Attached files
file | filename |
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EX-32.1 - Crownbutte Wind Power, Inc. | v166303_ex32-1.htm |
EX-32.2 - Crownbutte Wind Power, Inc. | v166303_ex32-2.htm |
EX-31.1 - Crownbutte Wind Power, Inc. | v166303_ex31-1.htm |
EX-31.2 - Crownbutte Wind Power, Inc. | v166303_ex31-2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark One)
S QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
quarterly period ended September 30, 2009
or
o TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
transition period
from to
Commission
File Number: 333-156467
Crownbutte
Wind Power, Inc.
(Exact
name of registrant as specified in its charter)
Nevada
|
20-0844584
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
111
5th Avenue NE
|
|
Mandan,
ND
|
58554
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(701)
667-2073
(Registrant’s
telephone number, including area code)
[Not
applicable]
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes o No S
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes o No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer o
|
Accelerated
filer o
|
Non-accelerated
filer (Do not check if a
smaller reporting company) o
|
Smaller
reporting company S
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No S
As of
November 13, 2009, there were 26,200,331 shares of the
registrant’s common stock, par value $0.001 per share,
outstanding.
Crownbutte
Wind Power, Inc.
Form
10-Q
TABLE
OF CONTENTS
Page
|
||
AVAILABLE
INFORMATION
|
2
|
|
FORWARD-LOOKING
STATEMENTS
|
3
|
|
EXPLANATORY
NOTE
|
4
|
|
PART
I—FINANCIAL INFORMATION
|
5
|
|
Item
1.
|
Financial
Statements.
|
5
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
|
20
|
Item
4T.
|
Controls
and Procedures.
|
23
|
PART
II—OTHER INFORMATION
|
25
|
|
Item
1.
|
Legal
Proceedings.
|
25
|
Item 1A.
|
Risk
Factors.
|
25
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds.
|
25
|
Item
3.
|
Defaults
upon Senior Securities.
|
26
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders.
|
26
|
Item
5.
|
Other
Information.
|
26
|
Item
6.
|
Exhibits.
|
26
|
SIGNATURE
|
|
27
|
AVAILABLE
INFORMATION
We file
annual, quarterly and current reports, proxy statements and other information
with the United States Securities and Exchange Commission (“SEC”). You may read
and copy any document we file with the SEC at the SEC’s Public Reference Room at
100 F Street, NE, Washington, DC 20549, U.S.A. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330 (or
1-202-551-8090). The SEC maintains an internet site that contains annual,
quarterly and current reports, proxy and information statements and other
information regarding issuers that file electronically with the SEC. Our
electronic SEC filings are available to the public at http://www.sec.gov.
Our
public internet site is http://www.crownbutte.com.
We make available free of charge through our internet site, via a
link to the SEC’s internet site at http://www.sec.gov,
our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), as soon as reasonably practicable after we electronically files
such material with, or furnish it to, the SEC. We also make available through
our internet site, via a link to the SEC’s internet site, statements of
beneficial ownership of our equity securities filed by our directors, officers,
10% or greater shareholders and others under Section 16 of the Exchange
Act.
These
documents are also available in print without charge to any person who requests
them by writing or telephoning:
Crownbutte
Wind Power, Inc.
c/o
Gottbetter & Partners, LLP
488
Madison Avenue
New York,
New York 10022-5718
212-400-6900
Facsimile
212-400-6901
2
FORWARD-LOOKING
STATEMENTS
This
Quarterly Report contains forward-looking statements, including, without
limitation, in the section captioned “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” and elsewhere. Any and all
statements contained in this Report that are not statements of historical fact
may be deemed forward-looking statements. Terms such as “may,” “might,” “would,”
“should,” “could,” “project,” “estimate,” “pro forma,” “predict,” “potential,”
“strategy,” “anticipate,” “attempt,” “develop,” “plan,” “help,” “believe,”
“continue,” “intend,” “expect,” “future,” and terms of similar import (including
the negative of any of the foregoing) may be intended to identify
forward-looking statements. However, not all forward-looking statements may
contain one or more of these identifying terms. Forward-looking statements in
this Report may include, without limitation, statements regarding (i) the plans
and objectives of management for future operations, including plans or
objectives relating to exploration programs, (ii) a projection of income
(including income/loss), earnings (including earnings/loss) per share, capital
expenditures, dividends, capital structure or other financial items, (iii) our
future financial performance, including any such statement contained in a
discussion and analysis of financial condition by management or in the results
of operations included pursuant to the rules and regulations of the SEC, and
(iv) the assumptions underlying or relating to any statement described in points
(i), (ii) or (iii) above.
The
forward-looking statements are not meant to predict or guarantee actual results,
performance, events or circumstances and may not be realized because they are
based upon our current projections, plans, objectives, beliefs, expectations,
estimates and assumptions and are subject to a number of risks and uncertainties
and other influences, many of which we have no control over. Actual results and
the timing of certain events and circumstances may differ materially from those
described by the forward-looking statements as a result of these risks and
uncertainties. Factors that may influence or contribute to the inaccuracy of the
forward-looking statements or cause actual results to differ materially from
expected or desired results may include, without limitation, our inability to
obtain adequate financing, insufficient cash flows and resulting illiquidity,
our inability to expand our business, government regulations, lack of
diversification, volatility in energy prices, increased competition, results of
arbitration and litigation, stock volatility and illiquidity, and our failure to
implement our business plans or strategies. A description of some of the risks
and uncertainties that could cause our actual results to differ materially from
those described by the forward-looking statements in this Report appears in
Amendment No. 8 to our Registration Statement on Form S-1 filed with the SEC on
October 1 (the “Form S-1”) in the section captioned “Risk Factors” and elsewhere
in this Report.
Readers
are cautioned not to place undue reliance on forward-looking statements because
of the risks and uncertainties related to them and to the risk factors. We
disclaim any obligation to update the forward-looking statements contained in
this Report to reflect any new information or future events or circumstances or
otherwise.
You
should read this Report in conjunction with the discussion under the caption
“Risk Factors” in the Form S-1, the audited consolidated financial statements
and notes thereto in the Form S-1, the unaudited consolidated financial
statements and notes thereto in this Report, and other documents which we may
file from time to time with the SEC.
3
EXPLANATORY
NOTE
On July
2, 2008, Crownbutte Acquisition Sub Inc., a North Dakota corporation formed on
June 6, 2008, and a wholly owned subsidiary of ProMana Solutions, Inc., merged
with and into Crownbutte Wind Power, Inc., a North Dakota corporation formed
(originally as a limited liability company) on May 11, 1999 (“Crownbutte ND”),
with Crownbutte ND being the surviving corporation (the “Merger”). As a result
of the Merger, Crownbutte ND became our wholly-owned subsidiary.
Pursuant
to the Merger, we ceased operating as a provider of web-based, fully integrated
solutions for managing payroll, benefits, human resource management and business
processing outsourcing, and acquired the business of Crownbutte ND to develop
wind parks from green field to operation and have continued Crownbutte ND’s
business operations as a publicly-traded company under the name Crownbutte Wind
Power, Inc.
