Attached files
file | filename |
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EX-21 - Juhl Energy, Inc | v179195_ex21.htm |
EX-31.2 - Juhl Energy, Inc | v179195_ex31-2.htm |
EX-32.1 - Juhl Energy, Inc | v179195_ex32-1.htm |
EX-31.1 - Juhl Energy, Inc | v179195_ex31-1.htm |
EX-32.2 - Juhl Energy, Inc | v179195_ex32-2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
EXCHANGE
ACT OF 1934
For
the fiscal year ended December 31, 2009
OR
Commission file number: 333-141010
JUHL
WIND, INC.
(Exact
name of registrant as specified in its charter)
Delaware
|
20-4947667
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
incorporation
or organization)
|
Identification
No.)
|
996
190th Avenue
|
|
Woodstock,
Minnesota 56186
|
(507)
777-4310
|
(Address
of principal executive offices)
|
(Registrant's
telephone number)
|
SECURITIES
REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT:
None
SECURITIES
REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT:
None
Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.Yes o No x
Indicate
by check mark if the Registrant is not required to file reports pursuant to
Section 13 of Section 15(d) of the Act.Yes o No x
Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes x
No o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of Registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).Yes o No x
Aggregate
market value of the voting and non-voting stock of the registrant held by
non-affiliates of the registrant as of June 30, 2009: $12,245,928 (Non-affiliate
holdings of 5,211,033 common shares, closing price of $2.35).
As of
March 22, 2010 the registrant’s outstanding common stock consisted of 21,039,526
shares.
TABLE OF
CONTENTS
PART
I
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||
ITEM
1
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BUSINESS
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1
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ITEM
1A
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RISK
FACTORS
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16
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ITEM
1B
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UNRESOLVED
STAFF COMMENTS
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16
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ITEM
2
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PROPERTIES
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16
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ITEM
3
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LEGAL
PROCEEDINGS
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16
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ITEM
4
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RESERVED
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16
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PART
II
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ITEM
5
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MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
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16
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ITEM
6
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SELECTED
FINANCIAL DATA
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19
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ITEM
7
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MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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20
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ITEM
7A
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QUANITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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29
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ITEM
8
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FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
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F-1
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ITEM
9
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CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
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30
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ITEM
9A(T)
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CONTROLS
AND PROCEDURES
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30
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ITEM
9B
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OTHER
INFORMATION
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31
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PART
III
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||
ITEM
10
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DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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32
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ITEM
11
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EXECUTIVE
COMPENSATION
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38
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ITEM
12
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
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41
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ITEM
13
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
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43
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ITEM
14
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PRINCIPAL
ACCOUNTING FEES AND SERVICES
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44
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PART
IV
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ITEM
15
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EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
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44
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SIGNATURES
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EX-21
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EX-23.1
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||
EX-31.1
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EX-31.2
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||
EX-32.1
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||
EX-32.1
|
PART
I
ITEM
1 BUSINESS
Unless
the context otherwise requires, “we,” “our,” “us” and similar expressions refer
to Juhl Wind, Inc., a Delaware corporation (formerly MH & SC Incorporated),
or Juhl Energy Development, Inc., a Minnesota corporation (“Juhl Energy”), and
DanMar and Associates, Inc., a Minnesota corporation (“DanMar”), separately
prior to our share exchange transaction on June 24, 2008, in which Juhl Energy
and DanMar became wholly-owned subsidiaries of Juhl Wind, and Juhl Wind, as
successor to the business of Juhl Energy and DanMar, after giving effect to the
share exchange transaction, or Next Generation Power Systems, Inc., a South
Dakota corporation (“NextGen”), which we acquired separately on October 31, 2008
and which is now our wholly-owned subsidiary.
Overview
of Our Business
Juhl Wind
provides development, systems operation and maintenance, construction
contracting, oversight and general consulting services to wind farm projects
throughout the Midwestern United States. Additionally, it sells consumer-owned
renewable energy products such as remanufactured small wind turbines and solar
systems. Our ultimate goal is to primarily build 5 – 80 Megawatt (MW)
wind farms jointly owned by local communities, farm owners, environmentally
concerned investors, and our Company. The wind farms are connected to
the general utility electric grid to produce clean, environmentally-sound wind
power for use by the electric power industry.
We
specialize in the development of community wind power systems, and we believe
that we are among the leaders in the field. Our growth strategy is anchored by
the competitive advantage of our portfolio of completed projects coupled with
the projects we currently have under development. Our plan is to continue to
provide the full range of development services across each phase of development,
which we expect will grow our revenue and profitability from each project under
development.
Since
1999, we have developed 14 wind farms, accounting for approximately 117.5
megawatts of wind power, that currently operate in the Midwest region of the
United States. We are presently engaged in various aspects of the development of
28 wind farms totaling approximately an additional 451 megawatts of community
wind power systems.
Our
projects are based on the formation of partnerships with the farmers upon whose
land the wind turbines are installed. Over the years, this type of
wind power has been labeled “community wind power” because the systems are
locally owned by the farmers themselves and/or other local stakeholders. Our
Chairman and Principal Executive Officer, Daniel J. Juhl, was one of the
creators of community wind power in the United States. Community wind power is a
specialized sector in the wind energy industry that differs from the large,
utility-owned wind power systems that are also being built in the United
States. Community wind power is a form of community-based energy
development (C-BED). Various states, including Minnesota, have enacted C-BED
initiatives, which include mechanisms to support community wind power and are
intended to make it easier for community wind power projects to be successful
without putting an excessive burden on utilities.
Historically,
landowners in rural areas could only benefit from the development of wind farms
in their community by leasing their land to large wind developers. These large
developers would then sell the wind energy to the local utility company and
retain a majority of the project’s profits. We provide what we believe is a
better alternative for local communities by specifically concentrating on C-BED
wind power projects that are locally owned by farmers, investors, businesses,
schools, utilities, or other public or private local entities. As a result, we
believe that community wind power projects keep more dollars in local
communities, preserve local energy independence, and protect the environment.
Our goal, and Mr. Juhl’s focus over the past years, is to share ownership with
farmers and to build a network of farmer-owned community wind power
systems.
Mr. Juhl
is an acknowledged expert in the wind power field and is considered a pioneer in
the wind industry having been active in this field since 1978. He was
a leader in the passage of specific legislation supporting wind power
development in the states of Minnesota and Nebraska. John P. Mitola,
our President, is also considered an expert in the energy field having focused
his career on energy efficiency, demand side management and independent power
development. He has significant experience in the energy
industry and electric industry regulation, oversight and governmental
policy.
Our
management team has been involved in the wind power industry for more than 30
years. We have experience in the design, manufacture, maintenance, and sale of
wind turbines, as well as the full-scale development of wind farms. We hold
contract rights, are involved with projects in development and under
negotiation, and provide development activities in the wind power industry. Our
contract rights relate to administrative services agreements which call for
management and administrative services to be provided for six existing Minnesota
wind farm developments. Our assets include nine development services
agreements, fourteen projects in early development stages, and five agreements
to conduct wind power feasibility studies.
1
Our Company’s involvement in the sale
of consumer-owned renewable energy products commenced in November 2008 as a
result of the acquisition of NextGen. Prior to the acquisition, Dan
Juhl had been a significant shareholder in NextGen since it was organized in
2004. NextGen restores small wind turbines in the 30 KW class for
sale to consumers for on-site electricity generation. NextGen also
provides solar-powered systems that allow small businesses and consumers to
generate or store electrical power for on-site use or emergency
backup. In July 2009, NextGen entered into a 20 year,
non-exclusive Manufacturing License and Reseller Agreement with an Ohio entity
for purposes of expanding production and sale of small wind turbines. The
agreement, among other things, specifies a sales territory, a sales quota, and
requirements with regard to establishing a production facility. NextGen received
$300,000 in July as a part of this agreement with additional licensing payments
of $700,000 due over a twelve month period beginning September 1,
2009. In 2010 NextGen is focusing its business on purchasing certain wind turbine
equipment from third party vendors for the purpose of adapting and redesigning
component parts for use in the wind power industry.
Our
strategy is to leverage our portfolio of existing projects and to take on new
developments located in the Midwestern United States and Canada, where the
following important conditions exist for successful developments: acceptable
wind resources, suitable transmission access and an appropriate regulatory
framework providing acceptable power purchase agreements and long-term utility
agreements. Based on our pipeline of projects, we believe that we will
experience consistent growth in the number of projects completed and the number
of projects for which we are providing operational oversight. We expect that the
continued growth in our project pipeline will act as a key competitive advantage
as the community wind power industry grows throughout the United States and
Canada.
In order
to maintain our competitive advantage in the community wind power industry, we
have entered into a frame order agreement with a wind turbine generator supplier
for the supply and purchase of wind turbine generators for certain of our
community wind power projects through December 31, 2012. This agreement gives us
the assurance that we will have access to wind turbine generators for our
community wind power projects currently in development. Other
features of this agreement with this turbine manufacturer is that the turbine
manufacturer is committed to participate in financing certain projects and will
provide us the ability to acquire equity in the turbine manufacturer under
certain conditions. The frame order agreement does not contain any
minimum purchase commitment for wind turbines, although it does allow the
Company to obtain an incentive in the form of stock warrants for the purchase of
ownership interests of the turbine supplier if certain purchase levels are
reached.
Corporate
Information and History
Our
Company was formed as a Delaware corporation in January 2006 as Help-U-Drive
Incorporated for the purpose of developing a business to assist impaired
drivers. Upon further investigation, we decided that this was not a business
opportunity we wanted to pursue due to potential liability and other reasons. In
October 2006, we acquired My Health and Safety Supply Company, LLC, an Indiana
limited liability company, pursuant to a plan of exchange with the holders of
100% of the outstanding membership interests of My Health & Safety Supply
Company. We changed our name to MH & SC, Incorporated in September 2006. My
Health & Safety Supply Company, LLC became our wholly-owned subsidiary and
began developing its business to market a variety of health and safety products
on the Internet. This business was sold simultaneously with the exchange
transaction described below since it was incidental to our new wind energy
business. In March 2007, we filed a registration statement with the SEC, which
became effective in December 2007, and we became a publicly-reporting and
trading company.
On June
24, 2008, we entered into a Securities Exchange Agreement with Juhl Energy and
DanMar and, for certain limited purposes, their respective stockholders. On June
24, 2008, the exchange transaction provided for in the Securities Exchange
Agreement was completed and Juhl Energy and DanMar became our wholly-owned
subsidiaries. DanMar and Juhl Energy were formed as Minnesota corporations in
October 2001 and September 2007, respectively, and have been in the wind energy
business since formation.
Pursuant
to the Securities Exchange Agreement, at closing, the two former beneficial
stockholders of Juhl Energy and DanMar received an aggregate of 15,250,000
shares of our common stock, representing approximately 60.6% of our outstanding
shares of common stock, inclusive of shares of common stock issuable upon the
conversion of our Series A convertible preferred stock sold in our concurrent
private placement. In exchange for the shares we issued to the former Juhl
Energy and DanMar stockholders, we acquired 100% of the outstanding common stock
of Juhl Energy and DanMar. The consideration issued in the exchange transaction
was determined as a result of arm’s-length negotiations between the
parties. Concurrently with the closing of the exchange transaction,
we also completed a private placement to institutional investors and other
accredited investors, in which we received aggregate gross proceeds of
$5,160,000.
The
consideration issued in the exchange transaction was determined as a result of
arm’s-length negotiations between the parties. In leading up to the exchange
transaction, Juhl Energy engaged Greenview Capital, LLC to assist and advise it
in an effort to secure financing. Juhl Energy agreed to pay Greenview Capital,
and its designees, a fee for such advice in the amount of $300,000 in cash and
2,250,000 shares of our common stock. Aside from the Greenview Capital
arrangements, no finder’s fees were paid or consulting agreements entered into
in connection with the exchange transaction.
2
Following
the exchange transaction, we succeeded to the wind farm development and
management business of Juhl Energy and DanMar. Prior to the exchange
transaction, there were no material relationships between us and Juhl Energy or
DanMar, between Juhl Energy or DanMar and our affiliates, directors or officers,
or between any associates of Juhl Energy or DanMar and our officers or
directors. All of our pre-exchange transaction liabilities were settled on or
immediately following the closing.
Through
the share exchange transaction, the stockholders of our privately-held
predecessors, Juhl Energy and DanMar, received a majority of the outstanding
shares of MH & SC and their officers and directors assumed similar positions
with MH & SC. Following the share exchange transaction, we
changed our corporate name to Juhl Wind, Inc.
On
October 31, 2008, we acquired all of the outstanding shares of common stock of
NextGen in exchange for an aggregate purchase price of $322,500 payable by
delivery of an aggregate of 92,143 shares of our common stock allocated among
the NextGen non-controlling interests. The purchase transaction included
assumption of certain liabilities of NextGen including a note payable to First
Farmer’s & Merchant’s National Bank, but excluded the stockholder notes,
which the stockholders of NextGen agreed to contribute to
equity. Simultaneously with the acquisition of all of NextGen, the
Company also purchased a commercial building and associated land located in
Pipestone, Minnesota from the individual owners of NextGen. The Company issued
41,070 unregistered shares of common stock to the minority stockholders of
NextGen for the purchase of the land and building. The 41,070 shares issued to
the NextGen minority interest were valued at $3.50 per share at the date of
acquisition, or $144,000. The acquisition was accounted for at the
fair value of the land and building on the date of purchase which totaled
$173,055. NextGen is now our wholly-owned subsidiary and focuses on
consumer-owned renewable energy design and advanced conservation technologies
related to community-scaled renewable energy systems such as small scale wind
turbines and solar arrays.
We have
not been a party to any bankruptcy, receivership or similar proceeding at any
time since inception of the Company.
Industry
and Market Overview
Demand
for electricity has dramatically increased as our society has become more
technologically driven, and this trend is expected to continue. Significant new
capacity for the generation of electricity will be required to meet anticipated
demand. According to the U.S. Department of Energy, Energy Information
Administration’s (”EIA”) “Annual Energy Review 2008”, nearly half of all
electricity produced in the United States was generated by coal, which is the
largest source of carbon dioxide in the atmosphere. Other major sources of
electricity in 2008 were nuclear (20%) and renewable energy resources (9%). When
further broken down, 67 percent (67%) of the net electricity generation from
renewable energy resources in 2008 was derived from hydropower (6% overall).
According to the U.S. Department of Energy EIA’s “Annual Energy Outlook 2004:
With Projections to 2025”, coal consumption for electricity generation is
projected to increase from 976 million tons in 2002 to 1,477 million tons in
2025. The EIA’s “Annual Energy Outlook 2010 Early Release Overview”, released in
December 2009, similarly projects that total coal consumption will increase in
the future. More intensive use of current power plants and the completion of new
power plants are credited for this increase, according the EIA’s “2010 Early
Release Overview”. As of the date of the preparation of this report,
these and other independent government and trade publications cited herein are
publicly available on the Internet without charge. Upon request, the
Company will also provide copies of such sources cited herein.
Most of
the world’s main energy sources are still based on the consumption of
non-renewable resources such as petroleum, coal, natural gas and uranium.
However, while still a small segment of the energy supply, renewable sources
such as wind power are growing rapidly in market share. Wind power delivers
multiple environmental benefits. Wind power operates without emitting any
greenhouse gases and has one of the lowest greenhouse gas lifecycle emissions of
any power technology. Wind power results in no harmful emissions, no extraction
of fuel, no radioactive or hazardous wastes and no use of water to steam or
cool. Wind projects are developed over large areas, but their carbon footprint
is light. Farmers, ranchers and most other land owners can continue their usual
activities after wind turbines are installed on their property.
According
to the U.S. Department of Energy EIA’s publication “Renewable Resources in the
U.S. Electricity Supply”, wind power generation was projected to increase
eight-fold between 1990 and 2010, a rate of 10.4% per year. Annual growth in the
global wind energy capacity for the past ten years has exceeded an average of
28% per year according to the Global Wind Energy Council’s (“GWEC”) “Global Wind
2008 Report”, with 2008 experiencing an increase of 28.8%. Although
wind power produces under 1% of electricity worldwide according to the GWEC’s
“Global Wind 2007 Report”, it is a leading renewable energy source and accounts
for 20% of electricity production in Denmark, as of 2008 (according to the U.S.
Department of Energy’s Energy Facts web page). Elsewhere in the
European Union, wind power generation represented more than 11% of electricity
consumption in Spain, and 7.5% of electricity consumption in Germany (according
to the GWEC’s “Global Wind 2008 Report”). The GWEC’s “Global Wind
2008 Report” predicts that wind power is positioned to supply 10% to 12% of
global electricity demand by 2020, reducing carbon dioxide omissions by 1.5
billion tons annually.
3
Wind
power has become a mainstream option for electricity generation, and we believe
that it is a critical element to solving climate change and delivering
cost-effective domestic power in the United States. The U.S. wind power industry
has exceeded all previous records, with a 50% increase in generating capacity in
2008, with 8,545 megawatts added, according to the GWEC “Global Wind 2008
Report” and the American Wind Energy Association’s (“AWEA”) “Wind Power Outlook
2009”. Similarly, the GWEC “Global Wind 2007” Report stated an industry growth
of 45% in 2007. Although wind turbine manufacturing activities in
2009 fell slightly behind 2008 activities, there is strong popular support for a
national Renewable Energy Standard (“RES”), according to AWEA’s “Wind Industry
Highlights of 2009” press release. An AWEA poll released in May 2009
showed that 75% of Americans supported an RES requiring that 25% of the nation’s
electricity be generated by renewable energy by 2025. Moreover, the
press release stated that the use of wind energy will lead to favorable
environmental results: the electricity generated by the wind turbines installed
in the U.S. through 2009 will avoid the emission of over 57 million tons carbon
dioxide and will avoid the emission of 80,000 metric tons of smog-causing
nitrous oxide, annually. According to the GWEC “Global Wind 2008
Report”, wind projects accounted for about 42% of all new power generating
capacity added in the United States in 2008.
According
to the GWEC “Global Wind 2008 Report”, the United States led the world in wind
power installations in 2008 and global wind capacity increased by more than
20,000 megawatts in 2008, with installation of 8,358 megawatt capacity in the
United States alone. China and India were the second and third largest wind
power growth countries last year with 6,300 megawatts and 1,800 megawatts of
wind power capacity added, respectively, according to the report.
Wind
power can deliver zero-emissions electricity in large amounts. According to the
American Solar Energy Society’s report, “Tackling Climate Change in the U.S.”,
energy efficiency and renewable energies can provide most, if not all, of the
U.S. carbon emission reductions needed to keep atmospheric carbon dioxide levels
at no more than 450 to 500 parts per million, the level targeted in the more
protective climate change bills before the U.S. Congress. According to this
report, wind power would offer a large carbon reduction “wedge” by contributing
a 35% relative share from among the various renewable energy contributors, and
can constitute about 20% of the U.S. electricity supply by 2030.
According
to the Emerging Growth Research, LLP’s Industry Report “U.S. Wind
Sector” dated December 29, 2008, which we refer to as the “Emerging
Growth Report 2008”, the domestic wind capacity installed as of the end of 2008
is equivalent to the capacity of approximately 35 average sized coal-fired power
plants. Considering that each average size coal-fired power plant in
the United States produces about 3,000,000 tons of carbon emission each year,
currently-installed wind power capacity is reducing total carbon emissions by
just over 105,000,000 tons each year.
Furthermore,
wind power delivers zero-emissions electricity at an affordable cost. No other
power plants being built in the United States today generate zero-emissions
electricity at a cost per kilowatt-hour nearly as affordable as wind power.
Consequently, using wind power lowers the cost of complying with emissions
reduction goals. The affordable cost of wind power is stable over time. Wind
projects do not use any fuel for their operations, so the price of wind power
does not vary when fuel prices increase. When utilities acquire wind power, they
historically have locked in electricity at a stable price for 20 years or
more.
Wind,
however, is intermittent and electricity generated from wind power can be highly
variable. Good site selection and advantageous positioning of turbines on a
selected site are critical to the economic production of electricity by wind
energy. In our experience, the primary cost of producing wind-powered
electricity is the turbine equipment and construction cost; wind energy has no
fuel costs and relatively low maintenance costs. As an intermittent resource,
wind power must be carefully positioned into the electric grid along with other
generation resources and we believe Juhl Wind has demonstrated the expertise
necessary to work with local electric utilities to affect the proper integration
plan. As such, we intend to continue to identify new sites to produce
wind energy through the community wind model throughout the United States and
Canada with a focus on the Midwestern region of the U.S.
Growth
in Demand for Wind Power and Our Position and Service Offerings
Demand
for wind power in the United States is growing rapidly and we believe the call
for growth in community wind power is increasing as well. We are one of the few
companies that has actually completed and put into operation a portfolio of
community wind projects, and we are experiencing strong growth in demand to
provide turnkey development of community wind power systems across the
Midwestern United States. Our strategy is to leverage our portfolio of existing
projects and to take on new developments located in the Midwestern United States
and Canada, where proper conditions exist for successful developments:
acceptable wind resources, suitable transmission access and an appropriate
regulatory framework providing acceptable power purchase agreements and
long-term utility agreements.
In July
2008, the U.S. Department of Energy issued a report entitled “20% Wind Energy by
2030”, discussing the viability of the potential for wind energy in the United
States to grow to approximately 305 gigawatts from 2007’s level of approximately
11 gigawatts. This projected level of growth is estimated to cost billions of
dollars per year for the next 22 years of growth. Community wind systems will
make up a segment of this growth, leading to what we estimate will be
significant growth in community wind farm systems. According to its “Wind
Industry Highlights of 2009” press release, AWEA gave the roadmap outlined in
the “20% Wind Energy by 2030” report a “B” for the 2008 progress toward
achieving the goal. This progress grade, the first of its kind, will be issued
annually and was prepared by an AWEA in-house team of experts, some of whom
worked on the Department of Energy report. The progress grade examins progress
in four areas: Technology Development, Manufacturing, Siting, and Transmission
& Integration.
4
AWEA’s
“Wind Power Outlook 2009” reported that the new wind projects installed in 2008
represented a $17 billion investment, a megawatt (MW) increase of over 8,500 MW
(50%), and the creation of 35,000 new jobs, many of which were in the
manufacturing sector. The report predicted that wind power installations
would grow by 5,000 MW (20%) in 2009, and, in addition to installation growth,
the report also predicted that the average generating capacity of wind turbines
could grow within the next few years. AWEA based this prediction on the
fact that, in 2008, the average capacity of wind turbines installed was 1.67 MW,
representing a slight increase from 2007, and on the fact that a variety of
turbine models in the 2-MW to 3-MW range are set to hit the market.
Industry
Related Information – Community Wind Projects
According
to the windustry.org January 2010 newsletter, community wind projects added 544
MW of new energy capacity in 2009. Community Wind now accounts for more
than 4 percent of the overall U.S. wind energy capacity with 1,521 MW
(Windustry) out of 35,159 MW total (AWEA) for the country. Overall, new wind
energy capacity in the U.S. for 2009 was estimated at nearly 10,000 MW compared
to 8,500 MW added in 2008, a record high.
“Community
Wind” for the statistics cited above refers to locally-owned, commercial-scale
wind projects that optimize local benefits. Locally-owned means that one or more
members of the local community has a significant direct financial stake in the
project other than through land lease payments, tax revenue, or other payments
in lieu of taxes.
Many
states increased their Community Wind capacity during 2009. In California, the
Los Angeles Department of Water and Power added a 120 MW project. In Minnesota a
number of Community Wind projects expanded their capacity including Willmar
Municipal Utilities, Hilltop Wind LLC, Shakopee Mdewankton Sioux, and the
Minnesota Municipal Power Agency. A list of more Community Wind projects
for 2009 is available with the Windustry
Community Wind Map web page located at http://www.windustry.org/community-wind-map.
Increased
Demand in WindPower
Growth in
wind power is being driven by several environmental, socio-economic and energy
policy factors that include:
·
|
ongoing
increases in electricity demand due to population growth and growth in
energy consuming devices such as computers, televisions and air
conditioning systems,
|
·
|
the
increasing cost of the predominant fuels required to drive the existing
fleet of conventional electric generation such as coal, natural gas,
nuclear and oil,
|
·
|
the
increasing cost and difficulty faced in the construction of conventional
electric generation plants,
|
·
|
existing
and growing legislative and regulatory mandates for “cleaner” forms of
electric generation, including state renewable portfolio standards and the
U.S. federal tax incentives for wind and solar
generation,
|
·
|
ongoing
improvements to wind power systems making them more cost effective and
improving availability to meet demand,
and
|
·
|
worldwide
concern over greenhouse gas emissions and calls to reduce global warming
due to the carbon dioxide produced by conventional electric
generation.
|
In light
of these factors and the resulting increase in demand for wind power, we believe
that we are uniquely positioned to experience significant year-over-year growth
and development of specific community wind farms throughout the United States.
We can provide full-scale development of wind farms across the range of required
steps including:
·
|
initial
feasibility studies and project
design,
|
·
|
formation
of required land rights agreements to accommodate turbine placement on
each project’s specific farm land,
|
5
·
|
studies,
design and agreements with utilities (as well as with independent system
operators (ISOs), which are organizations formed at the direction or
recommendation of the Federal Energy Regulatory Commission (“FERC”) that
coordinate, control and monitor the operation of the U.S. electrical power
grid) with respect to connection to existing electric power transmission
networks,
|
·
|
negotiation
and execution of power purchase
agreements,
|
·
|
arrangement
of equity and debt project
financing,
|
·
|
construction
oversight and services,
|
·
|
project
commissioning, and
|
·
|
multi-year
wind farm operations and
maintenance.
|
In
addition, we can provide general consulting services to help farmers and
communities evaluate possible community wind farm projects and initiate their
development. Often, we will take on the entire development process including
nearly all of the services outlined above. As project developer, we arrange
every aspect of the development process and receive payment for the services as
certain steps are accomplished. After establishing that a project has
appropriate wind resource and transmission interconnection, we would move on to
complete land rights agreements, community limited liability company structures
and the power purchase agreement with the local utility.
Through
the community wind approach, we involve land owners and the local community by
establishing a limited liability company that extends ownership to the
participants along with the initial equity investor. Land owners are critical to
any wind farm because wind turbines must be placed in open areas requiring a
large amount of land necessary to “harvest the wind.” Turbines are typically
placed on a small plot of land, and less than one acre is removed from normal
use (such as farming or grazing) for each 50 acres of wind resource captured.
Turbines must be spaced a certain minimum distance apart to avoid “shadowing”
each other and reducing power output. By integrating the land owners into the
land rights and ownership structures, we can allow a wind-enabled farm to more
than double the annual net income from cultivation or grazing. As a project
developer, we assist in finding financing, securing the contract with a utility
to buy the electricity produced, negotiation of a turbine supply agreement and
construction of the system, and arrange for operation of the wind
farm.
