, LLC.
a
Minnesota company. Averill is a 10 megawatt (10,000 kilowatts) wind
farm near Fargo/Moorhead, Minnesota, a region of the country that is favorable
for electricity generation through wind power. Management of the
Company has been in discussion with the principal equity owners of Averill
regarding possible financing and development of Averill.
In May
2007, the Company, invested $50,000 in an Interconnection System
Impact Study to potentially connect 300 MW (megawatts) of wind generated
electricity to Excel Energy’s ZULU substation in southeast Lincoln County,
Minnesota. The Company must supply 50% of the capital to become an equal partner
in the proposed 300 MW wind farm. This ZULU wind farm cannot be developed until
a planned large power transmission line is completed from Minneapolis to Buffalo
Ridge.
On August
30, 2007, the Company purchased wind energy assets from Northern Alternative
Energy, Inc., for $2.3 million in cash. These wind energy
assets consist of a LLC which owns the developer’s stake in two wind farms on
Buffalo Ridge in Lincoln County MN. Buffalo Ridge in southwestern Minnesota is a
prime wind regime in the USA for efficient generation of electricity from wind
power turbines, and is well-known in the alternative energy industry for its
high and consistent wind speeds.
Known as
Shaokatan Hills and Lakota Ridge, these two wind farms contain 33 modern wind
turbines having a total rated power capacity of 23 megawatts (23,000
kilowatts). Company has only a negligible revenue or profit sharing
percentage interest until the ownership of the developer’s stake converts into
80% ownership of the two wind farms. Over the past few years, these 33 turbines
have generated electricity at an average annual rate of 68,300,000 kilowatt
hours (kwhrs).
In 2007
the Company also completed acquiring the developer’s stake in CHI Energy, a
group of 16 separate small wind farms which are managed and maintained
collectively and contain 46 modern wind turbines having a total rated power
capacity of 30.36 megawatts. Virtually all of these CHI Energy wind farms are
located on Buffalo Ridge in Lincoln County MN, and for the past several years
they have generated electricity at an average annual rate of 93,000,000 kilowatt
hours (kwh). The Company will not begin to receive any material revenues until
they “flip” which the Company estimates will begin happening during 2010, after
which the Company’s revenue interest will convert to 30% and eventually to 49%
when certain debt on the wind farms is satisfied.
Incident
to an exchange of assets by Boreal for its interest in Navitas Energy Inc, the
Company acquired these exchanged assets in the Boreal asset purchase
transaction. In the exchange the Company received two turbines and
related electric generating equipment with a four megawatt capacity in Sibley
County, Iowa valuated at $4,752,000, two
turbines with 1.7 megawatts capacity and electric generating equipment in
Lincoln County, Minnesota valuated at $2,019,600.
F-10
Other
assets transferred include 160 acres of land in Lincoln County, Minnesota valued
at $320,000 a building with repair facilities and eight motel rooms, a large
meeting room, offices, valued at $1,992,905. The
remaining value of $583,250 was assigned
to a 100 megawatt project in the preliminary engineering phase referred to as
the Viking Wind Energy Project in Martin County, Minnesota.
The
Company reallocated the value of $11,287,250 in Navitas Energy stock ownership
originally assessed to Boreal Energy, Inc. asset acquisition to the assets
received above. The exchange has been reflected on the
Company’s June 30, 2008 balance
sheet.
The
carrying values of the Wind Energy Assets are summarized as
follows:
Asset Description
|
2009
|
2008
|
Developers Interest in LLC and Other
Entities
|
||
Lakota
Ridge LLC-Lincoln County, Minnesota
|
$ 1,134,963
|
$ 1,134,963
|
Shaokatan
Hills LLC- Lincoln County, Minnesota
|
1,134,963
|
1,134,963
|
Chi
Wind Farms LLC- Lincoln County, Minnesota
|
2,630,074
|
2,630,074
|
Averill
Wind LLC- Fargo , North Dakota
|
276,275
|
251,175
|
Great
Plains Wind LLC- Sibley County Iowa (abandoned in 2009)
|
-
|
24,200
|
French
Lake -Lincoln County, Minnesota
|
10,000
|
-
|
Sibley
Hills LLC, NAE SPP, NAE Allendorf
|
55,828
|
-
|
Zulu
Wind LLC- Lincoln County, Minnesota
|
100,000
|
100,000
|
Subtotal
producing LLC investments
|
5,342,103
|
5,275,375
|
Wind Turbines to be
Commissioned
|
||
Henry
Hills 4 Megawatts- Sibley County, Iowa
|
5,704,865
|
4,752,000
|
Midwest
Energy Center -1.7 Megawatts Lincoln County, Minnesota
|
2,555,430
|
2,019,600
|
Subtotal
Wind Turbines to be Commissioned
|
8,260,295
|
6,771,600
|
Real Property
|
||
Buildings
-Midwest Wind Energy Center - Lincoln County, Minnesota
|
-
|
1,992,905
|
Land-
160 acres- Lincoln County, Minnesota
|
-
|
320,000
|
Subtotal
Real Property
|
-
|
2,312,905
|
Total
Wind Energy Assets
|
$ 13,602,398
|
$ 14,359,880
|
F-11
C. PuraMed
BioScience Inc,
PuraMed BioScience, Inc.