The
Merger was treated as a reverse merger and recapitalization for financial
accounting purposes. Crownbutte ND is considered the acquirer for accounting
purposes, and our historical financial statements for periods prior to the
Merger have become the historical financial statements of Crownbutte ND for
periods prior to the Merger in all subsequent filings with the SEC.
For more
information about the Merger and related transactions and the accounting
treatment thereof, see “Summary—Corporate Information and History” in the Form
S-1.
4
PART
I—FINANCIAL INFORMATION
Item
1. Financial
Statements.
Crownbutte
Wind Power, Inc.
Consolidated
Balance Sheets
September
30, 2009
|
December
31, 2008
|
|||||||
(Unaudited)
|
(Audited)
|
|||||||
ASSETS
|
||||||||
Current
Assets:
|
||||||||
Cash
and cash equivalents
|
$ | 5,429 | $ | 304,703 | ||||
Certificates
of deposit
|
- | 152,029 | ||||||
Other
current assets
|
23,174 | 23,109 | ||||||
Total
current assets
|
28,603 | 479,841 | ||||||
Other
assets:
|
||||||||
Interconnect
application deposits
|
99,820 | 112,346 | ||||||
Property
and equipment, net
|
182,796 | 234,357 | ||||||
Total
other assets
|
282,616 | 346,703 | ||||||
$ | 311,219 | $ | 826,544 | |||||
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 354,240 | $ | 125,829 | ||||
Accrued
expenses
|
136,287 | 53,812 | ||||||
Due
to officer
|
44,380 | - | ||||||
Total
current liabilities
|
534,907 | 179,641 | ||||||
Total
liabilities
|
534,907 | 179,641 | ||||||
Stockholders'
equity (deficit):
|
||||||||
Preferred
stock, $0.001 par value, 25,000,000 shares authorized none issued and
outstanding
|
- | - | ||||||
Common
stock, $0.001 par value, 300,000,000 shares authorized 26,200,331 issued
and outstanding
|
26,200 | 26,200 | ||||||
Common
stock to be issued, $0.001 par value, 3,928,564 shares
|
3,929 | - | ||||||
Additional
paid-in capital
|
5,074,665 | 4,336,606 | ||||||
Retained
earnings (deficit)
|
(5,328,482 | ) | (3,715,903 | ) | ||||
Total
stockholders' equity (deficit)
|
(223,688 | ) | 646,903 | |||||
Total
liabilities and stockholders' equity (deficit)
|
$ | 311,219 | $ | 826,544 |
See
accompanying notes to unaudited consolidated financial
statements.
5
Crownbutte
Wind Power, Inc.
Consolidated
Statements of Operations
For
the three months ended September 30,
|
For
the nine months ended September 30,
|
|||||||||||||||
2009*
|
2008**
|
2009*
|
2008**
|
|||||||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
|||||||||||||
Sale
of project development rights
|
$ | - | $ | - | $ | - | $ | 200,000 | ||||||||
Consulting
revenues
|
- | - | - | 73,020 | ||||||||||||
Total
revenues
|
$ | - | $ | - | $ | - | $ | 273,020 | ||||||||
Cost
of revenues:
|
||||||||||||||||
Project
development rights
|
- | - | - | 34,593 | ||||||||||||
Consulting
revenues
|
- | - | - | 3,482 | ||||||||||||
Total
cost of revenues
|
- | - | - | 38,075 | ||||||||||||
Gross
profit
|
- | - | - | 234,945 | ||||||||||||
Operating
expenses:
|
||||||||||||||||
General
and administrative (includes stock based compensation of $702,702 and
$2,493,397 in 2009 and 2008)
|
373,242 | 3,200,697 | 1,578,450 | 3,540,675 | ||||||||||||
Depreciation
expense
|
7,744 | 5,364 | 25,856 | 13,133 | ||||||||||||
Total
operating expenses
|
380,986 | 3,206,061 | 1,604,306 | 3,553,808 | ||||||||||||
Net
operating loss
|
(380,986 | ) | (3,206,061 | ) | (1,604,306 | ) | (3,318,863 | ) | ||||||||
Other
income (expenses):
|
||||||||||||||||
Interest
income
|
4 | 4,277 | 934 | 8,133 | ||||||||||||
Other
income
|
5,734 | - | 7,558 | - | ||||||||||||
Interest
expense
|
(1,635 | ) | - | (2,403 | ) | - | ||||||||||
Loss
on sale of fixed assets
|
- | - | (14,362 | ) | - | |||||||||||
Total
other income (expenses)
|
4,103 | 4,277 | (8,273 | ) | 8,133 | |||||||||||
Net
loss
|
$ | (376,883 | ) | $ | (3,201,783 | ) | $ | (1,612,579 | ) | $ | (3,310,730 | ) | ||||
Basic
and diluted - net income (loss) per common share
|
$ | (0.01 | ) | $ | (0.14 | ) | $ | (0.06 | ) | $ | (0.17 | ) | ||||
Basic
and diluted - weighted average common shares outstanding
|
26,200,331 | 22,277,302 | 26,200,331 | 19,210,262 |
*
|
Pro
forma tax expense adjustments are not applicable due to the Company being
taxed as a C corporation from the beginning of
2009.
|
**
|
Pro
forma income tax expense and earnings per share are not meaningful due to
tax loss for period.
|
See
accompanying notes to unaudited consolidated financial
statements.
6
Crownbutte
Wind Power, Inc.
Consolidated
Statements of Cash Flows
For
the nine months ended September 30,
|
||||||||
2009
|
2008
|
|||||||
(Unaudited)
|
(Unaudited)
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
loss
|
$ | (1,612,579 | ) | $ | (3,310,730 | ) | ||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||
Depreciation
|
25,856 | 13,133 | ||||||
Stock-based
compensation
|
702,702 | 2,493,397 | ||||||
Loss
on sale of fixed assets
|
14,362 | - | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Decrease
(increase) in:
|
||||||||
Other
assets
|
12,462 | (130,949 | ) | |||||
Increase
in:
|
||||||||
Accounts
payable
|
228,412 | 40,861 | ||||||
Accrued
liabilities
|
82,475 | 12,614 | ||||||
Total
adjustments
|
1,066,269 | 2,429,056 | ||||||
Net
cash used in operating activities
|
(546,310 | ) | (881,674 | ) | ||||
Cash
flows from investing activities:
|
||||||||
Certificates
of deposit redeemed
|
152,029 | 140,889 | ||||||
Investment
in certificates of deposit
|
- | (151,660 | ) | |||||
Purchase
of fixed assets
|
(5,259 | ) | (151,240 | ) | ||||
Sale
of fixed assets
|
16,600 | - | ||||||
Net
cash provided by (used in) investing activities
|
163,370 | (162,011 | ) | |||||
Cash
flows from financing activities:
|
||||||||
Net
proceeds of private placement
|
- | 1,622,833 | ||||||
Proceeds
from exercise of warrants
|
39,286 | - | ||||||
Deferred
financing costs
|
- | 50,000 | ||||||
Payment
of dividends
|
- | (153,333 | ) | |||||
Due
to officer
|
44,380 | - | ||||||
Net
cash provided by financing activities
|
83,666 | 1,519,500 | ||||||
(299,274 | ) | 475,815 | ||||||
Net
increase (decrease) in cash and cash equivalents
|
||||||||
Cash
and cash equivalents, beginning of period
|
304,703 | 125,744 | ||||||
Cash
and cash equivalents, end of period
|
$ | 5,429 | $ | 601,559 | ||||
Supplemental disclosures of cash flow
information:
|
||||||||
Cash
paid during the year for:
|
||||||||
Interest
paid
|
$ | 2,403 | $ | - | ||||
Taxes
paid
|
$ | 119 | $ | - |
See
accompanying notes to unaudited consolidated financial
statements.