Company
Structure
As a
result of the 2008 share exchange transaction, Juhl Energy and DanMar are our
wholly-owned subsidiaries. Juhl Energy and DanMar have primarily been involved
in providing construction, development, management and consulting services to
various wind farm projects throughout the Midwest. DanMar was incorporated in
January 2003 and is located in Woodstock, Minnesota. In September 2007, DanMar
assigned certain development and management business to a newly-formed
corporation, Juhl Energy.
Juhl
Energy also has a subsidiary, Community Wind Development Group LLC, which was a
predecessor to Juhl Energy in the nature of the work provided, but which had
more than one owner. Upon formation of Juhl Energy, it was determined to be in
the best interests of Juhl Energy to acquire ownership in Community Wind
Development, so the other owners’ equity interests were acquired by Juhl Energy
on January 1, 2008. The operations of Community Wind Development are now
included in Juhl Energy since the acquisition date.
Historically,
DanMar and Juhl Energy have both engaged in similar development, management and
consulting projects. It is our intention that prospectively, the companies will
perform separate functions. DanMar will engage in purely consultative projects,
and wind farm management and turbine maintenance. Juhl Energy will
engage in development and construction projects where Juhl Energy will, in many
cases, oversee the entire development of wind farms.
In
October 2008, we acquired NextGen, which is now our wholly-owned subsidiary.
NextGen focuses on the production and sale of renewable energy design and
advanced conservation technologies related to community-scaled renewable energy
systems such as wind turbines.
Our
Community Wind Farm Portfolio
We
believe that we have completed and placed into service more community wind power
systems than any other U.S. enterprise. To date, we have developed 14 community
wind farms located primarily in the Buffalo Ridge area of southwestern
Minnesota. Buffalo Ridge is a large expanse of rolling hills that is 60 miles
long and a part of Lincoln County in the southwest corner of Minnesota. It is
located near the small towns of Hendricks and Lake Benton. We selected Buffalo
Ridge because of its high altitude (approximately 2,000 feet above sea level)
and high average wind speed, making it, in our opinion, an ideal location for
wind-based energy production. These wind farms have been developed since the
mid-1980s and total approximately 117.5 megawatts. They are fully operational
today. In addition, we provide operating and maintenance services to four of the
14 wind farms.
6
In
addition to the first 14 wind farms developed by us, we have another 28
community wind projects in various phases of development totaling approximately
451 megawatts. These projects are primarily located in the states of Minnesota
and Nebraska.
A sample
of the projects, which are in the phase of development referenced below, include
but are not limited to the following:
Project
Name
|
Megawatts
|
Phase
|
||
Completed
wind farm developments
|
117.5
|
Operational
|
||
Grant
County, MN
|
20
|
Financing/Construction
2009/2010
|
||
Woodstock,
MN
|
1
|
Financing/Construction
2009/2010
|
||
Valley
View, MN
|
10
|
Financing/Construction
2010
|
||
Crofton
Hills, NE
|
40
|
Financing/Construction
2010/2011
|
||
Meeker
County, MN (2 projects)
|
40
|
Interconnection
Study/Construction 2010
|
||
Winona
|
1.5
|
Financing/Construction
2010
|
||
Kittson/Marshall,
MN
|
80
|
Interconnection
Study/Construction 2011
|
||
Kennedy/Kittson,
MN
|
20
|
Interconnection
Study
|
||
19
Additional Midwest Projects
|
238
|
Initial
Study/Feasibility
|
Note: From time to time some of our
projects are not listed publicly due to the preferences of local owner groups or
competitive issues facing our business. However, we strive to provide
regular updates to our projects listing via press releases and corresponding
updates to our corporate website, www.juhlwind.com.
Based on
our pipeline of projects, we believe that we will experience consistent growth
in the number of projects completed and the number of projects for which we are
providing operational oversight. We expect that the continued growth in our
project pipeline will act as a key competitive advantage as the community wind
power industry grows throughout the United States and Canada.
Growth
Strategy
Wind
Farm Development, Construction and Management Services:
We
specialize in the development of community wind power systems, and we believe
that we are among the leaders in the field. Our growth strategy is anchored by
the competitive advantage of our portfolio of completed projects coupled with
the projects we currently have under development. Our plan is to continue to
provide the full range of development services across each phase of development,
which we expect will grow our revenue and profitability from each project under
development.
In
addition to growing our revenue per project, we will continue to grow our
projects under development by utilizing competitive strengths and taking
advantage of market conditions to build long-term growth, as
follows:
·
|
We
expect to increase our capacity by entering regional markets through
organic development. Upon entering a market we work to become a leading
wind energy operator and an influential voice within the region. We strive
to develop projects in-house from the initial site selection through
construction and operation.
|
·
|
We
intend to expand business relationships within the investment community
both in the U.S. and abroad in order to assist project owners in obtaining
the equity and debt financing for wind farm developments. This will
include considerations with regard to raising additional capital in
private or public equity funds that would invest in our wind project
developments.
|
·
|
We
expect to create relationships as a community stakeholder. We prioritize
the creation of strong community relationships that we believe are
essential to generating support and securing land and permits necessary
for our wind farms. Our team works closely with the landowners who will
host the wind farms to ensure that they fully understand the impact of
having turbines on their property. Throughout the development process, we
assess and monitor the landowners’ and broader community’s receptiveness
and willingness to host a wind farm in their area. This proactive
involvement in the community also enables us to submit permit applications
that comply with local regulations while addressing local
concerns.
|
7
·
|
We
expect to work with governmental agencies to help us incentivize the
creation of community wind farms and offer favorable tax breaks. Further,
we intend to use tax equity financing arrangements in order to monetize
the value generated by production tax credits (or
alternatively, investment tax credits or treasury cash grants) and
accelerated tax depreciation that are available to wind
generation projects.
|
·
|
We
will continue to strive to attract, train and retain the most talented
people in the industry. As we continue to grow our business, we will need
to attract, train and retain additional employees. We believe that our
management team will be instrumental in attracting new and experienced
talent, such as engineers, developers and meteorology experts. We plan to
provide extensive training and we believe that we offer an attractive
employment opportunity in the markets in which we
operate.
|
As a
result of the relationships we have established and niche markets we have
identified, we have been able to lay the groundwork for 2010 and
beyond. Some of the areas of focus moving forward include the
following:
·
|
moving
into an even larger market of smaller
projects;
|
·
|
targeting
5 to 50 megawatt wind farm projects. In the State of Minnesota
alone, industry experts have suggested there exist over 6,000 megawatts of
achievable electricity utilizing our wind power
model;
|
·
|
expanding
our services to include turbine maintenance services for projects that we
have sponsored or for existing wind farms in the Upper
Midwest;
|
·
|
providing
an overall services component that includes construction and development
management by developing relationships with contractors, turbine
suppliers, and financing partners in the wind farm
industry; and
|
·
|
additional
growth through targeted
acquisitions.
|
Consumer-owned
renewable energy products – smaller on-site wind power and solar
systems:
NextGen
provides renewable energy systems and specializes in advanced conservation
technologies focused on smaller scale wind turbine (40 kw class) and solar
systems. Production, management and conservation of energy are
NextGen's main focus.
NextGen
has extensive experience with a wide variety of energy saving and
environmentally-sound production systems such as small wind, solar, back-up
power, and stand alone power systems. Its diverse experience enables
it to assist the energy consumer with methods of controlling, and in some cases
eliminating, their ever burdensome energy costs. NextGen supports a
transition to a sustainable energy economy which relies on clean, renewable
resources to satisfy societal needs. NextGen can present the energy
consumer with modern options in terms of cost effectiveness, performance, and
reliability.
NextGen
focuses on energy consumers throughout the Great Plains
region. Through thorough analysis, NextGen examines the energy
requirements and implements the appropriate technology to meet the needs of the
energy consumer. In addition to site analysis, NextGen markets and
installs energy-saving products and performs system repairs and scheduled
maintenance.
NextGen
has developed a “SolarBank™ System” which is designed to give businesses and
homeowners the ability to store up to 72 hours of emergency power in the event
of a power failure. This back-up power system works automatically and
instantaneously. When a power outage occurs, the control relay
station automatically taps into the energy reserve stored by the SolarBank™
System and can run several loads for 24-72 hours. Solar modules are
designed to convert sunlight into electricity at the highest possible efficiency
and are used to charge storage batteries to provide power for remote homes,
recreational vehicles, boats, telecommunications systems and other consumer and
commercial applications.
To
protect the cells from the most severe environmental conditions, the solar
modules are encapsulated between a tempered glass cover and polymer film with a
weather resistant back sheet. The entire laminate is installed in an
anodized aluminum frame for structural strength and ease of installation. Solar
modules are not produced by NexGen, but are available from a number of
manufacturers.
Through the current date, NextGen as
focused its business on purchasing used wind turbine equipment
mostly from California for the purpose of re-manufacturing and reselling the
units in the Upper Midwest. As of December 31, 2009, NextGen has sold
48 wind turbine units since its inception in 2005.
As a
result of our acquisition of NextGen in October 2008, we expect to expand
efforts in this line of business to take advantage of the stimulus recently
provided by the federal government for tax credits and grants applicable to
renewable energy manufacturing facilities and consumers. Some of the areas of
focus include the following:
8
·
|
reduce
the reliance on subcontract services within our re-manufacturing process
of wind turbines by bringing the production and assembly in-house where
considered appropriate, and improve quality control and testing
procedures;
|
·
|
engage
an experienced sales and marketing professional to establish and maintain
a qualified dealer network, and to oversee direct selling efforts underway
with the consumer marketplace;
|
·
|
attract,
train and retain talented individuals in the areas of production,
engineering and selling functions;
and
|
·
|
Assess
the product line for expansion opportunities, including the design and
testing of a state-of-the-art 40 kw class wind turbine for the
agricultural and rural markets.
|
Sales
and Marketing
We
derived approximately 78% of our revenue in 2009 from two customers
as a result of the wind farm construction activities, and 22% of our revenue in
2008 was related to sales to three customers under administrative services
agreements where we perform management services for these wind farm
projects.
Historically,
DanMar and Juhl Energy have not relied on any direct sales or marketing efforts
for wind farm development and management, but have gained exposure through trade
publications, word of mouth, and industry conferences. We currently have a
pipeline of projects we believe will last at least two years and it is being
supplemented on an on-going basis without direct selling efforts. We anticipate
being able to add a significant number of projects to this pipeline driven
primarily by Dan Juhl, John Mitola and an expanding development team, trade
publications, industry events and word of mouth. Our web site, www.juhlwind.com,
will also serve as a marketing tool. If, at some point, management determines
the pipeline of potential customers is less than anticipated or desired, or if
we are unable to sustain our desired rate of growth and expansion with these
sales and marketing methods, we will reevaluate the sales and marketing efforts
and address the issue at that time.
We are
currently utilizing a combination of internal direct selling efforts as well as
third party distributors for the sale of consumer-owned renewable energy
products. During 2009, approximately 78% of our consumer-owned revenues were
sold by distributors. We plan to increase our efforts to establish sales
channels through qualified dealers who demonstrate technical knowledge in the
renewable energy marketplace, and have sales expertise and financial stability
to deliver small scale wind turbine and solar-related systems.
Wind
Energy Technology, Resources and Suppliers
Wind
power is a form of renewable energy; that is, energy that is replenished daily
by the sun. As portions of the earth are heated by the sun, air rushes to fill
the low pressure areas, creating wind power. The wind is slowed dramatically by
friction as it brushes the ground and vegetation. It may not feel very windy at
ground level, yet the power in the wind may be five times greater at the height
of a 40 story building (the height of the blade tip on a large, modern wind
turbine) than the breeze an individual encounters at ground level.
Wind
power is converted to electricity by a wind turbine. In a typical, modern
large-scale wind turbine, the kinetic energy in the wind (the energy of moving
air molecules) is converted to rotational motion by the rotor (a three-bladed
assembly at the front of the wind turbine). The rotor turns a shaft which
transfers the motion into the nacelle (the large housing at the top of a wind
turbine tower). Inside the nacelle, the slowly rotating shaft enters a gearbox
that greatly increases the rotational shaft speed. The output (high-speed) shaft
is connected to a generator that converts the rotational movement into
electricity at medium voltage (a few hundred volts). The electricity flows down
heavy electric cables inside the tower to a transformer, which increases the
voltage of the electric power to the distribution voltage (a few thousand
volts). Higher voltage electricity flows more easily through electric lines,
generating less heat and fewer point losses. The distribution-voltage power
flows through the underground lines to a collection point where the power may be
combined with other turbines. In many cases, the electricity is sent to nearby
farms, residences and towns where it is used. Otherwise, the
distribution-voltage power is sent to a substation where the voltage is
increased dramatically to transmission-voltage power (a few hundred thousand
volts) and sent through very tall transmission lines many miles to distant
cities and factories.
Wind
turbines come in a variety of sizes, depending upon the use of the electricity.
A large, utility-scale turbine described above may have blades over 40 meters
long, meaning the diameter of the rotor is over 80 meters (nearly the length of
a football field). The turbines might be mounted on towers 80 meters tall (one
blade would extend half way down the tower), produce 1.8 megawatts of power
(1800 kilowatts), supply enough electricity for 600 homes and cost over $1.5
million. Wind turbines designed to supply part of the electricity used by a home
or business is much smaller and less costly. A residential - or farm-sized
turbine - may have a rotor up to 15 meters (50 feet) in diameter mounted on a
metal lattice tower up to 35 meters (120 feet) tall. These turbines may cost
from as little as a few thousand dollars for very small units and up to $80,000
excluding installation costs.
9
According
to the “Emerging Growth Report 2008”, due to the persistent credit crisis, some
wind-based projects are being delayed or cancelled, and the reduction in
commodity prices will likely result in wind power producers experiencing lower
turbine pricing over the coming years. It is also expected that
delivery lead times will be shortened. While turbine prices have
risen significantly over the past few years on a per megawatt capacity basis,
the total number of megawatts produced per turbine has increased dramatically
over the same period. For example, in the year 2000 the average
turbine size was less than 800kW. By 2003, this had increased to just
over 1.2 megawatts. As of the end of 2007, approximately half of the
all installations were for turbines rated at between 1.5 megawatts and 2.5
megawatts, an increase of more than 30% from the previous year.
According
to the “Emerging Growth Report 2008”, this has abated overall costs because as
the price per megawatt has increased strongly, the price per megawatt hour of
production has risen only modestly. While the efficiency of turbines
continues to increase, it will continue to provide further justification for
capital expenditures for upcoming projects, as well as likely decreases in
turbine pricing and better availability throughout 2009 and into
2010.
Based on
our management’s experience and observations of the industry, wind industry
manufacturing facilities surged in the United States from 2005 to 2007, and many
existing facilities are expanding. In 2007, new tower, blade, turbine and
assembly plants opened in the states of Illinois, Iowa, South Dakota, Texas and
Wisconsin. Also in 2007, seven other facilities were announced in the states of
Arkansas, Colorado, Iowa, North Carolina, New York and Oklahoma.
Our
principal suppliers primarily consist of suppliers of wind turbines, wind
turbine parts and various electrical supplies and services relating to wind
turbine operation. We also source, as needed, wind studies and electrical
engineering expertise from outside suppliers. With respect to wind turbines and
related items, our principal suppliers have been Suzlon Energy Limited, Emergya
Wind Technologies, and Vestas Wind Support Systems A/S for turbines; Fagen, Inc.
for subcontracted construction services, and Abaris EC, LLC, Echo Group, Inc.,
Muth Electric Inc. and Motion Industries, Inc. for electric services and
supplies. We also use WindLogics, Inc. for wind studies and Hoerauf Consultants,
Inc. for specialized electrical engineering. Our business is not dependent on
any one supplier and our list of suppliers is changing and expanding on an
ongoing basis as the market for wind power continues to expand and new suppliers
enter with advanced products, technologies and services.
Additionally,
in 2009, we have entered into a frame order agreement with a wind turbine
generator supplier for the supply and purchase of wind turbine generators for
certain of our community wind power projects through December 31, 2012. This
agreement gives us the assurance that we will have access to wind turbine
generators for our community wind power projects currently in development. Other
features of this agreement with this turbine manufacturer is that the turbine
manufacturer is committed to participate in financing certain projects and will
provide us the ability to acquire equity in the turbine manufacturer under
certain conditions. The frame order agreement does not contain any minimum
purchase commitment for wind turbines, although it does allow the Company to
obtain an incentive in the form of stock warrants for the purchase of ownership
interests of the turbine supplier if certain purchase levels are
reached.
Competition
In the
United States, large utility companies dominate the energy production industry,
and coal continues to dominate as the primary resource for electricity
production. Electricity generated from wind energy faces competition from other
traditional resources such as nuclear, oil and natural gas. The advantages of
conventional production of electricity are that:
·
|
the
technology and infrastructure already exist for the use of fossil fuels
such as coal, oil and natural gas,
|
·
|
commonly-used
fossil fuels in liquid form such as light crude oil, gasoline and
liquefied petroleum gas are easy to distribute,
and
|
·
|
petroleum
energy density (an important element in land and air transportation fuel
tanks) in terms of volume (cubic space) and mass (weight) is superior to
some alternative energy sources.
|
However,
energy produced by conventional resources also faces a number of challenges
including:
·
|
the
inefficient atmospheric combustion (burning) of fossil fuels leads to the
release of pollution into the atmosphere including carbon dioxide which is
largely considered the primary cause of global
warming,
|
·
|
dependence
on fossil fuels from volatile regions or countries of the world creates
energy security risks for dependent
countries,
|
10
·
|
fossil
fuels are non-renewable unsustainable resources which will eventually
decline in production and become exhausted with potentially dire
consequences to societies that remain highly dependent on them,
and
|
·
|
extraction
of fossil fuels is becoming more expensive and more dangerous as
readily-available resources are exhausted and mines get deeper and oil
rigs must drill deeper and further out in
oceans.
|
In
contrast, electricity generated from wind energy:
·
|
produces
no water or air pollution that can contaminate the environment because
there are no chemical processes involved in wind power generation;
therefore, there are no waste by-products such as carbon
dioxide,
|
·
|
does
not contribute to global warming because it does not generate greenhouse
gases,
|
·
|
is
a renewable source of energy, and
|
·
|
in
the case of community wind power, farming and grazing can still take place
on land occupied by wind turbines.
|
However,
wind energy producers also face certain obstacles including:
·
|
the
reality that wind is unpredictable and, therefore, wind power is not
predictably available, and when the wind speed decreases, less electricity
is generated,
|
·
|
residents
in communities where wind farms exist may consider them an “eyesore,”
and
|
·
|
wind
farms, depending on the location and type of turbine, may negatively
affect bird migration patterns and may pose a danger to the birds
themselves; however, newer, larger wind turbines have slower moving blades
which seem to be visible to most
birds.
|
We expect
that primary competition for the wind power industry will continue to come from
utility company producers of electricity generated from coal and other
non-renewable energy sources.
Within
the U.S. wind power market itself, there is also a high degree of competition,
with growth opportunities in all sectors of the industry regularly attracting
new entrants. For example, in 2009, our management believes, based on our
industry observations that over 15 utility-scale wind turbine manufacturers are
selling turbines in the United States market, up from only six in 2005 of which
we were aware. Further, the enactment of the American Recovery and
Reinvestment Act in February 2009 provides a greater tax incentive for companies
in the renewable energy industry, which may lead to more entrants in the wind
power development market, who will have an overall increased need for wind
turbines.
New
entrants in the wind power development market, however, face certain barriers to
entry. The capital costs of buying and maintaining turbines are high. Other
significant factors include the cost of land acquisition, the availability of
transmission lines, land use considerations and the environmental impact of
construction and operations. Finally, another critical barrier to entry into the
wind power development business is the necessary experience required to bring
projects to the point where they are able to secure agreements with respect to
connecting to the existing electricity transmission network, power purchase
agreements and project financing for construction.
We are
aware of four companies that are working in the community wind power area
and which management views as being competitive with certain aspects of our
company. The first, Nacel Energy, is a community wind development
company founded in 2006 and focused on developing community wind projects in
Texas and Kansas. To our knowledge, Nacel Energy has yet to fully complete the
development of a project. The second, Wind Energy of America, is
located in and focused on community wind power in Minnesota and is currently
employing a strategy where it purchases rights to current or developing wind
projects. The third, Own Energy, Inc. is a New York-based
privately-held developer who states that they have 24 projects under development
across 12 states. The
fourth, National Wind LLC, is a Minnesota-based developer that has completed
only one project.
With
respect to the production and sale of consumer-owned renewable energy products,
there are numerous businesses operating in the U.S. that are associated with the
manufacturing, sales distribution and installation of products and services. The
competition in this field is not dominated by any one particular company or
group of companies. The industry competition is expected to emerge given the
focus on and favorable legislation passed for renewable energy facilities by the
federal government.
11
Our
Competitive Advantages
We
believe that we have a number of competitive advantages in the community wind
energy production sector; one of our key advantages being that we have completed
14 community wind farm projects to date and currently have 28 wind farm projects
in various developmental stages, representing approximately 451 megawatts of
electricity and almost $1 billion in project development. We expect that when
owners of new projects consider retaining a development enterprise, the ability
to point to actual projects completed, along with the extensive knowledge base
developed and relationships necessary to get the job done, will provide us an
edge in winning projects in the future. These relationships include those with
utility power purchasers, equity and debt project finance sources, turbine
suppliers and constructors. Led by an industry leader, Dan Juhl, our development
team is unmatched in its general experience, credibility and proven track
record.
We
believe that our experience in developing wind farms in new market areas and in
operating energy companies will enable us to continue to successfully expand our
development portfolio. Further, we believe our management’s understanding of
deregulated energy markets enables us to maximize the value of our development
portfolio. Our team has experience in site selection, market analysis, land
acquisition, community relations, permitting, financing, regulation and
construction.
For
community wind projects to be completed successfully, projects must be
constructed in a cost-effective manner. In the course of completing 14 projects
to date, we have been able to demonstrate to project owners, equity investors
and lenders, that we can build wind farms on a cost-effective
basis.
In the
Midwest U.S. markets where we are active, our management team maintains local
presence and promotes community stakeholder involvement. By maintaining our
principal office in Woodstock, Minnesota and a satellite office in Chicago,
Illinois, and becoming involved in local community affairs, we develop a
meaningful local presence, which we believe provides us with a significant
advantage when working through the local permitting processes and helps to
enlist the support of our local communities for wind farms. We believe that our
local approach has enabled us to secure approvals and support for our projects
in regions that have historically voiced meaningful opposition and has given us
a significant advantage over competitors, who are not as active in the local
communities in which we are developing wind farms. Our management’s active
participation in the state and local regulatory and legislative processes has
led to the growth of community wind across the Midwest.
As a
result of our project portfolio and industry-respected management team, we enjoy
strong relationships with key trading partners that are required for successful
wind farm development. These relationships include regulators, turbine
suppliers, electric component suppliers, equity investors, project lenders,
engineering firms, constructors, electric transmission operators and electric
utilities. Further, in 2009, we positioned ourselves as a leader in
community wind farm projects by aligning ourselves with environmentally friendly
concerned investors to provide financing options for investment in our projects,
which aided us in getting financing in a tightening lending market.
As the
originator and leader of community wind power, we have been able to offer what
we believe is a unique ownership-sharing formula with farmers and local
communities that provide us with an ongoing competitive advantage in this large
and open sector of the wind energy arena. Some of the key advantages
of our approach are driven by the fact that our projects are medium-sized which
provide the following key benefits:
·
|
the
development of these projects secures economic benefits to the local
community bringing construction, legal and regulatory work to rural areas
by engaging local farmers, engineers, bankers and contractors to assist in
the building and maintenance of the
projects;
|
·
|
easier
and less expensive transmission and, in general, projects which are much
easier to build. End users generally receive electricity
through an already established local utility
grid;
|
·
|
the
landowner and local community retain more by sharing ownership with the
developer and excluding external interests;
and
|
·
|
easier
to obtain regulatory permits and to secure project financing through
established and/or local resources due to the size of each
project.
|
In
addition, while mega-wind projects have gained wide attention, we believe we are
uniquely positioned as the only public community wind power company in the U. S.
committed to and actually building projects in the 1 – 50 megawatt sector, which
has received considerable attention by the industry. This market is
largely overlooked by most developers. This oversight provides an
opportunity to rapidly increase our market share and expansion
plans.
Since
becoming a public company in 2008, we have achieved several significant
milestones:
·
|
we
have secured institutional investments of over $7 million available for
use as working capital;
|
12
·
|
we
acquired NextGen which specializes in community scale wind turbine and
solar systems. This acquisition brings smaller wind turbine and
solar expertise to the Company to enhance and expand our existing
community wind power product and service
offerings;
|
·
|
we
completed twelve feasibility consulting studies in 2008 and
2009 for community based wind farm
projects;
|
·
|
we
commenced construction on two wind farms: the Grant County wind
farm in late 2009, which is approximately a 20 MW wind generation facility
in Grant County, Minnesota, consisting of 10 wind turbine generators and
related interconnection facilities in Grant County, Minnesota; and a
1 MW wind farm in Woodstock. Both are expected to be commissioned in the
second quarter of 2010.
|
·
|
we
have worked to align ourselves with environmentally friendly concerned
investors and non-traditional banking institutions to provide financing
options for investment in our projects, which will provide us with more
financing options than traditional bank financing;
and
|
·
|
we
have entered into strategic relationships with industry partners to
continue our ability to develop projects in our pipeline. These
relationships with turbine suppliers, a wind consulting firm and others
will benefit our continued growth in the community wind power industry
with the development and completion of further community wind power
projects.
|
Intellectual
Property
We depend
on our ability to develop and maintain the proprietary aspects of our technology
to distinguish our products from our competitors’ products. To protect our
proprietary technology, we rely primarily on a combination of confidentiality
procedures. It is our policy to require appropriate employees and consultants to
execute confidentiality agreements and invention assignment agreements upon the
commencement of their relationship with us. These agreements provide that
confidential information developed or made known during the course of a
relationship with us must be kept confidential and not disclosed to third
parties except in specific circumstances and for the assignment to us of
intellectual property rights developed within the scope of the employment
relationship.
We have
no patents, trademarks, licenses, franchises, concessions or royalty agreements,
other than a July 2009 manufacturing license arrangement with an Ohio company
that includes the use of NextGen’s proprietary software controlling the power
electronics of the NextGen wind turbine unit and other related documentation.
The term of the manufacturing license arrangement is twenty years and
does not allow the licensee to access the software or provide such software to
any other party.
Government
Regulation
Traditionally,
utility markets in the United States have been highly regulated. The U.S. power
industry is currently in transition as it moves toward a more competitive
environment in wholesale and retail markets. The commercial viability of wind
power will increasingly depend upon pricing as the trend toward deregulation
continues.
Our
management anticipates that the additional favorable government legislation will
have a positive impact on our business.
The
growing concern over global warming caused by greenhouse gas emissions has also
contributed to the growth in the wind energy industry. The Intergovernmental
Panel on Climate “Change’s Climate Change 2007: Synthesis Report” reports that
11 of the last 12 years (1995-2006) rank among the warmest years since 1850.