On April
12, 2007, the Company spun-off PuraMed BioScience, Inc. on the basis of 1 share
PuraMed BioScience, Inc. per every 5 shares of Wind Energy America,
Inc. A total of 2,174,989 shares of PuraMed BioScience, Inc. were
distributed to Wind Energy America, Inc. shareholders in October. 2007. PuraMed
stock trades separately on the OTC market under the symbol PRMD.
D. REAL
ESTATE VENTURE – GRAND SIERRA RESORT CORP
The
Company purchased 1,037,500 shares of common stock of Grand Sierra Resort Corp.,
for $415,000, resulting in an ownership interest of slightly less than
1%. Grand Sierra is a private company incorporated in the State of
Nevada. The Company accounted for its investment using the cost
method. The Company recorded an impairment expense of $400,000 during the
current fiscal year based upon declines in values in real estate and the gaming
industry. The reduced carrying value at June 30. 2009 is $15,000.
E. FUTURE
EXPANSION
At
September 16, 2009, the Company had working capital of approximately $ 30,000
and has funded its investments through the sale of unregistered common stock. If
the Company cannot obtain substantial working capital through common stock sales
or other sources, it would be forced to curtail its future planned business
expansion. The Company is seeking joint venture partners and the sale of a
portion of its development interests to fund the remaining balance of its Wind
Energy Projects.
On April
1, 2009, the Company issued 69,000 unregistered common shares to pay a $10,000
note and accrued interest of $350.
From
April 1, 2009 through June 30, 2009 the Company sold 1,730,000 unregistered
common shares at $.125 per share resulting in proceeds of $216,250.
From
October 1, 2008 through March 31, 2009 the Company sold 1,926,665 unregistered
common shares at $ .15 per share resulting in proceeds of $289,000.
From
September 1, 2008 through October 31, 2008 the Company sold 204,900 unregistered
common shares at $.30 per share resulting in proceeds of $61,200.
From
April 15, 2008 through July 31, 2008 the Company sold 386,699 unregistered
common shares at $.75 per share for proceeds of $290,023.
The
Company sold 324,000 shares at $1.25 per share, resulting in net proceeds of
$373,500 from January 1, 2008 through April 15, 2008.
All of
these sales were made to accredited investors. The proceeds were
utilized for operating activities and the Iowa turbine startup.
F-12
On
December 28, 2007 the Company issued 4,000,000 shares of its common stock to
Northern Alternative Energy, Inc. as consideration related to the acquisition of
its developer’s interest in Chi Energy wind farm energy assets. No
commissions were involved in this transaction, and these shares were offered and
sold in reliance on the exemption set forth in Section 4(2) of the Securities
Act of 1933.
In
February, 2008 the Company issued 28,500,000 unregistered common shares to
Boreal Energy, Inc. to acquire certain intangible wind energy development and
design projects as well as a number of material tangible assets which were
exchanged for the Navitas stock which had been owned by Boreal.
H. WARRANTS
AND STOCK ISSUED FOR SERVICES
The
Company issued five-year warrants to four officers and directors in February
2009 for the total purchase of 1,750,000 common shares exercisable at $.30 per
share. The Company expensed these warrants as management fees in the amount of
$493,150 based upon the Black-Scholes option pricing model of a risk free
interest rate of 2.07%, and a volatility for the stock of 195% over a five year
period.
All
common stock issuances for services were valued at the trading price of the
common stock at the date of issuance or if more relevant the date the services
were performed.
In
June 2009, the Company issued 195,000 shares to four individuals for services
ranging from website design to fund rising which were valued at $.24 per share
for total compensation of $46,800.
In
September 2008, the Company issued 60,000 unregistered common shares to its CEO
valued at $.40 per share for compensation of $23,700 and 60,000 to a member of
the board valued at $.25 per share for compensation of $15,000.