7
Notes
to Unaudited Consolidated Financial Statements
For
the nine months ended September 30, 2009 and 2008
NOTE
1 – ORGANIZATION, DESCRIPTION OF BUSINESS AND MERGER
Crownbutte
Wind Power LLC (“Crownbutte ND”) was founded on May 11, 1999 with the strategy
of addressing the requirements of regional utility companies to satisfy
increasing renewable energy demands. Crownbutte ND was formed as a limited
liability company (LLC) in the State of North Dakota and elected to be taxed as
an S corporation effective January 1, 2001. On March 11, 2008, Crownbutte ND no
longer met the requirements to be treated as an S corporation. As a
result, effective March 11, 2008, Crownbutte ND has been taxed like a C
corporation. On May 19, 2008, Crownbutte ND filed with the Secretary
of State of North Dakota to convert from an LLC to a C corporation becoming
“Crownbutte Wind Power, Inc.” On July 2, 2008, Crownbutte ND became a
wholly owned subsidiary of Crownbutte Wind Power, Inc., a Nevada corporation,
formerly ProMana Solutions, Inc. as described below.
In
cooperation with a local utility, Crownbutte developed and constructed the first
utility-scale wind facility in either of the Dakotas in 2001, consisting of two
turbines near Chamberlain, South Dakota.
The
Company currently functions as a wind park developer as well as a consulting and
advisory service to power utilities.
ProMana
Solutions, Inc. (or “ProMana”)
ProMana
was incorporated in the State of Nevada on March 9, 2004, under the name ProMana
Solutions, Inc. ProMana’s business was to provide web-based, fully integrated
solutions for managing payroll, benefits, human resource management and business
processing outsourcing to small and medium sized businesses. Following the
merger described below, ProMana is no longer in that web services business. On
July 2, 2008, ProMana amended its Articles of Incorporation to change its name
to Crownbutte Wind Power, Inc.
Merger
On July
2, 2008, pursuant to a Merger Agreement entered into on the same date,
Crownbutte Acquisition Sub Inc., a North Dakota corporation formed on June 6,
2008, and a wholly owned subsidiary (“Acquisition Sub”), merged with and into
Crownbutte ND, with Crownbutte ND being the surviving corporation (the
“Merger”). As a result of the Merger, Crownbutte ND became a wholly-owned
subsidiary of the Company.
Pursuant
to the Merger, ProMana ceased operating as a provider of web-based, fully
integrated solutions for managing payroll, benefits, human resource management
and business processing outsourcing, and acquired the business of Crownbutte ND
to develop wind parks from green field to operation and has continued Crownbutte
ND’s business operations as a publicly-traded company. See “Split-Off
Agreement” below.
8
Crownbutte
Wind Power, Inc.
Notes
to Unaudited Consolidated Financial Statements
For
the nine months ended September 30, 2009 and 2008
At the
closing of the Merger, each share of Crownbutte ND’s common stock issued and
outstanding immediately prior to the closing of the Merger was converted into
one share of the Company’s common stock. As a result, an aggregate of 18,100,000
shares of common stock were issued to the holders of Crownbutte ND’s common
stock, 17,000,000 of which were issued to the original members of Crownbutte
Wind Power LLC and 1,100,000 to investors in Crownbutte ND who purchases shares
in a private placement prior to the merger. In addition, warrants to purchase an
aggregate of 10,600,000 shares of Crownbutte ND’s outstanding at the time of the
Merger became warrants to purchase an equivalent number of shares of the
Company’s common stock.
Split-Off
Agreement
Upon the
closing of the Merger, under the terms of a Split-Off Agreement, ProMana
transferred all of its pre-Merger operating assets and liabilities to its
wholly-owned subsidiary, ProMana Technologies, Inc., a New Jersey
corporation (“ProMana NJ”). Simultaneously, pursuant to the Split-Off
Agreement, ProMana transferred all of the outstanding shares of capital stock of
ProMana NJ to two stockholders prior to the Merger (the “Split-Off”), in
consideration of and in exchange for (i) the surrender and cancellation of an
aggregate of 144,702 shares of the common stock and warrants to purchase 19,062
shares of common stock held by those stockholders and (ii) certain
representations, covenants and indemnities.
Stock
Split
The Board
of Directors authorized a one-for-65.723 reverse split of the Company’s common
stock (the “Stock Split”), which was effective on July 31, 2008, for holders of
record on July 14, 2008. After giving effect to the Stock Split,
there were outstanding 19,582,249 shares of common stock. All share
and per share numbers in this Report relating to the Common Stock prior to the
Stock Split have been adjusted to give effect to the Stock Split retroactively
unless otherwise stated.
For
accounting purposes, the Merger was treated as a recapitalization of the
Company. Crownbutte ND formerly Crownbutte Wind Power LLC is considered the
acquirer for accounting purposes, and the Company’s historical financial
statements before the Merger have been replaced with the historical financial
statements of Crownbutte ND before the Merger in all subsequent filings with the
Securities and Exchange Commission (the “SEC”).
As used
herein, unless the context otherwise requires, the “Company” and “Crownbutte”
refer to Crownbutte ND for periods prior to the merger and to Crownbutte Wind
Power, Inc., a Nevada corporation, formerly ProMana Solutions, Inc., and its
wholly-owned subsidiary, Crownbutte ND, for periods after the
Merger.
NOTE
2 – BASIS OF PRESENTATION, CONSOLIDATION AND GOING CONCERN
The
accompanying unaudited consolidated financial statements include the results of
operations of the Company and its subsidiary for the nine months ended September
30, 2009 and September 30, 2008. All material intercompany accounts
and transactions between the Company and its subsidiary have been eliminated in
consolidation.
9
Crownbutte
Wind Power, Inc.
Notes
to Unaudited Consolidated Financial Statements
For
the nine months ended September 30, 2009 and 2008
The
accompanying unaudited consolidated financial statements of the Company have
been prepared in accordance with generally accepted accounting principles of the
United States for interim financial information. Accordingly, they do not
include all the information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments necessary to present fairly the information set forth therein have
been included. Operating results for the nine months ended September 30, 2009
are not necessarily indicative of the results that may be experienced for the
fiscal year ending December 31, 2009.
The
financial statements and notes included herein should be read in conjunction
with the annual financial statements and notes for the year ended December 31,
2008 included in the Company’s filing of Form S-1.
Going
Concern
These
consolidated financial statements have been prepared by management in accordance
with accounting principles generally accepted in the United States on a “going
concern” basis, which presumes the Company will be able to realize its assets
and discharge its liabilities in the normal course of business for the
foreseeable future.
The
Company has incurred operating losses and negative cash flows from its operating
activities for the nine months ended September 30, 2009, as well as an
accumulated deficit of approximately $5,328,482 as of September 30, 2009 and a
working capital deficit of $506,304.