Additionally, the global average sea level has risen at an average rate of 1.8
millimeters per year since 1961 and at 3.1 millimeters per year since 1993, due
to the melting of glaciers, ice caps and polar ice sheets, coupled with thermal
expansion of the oceans. The importance of reducing greenhouse gases has been
recognized by the international community, as demonstrated by the signing and
ratification of the Kyoto Protocol, which requires reductions in greenhouse
gases by the 177 (as of March 2008) signatory nations. While the United States
did not ratify the Kyoto Protocol, state-level initiatives have been undertaken
to reduce greenhouse gas emissions. California was the first state to pass
global warming legislation, and ten states on the east coast have signed the
Regional Greenhouse Gas Initiative, which proposes to require a 10% reduction in
power plant carbon dioxide emissions by 2019.
Various
state and federal governments have placed restrictions on fossil fuel emissions,
and it is anticipated that additional requirements for limitation of such
emissions will continue. Substituting wind energy for traditional fossil
fuel-fired generation would help reduce carbon dioxide emissions due to the
environmentally-friendly attributes of wind energy. According to the U.S.
Department of Energy, EIA’s “International Energy Outlook 2006”, updated January
21, 2009, the United States had the second highest carbon dioxide emissions of
all the countries in the world in 2006, with 5,902.75 billion metric
tons. This number was second only to China which had 6,017.69 billion
metric tons. According to the U.S. Department of Energy, EIA’s “Annual Energy
Review 2008”, from 1990 to 2007, carbon dioxide emissions from the United
States’ electric power industry have increased by a cumulative amount of 28.7%,
from 1.8 billion metric tons to 2.4 billion metric tons.
13
Environmental
legislation and regulations provide additional incentives for the development of
wind energy by increasing the marginal cost of energy generated through
fossil-fuel technologies. For example, regulations such as the Clean Air
Interstate Rule and the Regional Haze Rule have been designed to reduce ozone
concentrations, particulate emissions and haze and other requirements to control
mercury emissions can require conventional energy generators to make significant
expenditures, implement pollution control measures or purchase emissions credits
to meet compliance requirements. These measures have increased fossil fuel-fired
generators’ capital and operating costs and put upward pressure on the market
price of energy. Because wind energy producers are price takers in energy
markets, these legislative measures effectively serve to make the return on wind
energy more attractive relative to other sources of generation.
We
believe there is significant support in the U.S. to enact legislation that will
attempt to reduce the amount of carbon dioxide produced by electrical
generators. Although the ultimate form of legislation is still being debated,
the two most likely alternatives are (i) a direct emissions tax or (ii) a
cap-and-trade regime. We believe either of these alternatives would likely
result in higher overall power prices, as the marginal cost of electricity in
the U.S. is generally set by generation assets which burn fossil fuels such as
oil, natural gas and coal and produce carbon dioxide. As a non-carbon emitter
and a market price taker, we are positioned to benefit from these higher power
prices.
Growth in
the United States’ wind energy market has also been driven by state and federal
legislation designed to encourage the development and deployment of renewable
energy technologies. This support includes:
Renewable
Portfolio Standards (RPS). In response to the push
for cleaner power generation and more secure energy supplies, many states have
enacted RPS programs. These programs either require electric utilities and other
retail energy suppliers to produce or acquire a certain percentage of their
annual electricity consumption from renewable power generation resources or, as
in the case of New York, designate an entity to administer the central
procurement of Renewable Energy Certificates (“RECs”) for the state. Wind energy
producers generate RECs due to the environmentally beneficial attributes
associated with their production of electricity.
According
to the Lawrence Berkeley National Laboratory’s “Renewable Portfolio Standards in
the United States April 2008” report, RPS programs at the state level
have proliferated since the late 1990s and, as of the end of 2007, 29 states and
the District of Columbia had adopted some form of RPS program. The report also
indicates the District of Columbia and 25 of the 29 states have mandatory RPS
requirements and combined, they represent 46% of total U.S. electrical load. A
number of states including Arizona, California, Colorado, Minnesota, Nevada, New
Jersey, New Mexico, Pennsylvania and Texas, have revised their programs to
include higher targets since original adoption. The report adds that other
states such as Missouri, North Dakota, Vermont and Virginia have adopted state
goals, which set targets, not requirements, for certain percentages of total
energy to be generated from renewable resources. In 2008, South Dakota and Utah
also adopted RPS programs.
Almost
every state that has implemented an RPS program will need considerable
additional renewable energy capacity to meet its RPS requirements. We believe
that much of the forecasted 50,000 megawatt installed wind capacity by 2015 will
be driven by current and proposed RPS targets, along with additional demand from
states without renewable standards.
According
to the “Emerging Growth Report 2008”, these mandatory requirements, which are
now in place in many states, are forcing electric utilities to be at the
forefront of wind power development.
Renewable Energy
Certificates (REC). A REC is a stand-alone
tradable instrument representing the attributes associated with one megawatt
hour of energy produced from a renewable energy source. These attributes
typically include reduced air and water pollution, reduced greenhouse gas
emissions and increased use of domestic energy sources. Many states use RECs to
track and verify compliance with their RPS programs. Retail energy suppliers can
meet the requirements by purchasing RECs from renewable energy generators, in
addition to producing or acquiring the electricity from renewable sources. Under
many RPS programs, energy providers that fail to meet RPS requirements are
assessed a penalty for the shortfall, usually known as an alternative compliance
payment. Because RECs can be purchased to satisfy the RPS requirements and avoid
an alternative compliance payment, the amount of the alternative compliance
payment effectively sets a cap on REC prices. In situations where REC supply is
short, REC prices approach the alternative compliance payment, which in several
states is approximately $50 to $59 per megawatt hour. As a result, REC prices
can rival the price of energy and RECs can represent a significant additional
revenue stream for wind energy generators.
Production Tax
Credits (PTC). The PTC provides wind
energy generators with a credit against federal income taxes, annually adjusted
for inflation, for a duration of ten years from the date that the wind turbine
is placed into service. In 2008, the PTC was $21 per megawatt hour (or 2.1 cents
per kilowatt hour). Wind energy generators with insufficient taxable income to
benefit from the PTC may take advantage of a variety of investment structures to
monetize the tax benefits.
14
The PTC
was originally enacted as part of the Energy Policy Act of 1992 for windparks
placed into service after December 31, 1993 and before July 1, 1999. The PTC
subsequently has been extended six times, but has been allowed to lapse three
times (for periods of three, six and nine months) prior to retroactive
extension. Currently, the PTC is scheduled to expire on December 31,
2012. This expiration date reflects a three-year extension passed
under the American Recovery and Reinvestment Act enacted in February
2009.
Accelerated Tax
Depreciation. Tax depreciation is a
non-cash expense meant to approximate the loss of an asset’s value over time and
is generally the portion of an investment in an asset that can be deducted from
taxable income in any given tax period. Current federal income tax law requires
taxpayers to depreciate most tangible personal property placed in service after
1986 using the modified accelerated cost recovery system, or MACRS, under which
taxpayers are entitled to use the 200% or 150% declining balance method
depending on the class of property, rather than the straight line method. Under
MACRS, a significant portion of wind park assets is deemed to have depreciable
life of five years which is substantially shorter than the 15 to 25 year
depreciable lives of many non-renewable power supply assets. This shorter
depreciable life and the accelerated and bonus depreciation methods result in a
significantly accelerated realization of tax depreciation for wind parks
compared to other types of power projects. Wind energy generators with
insufficient taxable income to benefit from this accelerated depreciation often
monetize the accelerated depreciation, along with the PTCs, through forming a
limited liability company with third parties.
American Recovery
and Reinvestment Act of 2009. On February 13, 2009, the
11th
Congress passed a stimulus package known as The American Recovery and
Reinvestment Act of 2009 (the “Recovery Act”). The Recovery Act has
the potential to substantially impact the market for renewable energy
initiatives. Approximately $40 billion in spending was appropriated for clean
energy initiatives and an additional $20 billion is estimated for new and
modified tax incentives. According to a discussion at Windustry.org, the
Recovery Act’s goal opens up new sources of funding for renewable energy at a
time when the wind energy industry is set for even more growth. The
Recovery Act contains a number of provisions that focus on the growth of the
wind industry. Some of the pertinent provisions of the Recovery Act
include the following: (i) three-year extension of the federal wind energy
production tax credit (PTC) so that eligible projects placed in service by the
end of 2012 will qualify for the credit; (ii) option for a thirty percent (30%)
investment tax credit (ITC) instead of the PTC; (iii) option to convert the ITC
into a grant for wind projects placed in service before 2013;
(iv) eliminates the dollar cap on residential small wind and solar
for ITC purposes, and (v) additional loan guarantees, bonds and tax
incentives. These programs enacted under the Recovery Act allow
community wind farms, such as our Company, to take advantage of these funding
opportunities.
Per
Windindustry.org, wind facilities that qualify for the PTC can now make an
irrevocable decision to take 30% ITC in lieu of the PTC. In order to
do so, the project must be placed into service by December 31, 2012, and the PTC
will no longer be available for the project. This has the potential
to attract more investors who may not have enough passive activity income to
realize the PTC. Which credit a taxpayer uses will depend upon an
analysis of the project revenue and cost projections as well as analysis of the
investor tax appetite.
Further,
if the project qualifies for the PTC or the ITC and is placed into service
before 2010 (or it begins construction by 2010 and is placed into service before
2013), the project can choose to apply to the Treasury Department for a cash
grant that is equal to 30% of the qualified costs of the
project. This cash grant is in lieu of both the PTC and
ITC. This means the value of the ITC can be realized, even if the
taxpayer cannot take advantage of the credit. The rules and
application guidelines for this program are currently being established by the
Department of Energy. We believe that the cash grant program will
allow us to enhance our ability to attract equity investors for our community
wind projects.
The
Recovery Act removes the $4,000 cap on small wind credit so taxpayers can now
take the full 30% credit for a qualified small wind system. It also
provides for an additional $1.6 billion for Clean Renewable Energy Bonds (CREBs)
that are used to finance renewable energy. Previously, these bonds
have been given at 0% interest rate, and the bondholder receives a tax credit in
lieu of bond interest.
The
Department of Energy received an extension of its authority to provide loan
guarantees for qualified technologies under Title XVII of the federal Energy
Policy Act of 2005 and an additional $6 billion for this
program. Eligible technologies include electricity-generating
renewable energy projects.
Employees
As of
March 22, 2010, we employed 19 full-time employees and no part-time employees,
excluding employees and consultants of any affiliated companies that are not at
least 50%-owned subsidiaries of ours. None of our employees are subject to a
collective bargaining agreement and we believe that relations with our employees
are very good. We also frequently use third-party consultants to assist in the
completion of various projects. Third parties are instrumental to us in keeping
the construction and development of projects on time and on budget.
15
ITEM
1A RISK FACTORS
Not
applicable for smaller reporting companies.
ITEM
1B UNRESOLVED STAFF COMMENTS
Not
applicable for smaller reporting companies.
ITEM
2 PROPERTIES
Our
corporate office is located at 996 190th Avenue, Woodstock, Minnesota
56186. We own and occupy approximately 2,000 square feet of office
and storage space in a barn-type structure at this site. The building
is constructed on land subject to a ground lease with Kas Brothers, relatives of
an employee of our company. In consideration of the ground lease, we pay less
than $10,000 per year for this ground lease arrangement. We own a
5,300 square foot commercial building located at 1502 17th Street SE, Pipestone,
Minnesota that houses the production, warehousing and general and administrative
purposes of our NextGen subsidiary. In November 2009, we
entered into a one year lease of $2,900 per month for purposes of office and
meeting space in Minneapolis, Minnesota. We maintain a shared office
location in Chicago, Illinois with only nominal rent expense to
us. Two other employees maintain suitable home office arrangements
without charge to us.
ITEM
3 LEGAL PROCEEDINGS
We are
not party to any legal proceedings, nor are we aware of any contemplated or
pending legal proceedings against us.
ITEM
4 RESERVED
PART
II
ITEM
5 MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market
Information
Our
shares of common stock are currently quoted and listed for trading on the OTC
Bulletin Board under the symbol JUHL. Our symbol prior to the closing
of our share exchange transaction on June 24, 2008, was MHSC. No
trades, however, were ever made with respect to shares of MH & SC,
Incorporated common stock prior to the share exchange transaction. As
a result, there is no high and low bid information for shares of MH & SC,
Incorporated common stock for the two most recent fiscal years.
The
following table sets forth the high and low closing prices for our common stock
for the periods indicated as reported by the OTC Bulletin Board:
Year
ended December 31,
|
||||||||||||||||||||||||
Quarter
|
2007
|
2008
|
2009
|
|||||||||||||||||||||
High
|
Low
|
High
|
Low
|
High
|
Low
|
|||||||||||||||||||
First
|
—
|
—
|
—
|
—
|
$
|
2.45
|
$
|
1.71
|
||||||||||||||||
Second
(1)
|
—
|
—
|
$
|
4.60
|
$
|
1.25
|
$
|
2.35
|
$
|
1.55
|
||||||||||||||
Third
|
—
|
—
|
$
|
4.85
|
$
|
2.50
|
$
|
2.45
|
$
|
1.92
|
||||||||||||||
Fourth
|
—
|
—
|
$
|
3.80
|
$
|
1.15
|
2.01
|
1.81
|
(1)
|
For
the second quarter of 2008, the information presented is beginning on June
24, 2008.
|
On December
31, 2009, the closing price of our common stock, as reported by the OTC Bulletin
Board, was $2.00 per share.
These bid
prices represent prices quoted by broker-dealers on the OTC Bulletin
Board. The quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commissions, and may not represent actual
transactions.
16
As
of March 22, 2010, there were 21,039,526 shares of our common stock
outstanding and approximately 41 holders of record of our common
stock. However, we believe that there are significantly more
beneficial holders of our common stock as many beneficial holders hold their
stock in “street name.”
Dividend
Policy
We do not
expect to pay a dividend on our common stock in the foreseeable future.
The payment of dividends on our common stock is within the discretion of
our board of directors, subject to our certificate of
incorporation. We intend to retain any earnings for use in our
operations and the expansion of our business. Payment of dividends in
the future will depend on our future earnings, future capital needs and our
operating and financial condition, among other factors.
Unregistered
Sales of Securities
Share exchange
transaction. On June 24, 2008, at
the closing of the share exchange transaction, we issued an aggregate of
15,250,000 shares of our common stock to the former stockholders of Juhl Energy
and DanMar. The shares of our common stock issued to former holders of Juhl
Energy and DanMar common stock in connection with the share exchange transaction
were exempt from registration under Section 4(2) of the Securities Act of 1933
as a sale by an issuer not involving a public offering and under Regulation D
promulgated pursuant to the Securities Act of 1933. We also issued 2,250,000
shares of our common stock to Greenview Capital, LLC (and unrelated designees)
at the closing of the share exchange transaction in consideration for merger
advisory services in connection with the transaction. These shares of common
stock were not registered under the Securities Act, or the securities laws of
any state, and were offered and sold in reliance on the exemption from
registration afforded by Section 4(2) and Regulation D (Rule 506) under the
Securities Act and corresponding provisions of state securities laws, which
exempts transactions by an issuer not involving any public offering. Such
securities may not be offered or sold in the United States absent registration
or an applicable exemption from the registration requirements and certificates
evidencing such shares contain a legend stating the same.
2008 Private
Placement. Concurrently with the closing of the share exchange
transaction, we completed a private placement to two institutional investors and
two other accredited individuals of units consisting of shares of our
newly-created Series A convertible preferred stock, par value $.0001 per share,
and detachable, five-year Series A, Series B and Series C warrants to purchase
shares of our common stock at an exercise price of $1.25 (Series A), $1.50
(Series B) and $1.75 (Series C) per share. In total, we sold 5,160,000 shares of
our Series A convertible preferred stock (convertible into a like number of
shares of common stock) and Series A, Series B and Series C warrants to each
purchase 2,580,000 shares of common stock, or an aggregate of 7,740,000 shares
of common stock. We received gross proceeds of $5,160,000 in consideration for
the sale of the units.
The units
(and the securities contained in the units) issued in the 2008 private placement
were exempt from registration under Section 4(2) of the Securities Act of 1933
as a sale by an issuer not involving a public offering and under Regulation D
promulgated pursuant to the Securities Act of 1933. The units (and the
securities contained in the units) were not registered under the Securities Act,
or the securities laws of any state, and were offered and sold in reliance on
the exemption from registration afforded by Section 4(2) and Regulation D (Rule
506) under the Securities Act and corresponding provisions of state securities
laws, which exempts transactions by an issuer not involving any public offering.
Such securities may not be offered or sold in the United States absent
registration or an applicable exemption from the registration requirements and
certificates evidencing such securities contain a legend stating the
same.
Issuances to a
Consultant. On June 24, 2008, we issued 50,000 shares of
common stock and warrants to purchase an additional 50,000 shares of common
stock to a consultant in exchange for merger advisory services provided to
us. The shares of common stock and warrants were not registered under
the Securities Act, or the securities laws of any state, and were offered and
sold in reliance on the exemption from registration afforded by Section 4(2)
under the Securities Act and corresponding provisions of state securities laws,
which exempts transactions by an issuer not involving any public
offering. Such securities may not be offered or sold in the United
States absent registration or an applicable exemption from the registration
requirements and certificates evidencing such shares contain a legend stating
the same.
NextGen
Acquisition. On October 31, 2008, we acquired all of the
outstanding shares of common stock of Next Generation Power Systems, Inc.
(“NextGen”) in exchange for an aggregate purchase price of $322,500 payable by
delivery of an aggregate of 92,143 shares of our common stock allocated among
the NextGen non-controlling interests. The purchase transaction included
assumption of certain liabilities of NextGen including a note payable to First
Farmer’s & Merchant’s National Bank, but excluded the stockholder notes,
which the stockholders of NextGen agreed to contribute to
equity. Simultaneously with the acquisition of all of NextGen, we
also purchased a commercial building and associated land located in Pipestone,
Minnesota from the individual owners of NextGen. We issued 41,070 unregistered
shares of common stock to the minority stockholders of NextGen for the purchase
of the land and building. The 41,070 shares issued to the NextGen minority
interest were valued at $3.50 per share at the date of agreement, or
$144,000. The acquisition was accounted for at fair value of the land
and building on the date of purchase which totaled $173,055. The
shares of common stock issued in the NextGen acquisition were not registered
under the Securities Act, or the securities laws of any state, and were offered
and sold in reliance on the exemption from registration afforded by Section 4(2)
and Regulation D (Rule 506) under the Securities Act and corresponding
provisions of state securities laws, which exempts transactions by an issuer not
involving any public offering. Such securities may not be offered or sold in the
United States absent registration or an applicable exemption from the
registration requirements and certificates evidencing such shares contain a
legend stating the same.
17
Warrant
Exercise. On June 29, 2009, the Company entered into a warrant
amendment agreement with the holders of the Company’s Class A warrants, whereby
the holders and the Company agreed that such warrants would be exercisable
solely for the Company’s new Series B Convertible Preferred Stock (Series
B). Furthermore, the holders agreed to exercise 2,036,840 of the
Series A warrants for an equal number of Series B Convertible Preferred shares
for approximately $2,339,000 in cash and a subscription note receivable in the
amount of $196,710. The note was paid to the Company in December
2009.
Warrant
Exchange. On June 30, 2009, we entered into a securities
exchange agreement with the holders of our Series A, Series B and Series C
Warrants pursuant to which the holders agreed to exchange all of their
outstanding (i) remaining Series A Warrants to purchase 543,159 shares of our
Series B convertible preferred stock, (ii) Series B warrants to purchase
2,580,000 shares of our common stock at $1.50 per share and (iii) Series C
Warrants to purchase 2,580,000 shares of our common stock at $1.75 per share for
an aggregate of 4,570,166 shares of our Series B convertible preferred
stock. No cash consideration was paid in connection with the
exchanges. The exchange was conducted in reliance on the exemption from
registration afforded by Section 3(a)(9) under the Securities Act and
corresponding provisions of state securities laws. Such securities
may not be offered or sold in the United States absent registration or an
applicable exemption from the registration requirements and certificates
evidencing such shares contain a legend stating the same.
Options
Grant. On June 29, 2009, we granted one of our directors
options to purchase 500,000 shares of our common stock outside of our 2008
Incentive Compensation Plan at $2.00 per share, with 166,666 options immediately
exercisable, 166,667 options vesting on June 29, 2010 and 166,667 options
vesting on June 29, 2011. The options and underlying shares of common
stock were not registered under the Securities Act, or the securities laws of
any state, and were issued in reliance on the exemption from registration
afforded by Section 4(2) and Regulation D under the Securities Act and
corresponding provisions of state securities laws. Such securities
may not be offered or sold in the United States absent registration or an
applicable exemption from the registration requirements and certificates
evidencing such shares contain a legend stating the same.
Warrant Issuance
to Consultants. On October 1, 2009, we issued warrants to
purchase 100,000 shares of common stock to a consultant in exchange for
consulting services in the areas of business management, business development,
corporate strategy and capital funds for operating companies and emerging growth
enterprises provided to us. The warrants were not registered under
the Securities Act, or the securities laws of any state, and were offered and
sold in reliance on the exemption from registration afforded by Section 4(2)
under the Securities Act and corresponding provisions of state securities laws,
which exempts transactions by an issuer not involving any public
offering. Such securities may not be offered or sold in the United
States absent registration or an applicable exemption from the registration
requirements and certificates evidencing such shares contain a legend stating
the same.
Other
Stockholder Matters
Amendment
Agreement – Registration Rights Agreement
On March
27, 2009, the Company and the holders of the Company’s Series A Preferred Stock
entered into an agreement amending the penalty provisions (including liquidated
damages) provided in the Registration Rights Agreement for failure to timely
file and obtain effectiveness of a registration statement. Under
such agreement, the Company agreed to issue additional common stock to the
holders of the Series A convertible preferred stock at a price equal to 75% of
the average of the immediately preceding 20 days’ daily volume weighted average
price for the common stock. This issuance of common stock is in lieu of
the liquidated damages set forth under the Registration Rights Agreement and
constitutes a waiver and deletion of redemption rights provided by Section 9 of
the Company’s Certificate of Designation of Preferences, Rights and Limitations
of Series A 8% Convertible Preferred Stock of the Company with the Delaware
Secretary of State on June 24, 2008. This Amendment Agreement
was initially reported on Form 10-K for the year ended December 31, 2008, filed
with the U.S. Securities Exchange Commission on March 30,
2008. Further, the Amendment Agreement was filed as an exhibit to
Amendment No. 2 to our Registration Statement on Form S-1, filed with the U.S.
Securities and Exchange Commission on April 15, 2009.
Memorandum
of Understanding
On April
13, 2009, the Company and the holders of the Company’s Series A 8% Convertible
Preferred Stock entered into a Memorandum of Understanding regarding the
registration of Holder Registrable Securities (as defined in the Registration
Rights Agreement dated as of June 24, 2008) under the Company’s Form S-1
Registration Statement filed on October 22, 2008 and subsequently amended (the
“Juhl Registration Statement”). Pursuant to this Memorandum of
Understanding, the parties confirmed, acknowledged and agreed regarding the pro
rata reduction of Registrable Securities between the Holder Registrable
Securities and Greenview Capital Registrable Securities (as defined in the
Registration Rights Agreement), in order to comply with U. S. Securities and
Exchange Commission guidance with respect to the amount of securities eligible
for registration on the Juhl Registration Statement. The Memorandum
of Understanding was reported in the Company’s Amendment No. 2 to our
Registration Statement on Form S-1, field with the U.S. Securities and Exchange
Commission on April 15, 2009.
18
Amendment
of Registration Rights Agreement and Rights of Series A Convertible Preferred
Stock.
On May
13, 2009, the Company and the holders of the Company’s Series A 8% Convertible
Preferred Stock entered into an agreement amending the penalty provisions
(including liquidated damages) provided in the Registration Rights Agreement
dated June 24, 2008 for failure to timely file and obtain effectiveness of a
registration statement. Under this agreement, the Company agreed to issue
additional common stock to the holders of the Series A Convertible Preferred
Stock at a price equal to 75% of the average of the immediately preceding 20
days’ daily volume weighted average price. This issuance of common
stock was in lieu of the liquidated damages set forth under the Registration
Rights Agreement and constituted a waiver and deletion of redemption rights
provided by the Company’s Certificate of Designation of Preferences, Rights and
Limitations of Series A 8% Convertible Preferred Stock filed with the Delaware
Secretary of State on June 24, 2008.
On June
11, 2009, the Company filed with the Secretary of State of Delaware an Amended
and Restated Certificate of Designation of Preferences, Rights and Limitations
of Series A 8% Convertible Preferred Stock to reflect these agreements with the
holders of the Series A Preferred Stock.
This
amendment of the Registration Rights Agreement, rights of Series A 8%
Convertible Preferred Stock and Amended and Restated Certificate of Designation
of Preferences, Rights and Limitations of Series A 8% Convertible Preferred
Stock were reported in the Company’s Current Report on Form 8-K filed with the
U. S. Securities and Exchange Commission on June 15, 2009.
Declaration
of Effectiveness of Registration Statement on Form S-1
On June
24, 2009, the U. S. Securities and Exchange Commission declared the Company’s
Registration Statement on Form S-1, as amended, effective. Our
Registration Statement provided for the sale of up to 1,700,000 shares of our
common stock, in accordance with the terms set forth therein, by selling
stockholders as listed therein.
Waiver
Agreement
On
September 23, 2009, the Company and each of the purchasers of its Series A
Preferred Stock entered into a Waiver Agreement waiving certain provisions of
the Warrant Amendment Agreement among the same parties dated March 27,
2009. The Waiver Agreement was included as an exhibit to the
Company’s Registration Statement on Form S-1 filed with the U.S. Securities and
Exchange Commission on September 30, 2009.
Filing
of Amended and Restated Certificate of Designation of Preferences, Rights and
Limitations of Series B Preferred Stock
On
September 28, 2009, the Company filed a Current Report on Form 8-K with the U.S.
Securities and Exchange Commission reporting that on September 28, 2009, the
Company filed with the Secretary of State of Delaware an Amended and Restated
Certificate of Designation of Preferences, Rights and Limitations of Series B
Preferred Stock to provide information inadvertently omitted from the originally
filed Certificate of Designation regarding the date upon which a price
determination is to be made with respect to subsequent rights
offerings.
Declaration of Effectiveness of
Registration Statement on Form S-1
On
September 30, 2009, the Company filed a Registration Statement on Form S-1 with
the Securities and Exchange Commission providing for the sale of up to
1,700,000 shares of our common stock underlying our Series B Preferred Stock, in
accordance with the terms set forth therein, by selling stockholders as listed
therein. Such Registration Statement was declared effective by the
Securities and Exchange Commission on October 14, 2009.