In August
2008, the Company issued 50,000 unregistered common shares to a consultant
valued at $.59 per share for services rendered of $29,500.In March 2008, the
Company issued and delivered 60,000 unregistered common shares to its former
CEO/CFO incident to an Employment Termination Agreement. The
Agreement provides for an additional 180,000 shares to be issued over the
following nine months. The initial shares were recorded as management
fee expense at $.90 per share.
In March
2008, the Company issued and delivered 25,000 unregistered common shares to a
Director in consideration of his services. The shares were recorded as
management fee expense at $.90 per share.
In
February 2008, the Company granted a five year stock purchase warrants to its
officers and directors to purchase an aggregate of 500,000 common shares at an
exercise price of $.75 per share.
All
securities issued or granted by the Company and referred to in this Footnote H
were offered and sold in reliance on the exemption set forth in Section 4(2) of
the Securities Act of 1933.
F-13
J. STOCKHOLDERS’
EQUITY OPTIONS
A summary
of the Company’s stock options is presented below:
Years Ended June
30,
2009
2008
Shares
|
Weighted
Average
Exercise
Price
|
Shares
|
Weighted
Average
Exercise
Price
|
|
Outstanding
at beginning of year
|
45,000
|
.45
|
47,500
|
$ 0.41
|
Granted
|
0
|
0
|
--
|
--
|
Exercised
or cancelled
|
(2,500)
|
.45
|
-2500
|
$ 0.33
|
Outstanding at
end of year
|
42,500
|
$.41
|
45,000
|
$ 0.41
|
Options
exercisable at year end
|
42,500
|
$.41
|
45,000
|
0.41
|
The
following table summarizes information about stock options outstanding at June
30, 2009:
Options
Outstanding and Exercisable:
Options
|
Remaining
Contractual
|
Exercise
|
Outstanding
|
Life
(Years)
|
Price
|
10,000
|
.2
|
$0.21
|
2,500
|
.4
|
$0.23
|
25,000
|
.4
|
$0.36
|
5,000
|
5.4
|
$0.95
|
Warrants
In
connection with various private placements of the Company's securities, the
Company has issued certain warrants to broker-dealers and investors from time to
time. These warrants have been expensed in accordance with FASB
123(R) and have been valued based on the Black-Scholes model.
In
fiscal year ended June 30, 2009, warrants to purchase a total of 614,326 shares
were exercised on a "cashless" basis as provided by the warrant terms, and
incident thereto a total of 429,073 common shares of the Company were
issued. A summary of the Company’s stock options is presented
below:
Years Ended June 30,
2009
2008
Warrants
|
Weighted
Average
Exercise
Price
|
Warrants
|
Weighted
Average
Exercise
Price
|
|
Outstanding
at beginning of year
|
1,135,376
|
$0.37
|
1,134,869
|
$0.33
|
Granted
|
1,790,000
|
$0.30
|
100,507
|
$0.75
|
Exercised
or cancelled
|
617,826
|
$0.44
|
100,000
|
$0.30
|
Outstanding at
end of year
|
2,307,550
|
$0.30
|
1,135,376
|
$0.37
|
Options
exercisable at year end
|
2,307,550
|
$0.30
|
1,135,376
|
$0.37
|
F-14
The
following table shows the remaining outstanding warrants of the Company as of
June 30, 2009:
Warrants
Outstanding and Exercisable:
Warrants
|
Remaining
Contractual
|
Exercise
|
Outstanding
|
Life
(Years)
|
Price
|
517,500
|
0.8
|
$0.30
|
1,750,000
|
4.67
|
$0.30
|
40,000
|
1.75
|
$0.20
|
K. INCOME
TAXES
The
Company accounts for income taxes in accordance with SFAS No. 109, Accounting
for Income Taxes which requires an asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax assets and
liabilities are computed annually for differences between the financial
statement and income tax bases of assets and liabilities that will result in
taxable or deductible amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected to affect
taxable income. The valuation allowances have been established equal to the
income tax benefits to reduce the deferred tax assets to zero.
A
reconciliation of the Company’s tax provision based on a statutory federal
income tax rate of 35% to the Company’s effective rate is as
follows:
2009
|
2008
|
|
Computed
tax benefit at:
|
||
Federal @
35 % -benefit
|
$ 455,000
|
$ 193,000
|
State
tax rate net of federal –benefit
|
$ 68,000
|
$ 29,000
|
Change
in valuation allowance
|
$ (
483.000)
|
$ (
171,000)
|
Permanent
and other differences –stock & warrant
compensation & spin out losses
|
$ ( 40,000)
|
$ ( 51,000)
|
Provision
|
$ --
|
$ --
|
No
deferred income taxes have been provided for the temporary differences between
the financial reporting and income tax basis of the Company due to the valuation
allowances outlined below:
Years
ended June 30
2009
|
2008
|
|
Asset
|
Asset
|
|
(Liability)
|
(Liability)
|
|
Net
operating loss carry forward
|
$ 6,398,000
|
$ 5,422,000
|
Valuation
allowance
|
$
( 6,398,000)
|
$ (5,422,000)
|
F-15
At June
30, 2009, the Company has federal income tax net operating loss carryforwards of
approximately $ 13,050,000 that will expire through 2027, and for Minnesota
income tax net operating loss carryforwards of $ 4,050,000 that will expire
through 2021, and Wisconsin’s operating loss carryforwards of $450,000 expire
through 2022. Future utilization of loss carryforwards could be
limited under Internal Revenue Code Section 382 for significant changes in
ownership.