As of
September 30, 2009, the Company had only $5,429 in cash. The
Company’s ability to pay its obligations as they become due is in danger as it
is in need of immediate financing. The Company’s continued existence
is dependent upon its ability to resolve its liquidity problems, principally by
obtaining equity and or debt financing. The Company’s current
operations are not an adequate source of cash to fund future
operations. In the event that it is unable to obtain debt or equity
financing, it may have to cease or curtail operations.
The
Company’s management continues to focus on procurement of financing for its
Gascoyne I project and is actively engaged in discussion with parties who may be
interested in purchasing development rights of some of the Company’s other
greenfield projects.
The
Company’s ability to continue as a going concern is dependent upon either the
sale of one or more greenfield projects, obtaining additional financing to
develop the properties and the ultimate realization of profits through future
production or sale of properties, and the success of the Company’s business
plan. The outcome of these matters cannot be predicted at this
time. These consolidated financial statements do not include any
adjustments to the amounts and classifications of assets and liabilities that
might be necessary should the Company be unable to continue its
business.
10
Crownbutte
Wind Power, Inc.
Notes
to Unaudited Consolidated Financial Statements
For
the nine months ended September 30, 2009 and 2008
Certain
reclassifications have been made to prior year amounts to conform to the current
year presentation.
NOTE
3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue
Recognition
The
Company recognizes revenue in accordance with guidance issued by the Financial
Accounting Standards Board (“FASB”) on revenue recognition, which requires 1)
evidence of an agreement, 2) delivery of the product or services has occurred 3)
at a fixed or determinable price, and 4) assurance of collection within a
reasonable period of time.
Further,
some revenues are recognized using the percentage of completion method of
accounting. The Company believes that the use of the percentage of completion
method is appropriate as the Company has the ability to make reasonably
dependable estimates of the extent of progress towards completion, contract
revenues and contract costs. The percentage to completion is measured by
monitoring progress using records of actual time, materials and other costs
incurred to date on specific projects compared to the total estimated project
requirements, which corresponds to the costs related to earned revenues.
Estimates of total project requirements are based on prior experience of
customization, delivery and acceptance of the same or similar technology and are
reviewed and updated regularly by management. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are first
determined, in the amount of the estimated loss on the entire
contract.
The
Company currently functions in two business areas: as a wind park developer and
as a consulting and advisory service to power utilities. During 2008 the Company
recognized revenues from consulting and advising services to power utilities
(Consulting revenues). The Company made no sales and had no
consulting revenues for the nine months ended September 30, 2009.
Consulting
services revenue is recognized under guidance that differs from contract
services revenue. Consulting services revenue is recognized when delivery of the
service has occurred; the customer has already received the service, and
along with other revenue recognition criteria, qualifies the transaction as
a sale. Whereas, contract services revenue is recognized when delivery of the
product or service has yet to be completed yet the transaction still qualifies
as a sale. When recognizing contract services revenue, prior to the project’s
start, the Company estimates the cost at each stage of the project. As time
passes and the stages are completed, the contractor recognizes an estimate of
the revenue that has been earned based on the percentage of the estimated costs
that have already been incurred. Using the percentage of completion method
allows revenues and their associated expenses to be recognized in the same
accounting period according to the matching principle, even if the customer has
yet to receive delivery of the goods and services, or if the goods and services
have not been completed by the Company.
11
Crownbutte
Wind Power, Inc.
Notes
to Unaudited Consolidated Financial Statements
For
the nine months ended September 30, 2009 and 2008
Cost
of Revenues
The
Company includes all direct costs related to its contract and sale of
development rights revenues in cost of revenues. The types of costs
include materials and supplies and subcontractor fees and expenses specific to
the project or contract. Additionally, allocations of payroll, taxes,
and benefits are added to cost of revenues based on time worked on each
project. Any project expenses not directly related to
revenue-generating contracts or sales are expensed to research and development
within general and administrative expenses.
Estimates
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
Cash
and Cash Equivalents and Certificates of Deposit
For
purpose of reporting cash flows, the Company considers all accounts with
maturities of three months or less to be cash equivalents. Certificates of
deposit with a maturity of more than three months when purchased are classified
as current assets.
At
December 31, 2008 the Company had certificates of deposit in the amounts of
$100,000 and $52,030 which collected interest of 2.68% and 3.21% and matured on
February 26, 2009 and May 13, 2009 respectively.
Property,
Equipment and Leasehold Improvements
Property,
equipment and leasehold improvements are stated at cost. The Company records
straight-line depreciation based on the estimated useful life of the individual
units of property and equipment. Estimated useful lives are five to ten years
for the property and equipment. Leasehold improvements are amortized
over ten years.
Research
and Development
The
Company expenses research and development as incurred.
Income
Taxes
The
Company was organized as a limited liability company for the year ended December
31, 2007 and the Company’s members elected to be taxed as an S corporation. An S
corporation is not a taxpaying entity for federal and state income tax purposes;
thus, no income tax expenses have been recorded in the financial statements. It
is the responsibility of the members to report their proportionate share of the
Company’s income or loss on the members’ individual income tax
returns.
12
Crownbutte
Wind Power, Inc.
Notes
to Unaudited Consolidated Financial Statements
For
the nine months ended September 30, 2009 and 2008
Since
March 11, 2008, the Company is being taxed as a C corporation. A
short year S corporation tax return and a short year C corporation tax return
was filed. Income tax liability for the years ended December 31, 2008
and September 30, 2009 is $0.
Customer
Concentration
Two of
the Company's customers accounted for 100% of its revenues for the nine months
ended September 30, 2008. The Company had no revenues for the nine
months ended September 30, 2009.
Concentration
of Credit Risk
The
Company maintains its cash deposits at various financial institutions. Bank
balances periodically exceed the Federal Deposit Insurance Corporation limits at
one bank.
Fair
Value of Financial Instruments
Effective
January 1, 2008, the Company adopted guidance issued by the Financial Accounting
Standards Board (“FASB”) on “Fair Value Measurements” for assets and liabilities
measured at fair value on a recurring basis. This guidance establishes a common
definition for fair value to be applied to existing generally accepted
accounting principles that require the use of fair value measurements,
establishes a framework for measuring fair value and expands disclosure about
such fair value measurements. The adoption of this guidance did not have an
impact on the Company’s financial position or operating results, but did expand
certain disclosures.
The
Financial Accounting Standards Board (“FASB”) defines fair value as the price
that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date.
Additionally, the “FASB” requires the use of valuation techniques that maximize
the use of observable inputs and minimize the use of unobservable inputs. These
inputs are prioritized below:
|
Level 1:
|
Observable
inputs such as quoted market prices in active markets for identical assets
or liabilities
|
|
Level 2:
|
Observable
market-based inputs or unobservable inputs that are corroborated by market
data
|
|
Level 3:
|
Unobservable
inputs for which there is little or no market data, which require the use
of the reporting entity’s own
assumptions.
|
The
Company did not have any Level 2 or Level 3 assets or liabilities as
of September 30, 2009 and December 31, 2008.
13
Crownbutte
Wind Power, Inc.