Transfer
Agent
Our
transfer agent is Empire Stock Transfer, 1859 Whitney Mesa Dr., Henderson,
NV 89014.
ITEM
6 SELECTED FINANCIAL DATA
Not
applicable for smaller reporting companies.
19
ITEM
7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Cautionary
Language Regarding Forward-Looking Statements and Industry Data
This
annual report contains “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995 that involve risks and
uncertainties, many of which are beyond our control. Our actual
results could differ materially and adversely from those anticipated in such
forward-looking statements as a result of certain factors, including those set
forth in this report. Important factors that may cause actual results
to differ from projections include, but are not limited to, for
example: adverse economic conditions, inability to raise sufficient
additional capital to operate our business, delays, cancellations or cost
overruns involving the development or construction of our wind farms, the
vulnerability of our wind farms to adverse meteorological and atmospheric
conditions, unexpected costs, lower than expected sales and revenues, and
operating defects, adverse results of any legal proceedings, the volatility of
our operating results and financial condition, inability to attract or retain
qualified senior management personnel, and other specific risks that may be
referred to in this report. All statements, other than statements of
historical facts, included in this current report regarding our strategy, future
operations, financial position, estimated revenue or losses, projected costs,
prospects and plans and objectives of management are forward-looking
statements. When used in this current report, the words “will,”
“may,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project,”
“plan” and similar expressions are intended to identify forward-looking
statements, although not all forward-looking statements contain such identifying
words. All forward-looking statements speak only as of the date of
this report. We undertake no obligation to update any forward-looking
statements or other information contained herein. Stockholders and
potential investors should not place undue reliance on these forward-looking
statements. Although we believe that our plans, intentions and
expectations reflected in or suggested by the forward-looking statements in this
report are reasonable, we cannot assure stockholders and potential investors
that these plans, intentions or expectations will be achieved. These
cautionary statements qualify all forward-looking statements attributable to us
or persons acting on our behalf. Information regarding market and
industry statistics contained in this report is included based on information
available to us that we believe is accurate. It is generally based on
academic and other publications that are not produced for purposes of securities
offerings or economic analysis. Forecasts and other forward-looking
information obtained from these sources are subject to the same qualifications
and the additional uncertainties accompanying any estimates of future market
size, revenue and market acceptance of products and services. We have
no obligation to update forward-looking information to reflect actual results or
changes in assumptions or other factors that could affect those
statements.
Overview
On June
24, 2008, we acquired all of the outstanding shares of common stock of two
related companies, Juhl Energy and DanMar, in exchange for the issuance of
15,250,000 shares of our common stock. As a result, Juhl Energy and DanMar are
now our wholly-owned subsidiaries. The transaction is referred to in this report
as the share exchange transaction.
As a
result of the share exchange transaction, we are now engaged in the development
of community wind power in various small communities in the Midwestern United
States and Canada committed to building medium scale wind farms jointly owned
with local communities and farm owners. The wind farms are connected to the
general utility electric grid to produce clean, environmentally-sound wind power
for use by the electric power industry. Since inception, Juhl Energy and DanMar
have developed 14 wind farms, accounting for approximately 117.5 megawatts of
wind power, that currently operate in the Midwest region of the United States.
At the time of the share exchange transaction, Juhl Energy and DanMar were
engaged in various aspects of the development of 16 wind farms totaling an
additional 400 megawatts of community wind power systems. Currently,
we are presently engaged in various aspects of the development of 28 wind farms
totaling approximately an additional 451 megawatts of community wind power
systems
Before
the share exchange transaction, our corporate name was MH & SC, Incorporated
and our trading symbol was MHSC.OB. Concurrently with the share exchange
transaction, we changed our corporate name to Juhl Wind, Inc. and changed our
trading symbol to JUHL.OB. As a result of the share exchange transaction, Juhl
Energy and DanMar became our wholly-owned subsidiaries, with the former
stockholders of Juhl Energy and DanMar acquiring 15,250,000 shares of our common
stock. Both Juhl Energy and DanMar were controlled by Daniel J. Juhl, their
founder and our new Chairman and Chief Executive Officer. The share exchange
transaction was consummated pursuant to a Securities Exchange Agreement, dated
June 24, 2008, between us, and Juhl Energy and DanMar and, for certain limited
purposes, the former stockholders of Juhl Energy and DanMar.
Concurrently
with the closing of the share exchange transaction, we completed a private
placement to two institutional investors and two other accredited investors of
units consisting of shares of our newly-created Series A convertible preferred
stock and detachable five-year Series A, Series B and Series C warrants to
purchase shares of our common stock at an exercise price of $1.25 (Series A),
$1.50 (Series B) and $1.75 (Series C) per share. In total, we sold 5,160,000
shares of our Series A convertible preferred stock (convertible at any time into
a like number of shares of common stock) and Series A, Series B and Series C
warrants to purchase 2,580,000 shares of common stock, or an aggregate of
7,740,000 shares of common stock. We received gross proceeds of $5,160,000 in
consideration for the sale of the units ($4,560,000 from Vision Opportunity
Master Fund, Ltd., $500,000 from Daybreak Special Situations Master Fund, Ltd.
and $100,000 from Bruce Meyers and Imtiaz Khan.)
20
Concurrently
with the closing of the share exchange transaction and the 2008 private
placement, we cancelled 3,765,000 shares of our common stock held by Vision
Opportunity Master Fund, Ltd. Simultaneously with the closing of the share
exchange transaction between MH & SC, Juhl Energy and DanMar, Cory Heitz,
the then principal stockholder, director and chief executive officer of MH &
SC prior to the share exchange transaction, received all of the outstanding
membership interests of My Health & Safety Supply Company, LLC, an Indiana
limited liability company, in full satisfaction of advances made by Mr. Heitz to
MH & SC in the principal amount of $121,000, plus accrued but unpaid
interest. We determined that this business was incidental to our new wind energy
business. MH&SC was the holding company for My Health & Safety Supply
Company, LLC. My Health & Safety Supply Company, LLC was the only
operating subsidiary of MH&SC. The sale of My Health & Safety
Supply Company, LLC was a condition of the share exchange
transaction.
On
October 31, 2008, we acquired all of the outstanding shares of common stock of
NextGen in exchange for an aggregate purchase price of $322,500 payable by
delivery of an aggregate of 92,143 shares of our common stock allocated among
the NextGen non-controlling interests. The purchase transaction included
assumption of certain liabilities of NextGen including notes payable to First
Farmer’s & Merchant’s National Bank, but excluded the stockholder notes,
which the stockholders of NextGen agreed to make as a contribution to
equity. Simultaneously with the acquisition, we also purchased a
commercial building and associated land located in Pipestone, Minnesota from the
individual owners of NextGen. We issued 41,070 unregistered shares of common
stock to the minority stockholders of NextGen for the purchase of the land and
building. The 41,070 shares issued to the NextGen minority interest were valued
at $3.50 per share at the date of agreement, or $144,000. The
acquisition was accounted for at fair value of the land and building on the date
of purchase which totaled $173,055.
On June
29, 2009, we entered into a warrant amendment agreement with the holders of our
Series A Warrants. Pursuant to the terms of the warrant amendment
agreement, all of our then outstanding Series A Warrants to purchase 2,580,000
shares of our common stock at $1.25 per share were amended such that the Series
A Warrants would be exercisable solely for shares of our Series B convertible
preferred stock. Pursuant to the warrant amendment agreement, the
holders of our Series A Warrants agreed to exercise an aggregate of 2,036,840
Series A Warrants at a price of $1.25 per share.
On June
30, 2009, we entered into a securities exchange agreement with the holders of
our Series A, Series B and Series C Warrants pursuant to which the holders
agreed to exchange all of their outstanding (i) remaining Series A Warrants to
purchase 543,159 shares of our Series B convertible preferred stock (after
giving effect to the foregoing amendment and exercise), (ii) Series B warrants
to purchase 2,580,000 shares of our common stock at $1.50 per share and (iii)
Series C Warrants to purchase 2,580,000 shares of our common stock at $1.75 per
share for an aggregate of 4,570,166 shares of our Series B convertible preferred
stock. The exchange value was based on the cashless exercise value of
the exchanged warrants. Following the consummation of the 2009
warrant exchange, we had no further Series A, Series B or Series C Warrants
outstanding.
How
We Operate
We group
our operations into two business segments: (i) wind farm development,
construction, and management and (ii) consumer-owned renewable
energy. Our business segments are separate business units that offer
different products. The wind farm development, construction and
management segment represents revenue derived from the development of “community
wind power.” The consumer-owned renewable energy segment represents
revenue derived from the sale of consumer-owned renewable energy
products.
Our wind
farm development projects most commonly involve a fee contract with entities
specially formed by local farmers upon whose land the wind turbines are
installed. Revenue is also derived from our work in the development of wind
farms throughout the development process including four major components:
feasibility studies, development fees, operations and management oversight and
construction contract revenue.
We hold
contract rights, are involved with projects in development and under
negotiation, and provide development activities in the wind power industry. Once
wind farms are operational, we seek contract rights to provide administrative
services agreements which call for management and administrative services to be
provided to the operating wind farm. Our assets include nine development
services agreements, twelve projects in early development stages, and seven
agreements to conduct wind power feasibility studies.
Due to
the anticipated increased demand for electricity from alternative energy sources
in 2010 and beyond, together with the stimulus from new federal government
regulations, we believe the demand for wind energy developments and
consumer-owned renewable energy products will be stable or will increase in the
foreseeable future. We anticipate growing revenues on an annual basis beginning
in 2009; however, revenue will be subject to shifts in timing due to project
development delays resulting from our ability to obtain financing and the
construction season in the Upper Midwest climate.
21
Accounts
Receivable. Traditional credit terms are extended to customers
in the normal course of business. We perform ongoing credit evaluations of our
customers’ financial condition and generally require no collateral.
Factors
Affecting Our Operating Results
Demand
Demand
for wind power in the United States is growing rapidly and we believe the call
for growth in community wind power is increasing as well. Community wind power
systems will make up a segment of this growth, leading to what we estimate will
be significant growth in community power wind systems.
Growth in
wind power is being driven by several environmental, socio-economic and energy
policy factors that include:
·
|
ongoing
increases in electricity demand due to population growth and growth in
energy consuming devices such as computers, televisions and air
conditioning systems,
|
|
·
|
the
increasing cost of the predominant fuels required to drive the existing
fleet of conventional electric generation such as coal, natural gas,
nuclear and oil,
|
·
|
the
increasing cost and difficulty faced in the construction of conventional
electric generation plants,
|
|
·
|
existing
and growing legislative and regulatory mandates for “cleaner” forms of
electric generation, including state renewable portfolio standards and the
U.S. federal tax incentives for wind and solar generation, including the
American Recovery and Reinvestment Act enacted in February
2009,
|
·
|
ongoing
improvements to wind power systems making them more cost effective and
improving availability to meet demand, and
|
|
·
|
worldwide
concern over greenhouse gas emissions and calls to reduce global warming
due to the carbon dioxide produced by conventional electric
generation.
|
In light
of these factors and the resulting increase in demand for wind power, we believe
that we are uniquely positioned to experience significant year-over-year growth
and development of specific community wind farms throughout the United States.
We can provide full-scale development of wind farms across the range of required
steps including performing initial feasibility studies, assisting in power
purchase agreement negotiations, arranging equity and debt project financing,
providing equipment and construction services, and managing
operations.
Debt
and Equity Financing Markets
Wind farm
development projects are dependent on the ability to raise debt and equity
financing to fund the turbine and substation components, construction costs and
other development expenses. We assist project owners in identifying sources of
debt and equity capital as a part of our development efforts. We have expended
significant efforts in 2009 on behalf of two construction-ready wind farm
projects to identify sources of debt and equity financing in order to proceed to
the actual construction phase. In the fourth quarter of 2009, we commenced
construction on a 20MW wind generation facility in Grant County, Minnesota,
consisting of 10 wind turbine generators and related interconnection facilities,
and a 1MW wind farm in Pipestone County, Minnesota. It is our belief that
many wind farm project owners across the U.S. are facing similar difficulties in
arranging project financing as well, particularly construction
financing. The difficulties in obtaining financing
is especially evident within banking institutions who have
liquidity issues resulting from the recent recessionary conditions
and a banking crisis that has led to U.S. government bailout programs
and tight regulatory conditions. The slowdown in new wind farm
construction has led to increase in wind turbine inventory around the country,
and we are observing that turbine suppliers are also becoming a source of
capital in the construction financing of wind farm projects. We
expect credit conditions to improve and we will assist project owners in
examining federal and loan guarantee programs as an additional means of securing
project financing.
Site
Selection
Wind,
however, is intermittent and electricity generated from wind power can be highly
variable. Good site selection and advantageous positioning of turbines on a
selected site are critical to the economic production of electricity by wind
energy. In our experience, the primary cost of producing wind-powered
electricity is the turbine equipment and construction cost. As an intermittent
resource, wind power must be carefully positioned into the electric grid along
with other generation resources and we believe Juhl Wind has demonstrated the
expertise necessary to work with local electric utilities to affect the proper
integration plan. As such, we intend to continue to identify new
sites to produce wind energy through the community wind power model
throughout the United States and Canada with a focus on the Midwestern region of
the U.S.
22
Basis of
Presentation
Our
financial statements are prepared in accordance with generally accepted
accounting principles and the rules and regulations of the SEC.
As
described above, in connection with the share exchange transaction, we succeeded
to the wind farm development and management business of Juhl Energy and DanMar,
and Juhl Energy and DanMar became our wholly-owned subsidiaries. For
accounting purposes, Juhl Energy was the acquirer in the share exchange
transaction, and consequently the transaction is treated as a recapitalization
of the company. DanMar was accounted for in a manner similar to
pooling of interests due to common control ownership.
On
October 31, 2008, we acquired all of the issued and outstanding shares of common
stock of NextGen. Our acquisition of NextGen was accounted for in a
manner similar to pooling of interests due to common control ownership. The
assets and liabilities of NextGen were combined at historical cost for the
portion (54%) under common control and at fair value for the non-controlling
interest. The revenue and expense activities of NextGen are included
in the accompanying statement of operations for the years ended December 31,
2008 and 2007. The following discussion of our financial condition and results
of operations should be read in conjunction with our financial statements and
related notes included in this annual report.
Juhl
Energy, DanMar and NextGen’s financial statements are our historical financial
statements.
Significant
Accounting Estimates
We review
all significant estimates affecting our consolidated financial statements on a
recurring basis and record the effect of any necessary adjustment prior to their
publication. Uncertainties with respect to such estimates and assumptions are
inherent in the preparation of financial statements; accordingly, it is possible
that actual results could differ from those estimates and changes to estimates
could occur in the near term. The preparation of our consolidated financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of the contingent
assets and liabilities at the date of the consolidated financial statements and
the reported amounts of revenue and expenses during the reporting period. The
Company uses estimates and assumptions in accounting for the following
significant matters, among others: revenue recorded from the development
agreements is a significant estimate based on a percentage of estimated project
costs and the percentage of completion method used to recognize construction
contract revenue; economic lives of property and equipment; realizability of
accounts receivable; valuation of deferred tax assets, inventory, stock based
compensation and warrants, goodwill, intangible asset, income tax uncertainties,
fair value of warrant liability, and other contingencies. Revenue from the
development agreements is adjusted to reflect actual costs incurred by the
project upon the commercial operation date. Accordingly, actual
revenue may differ from previously estimated amounts, and such differences may
be material to the financial statements. The Company periodically reviews
estimates and assumptions, and the effects of any such revisions are reflected
in the period in which the revision is made.
A
majority of the revenue we have recorded for the year ended December 31, 2009 is
based on our assumption of collectability of funding from our wind farm customer
who is in the process of obtaining executed term sheets with financial
institutions or equity subscribers. They expect to close on such term
sheets within 60 to 120 days of filing this report with the Securities and
Exchange Commission.
Our
management has discussed the development and selection of these significant
accounting estimates with our board of directors and our board of directors has
reviewed our disclosures relating to them.
Results
of Operations – Year ended December 31, 2009 Compared to Year ended December 31,
2008
Overview
Our
general activity for the year ended December 31, 2009 was primarily focused on
the ongoing development of 28 wind farms we have under development with various
parties and in various stages of development. Our management believes that we
are poised for growth as we now have improved our balance sheet liquidity
necessary to work through our current projects under development and ability to
develop future projects. Our general activity for the three months
ended December 31, 2009 was primarily focused on the bringing of two wind farm
projects in Minnesota, Woodstock and Grant County, forward to
construction. The 20 megawatt Grant County wind farm project
commenced construction during the fourth quarter of 2009, and completion is
expected during the first half of the 2010 fiscal year. The 1
megawatt Woodstock farm project commenced construction during the fourth quarter
of 2009, and completion is expected during the first half of the 2010 fiscal
year.
Our wind
farm development projects most commonly involve a fee contract with entities
specially formed by local farmers upon whose land the wind turbines are
installed. Revenue is also derived from our work in the development of wind
farms throughout the development process including four major components:
feasibility studies, development fees, operations and management oversight and
construction fees.
23
We hold
contract rights, are involved with projects in development and under
negotiation, and provide development activities in the wind power industry. Once
wind farms are operational, we seek contract rights to provide administrative
services agreements which call for management and administrative services to be
provided to the operating wind farm. In addition, we occasionally
provide turbine maintenance services on a time and materials basis as requested
by project owners.
Due to
the anticipated increased demand for electricity from alternative energy sources
in 2010 and beyond, together with the stimulus from new federal government
regulations, we believe the demand for wind energy developments and
consumer-owned renewable energy products will be stable or will increase in the
foreseeable future. We anticipate a steep increase in revenues in the first
quarter in 2010 and on an annual basis beginning in 2010 as a result of
completing construction and moving forward with operations on our projects under
development. However, revenue will be subject to shifts in timing due
to delays in construction caused by Upper Midwest climate or other unforeseen
circumstances. The timing of our development fee revenue is also
dependent on the ability of the wind farm projects to obtain permanent debt and
equity financing.
During
the year ended December 31, 2009, we added new projects under development,
underscoring the demand in the market and specifically for our form of community
wind power. We encountered difficult economic conditions with respect
to the financing of wind development projects, and as such, we commissioned no
new wind farm projects through December 31, 2009. In 2009, we have
worked to align ourselves with environmentally friendly concerned investors to
provide financing options for investment in our projects. During the
fourth quarter, we commenced construction on two of our projects under
development, the Grant County wind farm, which is approximately a 20 MW wind
generation facility in Grant County, Minnesota, consisting of 10 wind turbine
generators and related interconnection facilities in Grant County, Minnesota
(the “ GCW Project), and Woodstock, a 1 MW wind generation facility in Pipestone
County (“Woodstock”).
As part
of the GCW Project, Juhl Energy entered into a Development and Construction
Services Agreement (the “Development Agreement”), with Grant County Wind LLC, a
Minnesota limited liability company, and each of the individual wind
generator companies (a “Generator LLC”) who are also the members of Grant County
Wind, LLC, (each Generator LLC and Grant County Wind, LLC, collectively the
“Owner”). Under the Development Agreement, the Owner contracted with
Juhl Energy for the development, design, construction, installation, and
financing of the Project’s balance of plant on property in which Owner will have
control or an ownership interest. The Project’s balance of plant involves the
installation of ten (10) 2.0 MW wind turbine generators, which are the subject
of a Turbine Supply Agreement between the Owner and the turbine supplier. Juhl
Energy, together with the turbine supplier of the Project, has also agreed to
take a promissory note for a portion of the expected $8.5 million construction
cost of the Project together with security interest that is junior to the
turbine supplier. Juhl Energy’s primary subcontractor has also agreed to assist
Juhl Energy in its financing by deferring payment of its services through the
acceptance of a promissory note until permanent financing is placed on the
Project. As a part of this Development Agreement, the primary
subcontractor’s note must be paid within 180 days of the substantial completion
of the project, and if this does not occur, the subcontractor may exercise legal
rights to demand payment from Juhl only as it relates to Juhl’s rights to its
promissory note and its Development Agreement, including a right of foreclosure
on the note delivered to Juhl Energy by the Owners, which could, in turn, allow
for conversion of amounts to project equity by Juhl Energy or its primary
subcontractor.
As a part
of the Woodstock project, Juhl Energy entered into a Turbine Sales Agreement and
a Construction Services Agreement with the project owner totaling approximately
$1.55 million. This amount will be funded by approximately $860,000
of equity proceeds that have been raised from the sole investor in the project,
together with an expected closing of a bank loan and federal cash grant
proceeds.
In order
to continue our ability to develop projects in our pipeline, Juhl Energy has
entered into a Frame Order Agreement with a turbine supplier (“Turbine
Supplier”), whereby Turbine Supplier will supply certain wind turbine generators
for our community wind power projects. This Frame Order Agreement defines
certain terms and conditions, including the scope of supply, pricing, and
warranties of the wind turbine generators, that will be included in each Project
Turbine Supply Agreement. Each Project Turbine Supply Agreement will
govern the supply and purchase of certain Turbine Supplier wind turbine
generators for individual community wind power projects between October 1, 2009
and December 31, 2012. Further, in addition to the rights and
benefits provided under the Frame Order Agreement, Juhl Energy may be entitled
to acquire equity in the parent company of the Turbine Supplier (“Parent”)
through the issuance of warrants by the Turbine Supplier for the purchase of
ordinary stock in its parent company, which shall be exercisable upon achieving
certain milestones based on volume of turbines purchased, during the term of the
Frame Order Agreement. In addition, as part of the overall working
relationship with the Turbine Supplier, we have entered into a letter of
understanding whereby an affiliate of the Turbine Supplier has agreed to
invest equity into certain of our community wind power projects that
use its wind turbines. We believe the relationship with
this Turbine Supplier will benefit our continued growth in the community wind
power industry with the development and completion of further community wind
power projects.
24
Revenue
Total
revenue increased by approximately $10,345,000, or 777.2%, from approximately
$1,331,000 for the year ended December 31, 2008, to approximately $11,676,000,
for the year ended December 31, 2009.
The
large increase in revenue is primarily attributable to approximately $7,939,000
of construction contract revenue from two wind farm construction projects during
the fourth quarter of 2009. The projects were in progress at December 31, 2009
with completion estimate percentages of 90% and 82%. Completion percentages were
based on costs incurred to date compared with the expect total construction cost
estimates. Both projects are expected to be completed during the first quarter
of 2010 and the remaining revenue recognized.
Turbine
sales and service revenues increased by approximately $2,037,000 over 2008 as a
result of the turbine sale in the 1 MW Woodstock wind farm project of
approximately $1,166,000 together with a $871,000 increase in small turbine
sales in our NextGen subsidiary. The $871,000 increase in NextGen,
which is essentially our consumer-owned renewable energy segment, was
attributable to the sale of 19 turbines in 2009 versus only five in
2008. The prior year revenues were impacted by NextGen’s (prior to
our acquisition of NextGen) need to focus on customer warranty and turbine
design issues, together with its focus on preparation for sale of the turbine
business to Juhl Wind. NextGen had seven wind turbines in
backlog with expected ship dates in the first quarter of 2010 depending on the
timing of new components from suppliers. In August 2009, we reported
that the NextGen business entered into a $1 million, 20 year licensing and
distribution arrangement with an Ohio company. The revenue for this
arrangement is being amortized over the twenty year period of such
agreement. Revenue of $8,300 was included in Turbine Sales and
Service revenue in 2009 from this arrangement.
Wind farm
development and management revenue, together with similar related party revenue
that has been separately stated on the statement of operations, increased by
approximately $364,000, or 41.8%, from approximately $871,000 for the year ended
December 31, 2008 to approximately $1,234,000 for the year ended December 31,
2009. This increase is primarily attributable to revenue recognized
from completing power purchase agreements on four of our wind farm developments
in 2009, together with approximately $120,000 of wind farm maintenance
revenue.
Cost
of Goods Sold
Costs of
goods sold increased by approximately $9,427,000, or 2185% in 2009, from
approximately $431,000 for the year ended December 31, 2008 to approximately
$9,858,000 for the year ended December 31, 2009. Cost of goods sold
for 2009 includes approximately $7,537,000 of wind farm construction costs,
$2,157,000 of turbine costs, and $163,000 of wind farm management
costs. There were no wind farm construction costs in 2008 as we did
not have any wind farms under construction due to difficulties in obtaining
financing to begin construction activities. The primary component of wind farm
construction costs in 2009 were subcontracted services from vendors who supply
construction services and materials for the Grant County and Woodstock wind
farms under construction. Of the turbine costs of goods sold of $2,157,000,
approximately $1,000,000 relates to cost of goods sold related to the
consumer-owned renewable energy products and services.
Operating
Expenses
General and Administrative
Expenses. General and administrative expenses increased by
approximately $743,000, or 84.9%, from approximately $876,000 for the year ended
December 31, 2008 to approximately $1,619,000 for the year ended December 31,
2009. The increase was primarily attributable to approximately $570,000 of
professional fees incurred in connection with the increased costs of being a
public reporting company, subsequent audit costs over NextGen acquisition,
securities registration filings, legal services for legislative support, and
accounting services support. Of this amount, we believe that approximately
$225,000 represent one-time costs associated with these professional services.
The increase in general and administrative expenses over 2008 also included
approximately increased expenses for travel and supplies in relation to the
increased number of employees, insurance, NextGen operations, and
administration.
Payroll and Employee
Benefits. Payroll and employee benefits expenses increased by
approximately $1,268,000, or 155.3%, from approximately $817,000 for the year
ended December 31, 2008 to approximately $2,085,000 for the year ended December
31, 2009. With regard to the increase of $1,268,000, approximately
$722,000 of the increase was attributable to the increase in employee-based
stock-based compensation expense over the twelve months ended December 31, 2008
related to stock options, $157,000 was attributable to an increased number and
rate of compensation for executive officers, and the remaining part of the of
the increase was primarily attributable to salaries and benefits for the
addition of eight employees over the prior year.
Wind Farm Management
Expenses. Wind farm management expenses increased by
approximately $37,000, or 22.7%, from approximately $165,000 for the year ended
December 31, 2008 to approximately $202,000 for the year ended December 31,
2009. The increase in expenses results primarily from the incurrence
of maintenance costs incurred on time and materials arrangements with wind farm
facilities.
25
Investor Relation
Expenses. Investor Relations Expenses increased by
approximately $99,000, or 45.4%, from approximately $219,000 for the year ended
December 31, 2008 to approximately $318,000 for the year ended December 31,
2009. Nearly all of these expenses were paid from a
restricted cash fund stemming from the 2008 private placement and 2009 warrant
exercise and exchange. The increase in 2009 relates to 12 months of
investor relations activity, as 2008 only had 6 months of activity.