L.
CONVERTIBLE DEBT
On June
30, 2008 the Company borrowed $94,152 from an individual at 9 % per annum, and
this debt was converted into 753,216 shares of unregistered common stock on
September 16, 2009 at $.125 per share. During 2009, the Company borrowed $30,000
from individuals on six months terms at 10% interest. The Company
also converted a $10,000 note and accrued interest of $350 into 69,000 shares of
unregistered common shares in June 2009 at $.15 per share. The Company recorded
interest expense of $34,331 in connection with these transactions due to the
in-the-money portion of the stock price conversion feature of $25,000 and 10,000
warrants valued at $9,332 which were also issued in the note
transaction.
M.
SALE/LEASEBACK OF MIDWEST WIND ENERGY CENTER
In
November 2008 the Company obtained substantial funding through a sale/leaseback
of its Midwest Wind Energy Center (“MWEC”) with Trident Holding Group, Inc. of
San Diego, California. This sale/leaseback transaction included the
MWEC building along with the 160 acres in Lincoln County, Minnesota where the
MWEC is situated. Neither Trident nor any of its principals had any
relationship to, or other dealings with, the Company prior to this
transaction.
This
sale/leaseback transaction involved primarily two agreements, a standard real
estate purchase agreement whereby the Company sold and transferred the MWEC to
Trident, and a long-term lease whereby Trident leased the MWEC back to the
Company. Under the purchase agreement, Trident paid $3.2 Million for
the MWEC, consisting of $1.6 Million in cash paid at closing and the balance of
$1.6 Million through a Promissory Note requiring only monthly interest payments
at 7.5% per annum ($10,000 monthly) until the end of the 15-year term at which
time all principal is due in full.
Concurrent
with this sale, Trident leased the MWEC back to the Company under a lease which
requires the Company to pay all real estate taxes, insurance, utilities and any
other operating expenses for the MWEC, and provides to the Company income from
the MWEC such as lodging and rental income and farm lease income from the MWEC
land. Lease payments from the Company to Trident are $23,333 monthly
for lease years 1-2, $30,000 monthly for lease years 3-5, and $43,333 monthly
for lease years 6-15. The Company has an option to repurchase the
MWEC during lease years 3-6 for $3,250,000 during year 3, $3,300,000 during year
4, $3,350,000 during year 5, and $3,400,000 during year 6. Incident
to this sale/leaseback transaction, the Company also granted Trident a security
interest in the two Gamesa 850kw wind turbines owned by the Company and situated
nearby the MWEC.
The
Company rents office spaces in Vadnais Heights, Minnesota, a suburb of St. Paul,
on a month-to-month basis for $3,500 monthly.
F-16
Future
monthly lease commitments for the next five years are listed below:
Year
|
Amount
|
2010
|
$279,996
|
2011
|
333,332
|
2012
|
360,000
|
2013
|
360,000
|
2014
|
466,664
|
Thereafter
|
4,853,332
|
$6,653,324
|
N.
NOTE PAYABLE
On March
20, 2009, the Company purchased various infrastructures belonging to the Henry
Hills Complex from Northern Alternative Energy for $605,000. The
Company signed a promissory note for the balance due in September 2009 with an
interest rate of 6% per. This purchase was necessary to provide the
interconnect capabilities for the turbines the Company had acquired with the
Boreal asset purchase located in the Henry Hills Complex. As of June
30, 2009, the Company had made payments of $514,764 to third parties in behalf
of Northern Alternative Energy. As of June 30, 2009, the balance due
on the note payable was $90,236.
O. SUBSEQUENT EVENTS
Outstanding
convertible debt of $94,152 plus accrued interest was converted into
unregistered common stock on September 16, 2009 for 753,216 shares at $.125 per
share.
The
Company sold 1,852,500 unregistered common shares at $.10 per share from July 1,
2009 through September 16, 2009 for proceeds of $185,250.
F-17