Notes
to Unaudited Consolidated Financial Statements
For
the nine months ended September 30, 2009 and 2008
The
Company discloses the estimated fair values for all financial instruments for
which it is practicable to estimate fair value. As of September 30, 2009 and
December 31, 2008, the fair value short-term financial instruments including
cash, certificates of deposit, other current assets, accounts payable, accrued
expenses and due to Officer, approximates book value due to their short-term
duration.
Cash and
cash equivalents include money market securities and commercial paper that are
considered to be highly liquid and easily tradable. These securities are valued
using inputs observable in active markets for identical securities and are
therefore classified as Level 1 within the fair value
hierarchy.
In
addition, the Financial Accounting Standards Board (“FASB”) issued, “The Fair
Value Option for Financial Assets and Financial Liabilities,” effective for
January 1, 2008. This guidance expands opportunities to use fair value
measurements in financial reporting and permits entities to choose to measure
many financial instruments and certain other items at fair value. The Company
did not elect the fair value option for any of its qualifying financial
instruments.
Stock-Based
Compensation
We
account for the grant of stock and warrants awards in accordance with guidance
issued by the Financial Accounting Standards Board (“FASB”), “Share-Based Payment.” This
guidance, requires companies to recognize in the statement of operations the
grant-date fair value of warrants and stock options and other equity based
compensation.
The
Company uses the Black-Scholes option valuation model for estimating the fair
value of traded options. This option valuation model requires the
input of highly subjective assumptions including the expected stock price
volatility.
For the
nine months ended September 30, 2009 and 2008, the Company recorded stock-based
compensation of $702,702 and $2,493,397, respectively.
Basic
and Diluted Earnings per Share
Basic
earnings per share are calculated by dividing income available to stockholders
by the weighted average number of common shares outstanding during each
period. Diluted earnings per share are computed using the weighted
average number of common and dilutive common share equivalents outstanding
during the period. Dilutive common share equivalents consist of
shares issuable upon the exercise of stock options and warrants (calculated
using the modified-treasury stock method). The outstanding warrants
amounted to 7,307,188 and 11,235,752 at September 30, 2009 and 2008
respectively. For the periods ended September 30, 2009 and September
30, 2008, these potentially dilutive securities were not included in the
calculation of loss per share because the Company incurred a loss during such
periods and thus their effect would have been anti-dilutive.
14
Crownbutte
Wind Power, Inc.
Notes
to Unaudited Consolidated Financial Statements
For
the nine months ended September 30, 2009 and 2008
New
Accounting Pronouncements
In May
2009, the FASB issued authoritative guidance, which establishes the accounting
for and disclosures of subsequent events. The objective of this guidance is to
establish general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued or
are available to be issued. In accordance with this Statement, an entity should
apply the requirements to interim or annual financial periods ending after June
15, 2009. Management has adopted this new standard with the filing of the second
quarter interim financial statements. The adoption of this new standard is not
expected to have a material impact on the financial statements of the Company.
In preparing these consolidated financial statements, the Company evaluated
events that occurred through the date of this filing for potential recognition
or disclosure.
In
June 2009, the FASB issued authoritative guidance which eliminates the
exemption for qualifying special-purpose entities from consolidation
requirements, contains new criteria for determining the primary beneficiary of a
variable interest entity, and increases the frequency of required reassessments
to determine whether a company is the primary beneficiary of a variable interest
entity. The guidance is applicable for annual periods beginning after
November 15, 2009 and interim periods therein and thereafter. The Company
does not expect the adoption of this standard to have a material effect on its
financial position or results of operations.
In
June 2009, the FASB issued authoritative guidance which eliminates the
concept of a qualifying special-purpose entity, creates more stringent
conditions for reporting a transfer of a portion of a financial asset as a sale,
clarifies other sale-accounting criteria, and changes the initial measurement of
a transferor’s interest in transferred financial assets. The guidance is
applicable for annual periods beginning after November 15, 2009 and interim
periods therein and thereafter. The Company does not expect the adoption of this
standard to have a material effect on its financial position or results of
operations.
NOTE
4 – PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property
and equipment and related accumulated depreciation consists of the
following:
September
30, 2009
|
December
31, 2008
|
|||||||
Equipment
& Vehicles
|
$
|
193,760
|
$
|
229,495
|
||||
Software
|
39,289
|
39,289
|
||||||
Leasehold
Improvements
|
938
|
-
|
||||||
Total
Cost
|
233,987
|
268,784
|
||||||
Accumulated
Depreciation
|
(51,191
|
)
|
(34,427
|
)
|
||||
Net
Property & Equipment
|
$
|
182,796
|
$
|
234,357
|
15
Crownbutte
Wind Power, Inc.
Notes
to Unaudited Consolidated Financial Statements
For
the nine months ended September 30, 2009 and 2008
Equipment
and vehicles are depreciated with an estimated useful life of 5 to 10 years and
software has an estimated useful life of 5 years. Depreciation
expense was $25,586 and $13,133 for the nine months ended September 30, 2009 and
2008 respectively.
NOTE
5 – ACCRUED EXPENSES
Accrued
expenses consist of the following:
September
30, 2009
|
December
31, 2008
|
|||||||
Accrued
Payroll
|
$ | 116,916 | $ | 45,984 | ||||
Credit
Cards Payable
|
18,015 | 2,854 | ||||||
Accrued
Vacation
|
279 | - | ||||||
Payroll
Taxes Payable
|
1,077 | 2,663 | ||||||
Sales
Tax Payable
|
- | 2,311 | ||||||
$ | 136,287 | $ | 53,812 |
NOTE
6 – STOCKHOLDERS’ EQUITY (DEFICIT)
During
the quarter ended September 30, 2009 warrants for the purchase of 3,928,564
shares of common stock were exercised at a price of $.01 for proceeds of
$39,286. As of September 30, 2009, 3,928,564 shares of common stock are to be
issued for the exercise of these warrants.
NOTE
7 – RELATED PARTY TRANSACTIONS
The
Company borrowed funds from Timothy Simons, one of the Company’s stockholders
and its CEO. The terms of the loans are non-interest bearing and
payable upon demand. Amounts owed totaled $44,380 as of September 30,
2009 and $0 for the year ended December 31, 2008.
The
Company leased office space from Timothy Simons, one of the Company’s
stockholders and its CEO. The lease was a month-to-month lease for
$458 per month. The lease terminated on March 31,
2008. Total rent expense paid for the nine months ended September 30,
2008 was $1,374.
NOTE
8 – OFFICE AND SHOP LEASE
On May 1,
2008 the Company entered into a lease for office and shop space at $1,500 per
month. The lease is for twelve months and has no renewal
options. Upon expiration of the initial lease term, the lease is
month-to-month. The Company is responsible for paying all utilities
and janitorial.
16
Crownbutte
Wind Power, Inc.
Notes
to Unaudited Consolidated Financial Statements
For
the nine months ended September 30, 2009 and 2008
NOTE
9 – RETIREMENT PLAN
In August
2007, the Company established a SIMPLE retirement plan. The Company matches
employee contributions up to 3% of gross wages. The Company’s contributions to
the plan were $5,141 and $5,324 for the nine months ended September 30, 2009 and
2008 respectively.
NOTE
10 – CONCENTRATION OF RISK
The
Company conducted all of its operations for the nine months ended September 30,
2009 and 2008 under contracts with two companies, a utility and a coal
company. Revenues earned and recognized for the nine months ended
September 30, 2009 and 2008 were $0 and $273,020 for sale of project development
rights ($200,000) and consulting revenue ($73,020), respectively.