Other Income
(expenses). The Company, beginning on January 1, 2009,
recognized its warrants (issued in connection with the 2008 private placement)
as liabilities at their respective fair values. This accounting
treatment was required under generally accepted accounting principles whereby
our detachable warrants stemming from the private placement must be accounted
for as a derivative instrument. As a result of revaluing the warrants prior to
the exercise or exchange of such warrant instruments on June 29, 2009, we
recorded a gain of approximately $2,199,000 from the change in the fair value of
the underlying warrants using the Black Scholes method. No further
adjustments are necessary to the fair value of these warrants as the warrants
are no longer outstanding.
Operating
Loss
Our
operating loss increased by approximately $972,000, or 59.6%, from approximately
$1,629,000 for the year ended December 31, 2008 to approximately $2,600,000 for
the year ended December 31, 2009. The increase in operating loss is
primarily attributable to the growth in general and administrative and
payroll-related expenses as described above.
Net
Loss
Net loss
decreased by approximately $1,070,000, or 89.1%, from approximately $1,201,000
for the year ended December 31, 2008 to approximately $131,000 for the year
ended December 31, 2009. Our net loss is significantly impacted by
the fair value accounting over the warrant derivatives and subsequent non-cash
gain of approximately $2,200,000 reported in the year ended December 31,
2009 as described above under other income (expense).
Accounts
Receivable
Traditional
credit terms are extended to customers in the normal course of business. We
perform ongoing credit evaluations of our customers’ financial condition and
generally require no collateral.
Property
and Equipment
As of
December 31, 2009 and December 31, 2008, we held $430,000 and $344,000 in net
book value of property and equipment, respectively. These assets included land,
buildings, office equipment, shop equipment and service vehicles.
Liquidity
and Capital Resources
We have
incurred additional operating costs, especially in the area of professional
fees, since becoming a public reporting company. At the same time, we
will continue our internal efforts to assist our project owners in arranging
financing terms for each project under development. The ability to assist
project owners with obtaining debt and equity financing is a material factor in
producing our future revenue streams and cash flow. The Grant
County wind farm construction commenced in October 2009 and was substantially
completed during the first quarter of 2010. As a part of the
financing commitments with the Grant County wind farm project, we agreed to take
a promissory note for the construction contract revenue until completion and
permanent financing of such project. Our operating cash flows from
the Grant County wind farm project will therefore be delayed until the
successful completion of the permanent financing of the Grant County wind farm
project.
Due to
the anticipated increased demand for power from alternative energy sources in
2009, which should continue into 2010, we believe the demand for our services,
and therefore, our revenues, will be stable or increase in the foreseeable
future. Based on our anticipated level of revenues, we believe that
funds generated from operations, together with existing cash and cash available
from construction and consulting services, will be sufficient to finance our
operations and planned capital expenditures through the next 24
months.
26
We will
continue to pursue new community wind farm developments to maintain an active
backlog of projects. However, we cannot assure that actions will be successful.
Should volumes and revenues decline to a level significantly below our current
expectations, we would reduce capital expenditures and implement cost-reduction
initiatives which we believe would be sufficient to ensure that funds generated
from operations, together with existing cash and available borrowings under any
open credit agreement.
Net cash
used in operating activities increased by approximately $249,000, from the net
cash used in operating activities of approximately $743,000 for the year ended
December 31, 2008 to net cash used in operating activities of approximately
$992,000 for the year ended December 31, 2009. The change in net cash used in
operating activities of $249,000 is primarily due to the increased operating
expenses such as payroll and professional services fees as highlighted above in
the discussion and analysis of operating expense, along with making reimbursable
cost advances to future project developments. To offset the impact of these
costs, we have managed payments of accounts payable relating to project-related
expenses to coincide with billings on those projects. Further, we
have collected $383,000 of customer deposits for seven small wind turbines in
backlog at year-end and collected $533,000 in cash from the licensing and
distributor arrangement in the NextGen business.
Net cash
provided by investing activities increased by approximately $155,000, from the
net cash used in investing activities of approximately $339,000 (excluding the
$1.3 million investment of cash reserves into certificates of deposit) for the
year ended December 31, 2008 to net cash used in investing activities
of approximately $184,000 (excluding the effect of $300,000 of matured
certificates of deposit) for the year ended December 31,2009. The net
cash used in investing activities in 2009 primarily relates to the purchase of
equipment for the NextGen production facilities. The change in net cash used in
investing activities in 2008 primarily relates to investment of $302,000 of cash
into wind farm projects where Juhl Wind is currently the project developer,
together with the purchase of production equipment for NextGen.
Net cash
flow provided by financing activities decreased by approximately $1,162,000,
from the net cash flow provided from financing activities of approximately
$3,530,000 for the year ended December 31, 2008 to approximately to net cash
provided by financing activities of approximately $2,368,000 for the year ended
December 31, 2009. Additional financing activities in 2009 included
$2,536,000 in cash received from the exercise and exchange of the Series A
Warrants and issuance of Series B Preferred Stock in June 2009, including the
collection of a subscription receivable of $196,710 from one of our current
stockholders in December 2009. Financing activities in 2008 included
the receipt, after expenses, of $4.1 million from the June 2008 private
placement.
We
maintain an investor relations cash escrow account that was initially
funded by $500,000 of proceeds from the funded from the 2008 private placement,
and an additional $250,000 received from the exercise of Series A Warrants and
issuance of Series B Preferred Stock in June 2009. The funds
are to be used only for investor relations initiatives. As
of December 31, 2009, we had a balance of approximately $203,000 in the
account.
Impact
of Inflation
We expect
to be able to pass inflationary increases on to our customers through price
increases, as required, and do not expect inflation to be a significant factor
in our business.
Seasonality
Although
our operating history is limited, we do not believe our services are seasonal
except for future wind farm construction revenue which may be impacted by
climate in the Upper Midwest.
Off-Balance
Sheet Arrangements
There are
no off-balance sheet arrangements between us and any other entity that have, or
are reasonably likely to have, a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that is
material to stockholders.
Critical
Accounting Policies
The
preparation of our consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires our management to exercise its judgment. We exercise considerable
judgment with respect to establishing sound accounting policies and in making
estimates and assumptions that affect the reported amounts of our assets and
liabilities, our recognition of revenues and expenses, and disclosures of
commitments and contingencies at the date of the financial
statements.
27
On an
ongoing basis, we evaluate our estimates and judgments. We base our estimates
and judgments on a variety factors including our historical experience,
knowledge of our business and industry, current and expected economic
conditions, the composition of our products/services and the regulatory
environment. We periodically re-evaluate our estimates and assumptions with
respect to these judgments and modify our approach when circumstances indicate
that modifications are necessary.
While we
believe that the factors we evaluate provide us with a meaningful basis for
establishing and applying sound accounting policies, we cannot guarantee that
the results will always be accurate. Since the determination of these estimates
requires the exercise of judgment, actual results could differ from such
estimates. A description of significant accounting policies that require us to
make estimates and assumptions in the preparation of our consolidated financial
statements is as follows:
Revenue
Recognition.
Development Agreements. We
receive a down payment upon the acceptance of a development contract by the wind
farm owner. With no work performed on the contract, the down payment is
considered deferred revenue and is recognized over the estimated life of the
contract. The remaining proceeds are allocated to the following deliverables
based on vendor specific objective evidence (VSOE) of each item: 1) achievement
of a signed Power Purchase Agreement (PPA) with an electrical utility, and 2)
final commissioning of the wind farm turbines. Management has
determined that these deliverables have stand-alone value, and performance of
the undelivered services are considered probable and in the control of the
Company.
Wind Farm Construction
Services. We recognize revenue on construction contracts
on the percentage of completion method with costs and estimated profits included
in contract revenue as work is performed. Construction contracts generally
provide that customers accept completion of progress to date and compensate us
for services rendered measured in terms of units installed, hours expended or
some other measure of progress. Percentage of completion for construction
contracts is measured principally by the percentage of costs incurred and
accrued to date for each contract to the estimated total cost for each contract
at completion. We generally consider contracts to be substantially complete upon
departure from the work site and acceptance by the customer. Contract costs
include all direct material, labor and insurance costs and those indirect costs
related to contract performance, such as indirect labor, supplies, tools,
repairs and depreciation costs. Changes in job performance, job conditions,
estimated contract costs and profitability and final contract settlements may
result in revisions to costs and income and the effects of these revisions are
recognized in the period in which the revisions are determined. Provisions for
total estimated losses on uncompleted contracts are made in the period in which
such losses are determined. The balances billed but not paid by customers
pursuant to retainage provisions in construction contracts will be due upon
completion of the contracts and acceptance by the customer. Based on our
experience with similar contracts in recent years, the retention balance at each
balance sheet date will be collected within the subsequent fiscal
year.
Administrative Services
Agreements. We have signed administrative services agreements
with several wind turbine projects to provide management and bookkeeping
services. The administrative services agreements call for quarterly payments in
advance or arrears of services rendered based on the terms of the agreement. The
administrative service payments are carried as deferred revenue and recognized
monthly as services are performed.
Turbine Sales and Service.
Revenue from turbine sales are recognized at the time of shipment. Turbine sales
occur from small scale wind turbines that are internally re-manufactured and
sold by the Company, or through purchase and resale of larger scale wind
turbines to wind farm project owners. Revenue from the sale of small scale wind
turbines are recognized upon shipment to the customer and transfer of
ownership. Deposits received from customers are included as Deferred
Revenue until shipment occurs. Revenue from the sale of larger scale wind
turbines is recognized in conjunction with the construction services percentage
of completion accounting discussed below. Revenue is recognized only after
turbine erection activities have commenced.
Licensing Agreements.
Revenues earned from licensing agreements are amortized straight line over the
term of the agreement.
Capitalization and Investment in
Wind Farm Project Assets. Our wind farms have four basic
phases: (i) development (which includes pre-development consulting), (ii)
financing and applications, (iii) engineering and construction, and (iv)
operation and maintenance. During the pre-development phase, milestones are
created to ensure that a project is financially viable. Project viability is
obtained when it becomes probable that costs incurred will generate future
economic benefits sufficient to recover these costs.
Examples
of milestones required for a viable wind project include the
following:
·
|
the
identification, selection and acquisition of sufficient land for control
of the land area required for a wind
farm,
|
·
|
the
confirmation of a regional electricity market and the availability of
RECs,
|
28
·
|
the
confirmation of acceptable wind resources (feasibility
study),
|
·
|
the
confirmation of the potential to interconnect to the electric transmission
grid, and
|
·
|
the
determination of limited environmental
sensitivity.
|
Wind farm
project costs are generally funded through 50% equity and 50% debt from outside
investors and local banks. We do not invest our capital in the projects we
develop, with the exception of reimbursable project advances from time to time.
We have established relationships with equity investment partners, as well as
with local banks, and these relationships have culminated in the successful
funding of several projects. The investment community and marketplace have
demonstrated a strong appetite for investments in wind energy in the recent
past. These investors recognize a determined rate of return and return of
capital typically over a ten year period. Development fees are
generated by us throughout all phases of project development and represent our
revenue. Expenses incurred relating to operations are applied under generally
accepted accounting principles.
Variable Interest Entities -
The Company has determined that one of its wind farm projects is a variable
interest entity (“VIE”), but the Company believes the turbine manufacturer has
more risk exposure as it relates to this entity and has been granted certain
decision rights, superior to the Company, that most significantly impact the
economic performance of the limited liability company associated with the wind
farm project. Based on this analysis, the Company has determined that
the wind turbine manufacturer is the primary beneficiary for this VIE, and
therefore consolidation is not required under generally accepted accounting
principles. The Company has properly disclosed this relationship
within the consolidated financial statements.
ITEM
7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
applicable for smaller reporting companies.
29
ITEM
8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Juhl
Wind, Inc.
Consolidated
Financial Statements
December
31, 2009 and 2008
Page Number
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
Consolidated
Balance Sheets
|
F-3
|
Consolidated
Statements of Operations
|
F-4
|
Consolidated
Statement of Changes in Stockholders’ Equityz
|
F-5
|
Consolidated
Statements of Cash Flows
|
F-6
|
Notes
to Consolidated Financial Statements
|
F-7
|
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of
Directors and Stockholders
Juhl
Wind, Inc. and Subsidiaries
Woodstock,
Minnesota
We have
audited the accompanying consolidated balance sheets of Juhl Wind, Inc. and
Subsidiaries as of December 31, 2009 and 2008,
and the related consolidated statements of operations, changes in stockholders’
equity, and cash flows for each of the years
in the two year period ended December 31, 2009. These consolidated financial
statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated
financial statements are free of material misstatement. The company is not
required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. Our audit
included consideration of internal control
over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the company’s internal
control over financial reporting. Accordingly,
we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and
disclosures in the consolidated financial statements, assessing the accounting
principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable
basis for our opinion
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position
of Juhl Wind, Inc. and Subsidiaries as of December 31, 2009 and 2008, and the
results of its operations and its cash flows for
each of the years then ended in conformity with accounting principles generally
accepted in the United States of
America.
/s/ Boulay, Heutmaker, Zibell & Co.
P.L.L.P.
Certified Public
Accountants
|
Minneapolis,
Minnesota
March 31,
2010
F-2
JUHL
WIND, INC.
|
CONSOLIDATED
BALANCE SHEETS
|
DECEMBER
31, 2009 and 2008
|
DECEMBER
31,
|
DECEMBER
31,
|
|||||||
ASSETS
|
2009
|
2008
|
||||||
CURRENT
ASSETS
|
||||||||
Cash
|
$ | 2,802,302 | $ | 1,310,789 | ||||
Restricted
cash
|
203,123 | 264,557 | ||||||
Accounts
receivable, net of an allowance of $0 and
$10,000
|
||||||||
at
December 31, 2009 and 2008, respectively
|
1,617,974 | 44,007 | ||||||
Short
term investments and accrued interest receivable
|
1,033,744 | 1,306,775 | ||||||
Short
term investments - restricted
|
718,499 | 700,000 | ||||||
Unbilled
receivables, at net realizable value
|
49,002 | 250,699 | ||||||
Promissory
note receivable, including interest
|
7,149,912 | - | ||||||
Inventory
|
352,410 | 403,118 | ||||||
Reimbursable
project costs
|
597,368 | 147,800 | ||||||
Costs
and estimated profits in excess of billings
|
769,070 | - | ||||||
Other
current assets
|
123,157 | 97,727 | ||||||
Current
deferred income taxes
|
45,000 | 422,000 | ||||||
TOTAL
CURRENT ASSETS
|
15,461,561 | 4,947,472 | ||||||
PROPERTY
AND EQUIPMENT, (Net)
|
430,039 | 344,124 | ||||||
GOODWILL
|
- | 227,998 | ||||||
OTHER
ASSETS
|
||||||||
Deferred
income tax asset
|
614,000 | 14,000 | ||||||
Project
development costs
|
307,000 | 302,000 | ||||||
Intangible
assets
|
- | 72,000 | ||||||
TOTAL
OTHER ASSETS
|
921,000 | 388,000 | ||||||
TOTAL
ASSETS
|
$ | 16,812,600 | $ | 5,907,594 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
CURRENT
LIABILITIES
|
||||||||
Accounts
payable
|
$ | 2,224,549 | $ | 250,285 | ||||
Bank
notes payable
|
416,853 | 646,791 | ||||||
Accrued
expenses
|
118,571 | 346,019 | ||||||
Customer
deposits
|
383,000 | 238,375 | ||||||
Deferred
revenue
|
774,057 | 94,166 | ||||||
Promissory
note payable, including interest
|
7,149,912 | - | ||||||
TOTAL
CURRENT LIABILITIES
|
11,066,942 | 1,575,636 | ||||||
SERIES
A CONVERTIBLE PREFERRED STOCK
|
||||||||
$.0001
par value, 20,000,000 authorized, 5,160,000 issued
|
||||||||
and
outstanding as of December 31, 2008
|
- | 3,342,954 | ||||||
STOCKHOLDERS'
EQUITY
|
||||||||
Preferred
Stock, 20,000,000 shares authorized
|
||||||||
Series
A convertible preferred stock - $.0001 par value,
|
||||||||
4,820,000 issued
and outstanding at December 31, 2009
|
2,527,731 | - | ||||||
Series
B convertible preferred stock - $.0001 par value,
|
||||||||
6,567,006
issued and outstanding at December 31, 2009
|
12,819,116 | - | ||||||
Common
Stock - $.0001 par value; 100,000,000 shares authorized,
|
||||||||
20,982,860
and 20,183,213 issued and outstanding as of
|
2,098 | 2,018 | ||||||
December
31, 2009 and 2008, respectively
|
||||||||
Additional
paid-in capital
|
6,089,361 | 2,740,788 | ||||||
Accumulated
deficit
|
(15,692,648 | ) | (1,753,802 | ) | ||||
TOTAL
STOCKHOLDERS' EQUITY
|
5,745,658 | 989,004 | ||||||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 16,812,600 | $ | 5,907,594 |
The accompanying notes to the Consolidated Financial
Statements are an integral part of this statement.
F-3
JUHL
WIND, INC.
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND
2008
|
2009
|
2008
|
|||||||||||||||
REVENUE
|
||||||||||||||||
Wind
farm development and management
|
$ | 935,412 | 8.0 | % | $ | 740,582 | 55.6 | % | ||||||||
Turbine
sales & service
|
2,489,230 | 21.3 | 451,688 | 33.9 | ||||||||||||
Related
party revenue
|
299,084 | 2.6 | 130,226 | 9.8 | ||||||||||||
Construction
contract revenue
|
7,950,605 | 68.1 | - | 0.0 | ||||||||||||
Other
operating income
|
1,810 | 0.0 | 9,001 | 0.7 | ||||||||||||
TOTAL
REVENUE
|
11,676,141 | 100.0 | 1,331,497 | 100.0 | ||||||||||||
COST
OF GOODS SOLD
|
9,857,714 | 84.4 | 431,408 | 32.4 | ||||||||||||
GROSS
PROFIT
|
1,818,427 | 15.6 | 900,089 | 67.6 | ||||||||||||
OPERATING
EXPENSES
|
||||||||||||||||
General
and administrative expenses
|
1,619,412 | 13.9 | 875,836 | 65.8 | ||||||||||||
Investor
relations expenses
|
318,309 | 2.7 | 218,965 | 16.4 | ||||||||||||
Liquidated
damages (income) expense
|
(33,846 | ) | (0.3 | ) | 258,879 | 19.4 | ||||||||||
Impairment
of goodwill
|
227,998 | 2.0 | 193,974 | 14.6 | ||||||||||||
Payroll
and employee benefits
|
2,084,978 | 17.9 | 816,637 | 61.3 | ||||||||||||
Wind
farm management expenses
|
201,919 | 1.7 | 164,614 | 12.5 | ||||||||||||
TOTAL
OPERATING EXPENSES
|
4,418,770 | 37.9 | 2,528,905 | 189.9 | ||||||||||||
OPERATING
LOSS
|
(2,600,343 | ) | (22.3 | ) | (1,628,816 | ) | (122.3 | ) | ||||||||
OTHER
INCOME (EXPENSE)
|
||||||||||||||||
Interest
income
|
100,024 | 0.9 | 36,485 | 2.7 | ||||||||||||
Interest
expense
|
(53,058 | ) | (0.5 | ) | (34,195 | ) | (2.6 | ) | ||||||||
Gain
in fair value of warrant liability
|
2,198,671 | 18.8 | - | - | ||||||||||||
Other
expense
|
600 | 0.0 | (10,703 | ) | (0.8 | ) | ||||||||||
TOTAL
OTHER INCOME (EXPENSE)
|
2,246,237 | 19.2 | (8,413 | ) | (0.7 | ) | ||||||||||
LOSS
BEFORE INCOME TAXES
|
(354,106 | ) | (3.1 | ) | (1,637,229 | ) | (123.0 | ) | ||||||||
INCOME
TAX BENEFIT
|
223,000 | 1.9 | 436,000 | 32.7 | ||||||||||||
NET
LOSS
|
$ | (131,106 | ) | (1.2 | ) % | $ | (1,201,229 | ) | (90.3 | ) % | ||||||
PREFERRED
STOCK DIVIDENDS
|
407,551 | 213,280 | ||||||||||||||
SERIES
B BENEFICIAL CONVERSION FEATURE
|
2,790,707 | - | ||||||||||||||
NET
LOSS ATTRIBUTABLE TO COMMON
|
||||||||||||||||
STOCKHOLDERS
|
$ | (3,329,364 | ) | $ | (1,414,509 | ) | ||||||||||
WEIGHTED
AVERAGE SHARES
|
||||||||||||||||
OUTSTANDING
- BASIC AND DILUTED
|
20,571,864 | 17,765,318 | ||||||||||||||
NET
LOSS PER SHARE - BASIC AND DILUTED
|
$ | (0.16 | ) | $ | (0.08 | ) |
The accompanying notes to the Consolidated Financial
Statements are an integral part of this statement.
F-4
JUHL
WIND, INC.
|
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
|
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND
2008
|
Convertible
|
Convertible
|
|||||||||||||||||||||||||||||||||||
Preferred
Stock
|
Preferred
Stock
|
Additional
|
Total
|
|||||||||||||||||||||||||||||||||
Common
Stock
|
Series
A
|
Series
B
|
Paid-In
|
Accumulated
|
Equity
|
|||||||||||||||||||||||||||||||
Shares
|
Par
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Deficit
|
(Deficit)
|
||||||||||||||||||||||||||||
BALANCE
- December 31, 2007
|
15,250,000 | $ | 1,525 | - | $ | - | - | $ | - | $ | 614,344 | $ | (393,867 | ) | $ | 222,002 | ||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | (1,201,229 | ) | (1,201,229 | ) | |||||||||||||||||||||||||
Stockholder's
contributions
|
||||||||||||||||||||||||||||||||||||
Juhl
Energy Development, Inc.
|
- | - | - | - | - | - | 5,438 | - | 5,438 | |||||||||||||||||||||||||||
Shares
issued to consultants for merger advisory services
|
2,250,000 | 225 | - | - | - | - | (225 | ) | - | - | ||||||||||||||||||||||||||
Shares
issued and outstanding from the Reverse Merger
|
2,500,000 | 250 | - | - | - | - | (250 | ) | - | - | ||||||||||||||||||||||||||
Shares
issued for services
|
50,000 | 5 | - | - | - | - | 62,495 | - | 62,500 | |||||||||||||||||||||||||||
Warrants
issued in Private Placement Offering
|
- | - | - | - | - | - | 1,438,201 | - | 1,438,201 | |||||||||||||||||||||||||||
Stock-based
compensation to employees
|
- | - | - | - | - | - | 96,187 | - | 96,187 | |||||||||||||||||||||||||||
Stock-based
compensation to non-employees
|
- | - | - | - | - | - | 29,052 | - | 29,052 | |||||||||||||||||||||||||||
Shares
issued for NextGen purchase
|
92,143 | 9 | - | - | - | - | 322,491 | 271,470 | 593,970 | |||||||||||||||||||||||||||
Shares
issued for real property acquisition
|
41,070 | 4 | - | - | - | - | 173,055 | - | 173,059 | |||||||||||||||||||||||||||
Series
A 8% preferred stock dividend
|
- | - | - | - | - | - | - | (213,280 | ) | (213,280 | ) | |||||||||||||||||||||||||
Stockholder's
distributions
|
- | - | - | - | - | - | - | (216,896 | ) | (216,896 | ) | |||||||||||||||||||||||||
BALANCE
- December 31, 2008
|
20,183,213 | $ | 2,018 | - | $ | - | - | $ | - | $ | 2,740,788 | $ | (1,753,802 | ) | $ | 989,004 | ||||||||||||||||||||
Cumulative
effect of accounting change (note 5)
|
- | - | - | (529,133 | ) | - | - | (1,438,201 | ) | (10,609,482 | ) | (12,576,816 | ) | |||||||||||||||||||||||
ADJUSTED
BALANCE- January 1, 2009
|
20,183,213 | 2,018 | - | (529,133 | ) | - | - | 1,302,587 | (12,363,284 | ) | (11,587,812 | ) | ||||||||||||||||||||||||
Net
loss
|
- | - | - | - | - | - | - | (131,106 | ) | (131,106 | ) | |||||||||||||||||||||||||
Removal
of contingent redemption feature and reclassification of Series A
preferred stock to equity
|
- | - | 5,160,000 | 3,342,954 | - | - | - | - | 3,342,954 | |||||||||||||||||||||||||||
Stock-based
compensation
|
- | - | - | - | - | - | 982,394 | - | 982,394 | |||||||||||||||||||||||||||
Common
stock issued to Series A preferred stockholders for liquidation
damages and payment of Series A dividend
|
419,647 | 42 | - | (522,288 | ) | - | - | 747,278 | - | 225,032 | ||||||||||||||||||||||||||
Beneficial
conversion feature of Series B preferred stock
|
- | - | - | - | - | - | 2,790,707 | (2,790,707 | ) | - | ||||||||||||||||||||||||||
Issuance
of Series B upon conversion of all classes of common stock warrants
for Series B preferred stock, less offering costs of
$10,000
|
- | - | - | - | 6,607,006 | 12,914,196 | - | - | 12,914,196 | |||||||||||||||||||||||||||
Issuance
of common stock upon conversion of Series A preferred
stock
|
340,000 | 34 | (340,000 | ) | (171,353 | ) | - | - | 171,319 | - | - | |||||||||||||||||||||||||
Issuance
of common stock upon conversion of Series B preferred
stock
|
40,000 | 4 | - | - | (40,000 | ) | (95,080 | ) | 95,076 | - | - | |||||||||||||||||||||||||
Common
Stock to be issued for Series A 8% preferred stock
dividend
|
- | - | - | 407,551 | - | - | - | (407,551 | ) | - | ||||||||||||||||||||||||||
BALANCE
- December 31, 2009
|
20,982,860 | $ | 2,098 | 4,820,000 | $ | 2,527,731 | 6,567,006 | $ | 12,819,116 | $ | 6,089,361 | $ | (15,692,648 | ) | $ | 5,745,658 |
The accompanying notes to the Consolidated Financial
Statements are an integral part of this statement.
F-5
JUHL
WIND, INC.