NOTE 11 –
|
PROJECT
DEVELOPMENT COSTS AND INTERCONNECT APPLICATION
DEPOSITS
|
The
Company expenses all project development costs until management deems a project
probable of being technically, commercially, and financially
viable. The Company capitalizes project development costs generally
once management deems a project probable of being technically, commercially, and
financially viable. This generally occurs in tandem with management’s
determination that a project should be classified as an advanced project, such
as when favorable results of a system impact study are received, interconnect
agreements obtained, and project financing is in place.
On May
27, 2008 the Company entered into a joint venture agreement with Westmoreland
Power, Inc., a coal company, under the name of Gascoyne II Wind Project to
develop, construct, manage, and operate a 200 MW wind power project in southwest
North Dakota. The Company received $200,000 from Westmoreland as
compensation in order to participate in the joint venture. The
Company recognized sale of development rights revenues for this amount for the
nine months ended September 30, 2008. Crownbutte will be the managing
party. For the nine months ended September 30, 2009 and 2008, the
Company expensed development costs of $8,383 and $10,052 respectively, for this
project.
On June
20, 2008 the Company entered into an agreement with a wind development company
to purchase the rights to develop a wind park near New England, ND for
$100,000. Assets purchased by the Company consist of one met tower,
3.5 years meteorological data, and a land lease cooperation
agreement. For the nine months ended September 30, 2009 and 2008, the
Company expensed development costs of $10,150 and $99,386 respectively for this
project.
In 2007,
the Company sold project development rights for a 20 MW wind park near Gascoyne,
ND to a wind energy company. The Company recognized $75,000 revenue
in 2006 for preliminary development work completed and earned in 2006. For the
year ended December 31, 2007, additional revenue of $250,000 for sale of project
development rights was earned and recognized for final development work
completed prior to transfer of ownership.
17
Crownbutte
Wind Power, Inc.
Notes
to Unaudited Consolidated Financial Statements
For
the nine months ended September 30, 2009 and 2008
In 2008,
the Company decided to repurchase the project. On September 30, 2008 the
Company entered into an agreement with the wind development company to
repurchase the development rights for the 20 MW Gascoyne, ND wind park for
$325,000. For the nine months ended September 30, 2009 and 2008, the
Company expensed development costs totaling $91,418 and $338,182 respectively
for this project as it has not yet deemed the project probable of being
technically, commercially, and financially viable.
For the
nine months ended September 30, 2009 and 2008 the Company expensed an additional
$29,698 and $259,230 respectively in development costs for smaller projects not
listed above.
The
Company has deemed all of the projects describe above as research and
development costs which have been expensed accordingly.
Interconnect
Application Deposits
The
Company pays in advance for electrical interconnect studies. As the
studies are performed, the portions of the advances that are used are expensed.
Interconnect deposits are classified as non-current assets as studies generally
exceed one year in length. If a study is complete, any unused
deposits are refunded to the Company. At September 30, 2009 and
December 31, 2008, the Company had $99,820 and $112,346 respectively, of unused
deposits on its balance sheet.
NOTE
12 – COMMITMENTS AND CONTINGENCIES
On
September 15, 2008 the Company entered into an employment contract with a new
CFO. The contract calls for a starting annual salary of
$100,000. Once an additional $3,000,000 is raised from the private
placement, the annual salary will increase to $150,000. In addition,
the CFO will be granted 2,000,000 warrants to purchase shares of common stock at
$0.001 per share. There is no specified termination date of
employment in the contract.
The
Company valued the warrants on September 15, 2008 and is amortizing them over
the vesting period. As of September 30, 2009 the Company has expensed
$702,702 included in stock based compensation.
Legal
proceedings
On August
19, 2008, Centre Square Capital, LLC filed a claim in the amount of $3,000,000
plus attorneys fees, interest, and arbitration costs in a demand for
arbitration, claiming that the Company has not compensated it for introducing
the Company to the firm that raised the private placement capital in March, 2008
and thereafter. On March 16, 2009 a judge dismissed Centre
Square Capital LLC’s claim and awarded the Company reimbursement of all attorney
fees and costs related to the claim. A reimbursement of approximately
$129,227 is payable to the Company. However, Centre Square Capital has since
been dissolved, and there is substantial uncertainty that the Company will be
able to collect the amount owed.
18
Crownbutte
Wind Power, Inc.
Notes
to Unaudited Consolidated Financial Statements
For
the nine months ended September 30, 2009 and 2008
The
Company accounts for awards of attorney fees and costs resulting from judgments
in its favor on a case-by-case basis. Factors affecting the
accounting treatment include timing of expenses incurred and date of award,
likelihood of collection, and additional costs incurred in the collection
process. Judgments awarded that management deems collectible are
recorded as a receivable. Award amounts for expenses incurred in the
same accounting period are recorded as reductions in the corresponding expense
line item. Reimbursements of prior period expenses are recorded as
other income.
Collection
of the Centre Square Capital judgment is uncertain and accordingly, no
receivable has been recorded. If the Company receives this award in
2009, all related expenses recognized in 2009 will be reduced and amounts in
excess of current year expenses will be recognized as other income.
NOTE
13 – SUBSEQUENT EVENTS
On
November 3, 2009, the Company was served with a lawsuit filed against us in the
Philadelphia County Court of Common Pleas. Stradley, Ronon, Stevens & Young,
LLP (the plaintiffs) filed a claim against the Company for nonpayment of legal
fees and are seeking to recover $93,526 plus interest, attorneys’ fees and
costs. This claim arose as a result of legal services provided in the
Centre Square Capital, LLC arbitration claim filed August 19, 2008. The
Company has included the $93,526 in accounts payable as of September 30,
2009.
19
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
|
Results
of Operations for Nine Months Ended September 30, 2009
Revenues
For the
three months ended September 30, 2009, we recognized no revenues, identical to
the same period in 2008. The nine month period ending September 30,
2009 also had zero recognized revenue, in contrast to the same period in 2008,
which showed $273,020 in revenue. No new sales of development rights
or new consulting projects were secured during the current
period. Although we continue to engage in multiple discussions with
interested parties, we cannot be assured of success in our endeavors to sell
development rights, to secure consulting contracts, or to raise the necessary
project finance required to construct and operate wind parks for the sale of
electricity.
We are
encouraged by the passage of the American Recovery and Reinvestment Act, which
extends the PTC three years to 2012, offers an alternative ITC (Investment Tax
Credit) option to the PTC, and for two years also offers a one-time lump sum
payment of 30% of qualifying capital investment back to the owner/operator of
the wind farm in lieu of the PTC/ITC. We believe these government
incentives will improve the overall climate for the wind industry, and motivate
developers to once again purchase development rights from green-fielders such as
Crownbutte. Likewise, as the business climate improves, we anticipate
additional opportunities for consulting engagements. We believe that
pursuit of a dual strategy with our pipeline (financing vs. sale of development
rights) will maximize all available opportunities, although there is no
guarantee we will be able to sell any development rights or obtain financing for
any of our projects to timely address our liquidity needs.
Cost
of Revenues
Because
there were no revenues in the either the three or nine months ended September
30, 2009, there were also no cost of revenues. Similarly, there were
no costs of revenues in the three months ended September 30,
2008. Final work on the development and construction of the Baker, MT
project from 2007 as a consultant for Montana-Dakota-Utility Company was the
only source of revenues and related cost of revenues during the nine months
ending September 30, 2008.
Operating
Expenses
A large
portion of the total operating expenses in the third quarter of 2009, and in the
nine months ended September 30, 2009 was non-cash expense relating to
share-based compensation: $207,803 for the third quarter of 2009, and
$702,702 for the nine months ended September 30, 2009. Excluding
share-based compensation and depreciation, operating expense dropped from
$707,300 in third quarter 2008 to $165,439 in third quarter
2009. Similarly operating expenses excluding depreciation and
share-based compensation dropped from $1,047,278 in the nine months ended
September 30, 2008 to $875,748 in the same period of 2009.
20
Cost
control has been and continues to be a major emphasis for the company until
revenues can be generated via consulting and/or sale of wind park development
rights. Some employees have deferred compensation, and officers have
made loans to the Company.
Financing
Outlook
We have
entered a phase of our life-cycle during which the ability to raise funds (via
debt or equity) at both the corporate and individual project levels is critical
to our success. Completing an additional approximately $1 million
private placement of equity is necessary for the Company in order to maintain
its current expense levels. While our sale of development rights to
projects has been infrequent (on the order of one transaction per year), we are
currently pursuing all potential sales opportunities within our pipeline and
will sell development rights to as many projects as necessary to provide
liquidity and operating capital for a period of one to two years as we continue
development efforts and seek project financing to realize our goal of wind park
owner/operator. We expect sale of project development rights will
continue to be a source of revenues for the Company.
At the
project level, the capital-intensive nature of wind park construction means that
a 20 MW park requires financing on the order of $36-$40 million (depending in
part on turbine prices). To this end, the Company is engaged in active
discussions to secure tax equity financing, as well as straight equity
financing. The ability to secure project financing will be an
important determinant of success for our Company, and in this environment of
financial market distress, represents a risk to the success of our
Company.
Liquidity
and Capital Resources
In the
first nine months of 2009, we used $546,310 cash in operations. This
operating capital was used for compensation expenses, professional services, and
other costs of green-field development. In contrast, the first nine
months of 2008 cash used in operations was higher at $881,674. There was a
lowering of staff-related cash expense in 2009 vs. 2008 as staff size shrunk and
key employees elected to defer compensation.
Future
efforts to generate positive cash flow depend on Crownbutte’s success in selling
development rights to parks in the short term, and constructing wind parks to
generate electricity sales in the long term.
First
nine months 2009 cash generated from investing activities included $5,259 used
in fixed asset purchases, and $152,029 redeemed from certificates of deposit, as
well as $16,600 generated from sale of fixed assets (vehicles). In
contrast, for the first nine months of 2008, $162,011 was used for investing
activities. $151,240 was used for fixed asset purchases, and a net
amount of $10,771 was invested in Certificates of Deposit. Future increases
in fixed assets will occur only after project finance is raised, and purchase of
turbines and other assets can begin in conjunction with construction
activities.
21
For the
first nine months of 2009, financing activities generated $83,666 in cash—from
an exercise of warrants and from an officer loan. This is in contrast
to the first nine months of 2008, in which there was a positive net cash flow
from financing activities of $1,519,500, which included $1,622,833 cash provided
by the private placement of common stock and $50,000 from a deferral of
financing cost, offset by cash used to pay dividends in the amount of $153,333
to the former LLC members.
As of
September 30, 2009, there was $534,907 of current liabilities on the Company’s
balance sheet. Of this amount, $311,656 is legal and accounting fees
related to normal accounting and audits, legal expenses relating to our Form S-1
registration statement and legal expenses relating to a legal proceeding
(disposed of in Crownbutte’s favor). There were no material capital
commitments at that date, and there are none at this
time. Anticipated future capital expenditures (excluding construction
costs of wind, which we will seek to finance on a non-recourse basis) will be
for equipment to be used in the course of developing new green-field sites (such
as meteorological towers).
Unless
the Company raises additional capital through the sale of stock or otherwise,
our only source of funds to pay for legal and accounting services, equipment for
new green-field sites and other expenses will be proceeds of any development
rights sales that take place in 2009. We seek to raise approximately $1 million
through private placement of equity, and/or to sell at least one brown-field
project. We anticipate $350,000 to $400,000 of cash outflows per quarter
in the remainder of 2009 and 2010, including operating expenses, timing
differences between receivables and payables, and some capital expenses relating
to development of new parks (primarily meteorological tower cost). We
anticipate capital expenditures to be approximately $120,000 per year if we add
two new parks to our development pipeline in a given year (no new development
park additions anticipated for remainder of
2009).
Costs
relating to construction of wind farms will be financed from any project
financing that is secured for the purpose of building specific wind park
projects.
Going
Concern
This
Management’s Discussion and Analysis and the consolidated financial statements
included in this Report have been prepared on a “going concern” basis, which
presumes the Company will be able to realize its assets and discharge its
liabilities in the normal course of business for the foreseeable
future.
The
Company has incurred operating losses and negative cash flows from its operating
activities for the nine months ended September 30, 2009, as well as an
accumulated deficit of approximately $5,328,482 as of September 30, 2009 and a
working capital deficit of $506,304. Total current liabilities at
September 30, 2009, were $534,907.
22
As of
September 30, 2009, the Company had only $5,429 in cash. As of the
date of this Report, the Company has only approximately $3,700 in cash. The
Company’s ability to pay its obligations as they become due is in danger as it
is in need of immediate financing. Our continued existence is
dependent upon our ability to resolve our liquidity problems, principally by
obtaining equity and or debt financing. Our current operations are
not an adequate source of cash to fund future operations or pay current
liabilities. In the event that we are unable to obtain debt or equity
financing, we may have to cease or curtail operations.
The
Company continues to focus on procurement of financing for its Gascoyne I
project and is actively engaged in discussion with parties who may be interested
in purchasing development rights of some of the Company’s other greenfield
projects.
Our
ability to continue as a going concern is dependent upon either the sale of one
or more greenfield projects, obtaining additional financing to develop the
properties and the ultimate realization of profits through future production or
sale of properties, and the success of our business plan. The outcome
of these matters cannot be predicted at this time. These consolidated
financial statements do not include any adjustments to the amounts and
classifications of assets and liabilities that might be necessary should we be
unable to continue its business.
Item
4T. Controls and Procedures.
(a) Evaluation of Disclosure
Controls and Procedures
Our Chief
Executive Officer and Chief Financial Officer evaluated the effectiveness of our
disclosure controls and procedures as of September 30, 2009, the end of the
period covered by this Report. Based on that evaluation, Chief Executive Officer
and Chief Financial Officer concluded that our disclosure controls and
procedures as of September 30, 2009, were not effective to ensure that the
information required to be disclosed by us in reports filed under the Securities
Exchange Act of 1934 is (i) recorded, processed, summarized and reported within
the time periods specified in the SEC's rules and forms and (ii) accumulated and
communicated to the Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding disclosure. A controls system
cannot provide absolute assurance that the objectives of the controls system are
met, and no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within a company have been
detected.