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND
2008
|
2009
|
2008
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||
Net
loss
|
$ | (131,106 | ) | $ | (1,201,229 | ) | ||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
Depreciation
and amortization
|
129,645 | 49,645 | ||||||
Gain
on the sale of equipment
|
- | (4,204 | ) | |||||
Stock-based
compensation
|
982,394 | 187,739 | ||||||
Provision
for uncollectible accounts
|
(10,000 | ) | 10,000 | |||||
Gain
on warrant liability fair value
|
(2,198,671 | ) | - | |||||
Impairment
of goodwill
|
227,998 | 193,974 | ||||||
Non-cash
liquidated damages expense
|
(33,846 | ) | 258,879 | |||||
Change
in assets and liabilities, net of contributed company in
2008:
|
||||||||
Accounts
receivable
|
(1,563,967 | ) | 157,022 | |||||
Unbilled
receivable
|
201,697 | 46,301 | ||||||
Inventory
|
50,708 | 144,764 | ||||||
Reimbursable
project costs
|
(449,568 | ) | (147,800 | ) | ||||
Other
current assets
|
(25,430 | ) | (92,380 | ) | ||||
Interest
receivable on short term investments
|
(10,062 | ) | - | |||||
Costs
and estimated earnings in excess of billings
|
(769,070 | ) | - | |||||
Accounts
payable
|
1,974,264 | (111,564 | ) | |||||
Accrued
expenses
|
31,431 | 18,228 | ||||||
Deferred
income taxes
|
(223,000 | ) | (436,000 | ) | ||||
Deferred
revenue and customer deposits
|
824,516 | 183,224 | ||||||
NET
CASH USED IN OPERATING ACTIVITIES
|
(992,067 | ) | (743,401 | ) | ||||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||
Proceeds
from Community Wind Development Group, LLC
|
- | 13,667 | ||||||
Proceeds
from short-term investments
|
300,000 | - | ||||||
Payments
for short-term investments
|
(35,406 | ) | (1,300,000 | ) | ||||
Payments
for project development costs
|
(5,000 | ) | (302,000 | ) | ||||
Payments
for property and equipment
|
(143,560 | ) | (51,130 | ) | ||||
NET
CASH USED IN INVESTING ACTIVITIES
|
116,034 | (1,639,463 | ) | |||||
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||
Change
in restricted cash
|
61,434 | 264,557 | ||||||
Payments
for short-term investments - restricted
|
- | (700,000 | ) | |||||
Proceeds
from notes payable
|
- | 114,641 | ||||||
Principal
payments on notes payable
|
(229,938 | ) | - | |||||
Payments
for public offering costs
|
- | (31,950 | ) | |||||
Proceeds
from issuance of Series A preferred stock
|
- | 4,099,825 | ||||||
Proceeds
from issuance of Series B preferred stock and conversion of
warrants
|
2,536,050 | - | ||||||
Distributions
to shareholders
|
- | (216,896 | ) | |||||
NET
CASH FROM FINANCING ACTIVITIES
|
2,367,546 | 3,530,177 | ||||||
NET
INCREASE IN CASH
|
1,491,513 | 1,147,313 | ||||||
CASH
- BEGINNING OF THE PERIOD
|
1,310,789 | 163,476 | ||||||
CASH
- END OF THE PERIOD
|
$ | 2,802,302 | $ | 1,310,789 | ||||
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
|
||||||||
Cash
paid during the year for:
|
||||||||
Interest
|
$ | 27,433 | $ | 36,710 | ||||
NONCASH
INVESTING ACTIVITY
|
||||||||
Equity
contribution of net assets and liabilities of common
|
||||||||
owned
company by shareholder
|
$ | - | $ | 5,438 | ||||
NONCASH
FINANCING ACTIVITY
|
||||||||
Promissory
note taken for construction financing
|
$ | 7,149,912 | $ | - | ||||
Private
placement offering costs paid directly from gross proceeds
|
$ | - | $ | 560,175 | ||||
2008
private placement restricted cash deposit
|
$ | - | $ | 500,000 | ||||
Series
A preferred stock dividend
|
$ | 407,551 | $ | 110,080 | ||||
Common
stock issued for land and building
|
$ | - | $ | 173,055 | ||||
Warrant
liability recognition upon adoption of accounting standard
|
$ | 12,576,816 | $ | - | ||||
Fair
value of warrant liability extinguished upon Series B preferred stock
offering
|
$ | 10,378,146 | $ | - | ||||
Liquidated
damages fees paid in the form of common stock
|
$ | 258,879 | $ | - | ||||
Issuance
of common stock upon conversion of Series A preferred
stock
|
$ | 171,319 | $ | - | ||||
Issuance
of common stock upon conversion of Series B preferred
stock
|
$ | 95,080 | $ | - | ||||
Beneficial
conversion feature of Series B preferred stock
|
$ | 2,790,707 | $ | - | ||||
Reclassification
of Series A preferred stock to equity as a result of
removing
|
||||||||
contingent
redemption feature
|
$ | 3,342,954 | $ | - |
The accompanying notes to the Consolidated Financial
Statements are an integral part of this statement.
F-6
JUHL
WIND, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
1.
|
BACKGROUND,
CHANGE OF CONTROL AND BASIS OF
PRESENTATION
|
Juhl
Wind, Inc. (“Juhl Wind”) conducts business under three subsidiaries, DanMar and
Associates, Inc. (“DanMar”), Juhl Energy Development, Inc. (“JEDI”), and Next
Generation Power Systems, Inc. (“NextGen”). The Company provides development,
construction, management, and consulting services to wind farm projects
throughout the Midwestern U.S. and produces consumer-owned renewable energy
products. All intercompany balances and transactions are eliminated in
consolidation.
Reverse
Acquisition
On June
24, 2008, the owners of DanMar and Associates, Inc. and Juhl Energy Development,
Inc., both privately held companies under common control, exchanged all of their
outstanding shares of common stock in the companies for 15,250,000 shares of
common stock of MH&SC, Inc., representing approximately 86% of the Company’s
common stock outstanding after the exchange transaction. Upon the
exchange transaction (“transaction”), MH&SC, Inc. changed its name to Juhl
Wind, Inc. As a result of the transaction, DanMar and Associates, Inc. and Juhl
Energy Development, Inc. (the “Companies”) are now wholly-owned subsidiaries of
Juhl Wind, Inc. Simultaneously to the closing of the transaction, pursuant to a
purchase and sale agreement, MH & SC, Inc. sold all of the outstanding
membership interest of its wholly owned subsidiary, My Health & Safety
Supply Company, LLC, an Indiana limited liability company, to its former CEO.
The subsidiary was the only operational activities of MH & SC,
Inc. In essence, DanMar and Associates, Inc. and Juhl Energy
Development, Inc. merged into a public shell company with no or nominal
remaining operations; and no or nominal assets and liabilities.
In
accordance with authoritative guidance related to “Business Combinations”, JEDI
is considered the accounting acquirer in the exchange transaction. Because
JEDI’s owners as a group retained or received the larger portion of the voting
rights in the combined entity and JEDI’s senior management represents a majority
of the senior management of the combined entity, the JEDI is considered the
acquirer for accounting purposes and will account for the transaction as a
reverse acquisition. The acquisition was accounted for as a
recapitalization, since at the time of the transaction, MH & SC, Inc. was a
company with no or nominal operations, assets and
liabilities. Consequently, the assets and liabilities and the
historical operations that will be reflected in future consolidated financial
statements will be those of the Companies and will be recorded at its historical
cost basis. The consolidated financial statements have been prepared as if JEDI
had always been the reporting company and, on the share transaction date,
changed its name and reorganized its capital stock. The consolidated financial
statements have been prepared including DanMar due to the transaction being with
a company under common control.
Acquisition
of Next Generation Power Systems and Related Real Property
On
October 31, 2008, the Company acquired all of the issued and outstanding shares
of common stock of Next Generation Power Systems, Inc. (“NextGen”), an entity
under common control due to the 54% ownership by Dan Juhl, the Company’s
controlling stockholder. The acquisition allows the Company to expand into
consumer-based wind and solar energy market. All of the outstanding stock of
NextGen was acquired in exchange for 92,143 unregistered shares of common stock
of the Company, allocated among the NextGen minority selling
stockholders. The 92,143 shares issued to the minority stockholders
were valued at $3.50 per share at the date of acquisition or
$322,500. The agreement also required the selling shareholders to
contribute the balance of notes payable to stockholders totaling $100,000 to
equity. The acquisition was accounted for as a combination of entities under
common control (i.e. “as if pooling”) where the assets and liabilities of those
under common control are at historical cost and at fair value for the
noncontrolling interest. The revenue and expense activities of
NextGen are included in the accompanying consolidated statement of operations
for 2009 and 2008. Due to the noncontrolling interest of NextGen being in a
deficit equity position, the Company had to absorb 100% of the net losses for
all periods presented.
Simultaneously
with the acquisition of all of NextGen, the Company also purchased a commercial
building and associated land located in Pipestone, Minnesota from the individual
owners of NextGen. The Company issued 41,070 unregistered shares of common stock
to the minority stockholders of NextGen for the purchase of the land and
building. The 41,070 shares issued to the NextGen minority interest were valued
at $3.50 per share at the date of acquisition, or $144,000. The
acquisition was accounted for at fair value of the land and building on the date
of purchase which totaled $173,055.
F-7
JUHL
WIND, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
CASH
|
The
Company maintains cash balances at various financial institutions located
in Minnesota. Accounts are insured by the Federal Deposit
Insurance Corporation (“FDIC”) up to $250,000. At times
throughout the year cash balances may exceed the FDIC insurance
limits. In August 2008, the Company obtained an excess deposit
insurance bond to insure deposits up to an additional $2,400,000 beyond
the FDIC coverage. The bond was effective August 2008 through February
2010, and subsequently was replaced in February 2010 with a $1.7 million
irrevocable letter of credit. The Company monitors its cash
balances to ensure adequacy of collateral for depository balances at
financial institutions that exceed FDIC insured
amounts.
|
|
RESTRICTED
CASH
|
|
The
Company maintains an escrow cash account funded by the proceeds received
from the preferred stock private placement in 2008 and the warrant
exercise and exchange in 2009. The funds are to be used for
investor relations initiatives.
|
|
SHORT
TERM INVESTMENTS
|
|
Short-term
investments include certificates of deposits maintained at various
financial institutions. The certificates are intended to be held for
investment purposes through their maturity dates that occur at various
times throughout 2010. At December 31, 2009, the Company’s
short-term investments totaled $1,000,000 with accrued interest receivable
on those investments of $33,774. At December 31, 2008, the Company’s
short-term investments totaled $1,300,000 with accrued interest receivable
on those investments of $6,775.
|
|
RESTRICTED
SHORT TERM INVESTMENTS
|
|
Restricted
short-term investments include certificates of deposits maintained at
various financial institutions and totaled $700,000 at both December 31,
2009 and 2008, respectively, These restricted investments had
accrued interest receivable of $18,499 and $0 at December 31, 2009 and
2008, respectively. The certificates are intended to be held for
investment purposes through their maturity dates that occur at various
times throughout 2010. These investments are held as collateral
against the Bank Notes Payable (discussed in Note
18). Subsequent to year end, the Bank released three of the
certificates from restriction, reducing the balance of the restricted
short-term investments to $412,000.
|
|
ACCOUNTS
RECEIVABLE
|
|
Credit
terms are extended to customers in the normal course of
business. The Company performs ongoing credit evaluations of
its customers’ financial condition and, generally, requires no
collateral.
|
|
Trade
accounts receivable are recorded at their estimated net realizable value,
net of an allowance for doubtful accounts. The Company follows a policy of
providing an allowance for doubtful accounts. Based on historical
experience, and its evaluation of the current status of receivables, the
Company is of the belief that such accounts will be collectible in all
material respects after consideration of the allowance shown in the
financial statements. Accounts are considered past due if
payment is not made on a timely basis in accordance with the Company’s
credit terms. Accounts considered uncollectible are written
off.
|
|
UNBILLED
RECEIVABLES
|
|
Unbilled
receivables are generated when the revenue from a project has been earned
by the Company but has not been formally billed by the Company. The
unbilled receivables are recorded at their estimated realizable value. The
Company follows a policy providing an allowance for doubtful accounts
reserving for significant timing
risk and other risks associated with energy project
development.
|
|
INVENTORIES
|
|
Inventories,
consisting primarily of parts and materials relating to the production of
small scale wind turbines, are stated at the lower of average cost or
market value.
|
F-8
JUHL
WIND, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
REIMBURSABLE
PROJECT COSTS
Reimbursable
project costs represent advances made on behalf of wind farm entities to assist
them in the legal, preconstruction project costs, or other temporary advances
made during construction.
PROJECT
DEVELOPMENT COSTS
Project
development costs represent amounts paid by the Company for projects that Juhl
Wind is the wind farm developer and project owner. Such costs are carried as a
long-term asset until such time that the Company receives a reimbursement as a
part of the permanent financing of a commissioned wind farm project, or
alternatively, upon reimbursement by new project ownership. The Company may
convert these costs into ownership in the project.
|
PROPERTY
AND EQUIPMENT
|
|
Property
and equipment are stated at cost. Major renewals and improvements are
capitalized, while replacements, maintenance and repairs which do not
improve or extend the life of the respective assets are expensed
currently. Property and equipment are being depreciated over their
estimated useful lives using the straight-line
method.
|
|
Major
categories of property and equipment and their depreciable lives are as
follows:
|
Building
and Improvements
|
7-39
Years
|
Vehicles
|
5
Years
|
Machinery
and Shop Equipment
|
5-7
Years
|
LONG-LIVED
ASSETS
Long-lived
assets, such as property, and equipment, and purchased intangible assets subject
to amortization, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If circumstances require a long-lived asset be tested for possible
impairment, the Company first compares undiscounted cash flows expected to be
generated by an asset to the carrying value of the asset. If the carrying value
of the long-lived asset is not recoverable on an undiscounted cash flow basis,
impairment is recognized to the extent that the carrying value exceeds its fair
value. Fair value is determined through various valuation techniques including,
but not limited to, discounted cash flow models, quoted market values and
third-party independent appraisals.
GOODWILL
The
Company’s goodwill resulted from its business acquisition of the minority
interest of NextGen, which occurred in October 2008. Goodwill and other
intangible assets with indefinite lives are not amortized but instead tested at
least annually for impairment. The Company must make assumptions regarding
estimated future cash flows and other factors to determine the fair value of the
respective assets in assessing the fair value of its goodwill and other
intangible assets.
The
Company assessed the impairment of goodwill as of December 31, 2009 as
required by authoritative guidance. Based on this assessment, the
Company believes that there has been an impairment of goodwill as a result of
its recent business plans to research and develop its own manufactured turbine
model, as opposed to the maintaining the previous strategy of re-manufacturing
small, used scale wind turbines. As a result, the Company has recorded an
impairment of $227,998 for the year ended December 31, 2009, which is reflected
in the consolidated statement of operations. The Company recorded an
impairment charge of $193,974 for the year ended December 31, 2008, which is
reflected in the consolidated statement of operations, and was considered
necessary as a result of the economic environment both in the industry and
financial markets.
INTANGIBLE
ASSETS
The
Company’s amortizable intangible assets resulted from its business acquisition
of NextGen, and includes customer backlog. Customer backlog will be
amortized as sales commitments occur which were in place at the time of
acquisition. The customer backlog was fully amortized, in the amount
of $72,000 in 2009 and charged to cost of goods sold.
F-9
JUHL
WIND, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
STOCK
OPTION PLANS
Upon
issuance of employee stock options on June 24, 2008 (inception date), the
Company adopted authoritative guidance relating to “Share-Based Payments.” This
guidance requires that all stock-based compensation be recognized as an expense
in the financial statements and that such cost be measured at the fair value of
the award. The Company recognizes compensation expense based on the estimated
grant date fair value using the Black-Scholes option-pricing model.
The
Company accounts for unit based instruments granted to nonemployees under the
fair value method. Unit based instruments usually are recorded at their
underlying fair value. In certain instances, the fair value of the goods
or services is used to determine the value of the equity instrument as it is a
better measure of fair value. The Company recognizes compensation expense for
employee stock options based on the estimated grant date fair value using the
Black-Scholes option-pricing model. The Company accounts for unit based
instruments granted to nonemployees under the fair value method. Unit based
instruments usually are recorded at their underlying fair value. In
certain instances the fair value of the goods or services is used to determine
the value of the equity instrument as it is a better measure of fair
value.
On
January 1, 2008, the Company adopted guidance for accounting for fair value
measurements of financial assets and financial liabilities and for fair value
measurements of nonfinancial items that are recognized or disclosed at fair
value in the consolidated financial statements on a recurring basis. On January
1, 2009, the Company adopted guidance for fair value measurement related to
nonfinancial items that are recognized and disclosed at fair value in the
consolidated financial statements on a nonrecurring basis. The
guidance establishes a fair value hierarchy that prioritizes the inputs to
valuation techniques used to measure fair value. The hierarchy gives the highest
priority to unadjusted quoted prices in active markets for identical assets or
liabilities (Level 1 measurements) and the lowest priority to measurements
involving significant unobservable inputs (Level 3 measurements). The three
levels of the fair value hierarchy are as follows:
·
|
Level
1 inputs are quoted prices (unadjusted) in active markets for identical
assets or liabilities that the Company has the ability to access at the
measurement date.
|
·
|
Level
2 inputs are inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly or
indirectly.
|
·
|
Level
3 inputs are unobservable inputs for the asset or
liability.
|
The level
in the fair value hierarchy within which a fair measurement in its entirety
falls is based on the lowest level input that is significant to the fair value
measurement in its entirety.
The
carrying value of cash, restricted cash, short term investments, receivables,
and payables approximates their fair value at December 31, 2009 and 2008 due to
the short maturity nature of these instruments. The carrying values of notes
payable are based on estimates of current rates at which the Company could
borrow funds with similar remaining maturities. The carrying amounts of notes
payable approximate fair value because of the short maturity of these
instruments.
Except
for those assets and liabilities which are required by authoritative accounting
guidance to be recorded at fair value in our Consolidated Balance Sheets, we
have elected not to record any other assets or liabilities at fair value. No
events occurred during 2009 which would require adjustment to the recognized
balances of assets or liabilities which are recorded at fair value on a
nonrecurring basis.
The
Company has no assets and liabilities measured at fair value on a recurring
basis that require disclosure. During 2009, the Company impaired
goodwill. This was the only nonfinancial asset that was measured at
fair value on a nonrecurring basis during 2009.
F-10
JUHL
WIND, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
USE
OF ESTIMATES
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Those estimates and assumptions
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities, and the reported revenues and expenses. The
Company uses estimates and assumptions in accounting for the following
significant matters, among others: revenue recorded from the development
agreements is a significant estimate based on a percentage of estimated project
costs and the percentage of completion method used to recognize construction
contract revenue; economic lives of property and equipment; realizability of
accounts receivable; valuation of deferred tax assets, inventory, stock based
compensation and warrants, goodwill, intangible asset, income tax uncertainties,
fair value of warrant liability, and other contingencies. Revenue from the
development agreements is adjusted to reflect actual costs incurred by the
project upon the commercial operation date. Accordingly, actual
revenue may differ from previously estimated amounts, and such differences may
be material to the financial statements. The Company periodically reviews
estimates and assumptions, and the effects of any such revisions are reflected
in the period in which the revision is made.
REVENUE
RECOGNITION
Turbine
Sales and Service:
Turbine
sales occur from small scale wind turbines that are internally re-manufactured
and sold by the Company, or through purchase and resale of larger scale wind
turbines to wind farm project owners. Revenue from the sale of small scale wind
turbines are recognized upon shipment to the customer as transfer of ownership
and risk of loss have been transferred to the customer. Deposits
received from customers are included as deferred revenue until shipment occurs.
Revenues from the sale of larger scale wind turbines are generally recognized in
conjunction with the construction services percentage of completion accounting
discussed below. Commencement of revenue recognition is only after turbine
erection activities have begun.
Turbine
services include time-and-material arrangements related to existing
installations of wind turbine equipment. Revenue is recognized upon
completion of the maintenance services.
Licensing
Revenue
Revenues
earned from licensing agreements are amortized straight line over the term of
the agreement.
Wind
Farm Consulting, Development and Management Services:
Consulting
Services
Consulting
services fees are primarily fixed fee arrangements of a short-term duration and
are recognized as revenue on a completed contract basis.
Wind
Farm Development Services
The
Company normally earns a development service fee from each of the wind farm
projects that it develops in cooperation with wind farm investors. These
development services arrangements are evaluated under authoritative guidance
relating to “Revenue
Arrangements with Multiple Deliverables,”
which addresses certain aspects of accounting by a vendor for arrangements under
which the vendor will perform multiple revenue generating
activities.
The
development services fee revenue is recognized as follows:
·
|
Proceeds
received upon the signing of a Development Services Agreement (generally
10% of the total expected development fee) are amortized over the expected
period of the development process, which is generally three years. The
amortization period is re-assessed by management as new timelines are
established for the project in-service date, and the amortization period
is adjusted.
|
·
|
The
remaining proceeds are allocated to the following deliverables based on
vendor specific objective evidence (“VSOE”) of each item: 1) achievement
of a signed Power Purchase Agreement (“PPA”) with an electrical utility,
and 2) final commissioning of the wind farm
turbines. Management has determined that these deliverables
have stand-alone value, and performance of the undelivered services are
considered probable and in the control of the
Company.
|
F-11
JUHL
WIND, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Wind
Farm Management Services
Revenues
earned from administrative, management and maintenance services agreements are
recognized as the services are provided. The administrative and management
services agreements call for quarterly payments in advance or arrears of
services rendered based on the terms of the agreement. The administrative and
management services payments in advance are carried as deferred revenue and
recognized monthly as services are performed. Maintenance services are generally
billed on a time and materials basis. Revenues from services work are
recognized when services are performed.
Wind
Farm Construction Services
We
recognize revenue on construction contracts on the percentage of completion
method with costs and estimated profits included in contract revenue as work is
performed. Construction contracts generally provide that customers accept
completion of progress to date and compensate us for services rendered measured
in terms of units installed, hours expended or some other measure of progress.
We recognize revenue on both signed contracts and change orders. A discussion of
our treatment of claims and unapproved change orders is described later in this
section. Percentage of completion for construction contracts is measured
principally by the percentage of costs incurred and accrued to date for each
contract to the estimated total cost for each contract at completion. We
generally consider contracts to be substantially complete upon departure from
the work site and acceptance by the customer. Contract costs include all direct
material, labor and insurance costs and those indirect costs related to contract
performance, such as indirect labor, supplies, tools, repairs and depreciation
costs. Changes in job performance, job conditions, estimated contract costs and
profitability and final contract settlements may result in revisions to costs
and income and the effects of these revisions are recognized in the period in
which the revisions are determined. Provisions for total estimated losses on
uncompleted contracts are made in the period in which such losses are
determined. The balances billed but not paid by customers pursuant to retainage
provisions in construction contracts will be due upon completion of the
contracts and acceptance by the customer. Based on our experience with similar
contracts in recent years, the retention balance at each balance sheet date will
be collected within the subsequent fiscal year.
The asset
“Costs and estimated earnings in excess of billings on uncompleted contracts”
represents revenues recognized in excess of amounts billed which management
believes will be billed and collected within the next twelve
months. The liability “Billings in excess of costs and estimated
earnings on uncompleted contracts” represents billings in excess of revenues
recognized. Costs and estimated earnings in excess of billings on uncompleted
contracts are amounts considered recoverable from customers based on different
measures of performance, including achievement of specific milestones, or at the
completion of the contract.
EARNINGS
PER SHARE
Basic net
income (loss) per share is computed by dividing net income (loss) by the
weighted average number of shares outstanding during the
period. Diluted net income per share is computed by dividing net
income by the weighted average number of shares and share equivalents
outstanding during the period. As of December 31, 2009, the Company had
1,895,000 unit
equivalents outstanding relating to outstanding stock options and warrants. As
of December 31, 2008, the Company had 8,410,000 unit equivalents outstanding
relating to outstanding unit options and warrants. At December 31,
2009 and 2008, the effects of the share equivalents were excluded from the
computation of diluted units outstanding as their effects would be
anti-dilutive, due to the Company’s net loss attributable for common
stockholders for these periods.
INCOME
TAXES
Deferred
income taxes are provided for timing differences between financial statements
and income tax reporting, primarily from the use of accelerated depreciation
methods for income tax purposes, stock based compensation, accrued liabilities,
deferred revenue, completed contract revenue recognition, warranty costs, and
net operating losses. The measurement of deferred tax assets and
liabilities is based on provisions of the enacted tax law; the effects of future
changes in tax laws or rates are not anticipated.
The
Company accounts for income tax uncertainties using a two-step approach to
recognizing and measuring tax benefits and liabilities when realization of the
tax position is uncertain. The first step is to determine whether the tax
positions meet the more-likely-than-not condition for recognition and the second
step is to determine the amount to be recognized based on the cumulative
probability that exceeds 50%.
F-12
JUHL
WIND, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
The
Company recognizes in its financial statements only those tax positions that are
"more-likely-than-not" of being sustained upon examination by taxing
authorities, based on the technical merits of the position. The Company
performed a comprehensive review of its material tax positions in accordance
with recognition and measurement standards. Based on this review, the
Company has concluded that there are no uncertain tax positions that would
require recognition within the consolidated financial statements.
The
Company files income tax returns in the U.S. federal jurisdiction and various
state jurisdictions. With a few exceptions, the Company is no longer subject to
U.S. federal, state, or local income tax examinations by tax authorities for
years before 2006. The Company's policy is to recognize interest and
penalties related to uncertain tax benefits in income tax expense. The Company
has no significant accrued interest or penalties related to uncertain tax
positions as of January 1, 2009 or December 31, 2009 and such uncertain tax
positions as of each date are insignificant.
RECENTLY
ADOPTED ACCOUNTING PRONOUNCEMENTS
Effective
July 2009, the FASB Accounting Standards Codification, also known
collectively as the “Codification,” is considered the single source of
authoritative U.S. accounting and reporting standards, except for additional
authoritative rules and interpretive releases issued by the SEC.
Nonauthoritative guidance and literature would include, among other things, FASB
Concepts Statements, American Institute of Certified Public Accountants Issue
Papers and Technical Practice Aids and accounting textbooks. The Codification
was developed to organize GAAP pronouncements by topic so that users can more
easily access authoritative accounting guidance. It is organized by topic,
subtopic, section, and paragraph, each of which is identified by a numerical
designation. All accounting references have been updated, and therefore SFAS
references have been replaced with a definition of the accounting policy where
applicable. The Company adopted this guidance for the reporting period ended
September 30, 2009. The only impact of adopting this provision was
to update and remove certain references in our financial statements to technical
accounting literature.
RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS NOT YET EFFECTIVE
In June
2009, the FASB issued updated guidance, which amends existing guidance for
determining whether an entity is a variable interest entity, or VIE, and
requires the performance of a qualitative rather than a quantitative analysis to
determine the primary beneficiary of a VIE. Under this guidance, a reporting
enterprise would be the primary beneficiary of a VIE and would be required to
consolidate the VIE if it has (i) the power to direct the activities that
most significantly impact the VIE's economic performance and (ii) the
obligation to absorb losses of the VIE or the right to receive benefits from the
VIE that could be significant to the VIE. The new guidance requires ongoing
reassessments of whether a reporting enterprise is the primary beneficiary of
the VIE and also requires additional disclosures. This guidance is effective for
the first annual reporting period, and interim periods within that first annual
reporting period, that begins after November 15, 2009, with early adoption
prohibited. The Company is currently evaluating the effect, if any, these
amendments may have on its financial statements.
In
October 2009, the Financial Accounting Standards Board (FASB) issued
authoritative guidance on revenue recognition related to arrangements with
multiple deliverables. This new authoritative guidance is effective on a
prospective basis for revenue arrangements entered into or materially modified
in fiscal years beginning on or after June 15, 2010, with earlier adoption
permitted. A vendor may elect, but is not required, to adopt the
amendments retrospectively to prior periods unless it is
impracticable. Under the new guidance, when vendor specific objective
evidence or third party evidence for deliverables in an arrangement cannot be
determined, a best estimate of the selling price is required to separate
deliverables and allocate arrangement consideration using the relative selling
price method. The new guidance includes new disclosure requirements on how the
application of the relative selling price method affects the timing and amount
of revenue recognition. Management is currently assessing the
potential impact that the adoption of this new authoritative guidance could have
on the Company’s financial statements.
RECLASSIFICATIONS
Certain
reclassifications were made to the previously issued 2008 financial statements
in the consolidated balance sheet and the statements of operations, changes in
stockholders’ equity, and cash flows in order for comparability to the 2009.
These reclassifications had no effect on net income, operating cash flow, or
retained earnings as previously reported.
F-13
JUHL
WIND, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
3.
|
PRIVATE
PLACEMENT OF SERIES A 8% CONVERTIBLE PREFERRED STOCK AND COMMON STOCK
WARRANTS
|
In June
2008, the Company completed a private placement consisting of shares of
newly-created series A 8% Convertible Preferred Stock (Series A), and
detachable, five-year Class A, Class B and Class C warrants to purchase shares
of common stock at an exercise price of $1.25 (Class A), $1.50 (Class B) and
$1.75 (Class C) per share. In total, the Company sold 5,160,000
shares of Series A (convertible at any time into a like number of shares of
common stock) and Class A, Class B and Class C warrants to each purchase
2,580,000 shares of common stock, or an aggregate of 7,740,000 shares of common
stock. Such warrants were subsequently exercised or exchanged in June 2009 (see
Note 4). The Company received net proceeds of $4,567,875 which was allocated to
Series A and all warrants based on their relative fair value as
follows:
Convertible
Preferred Stock
|
$ | 3,129,674 | ||
Detachable
Warrants
|
$ | 1,438,201 |
|
We
also issued 2,250,000 shares of our common stock to Greenview Capital, LLC
and unrelated designees at the closing of the transaction in consideration
for merger advisory services.
|
Conversion
Rights of Series A
At any
time, each share of Series A is convertible into one share of common
stock. However, the number of shares of common stock issuable
upon conversion of Series A is subject to adjustment upon the occurrence of
certain customary events, including, among others, a stock split, reverse stock
split or combination of our common stock; an issuance of our common stock or
other securities as a dividend or distribution on the common stock; a
reclassification, exchange or substitution of the common stock; or a capital
reorganization of our company. Additionally, until June 24, 2010, the holders of
Series A will have “full-ratchet” anti-dilution price protection, with limited
exceptions for issuances under employee benefit plans and pursuant to
transactions involving a strategic partner preapproved by the holders on a
case-by-case basis. After June 24, 2010, the holders of Preferred Stock will
have “weighted average” anti-dilution price protection.
Voting
Rights of Series A
Holders
of Series A are not entitled to vote their shares with the holders of our common
stock, except for certain extraordinary corporate transactions, in which case
they vote as a separate class. Holders of Series A shall also have any voting
rights to which they are entitled by Delaware law.
Liquidation
Rights of Series
A
In the
event of any voluntary or involuntary liquidation, dissolution or winding-up of
our company, including a merger or consolidation of our company with or into
another company, or any transfer, sale or lease by us of substantially all of
our assets, the holders of Series A will be entitled to receive out of our
assets available for distribution to stockholders, before any distribution is
made to holders of our common stock or any other series of our preferred stock,
liquidating distributions in an amount equal to $1.20 per share, plus accrued
but unpaid dividends.
Redemption
Rights of Series A
Series A
may not be redeemed by the Company at any time.
Dividends
Rights of Series A
Series A
will be entitled to receive dividends at a rate of 8% per year, payable
quarterly in arrears in cash or shares of our common stock. The Company has
accrued dividends to Series A totaling $98,542 as of December 31,
2009.
F-14
JUHL
WIND, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Certain
Covenant Rights and Registration Rights of Series A
Series A
contains certain negative covenants, such as a limitation on indebtedness, a
limitation on increases in executive compensation, an incentive compensation
plan not to exceed 10% of our outstanding common equivalent shares, and
restrictions on mergers, acquisitions and other fundamental transactions,
without the prior written consent of a majority of the holders of Series
A, and certain other affirmative covenants. All covenants expire if
Series A position held by its majority original investor falls below 20% of the
original Series A position held by it immediately following the closing of the
original offering. The Company is also required to issue registered common
shares upon conversion of Series A and exercise of the Class A, Class B and
Class C warrants. If the underlying shares are not registered as
required in the Series A offering document, the Corporation would be required to
pay liquidated damages of 2% of the original purchase price per each 30 day
period or part thereof for any registration default up to a maximum of
12%.
The
Company recorded a liability and corresponding expense at December 31, 2008 in
the amount of $258,879 to account for approximated liquidated damages and late
fees to the holders of the Series A shares. The liquidated damages
and late fees were related to the breach of covenants and rights contained in
the Registration Rights Agreement, primarily as a result of the Company’s delay
in successfully completing an effective registration statement, and to a lesser
extent, the timely payment of quarterly dividends. The Company and
the holders of the Series A shares agreed in writing in March 2009 to pay the
$258,879 in the form of shares of common stock issuable over the period April 1
through October 1, 2009. The Company issued approximately 146,000
shares of common stock in payment of this liability. As of December 31, 2009,
there is no remaining liability on the consolidated balance sheet.
4.
|
ISSUANCE
OF SERIES B CONVERTIBLE PREFERRED
STOCK
|
On June
29, 2009, the Company entered into a Warrant Amendment Agreement with the
holders of the Company’s Class A, Class B and Class C warrants, whereby the
holders and the Company agreed that such warrants would be exercisable solely
for the Company’s new Series B Convertible Preferred Stock (Series
B). In conjunction with this agreement, the holders of all classes of
warrants exchanged their warrants, cash of approximately $2,339,000 and a
subscription receivable totaling approximately $197,000 for 6,607,006 shares of
the Company’s Series B. The subscription receivable was paid in full on December
31, 2009.
Series B
contains the following terms:
|
Conversion
Rights of Series B
|
At any
time, each share of Series B is convertible into one share of common
stock. However, the number of shares of common stock issuable upon
conversion of Series B is subject to adjustment upon the occurrence of certain
customary events, including, among others, a stock split, reverse stock split or
combination of our common stock; an issuance of our common stock or other
securities as a dividend or distribution on the common stock; a
reclassification, exchange or substitution of the common stock; or a capital
reorganization of our company. The conversion price is reduced 25% if the
Company fails to obtain combined revenues equal to at least $10,000,000 for the
six months ended December 31, 2009. The Company did achieve the combined
revenues and as such no adjustment to the conversion price is
required.
|
Voting
Rights of Series B
|
Holders
of Series B are not entitled to vote their shares with the holders of our common
stock, except for certain extraordinary corporate transactions, in which case
they vote as a separate class. Holders of Series B shall also have any voting
rights to which they are entitled by Delaware law.
|
Liquidation
Rights of Series B
|
In the
event of any voluntary or involuntary liquidation, dissolution or winding-up of
our company, the holders of Series B will be entitled to receive out of our
assets available for distribution to stockholders, a pro rata liquidating
distribution on a pari passu basis with holders of the Company’s common stock
based on the number of shares convertible from the then outstanding Series B
shares. Liquidation does not include a change in control transaction
or a merger or consolidation of the Company, any sale of all or substantially
all of its assets in one transaction or series of related transactions, or any
tender offer or exchange offer to which the holders of common stock are
permitted to tender or exchange their shares for other securities, cash or
property. Liquidation Rights of our Series A is expressly senior to the rights
of Series B.
F-15
JUHL
WIND, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Redemption
Rights of Series B
Series B
may not be redeemed by the Company at any time.
Dividends
Rights of Series B
Series B
has no cumulative preferred dividend provisions. Series B shall
participate in any dividends declared and paid by Juhl on its common stock on an
as-converted basis.
|
Anti-Dilution
Rights of Series B
|
Series B
contains provisions whereby at any time at least 25% of the Series B is
outstanding, the Company may not issue rights, options or warrants to all
holders of common stock entitling them to subscribe for or purchase shares of
common stock at a price per share that is lower than the volume weighted average
price on the date of the Series B agreement without issuing the same rights,
options or warrants to all Holders on an as-converted to common stock
basis.
5.
|
WARRANT
LIABILITY
|
Upon
adoption of new accounting guidance on January 1, 2009, the Company evaluated
whether its warrants or convertible preferred stock contain provisions that
protect holders from declines in the stock price or otherwise could result in
modification of the exercise price and/or shares to be issued under the
respective warrant or preferred stock agreements based on a variable that is not
an input to the fair value of a
“fixed-for-fixed” option. The Company determined that the all of the outstanding
warrants (until June 29, 2009 upon which all such warrants were either exercised
or exchanged) contained such provisions thereby concluding they were not indexed
to the Company’s own stock and must be treated as a derivative
liability. Prior to January 1, 2009, the warrants were considered
equity instruments. The Company determined that while its convertible
preferred stock (Series A and Series B) contains certain anti-dilution features,
the conversion feature embedded within its convertible preferred stock does not
require bifurcation or liability treatment.
The
Company, beginning on January 1, 2009, recognized these warrants as liabilities
at their respective fair values on each reporting date. The cumulative effect of
the change in accounting for these instruments of $12,576,816 was recognized as
an adjustment to the opening balance of stockholders’ equity at January 1, 2009.
In addition, the carrying value of Series A was reduced by $529,133 due to the
initial valuation allocated to preferred stock was determined using the relative
fair value of Series A and the related warrants issued in the original
transaction. Series A would have been valued using its residual value
as the full fair value of the warrants would have had to been first allocated
from the net proceeds of the transaction and then the remainder to the value of
convertible preferred stock.
As
discussed in Note 4, the conversion of all classes of warrants to Series B
eliminated the derivative accounting related to the warrant liability.
Therefore, the warrants that were accounted for as a warrant liability were
reclassified to stockholders’ equity at its then-current fair value at the date
of the exchange. Prior to the exchange, the Company re-measured the
fair value of these instruments as of June 29, 2009, and recorded an $848,966
gain to the statement of operations for the three month period ended June 30,
2009 as the fair value of the warrant liability decreased to
$10,378,146. This amount is included in stockholders’ equity as a
component of the carrying value of Series B. At the end of the first quarter on
March 31, 2009, the Company recognized a gain of $1,349,705 related to this
warrant liability representing the reduced fair value of this liability at March
31, 2009 compared to the January 1, 2009 adoption date of this
guidance.
F-16
JUHL
WIND, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
The
Company determined the fair value on June 29, 2009 of the warrant liability
using the Black-Scholes valuation model. The assumptions used are noted in the
following table:
|
|||
Expected
term
|
|
4
years
|
|
Risk-free
interest rate
|
2.97%
|
||
Expected
volatility
|
104%
|
||
Dividend
yield
|
0%
|
Expected
volatility is based on historical volatility of peer companies operating in a
similar industry. The warrants have a transferability provision therefore; we
used the full contractual term as the expected term of the warrants. The risk
free rate is based on the five-year U.S. Treasury security rates.
As a
result of the exchange, the Company has no warrants outstanding that require
derivative accounting.
6.
|
PROMISSORY
NOTE RECEIVABLE
|
In
November 2009, Juhl Energy Development (JEDI) entered into a Development and
Construction Services Agreement (the “Development Agreement”), with a wind
project. Under the Development Agreement, the Owner contracted with
JEDI for the development, design, construction, installation, and financing of
the project’s balance of plant. The Project’s balance of plant involves the
installation of ten 2.0 MW wind turbine generators, which are subject to a
Turbine Supply Agreement between the project owner and the turbine supplier.
JEDI agreed to take a promissory note for a portion of the expected $8.5 million
construction cost of the project together with security interest that is junior
to the turbine supplier. JEDI’s primary subcontractor has also agreed to assist
JEDI in its financing by deferring payment of its services through the
acceptance of a promissory note until permanent financing is placed on the
project. As a part of this Development Agreement, the primary
subcontractor’s note must be paid within 180 days of the substantial completion
of the project, and if this does not occur, the subcontractor may exercise legal
rights to demand payment from JEDI only as it relates to Juhl’s rights to its
promissory note and its Development Agreement, including a right of foreclosure
on the note delivered to JEDI by the project owners, which could, in turn, allow
for conversion of amounts to project equity by JEDI or its primary
subcontractor. If converted to equity, the Company estimates that the equity
fair value would be equal or greater than the carrying value of the note
receivable. This estimate is based on electricity production and the
fair value of the Power Purchase Agreement (“PPA”) in place at the completion of
this project. The substantial completion of the project occurred in February
2010. Neither JEDI or its primary subcontractor have collected on this note
receivable as of March 31, 2010.
At
December 31, 2009, the balance of the Promissory Note Receivable was $7,149,912,
including accrued interest of approximately $24,300. The Note carries an
interest rate of 8%.
7.
|
CONCENTRATIONS,
RISKS AND UNCERTANTIES
|
The
Company derived approximately 78% of its revenue in 2009 from two customers as a
result of the construction activities, and 22% of its revenue in 2008 were from
sales to three customers. At December 31, 2009, and 2008, 95% and 56% of the
Company's accounts receivable were due from two and four customers,
respectively. At December 31, 2009 and 2008, 100% of the Company’s
unbilled receivables were attributable to one and two customers,
respectively.
F-17
JUHL
WIND, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
8. ACCOUNTS
RECEIVABLE
Accounts
receivable consists of the following:
December
31, 2009
|
December
31, 2008
|
|||||||
Wind
farm development/management
|
$ | 310,108 | $ | 11,250 | ||||
Construction
|
- | 42,757 | ||||||
Turbine
sales and service
|
1,307,866 | - | ||||||
Subtotal
|
1,617,974 | 54,007 | ||||||
Less:
allowance for doubtful accounts
|
- | 10,000 | ||||||
Total
|
$ | 1,617,974 | $ | 44,007 |
9. INVENTORIES
Inventories
consist of the following:
December
31, 2009
|
December
31, 2008
|
|||||||
Materials
and supplies
|
$ | 298,145 | $ | 351,213 | ||||
Work-in-progress
|
54,265 | 51,905 | ||||||
$ | 352,410 | $ | 403,118 |
10. PROPERTY
AND EQUIPMENT
Property
and equipment consists of the following:
December
31, 2009
|
December
31, 2008
|
|||||||
Land
|
$ | 17,500 | $ | 17,500 | ||||
Building
and improvements
|
238,120 | 238,120 | ||||||
Equipment,
including vehicles
|
380,856 | 268,326 | ||||||
Construction
in Progress
|
31,030 | - | ||||||
Subtotal
|
667,506 | 523,946 | ||||||
Less
Accumulated depreciation
|
(237,467 | ) | (179,822 | ) | ||||
Total
|
$ | 430,039 | $ | 344,124 |
11.
|
CONSTRUCTION
CONTRACTS
|
The
status of construction contracts is as follows:
Costs
incurred on uncompleted contracts
|
$ | 8,692,761 | ||
Deferred
turbine costs
|
249,500 | |||
Estimated
earnings
|
412,840 | |||
Less: billings
to-date
|
(8,586,031 | ) | ||
Totals
|
$ | 769,070 | ||
Included
in the accompanying balance sheet under the following
captions:
|
||||
Costs
and estimated earnings in excess of billings
|
$ | 769,070 | ||
Billings
in excess of costs and estimated earnings
|
- | |||
Totals
|
$ | 769,070 |
F-18
JUHL
WIND, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
12.
|
INCOME
TAXES
|
The
Company files a consolidated tax return inclusive of each of its wholly-owned
subsidiaries, DanMar, JEDI, and NextGen. The Company’s provision for
income taxes includes only the effects of operating activities subsequent to the
dates of acquisition as disclosed in Note 1 above, since each of the entities
had elected Subchapter S status for all periods prior to acquisition. Upon
acquisition, the Subchapter S elections were automatically
terminated.
The Company has recorded deferred tax
assets and liabilities arising from the anticipated timing differences recorded
in the financial statements and income tax returns for various accrued expenses,
accounting methods used in computing depreciation and revenue recognition and
benefits from net operating loss carryforwards.
The
income tax (benefit) consists of the following components:
2009
|
2008
|
|||||||
Current
|
$ | - | $ | - | ||||
Deferred
|
(223,000 | ) | (436,000 | ) | ||||
Total
|
$ | (223,000 | ) | $ | (436,000 | ) |
The
components of the deferred income tax asset and liability as of December 31,
2009 and 2008 are as follows:
2009
|
2008
|
|||||||
Current
deferred income tax asset:
|
||||||||
Accrued
vacation and officer’s compensation
|
$ | 12,000 | $ | 9,000 | ||||
Liquidated
damages provision
|
0 | 104,000 | ||||||
Reserves
for warranty
|
26,000 | 68,000 | ||||||
Net
operating loss carryforward
|
440,000 | 241,000 | ||||||
Less
valuation allowance
|
(268,000 | ) | ||||||
Total
|
$ | 210,000 | $ | 422,000 | ||||
Non-current
deferred income tax asset:
|
||||||||
Stock
compensation expense
|
$ | 431,000 | $ | 38,000 | ||||
Deferred
revenue/other
|
224,000 | -0- | ||||||
Net
operating loss carryforward
|
310,000 | -0- | ||||||
Less
valuation allowance
|
(320,000 | ) | -0- | |||||
Total
|
$ | 645,000 | $ | 38,000 | ||||
Current
deferred income tax liability:
|
||||||||
Completed
contract accounting
|
$ | 165,000 | $ | -0- | ||||
Non-current
deferred income tax liability
|
||||||||
Depreciation
|
$ | 31,000 | $ | 24,000 |
Deferred
income taxes are presented on the balance sheet under the following captions at
December 31:
2009
|
2008
|
|||||||
Current
assets
|
$ | 45,000 | $ | 422,000 | ||||
Noncurrent
assets
|
614,000 | 14,000 | ||||||
Total
|
$ | 659,000 | $ | 436,000 |
F-19
JUHL
WIND, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
In
assessing the realization of deferred tax assets, the Company’s management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences become
deductible. The Company’s management considers the scheduled reversal
of deferred tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment. As of December 31, 2009 and 2008, a
valuation allowance of $588,000 and $0, respectively, has been recognized for
deferred tax assets.
At
December 31, 2009, the Company has approximately a $1.8 million federal net
operating loss carryforward of approximately which will expire in the year
2028.
The
following represents the reconciliation of the statutory federal tax rate and
the effective tax rate for the years ended December 31, 2009 and
2008:
2009
|
2008
|
|||||||||||||||
Statutory
tax rate
|
$ | (120,396 | ) | 34.0 | % | $ | (556,392 | ) | 34.0 | % | ||||||
States
taxes, net of federal benefit
|
(21,246 | ) | 6.0 | (86,053 | ) | 5.3 | ||||||||||
Gain on warrant liability not recognizable for tax purposes | (879,468 | ) | 248.4 | - | - | |||||||||||
Nondeductible
income/expenses
|
114,418 | (32.3 | ) | 68,756 | (4.2 | ) | ||||||||||
Other,
net
|
95,692 | (27.0 | ) | 137,689 | (8.4 | ) | ||||||||||
Increase
in valuation allowance
|
588,000 | (166.1 | ) | - | - | |||||||||||
$ | (223,000 | ) | 63.0 | % | $ | (436,000 | ) | 26.7 | % |
13.
|
PROMISSORY
NOTE PAYABLE
|
In
November 2009, JEDI entered into a Balance of Plant Construction Services
Agreement (the “Construction Agreement”), with a subcontractor relating to a
wind project. Under the Construction Agreement, the JEDI contracted
with the subcontractor for the construction services for certain aspects of the
project’s balance of plant. The Project’s balance of plant involves the
installation of ten 2.0 MW wind turbine generators. The subcontractor has agreed
to assist JEDI in its financing by deferring payment of its services through the
acceptance of a promissory note until permanent financing is placed on the
project. As a part of this Construction Agreement, the primary
subcontractor’s note must be paid within 180 days of the substantial completion
of the project, and if this does not occur, the subcontractor may exercise legal
rights to demand payment from JEDI only as it relates to Juhl’s rights to its
Development Agreement with the project owners, including a right of foreclosure
on the note delivered to the subcontractor by JEDI, which could, in turn, allow
for conversion of amounts to project equity by the subcontractor. The
substantial completion of the project occurred in February 2010.
At
December 31, 2009, the balance of the Promissory Note Payable was $7,149,912,
including accrued interest of approximately $24,300. The Note carries an 8%
interest rate.
14. STOCK-BASED
COMPENSATION
The
Company has a incentive compensation plan to provide stock options, stock
issuances and other equity interests in the Company to employees, directors,
consultants, independent contractors, and advisors of the Company and other
person who is determined by the Committee of the Board of Directors of the
Company to have made (or expected to make) contributions to the Company. As of
December 31, 2009, the Company has 1,652,111 shares available for award under
the plan.
Stock
Options
The
Company has granted to key employees and directors of the Company, 1,245,000
options to purchase common shares under the above plan. In addition,
the Company issued an additional 500,000 stock options to a director in June
2009 outside of the plan. The outstanding stock options carry an exercise price
ranging from of $1.00-$2.11 per share and expire ten years from the date of
grant. The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
assumptions, underlying price ranging from $1.00 to $3.05, dividend yield of 0%,
expected volatility ranging from 96% to 104%, risk-free interest rate of 4%, and
average expected life of 6 years. Based on pricing model, the company expensed
approximately $818,000 and $96,000 of stock compensation in the year ending
December 31, 2009 and 2008, respectively.
F-20
JUHL
WIND, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
A summary
of the Company’s stock option plan as of December 31, 2009 and 2008 and changes
during the period then ended is listed below:
Outstanding
at January 1, 2008
|
-0- | |||
Granted
|
620,000 | |||
Exercised
|
||||
Expired
|
||||
Forfeited
|
|
|||
Outstanding
at December 31, 2008
|
620,000 | |||
Options
exercisable at the end of the period
|
5,000 | |||
Outstanding
at January 1, 2009
|
620,000 | |||
Granted
|
1,200,000 | |||
Exercised
|
||||
Expired
|
||||
Forfeited
|
(75,000 | ) | ||
Outstanding
at December 31, 2009
|
1,745,000 | |||
Options
exercisable at the end of the period
|
554,147 |
As of
December 31, 2009, there was approximately $1,065,000 total unrecognized
compensation expense cost. This cost is expected to be recognized
over a weighted-average period of 3 years.
Warrants
The
Company has issued common stock warrants to individuals or firms for consulting
and investor relations services. A summary of the warrants are as
follows:
Issue date
|
Number of warrants
|
Expiration Date
|
Exercise
Price per share
|
|||
December
2008
|
50,000
|
June
2013
|
$7.00
- $10.00
|
|||
December
2009
|
100,000
|
December
2014
|
$1.25
|
|||
Total
|
150,000
|
All of
the warrants are vested and allow the holder to purchase common stock at the
exercise prices shown above. To determine fair value of the warrants
issued for the purposes of measuring stock compensation expense, the Company
uses the Black-Scholes pricing model with the following assumptions, dividend
yield of 0%, expected volatility of 96-102%, risk-free interest rate of 4%, and
expected life of 5 years. The Company recognized stock compensation
expense to non-employees of approximately $164,000 and $29,000 during the period
ended December 31, 2009 and 2008, respectively.
F-21
JUHL
WIND, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
15. FAIR
VALUE MEASUREMENTS
The
reconciliation of beginning and ending balances for financial assets and
liabilities measured at fair value using significant unobservable inputs (Level
3) are as follows:
Warrant
liability
|
||||
Beginning
Balance, December 31, 2008
|
$ | - | ||
Recognition
upon adoption of ASC 815-40
|
12,576,816 | |||
Gain
on warrant liability fair value adjustment
|
(2,198,671 | ) | ||
Reclassification
to equity (see Note 5)
|
(10,378,145 | ) | ||
Ending
Balance, December 31, 2009
|
$ | - | ||
Total
unrealized gain included in earnings which are attributable to the change
in unrealized gains or losses related to liability no longer held at the
reporting date
|
$ | 2,198,671 |
The
Company’s Level 3 liability consists of the common stock warrants held by the
preferred shareholders subject to redemption discussed in Note 5. The
fair value of the liability for the preferred stock warrants subject to
redemption is estimated using the Black-Scholes option pricing model using
internal observable and unobservable market input assumptions.
During
2009, goodwill with a carrying amount of $227,998 was written down to its
implied value of $0 after the Company completed its valuation
analysis. The resulting impairment charge of $227,998 was included in
earnings during the fourth quarter of 2009. The Company used a
discounted cash flow model for the reporting unit. Management
judgment was required for developing the assumptions for the discounted cash
flow model. The model requires significant unobservable inputs, which
are level 3 under the fair value hierarchy.
16. LICENSING
ARRANGEMENT
In July
2009, NextGen entered into a non-exclusive Manufacturing License and Reseller
agreement with an unrelated company. The agreement provides that NextGen will
license its small turbine technology and, among other things, grants a right to
manufacture units over a twenty year period. The agreement also provides for
exclusive distribution rights in certain areas of the United
States. NextGen expects to receive payments of $1 million for
granting these rights under this agreement, of which $533,000 has been collected
at December 31, 2009. Revenue will be amortized over the twenty year
period. For the period ended December 31, 2009, licensing
revenue of approximately $21,000 is included in revenue in the financial
statements. Licensing deferred revenue of approximately $512,000 is
included on the balance sheet as of December 31, 2009 in deferred
revenue.
17. BUSINESS
SEGMENTS
The
Company groups its operations into two business segments–Wind Farm Development,
Construction, and Management and Consumer-owned Renewable Energy products.
The Company's business segments are separate business units that offer different
products. The accounting policies for each segment are the same as those
described in the summary of significant accounting policies. Corporate assets
include: cash and cash equivalents, short-term investments, deferred income
taxes, and other assets.