Our Chief
Executive Officer and Chief Financial Officer are responsible for establishing
and maintaining adequate internal control over financial reporting (as defined
in Rule 13a-15(f) under the Exchange Act). Our internal control over financial
reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with accounting principles generally
accepted in the United States.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Therefore, even those systems determined to be
effective can provide only reasonable assurance of achieving their control
objectives. Furthermore, smaller reporting companies face additional
limitations. Smaller reporting companies employ fewer individuals and find it
difficult to properly segregate duties. Often, one or two individuals control
every aspect of the Company's operation and are in a position to override any
system of internal control. Additionally, smaller reporting companies tend to
utilize general accounting software packages that lack a rigorous set of
software controls.
23
We have
identified the following material weaknesses in our internal control over
financial reporting:
Lack
of Independent Board of Directors and Audit Committee
Management
is aware that an audit committee composed of the requisite number of independent
members along with a qualified financial expert has not yet been
established. Considering the costs associated with procuring and
providing the infrastructure to support an independent audit committee and the
limited number of transactions, management has concluded that the risks
associated with the lack of an independent audit committee are not sufficient to
justify the creation of such a committee at this time. Management
will periodically reevaluate this situation.
Lack
of Segregation of Duties
Management
is aware that there is a lack of segregation of duties at the Company due to the
small number of employees dealing with general administrative and financial
matters. However, at this time management has decided that considering the
abilities of the employees now involved and the control procedures in place, the
risks associated with such lack of segregation are low and the potential
benefits of adding employees to clearly segregate duties do not justify the
substantial expenses associated with such increases. Management will
periodically reevaluate this situation.
(b) Changes in Internal Control
over Financial Reporting
During
the quarter ended September 30, 2009, there was no change in our internal
control over financial reporting (as such term is defined in Rule 13a-15(f)
under the Exchange Act) that has materially affected, or is reasonably likely to
materially affect, our internal control over financial
reporting.
24
PART
II—OTHER INFORMATION
Item
1. Legal
Proceedings.
Except as
described below, neither the Company nor any of its properties is a party to or
subject to any material pending legal proceedings. The Company has no
knowledge of any legal proceedings involving the Company or its properties being
contemplated by any governmental authorities, other than the Company’s
applications for permits to install or erect wind turbines or weather-monitoring
equipment, which are incidental to the business of the Company.
The
amount, or range, of reasonably possible losses in connection with the actions
against the Company in excess of established reserves, in the aggregate, may be
material to the Company’s consolidated financial condition, operating results
and cash flows.
Centre Square Capital, LLC v.
Crownbutte Wind Power, Inc. On August 19, 2008, Centre Square Capital,
LLC filed a claim with the American Arbitration Association in the amount of
$3,000,000 plus attorneys’ fees, interest, and arbitration costs in a demand for
arbitration, claiming that the Company has not compensated it for introducing
the Company to the firm that identified the Company’s private placement
investors in March, 2008 and thereafter. The Company maintained that the
agreement pertains only to funds raised as a result of business with the
People’s Republic of China. On March 16, 2009, the court dismissed the
plaintiff’s claim and awarded the Company reimbursement of all attorney fees and
costs related to the claim. A reimbursement of approximately $129,227
is payable to the Company. However, Centre Square Capital has since
been dissolved, and there is substantial uncertainty that we will be able to
collect the amount owed.
Stradley, Ronon, Stevens &
Young, LLP v. Crownbutte Wind Power, Inc. On November 3, 2009, we were
served with a lawsuit filed against us in the Philadelphia County Court of
Common Please. Stradley, Ronon, Stevens & Young, LLP filed a claim against
the Company for nonpayment of legal fees and are seeking to recover $93,526 plus
interest, attorneys’ fees and costs. This claim arose as a result of
legal services provided in the Centre Square Capital, LLC arbitration claim
filed August 19, 2008. The Company has included the $93,526 in
accounts payable as of September30, 2009.
Item
1A. Risk Factors.
There
have been no material changes from the Risk Factors previously disclosed in our
Form S-1.
Item
2. Unregistered Sales of
Equity Securities and Use of Proceeds.
None
25
Item
3. Defaults upon Senior
Securities.
None.
Item
4. Submission of Matters to
a Vote of Security Holders.
None.
Item
5. Other
Information.
None.
Item
6. Exhibits.
The
following Exhibits are being filed or furnished with this Annual Report on Form
10-Q.
Exhibit
|
||
Number
|
Description
|
|
31.1
|
Certification
of principal executive officer pursuant to Rule 13a-14(a) and
15d-14(a)
|
|
31.2
|
Certification
of principal financial officer pursuant to Rule 13a-14(a) and
15d-14(a)
|
|
32.1
|
Certification
of principal executive officer pursuant to 18 U.S.C. Section 1350, as
enacted by Section 906 of the Sarbanes-Oxley Act of 2002 (This certification is being
furnished and shall not be deemed “filed” with the SEC for purposes of
Section 18 of the Exchange Act, or otherwise subject to the liability of
that section, and shall not be deemed to be incorporated by reference into
any filing under the Securities Act or the Exchange Act, except to the
extent that the Registrant specifically incorporates it by
reference.)
|
|
32.2
|
Certification
of principal financial officer pursuant to 18 U.S.C. Section 1350, as
enacted by Section 906 of the Sarbanes-Oxley Act of 2002 (This certification is being
furnished and shall not be deemed “filed” with the SEC for purposes of
Section 18 of the Exchange Act, or otherwise subject to the liability of
that section, and shall not be deemed to be incorporated by reference into
any filing under the Securities Act or the Exchange Act, except to the
extent that the Registrant specifically incorporates it by
reference.)
|
26
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
Crownbutte
Wind Power, Inc.
|
|||
Dated:
November 16, 2009
|
By:
|
/s/ Manu
Kalia
|
|
Manu
Kalia
|
|||
Chief
Financial Officer
|
27
EXHIBIT
INDEX
Exhibit
|
||
Number
|
Description
|
|
31.1
|
Certification
of principal executive officer pursuant to Rule 13a-14(a) and
15d-14(a)
|
|
31.2
|
Certification
of principal financial officer pursuant to Rule 13a-14(a) and
15d-14(a)
|
|
32.1
|
Certification
of principal executive officer pursuant to 18 U.S.C. Section 1350, as
enacted by Section 906 of the Sarbanes-Oxley Act of 2002 (This certification is being
furnished and shall not be deemed “filed” with the SEC for purposes of
Section 18 of the Exchange Act, or otherwise subject to the liability of
that section, and shall not be deemed to be incorporated by reference into
any filing under the Securities Act or the Exchange Act, except to the
extent that the Registrant specifically incorporates it by
reference.)
|
|
32.2
|
Certification
of principal financial officer pursuant to 18 U.S.C. Section 1350, as
enacted by Section 906 of the Sarbanes-Oxley Act of 2002 (This certification is being
furnished and shall not be deemed “filed” with the SEC for purposes of
Section 18 of the Exchange Act, or otherwise subject to the liability of
that section, and shall not be deemed to be incorporated by reference into
any filing under the Securities Act or the Exchange Act, except to the
extent that the Registrant specifically incorporates it by
reference.)
|