F-22
JUHL
WIND, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Wind
Farm
Development,
Construction,
and Management |
Consumer-Owned
Renewable Energy |
Consolidated
|
||||||||||
For
the Year Ending December 31, 2009
|
||||||||||||
Wind
farm development/management
|
$ | 910,473 | $ | 24,939 - | $ | 935,412 | ||||||
Turbine
sales and service
|
1,166,640 | 1,322,590 | 2,489,230 | |||||||||
Related
party revenue
|
299,084 | - | 299,084 | |||||||||
Construction
contact revenue
|
7,939,399 | 11,206 | 7,950,605 | |||||||||
Other
|
1,810 | - | 1,810 | |||||||||
Total revenue
|
$ | 10,317,406 | $ | 1,358,735 | $ | 11,676,141 | ||||||
Loss
from operations
|
$ | (2,175,568 | ) | $ | (424,775 | ) | $ | (2,600,343 | ) | |||
Other
income (loss), net
|
2,274,943 | (28,706 | ) | 2,246,237 | ||||||||
Income
(loss) before income tax benefit
|
$ | 99,375 | $ | (453,481 | ) | $ | (354,106 | ) | ||||
Identifiable
assets at December 31, 2009
|
$ | 11,035,600 | $ | 932,842 | $ | 11,968,442 | ||||||
Corporate
assets
|
4,844,158 | |||||||||||
Total
assets at December 31,2009
|
$ | 16,812,600 |
Wind
Farm
Development,
Construction,
and Management |
Consumer-Owned
Renewable Energy |
Consolidated
|
||||||||||
For
the Year Ended December 31, 2008
|
||||||||||||
Wind
farm development/management
|
$ | 740,582 | $ | - | $ | 740,582 | ||||||
Turbine
sales and service
|
- | 451,688 | 451,688 | |||||||||
Related
party revenue
|
130,226 | - | 130,226 | |||||||||
Other
|
9,001 | - | 9,001 | |||||||||
Total revenue
|
$ | 879,809 | $ | 451,688 | $ | 1,331,497 | ||||||
Loss
from operations
|
$ | (1,260,824 | ) | $ | (367,992 | ) | $ | (1,628,816 | ) | |||
Other
income (loss), net
|
26,587 | (35,000 | ) | (8,413 | ) | |||||||
Loss
before income tax benefit
|
$ | (1,234,237 | ) | $ | (402,992 | ) | $ | (1,637,229 | ) | |||
Identifiable
assets at December 31, 2008
|
$ | 1,657,480 | $ | 879,189 | $ | 2,536,669 | ||||||
Corporate
assets
|
3,370,925 | |||||||||||
Total
assets at December 31, 2008
|
$ | 5,907,594 |
F-23
JUHL
WIND, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
18.
|
BANK
NOTES PAYABLE
|
The
Company’s next Generation Power Systems subsidiary obtained short-term financing
under the following bank note arrangements for the years ended December 31, 2009
and 2008:
December
31, 2009
|
December
31,
2008
|
|||||||
Note
payable to bank, matured in October 2009, interest payable
monthly
at 5%, collateralized by certificates of deposit
|
$ | - | $ | 150,000 | ||||
Note
payable to bank, matured in October 2009, interest payable
monthly
at 5%, collateralized by certificates of deposit
|
- | 79,938 | ||||||
Note
payable to bank, due April 2010, interest payable
monthly
at 5%, collateralized by certificates of deposit
|
416,853 | 416,853 | ||||||
Total
|
$ | 416,853 | $ | 646,791 |
The
weighted average interest rate for December 31, 2009 and 2008 was 5%,
respectively. Interest paid for the years ended December 31, 2009 and 2008
approximated $28,700 and $34,200, respectively.
19.
|
TRANSACTIONS
WITH RELATED PARTIES
|
The
Company provides wind farm management services to entities that are controlled
by the Company’s Chief Executive Officer and family members. This revenue is
shown on the face of the consolidated statement of operations. The fees are
billed at rates similar to fee structures charged to unrelated
parties.
20.
|
OPERATING
LEASE
|
The
Company rents executive office space under a lease arrangement that expires
October 31, 2010. The Company also rents additional storage space and the land
on which the corporate office is located from two unrelated parties on a
month-to-month basis. The rent expense under these arrangements for
2009 and 2008 was less than $10,000 per year. In 2010, the Company has a minimum
lease payment of $29,000.
21. COMMITMENTS
AND CONTINGENCIES
|
Construction
Services Agreements
|
|
The
Company enters into construction services agreements with third parties
for the construction of wind projects. The construction services
agreements provide for a fixed price, subject to change orders pursuant to
changes in work scope or work conditions. The construction fees are
generally billable on a monthly basis. At December 31, 2009, the Company
was actively constructing two wind projects in Minnesota with a combined
estimated contract value of $9
million.
|
|
Development
Agreements
|
|
The
Company enters into development agreements with third parties for the
development of wind projects. The development agreements call for
development fees ranging from 3% to 5% of the total project cost. The
development fees are generally paid by the project owners in
installments: upon signing of the development agreement
(ranging from 2-10% of the fee), signing of the power purchase agreement
(approximately 5% of the fee), upon availability of funding and signing of
the PPA (approximately 40% of the fee), and the remaining 50% is due at
the commercial operation date of the project. As of December 31, 2009 and
2008, the Company was involved with various development agreements at
different stages within the contracts. The Company was also involved with
several new projects for which development agreements have not been
signed.
|
F-24
JUHL
WIND, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Turbine
Supply
The
Company may enter into turbine supply agreements whereby it will purchase wind
turbines from turbine equipment suppliers and resell the components to wind
project owners. The Company incurs risks of ownership during the course of
shipment and delivery to the project site. The Company passes through the
warranty and performance obligations of the manufacturer onto the project
owners. At December 31, 2009, the Company had delivered one turbine
(approximately $1.3 million cost) to one wind project owner.
Management
Agreements
The
Company has three agreements in place for operational wind projects to perform
management services for those projects. The agreements provide monthly
management fees equal to 2% of the project’s gross sales. These agreements also
provide payments for general and administrative fees, maintenance fees, and any
other out-of-pocket expenses for the project. The contracts expire at various
dates through 2015. The agreements may be terminated by the wind farm upon the
last day of the month that is at least 30 days after the Company has received
written notice of the intent to terminate the agreement.
Administrative
Services Agreements
The
Company has four agreements in place for operational wind projects to perform
administrative services for those projects. These agreements provide quarterly
payments in advance or in arrears of services performed. Payments range from
$4,000 to $5,000 per quarter, and will continue through the change of percentage
ownership date, as defined by the administrative services agreements, and will
be renewed annually without any additional action. The agreements may be
terminated by the wind farm upon at least 90 days written notice to the
Company.
22.
|
NON-CONSOLIDATED
VARIABLE INTEREST ENTITIES
|
Generally
accepted accounting principles provide a framework for identifying variable
interest entities (VIE’s) and determining when a company should include the
assets, liabilities, non-controlling interest, and results of activities of a
VIE in its consolidated financial statements. In general, a VIE is a
corporation, partnership, limited liability corporation, trust, or any other
legal structure used to conduct activities or hold assets that either (1) has an
insufficient amount of equity to carry out its principal activities without
additional subordinated financial support, (2) has a group of equity owners that
are unable to make significant decisions about its activities, or (3) has a
group of equity owners that do not have the obligation to absorb losses or the
right to receive returns generated by its operations. A VIE
should be consolidated if a party with an ownership, contractual, or other
financial interest in the VIE (a variable interest holder) has the power to
direct the VIE’s most significant activities and the obligation to absorb losses
or right to receive benefits of the VIE that could be significant to the
VIE. A variable interest holder that consolidates the VIE is called
the primary beneficiary. Upon consolidation, the primary beneficiary
generally must initially record all of the VIE’s assets, liabilities, and
non-controlling interests at fair value and subsequently account for the VIE as
if it were consolidated based on majority voting interest.
As more
fully described in Note 6, Juhl Energy Development (JEDI) entered
into a Development and Construction Services Agreement in November 2009 with a
special purpose limited liability company which was formed to own a wind
farm project in Minnesota. Under this agreement, JEDI
contracted with the existing owners of the wind farm project for the
development, design, construction, installation, and construction period
financing of the project’s balance of plant. JEDI agreed to take a
promissory note for a portion of the expected $8.5 million construction cost of
the project together with security interest that is junior to the turbine
supplier. JEDI’s primary subcontractor has also agreed to assist JEDI in its
financing by deferring payment of its services through the acceptance of a
promissory note until permanent financing is placed on the
project. The Company does not maintain any ownership interest in the
special purpose entity. The Company has determined that this special purpose
limited liability company is a VIE.
A major
wind turbine manufacturer has also accepted a note receivable for approximately
$30 million as their turbines are being constructed on the wind farm within this
special purpose limited liability company. The turbine manufacturer
has more risk exposure as it relates to this entity and has been granted certain
decision rights, superior to JEDI, that most significantly impact the economic
performance of the special purpose limited liability company. Based
on this analysis, JEDI has determined that the wind turbine manufacturer is the
primary beneficiary for this VIE.
F-25
JUHL
WIND, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
The
Company’s evaluation of whether it qualifies as the primary beneficiary of VIEs
is highly complex and involves significant judgments, estimates and assumptions.
The Company generally utilizes expected cash flow scenarios to determine our
interest in the expected losses or residual returns of VIEs and perform
qualitative analysis of the activities that most significantly impact the VIEs’
economic performance and whether we have the power to direct those
activities.
At
December 31, 2009, the Company held the following investments that were
evaluated against the criteria for consolidation and determined that it is not
the primary beneficiary of the investments and therefore consolidation in the
Company’s financial statements is not required:
Asset types
|
Purpose
|
Book Value
|
||
Promissory
note receivable
|
Construction
contract note with owners
|
$ 7,149,912
|
||
Reimbursable
project costs
|
Cost
advances to wind farm project
|
81,048
|
||
Costs
and profits in excess of billings
|
Construction
contract
|
580,033
|
||
Promissory
note payable
|
Construction
contract note with subcontractor
|
(7,149,912)
|
23. SUBSEQUENT
EVENTS
In March
2010, an equity non-binding financing term sheet was executed by the
Company and a sponsored project company (unaffiliated to Juhl Wind) for purposes
of funding the turbine components, balance of plant construction costs and other
project costs related to a wind farm under construction in Minnesota at the end
of 2009. The term sheets, among other things, provide for approximately $20
million of equity financing from a New York-based utility
enterprise. The closing on this financing is subject to meeting
certain conditions as stated in the term sheets. Management believes
that such conditions will be met and closing will be achieved in the second
quarter of 2010.
F-26
ITEM
9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM
9A (T) CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
Based on
management’s evaluation (with participation of our President and Principal
Financial Officer (CFO), as of the end of the period covered by this report, our
President and CFO have concluded that our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended (the Exchange Act), are ineffective to provide reasonable
assurance that information required to be disclosed by us in reports that we
file or submit under the Exchange Act is recorded, processed, summarized, and
reported within the time periods specified in SEC rules and forms, and is
accumulated and communicated to management, including our principal executive
officer and principal financial officer, as appropriate to allow timely
decisions regarding required disclosure.
Changes
in Internal Control over Financial Reporting
There
were changes to our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the
period covered by this report that may have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting. For a discussion of the changes made, refer to the
Remediation of Material Weaknesses in Internal Control over Financial
Reporting.
Management’s
Report on Internal Control over Financial Reporting
This
annual report 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.
Management
is responsible for establishing and maintaining adequate internal control over
financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange
Act. 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 in accordance with U.S. generally
accepted accounting principles. Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also,
projection of any evaluation of effectiveness to future periods is subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.
Management
has conducted, with the participation of our Principal Executive Officer, which
is our President, and Principal Financial Officer, which is our Chief Financial
Officer, an assessment, including testing of the effectiveness, of our internal
control over financial reporting as of December 31, 2009. Management’s
assessment of internal control over financial reporting was conducted using the
criteria in Internal Control over Financial Reporting – Guidance for Smaller
Public Companies issued by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”).
A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the Company’s annual or interim financial
statements will not be prevented or detected on a timely
basis. In connection with management’s assessment of our
internal control over financial reporting as required under Section 404 of the
Sarbanes-Oxley Act of 2002, we identified the following material weaknesses in
our internal control over financial reporting as of December 31,
2009:
The
Company has not established adequate monitoring over financial reporting
activities to adequately divide, or compensate for, incompatible functions among
personnel to reduce the risk that a potential material misstatement of the
financial statements would occur without being prevented or detected. In
addition, the Company’s online checkwriting process does not maintain adequate
review and monitoring of personnel authorized to perform online cash
disbursements.
30
Because
of the material weaknesses noted above, management has concluded that we did not
maintain effective internal control over financial reporting as of December 31,
2009, based on Internal Control over Financial Reporting – Guidance for Smaller
Public Companies issued by COSO.
Remediation
of Material Weaknesses in Internal Control Over Financial Reporting
Management
is in the process of addressing its material weaknesses in an effort to improve
its system of internal control over financial reporting through the following
actions:
1.
|
The
Company hired a Chief Financial Officer in January 2009 to provide
oversight of the internal control systems, compliance with the GAAP and
SEC disclosure requirements, and supervision of the accounting functions.
In addition, an assistant controller was hired in March
2010.
|
2.
|
In
March 2009, the Board of Directors approved the adoption of a Disclosure
Control Policy, which includes, among other things, a Disclosure Committee
consisting of the CEO, President and CFO. This Committee will be
responsible for managing the identification and disclosure of information
in our SEC filings and public
statements.
|
3.
|
The
Company has assessed control risks with the assistance of an outside
consultant who has experience with Sarbanes Oxley compliance and has
documented key accounting control areas. We expect to continue this effort
through 2010 to meet attestation
standards.
|
4.
|
We
have established a formal delegation policy within the Company which
provides business rules in conjunction with signing and approval authority
by Company employees.
|
5.
|
As
a small business, the Company does not have the resources to fund
sufficient staff to ensure a complete segregation of responsibilities
within the accounting function. However, Company management
does review, and will increase the review of, financial statements and
bank reconciliations on a monthly basis, together with the adoption of a
monthly financial closing process. These actions, in addition to the
improvements identified above, will minimize any risk of a potential
material misstatement occurring. Starting in the second quarter
of 2009, with the addition of our Chief Financial Officer, the Company has
made significant progress in its internal review of financial reporting,
with less dependence upon its lawyers and its accountants for
review.
|
The
foregoing initiatives will enable us to improve our internal controls over
financial reporting. Management is committed to continuing efforts aimed at
improving the design adequacy and operational effectiveness of its system of
internal controls. The remediation efforts noted above will be
subject to the Company’s internal control assessment, testing and evaluation
process.
ITEM
9B OTHER INFORMATION
On
October 1, 2009, we retained the consulting services of Wynndalco Enterprises,
LLC and Thomas R. Canham in the areas of business management, business
development, corporate strategy and capital funding for operating companies and
emerging growth enterprises pursuant to the terms of a Consulting
Agreement. The Consulting Agreement provides for compensation in the
form of warrants to purchase common stock.
In
November 2009, the stockholders holding a majority of the Company’s voting
common stock nominated and elected the Company’s current Board of Directors to
serve until the next annual meeting of the stockholders or until their
respective successors are elected, and further, all action taken by the
directors of the Corporation since the last annual meeting of the stockholders
in conducting the ordinary and legitimate corporate and business affairs of the
Corporation were ratified, confirmed, approved, and adopted as the actions of
the Corporation.
31
PART
III
ITEM
10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The
following table shows the positions held by our board of directors and executive
officers, and their ages as of March 22, 2010:
Name
|
Age
|
Position
|
||
Daniel
J. Juhl
|
60
|
Chairman
of the Board of Directors and Principal
Executive Officer
|
||
John
P. Mitola
|
44
|
President
and Director
|
||
John
J. Brand
|
53
|
Principal
Financial Officer
|
||
Edward
C. Hurley
|
56
|
Director
|
||
General
Wesley Clark (ret.)
|
65
|
Director
|
||
James
W. Beck
|
66
|
Director
|
The
principal occupations for the past five years (and, in some instances, for prior
years) of each of our directors and executive officers are as
follows:
Daniel J. Juhl became our
Chairman of the Board and Principal Executive Officer on June 24, 2008, and had
served as President of Juhl Energy since September 2007 and DanMar since January
1989. Mr. Juhl has been involved in the wind power industry for more than 30
years. He has experience in the design, manufacture, maintenance and sale of
wind turbines. He also provides consulting services in the wind power industry
helping farmers develop wind projects that qualify for Minnesota’s renewable
energy production incentives. Mr. Juhl has been involved in the development of
about 1,500 megawatts of wind generation in his 30+ years of experience in the
field. He has served as the Principal technology officer of Next Generation
Power Systems, Inc. from October 2005 until the present. He has been the
principal consultant for wind energy projects to Edison Capital, John Deere
Capital, Vestas, EWT, Suzlon Turbine Manufacturing, and various public and
private utilities throughout the United States and Canada. He has appeared
before numerous state and federal governmental bodies advocating wind power and
community-based energy development on behalf of landowners, farmers and
ranchers. Mr. Juhl wrote the popular wind energy reference guidebook,
“Harvesting Wind Energy as a Cash Crop.”
Mr.
Juhl’s extensive experience in the wind power industry and his specific
experience as founder of Juhl Energy and DanMar, the related companies which are
now our wholly-owned subsidiaries, provide the Company with a solid foundation
of knowledge about the industry, lends stability to the Company’s position in
the industry and makes Mr. Juhl uniquely qualified to serve as CEO and a
director of the Company.
John P. Mitola became our
President and a member of our board of directors on June 24, 2008, and had
served in similar positions with Juhl Energy since April 2008. Mr. Mitola has
more than 20 years of experience in the energy and environmental industries,
real estate development, venture capital, engineering and construction. He has
been a managing partner with Kingsdale Capital International, a private equity
and capital advisory firm that specialized in merchant banking, leveraged
buyouts and corporate finance, since August 2006. From 2003 to 2009 Mr. Mitola
served as Chairman of the Illinois Toll Highway Authority, one of the largest
agencies in Illinois and one of the largest transportation agencies in North
America with a $600 million annual operating budget and a $6.3 billion capital
program, operating over 274 miles of roadway serving the Chicago metro
region.
Most
recently, Mr. Mitola was Chief Executive Officer and a director of Electric City
Corp., a publicly-held company that specialized in energy efficiency systems,
where he served from January 2000 to February 2006. Prior to his role at
Electric City, Mr. Mitola was vice president and general manager of Exelon
Thermal Technologies, a subsidiary of Exelon Corp. that designed and built
alternative energy systems, from March 1997 to December 1999. Prior to serving
as its general manager, Mr. Mitola served in various leadership roles at Exelon
Thermal Technologies from January 1990 until his move to Electric City Corp. in
January 2000. Mr. Mitola is also a member of the board of directors
of publicly-traded companies Composite Technology Corp. and IDO Security
Inc. He is a member of the American Society of Heating, Refrigerating
and Air-Conditioning Engineers, and the Association of Energy Engineers. His
community affiliations include membership in the Economic Club of Chicago, City
Club of Chicago, Union League Club and the governing board of the Christopher
House Board of Directors. He is also a member of the board of the Illinois
Council Against Handgun Violence. Mr. Mitola received his B.S. degree in
engineering from the University of Illinois at Urbana-Champaign and J.D. degree
from DePaul University College of Law.
32
Mr.
Mitola’s varied experience in energy-related businesses, his public company
experience and the administrative skills he has acquired over his career make
him particularly capable to lead the Company’s management team and serve as one
of its directors.
John J. Brand became our
Principal Financial Officer on January 26, 2009. Immediately prior to
joining Juhl Wind, and since 2002, Mr. Brand served as the Principal Financial
Officer of CMS Direct, Inc. (now CognitiveDATA, Inc. subsequent to
acquisition). Mr. Brand is a former certified public accountant. He
has also held Principal Financial Officer and division controllership positions
in both public and private companies in technology, business services and
energy-related businesses. In addition, Mr. Brand has 14 years of audit and tax
experience in public accounting firms, including Grant Thornton. Mr. Brand
earned a B.S. in Accounting from St. Cloud State University.
Edward C. Hurley became a
director of our Company in July 2008 following our reverse public offering
transaction. He was also appointed as a member of our audit committee
as of November 2009. Mr. Hurley currently serves as Of Counsel to the
law firm of Chico & Nunes, P.C., which position he has held since January,
2007. During more than 13 years of service at the Illinois Commerce
Commission (“ICC”), the agency that regulates public utilities in Illinois, Mr.
Hurley served as the agency’s Chairman, a Commissioner and an Administrative Law
Judge. As the ICC’s chairman, Mr. Hurley oversaw the work of nearly 300
employees and a budget of $128 million. During his tenure at the ICC, Mr. Hurley
was a decision-maker involved in resolving the most complex issues impacting
Illinois businesses governed by the ICC, including the deregulation of electric
energy markets, process for procurement of electricity by electric utilities,
and mergers and acquisitions of telecommunications, electric and natural gas
utilities. Immediately prior to joining Chico & Nunes, P.C., Mr.
Hurley served as the Special Director of the Office of Emergency Energy
Assistance for the State of Illinois. In this role, Mr. Hurley was responsible
for the successful implementation of the "Keep Warm Illinois" and "Keep Cool
Illinois" Campaigns that were driven by anticipated increases in the costs of
natural gas and electricity.
The
Company believes that Mr. Hurley’s significant experience in his leadership role
at a large public agency in the energy arena adds valuable depth to the
Company’s board of directors.
Wesley K. Clark became a
director of our Company in January 2009, and is a member of our audit committee
as of November 2009. General Clark is a businessman, educator, writer
and commentator. General Clark serves as Chairman and CEO of Wesley
K. Clark & Associates, a strategic consulting firm; Chairman of investment
bank Rodman & Renshaw; Co-Chairman of Growth Energy; senior fellow at UCLA’s
Burkle Center for International Relations; Director of International Crisis
Group; and Chairman of City Year Little Rock. General Clark has
authored three books and serves as a member of the Clinton Global Initiative’s
Energy & Climate Change Advisory Board, and ACORE’s Advisory
Board. General Clark became a director of our Company in January
2009.
General
Clark retired as four star general after 38 years in the United States
Army. He graduated first in his class at West Point and completed
degrees in Philosophy, Politics and Economics at Oxford University (B.A. and
M.A.) as a Rhodes Scholar. While serving in Vietnam, he commanded an
infantry company in combat, where he was severely wounded and evacuated home on
a stretcher. He later commanded at the battalion, brigade and
division level, and served in a number of significant staff positions, including
service as the Director Strategic Plans and Policy (J-5). In his last
assignment as Supreme Allied Commander Europe he led NATO forces to victory in
Operation Allied Forces, saving 1.5 million Albanians from ethnic
cleansing.
His
awards include the Presidential Medal of Freedom, Defense Distinguished Service
Medal (five awards), Silver star, bronze star, purple heart, honorary
knighthoods from the British and Dutch governments, and numerous other awards
from other governments, including award of Commander of the Legion of Honor
(France).
The
Company believes that the exceptional leadership skills developed by General
Clark during his illustrious career and his prominence as a spokesman for
energy-related issues lend perspective to the Board and provide opportunities
for growth of the Company.
James W. Beck became a
director of our Company in November 2009, and is a member of our audit committee
as of November 2009. Mr. Beck is a majority owner of Intepro, a
company engaged in the development of software for vertical markets having to
meet requirements for regulatory compliance, and is a co-owner of EMCllc, a firm
engaged in the engineering, design and implementation of energy efficient
lighting systems in industrial and commercial applications throughout North
America for new construction and retrofit markets. Mr. Beck has
previously been involved with companies engaged in the evaluation and
implementation of energy usage, alternative energy sources, electrical
continuation, and energy conservation. Mr. Beck earned a B.S. from
the Carlson School of Business of the University of Minnesota. Mr.
Beck serves as a member of the Board of Directors of AIA Insurance Services in
Lewiston, Idaho, serves as a member of the Advisory Committee of Summit Academy
in Minneapolis, Minnesota and is involved in various other community and civic
activities.
33
The
Company’s recent addition of Mr. Beck as a director was founded upon his
expertise in the areas of energy usage and conventional and alternative energy
and his practical experience in the application of that knowledge to commercial
markets which the Company believes will be a valuable asset to its
Board.
All
directors hold office until the next annual meeting of stockholders and the
election and qualification of their successors. Officers are elected annually by
the board of directors and serve at the discretion of the board.
Independent
Directors
Mr. Ed
Hurley, Mr. James Beck and General Wesley Clark serve on our board of directors
as an “independent director” defined under NASDAQ rules and by the regulations
of the Securities Exchange Act of 1934.
We agreed
with Vision Opportunity Master Fund, the lead investor in the private placement,
to nominate to our board of directors an independent and industry-qualified
director selected by it, and reasonably acceptable to us, to serve as a director
for at least three years after the closing of the exchange transaction and
private placement. We also agreed to cause such director to be appointed to the
audit or compensation committee of our board, when established. In
fulfillment of that agreement, Mr. Hurley was appointed as such
director.
Board
Composition and Meetings of Board of Directors
The Board
of Directors is currently composed of five members. All actions of
the Board of Directors require the approval of a majority of the directors in
attendance at a meeting at which a quorum is present. Through
December 31, 2009, our Board of Directors met in person two times and acted by
written consent six times.
Board
Committees
The
Company has established an audit committee and plans to take steps to create a
compensation committee and a nominations and governance committee, in compliance
with established corporate governance requirements. Currently, Mr.
Hurley, General Clark and Mr. Beck are our only “independent” directors, as that
term is defined under NASDAQ rules and by the regulations of the Securities
Exchange Act of 1934.
Audit
Committee. The Board of Directors of the Company established
an Audit Committee at its meeting on November 24, 2009. At this
meeting, Mr. Beck was appointed Audit Committee Chairman, and Mr. Hurley and
General Clark were appointed as members of the Audit Committee. As a
result, the Audit Committee is comprised of our "independent" directors as
defined in NASDAQ Marketplace Rule 5605(a)(2). Further, the Board of
Directors of the Company plans to adopt an Audit Committee Charter at its next
meeting during the second quarter of 2010. Upon adoption of the Audit
Committee Charter, the Audit Committee will commence its role in the second
quarter of 2010. The Audit Committee will review the results and
scope of the audit and the financial recommendations provided by our independent
registered public accounting firm. Further, the Audit Committee will
review the scope, timing and fees for the annual audit and the results of audit
examinations performed by the internal auditors and independent public
accountants, including their recommendations to improve the system of accounting
and internal controls.
Compensation
Committee. The Board of Directors of the Company plans to establish a
Compensation Committee during 2010. The Compensation
Committee will be comprised of our “independent” directors as defined in NASDAQ
Marketplace Rule 5605(a)(2). The Compensation Committee will review and approve
our salary and benefit policies, including compensation of executive
officers. The Compensation Committee will also administer our
Incentive Compensation Plan, and will recommend and approve grants of stock
options, restricted stock and other awards under that plan.
Nominations and
Governance Committee. The Board of Directors of the Company plans to
establish a Nominations and Governance Committee during 2010. The
Nominations and Governance Committee will be comprised of our “independent”
directors as defined in NASDAQ Marketplace Rule 5605(a)(2). The Nomination and
Corporate Governance Committee will review the qualifications of prospective
directors for consideration by the board of directors as management’s nominees
for directors. The purpose of the Nominations and Governance Committee is to
select, or recommend for our entire board’s selection, the individuals to stand
for election as directors at the annual meeting of stockholders and to oversee
the selection and composition of committees of our board. The Nominations and
Governance Committee’s duties will also include considering the adequacy of our
corporate governance and overseeing and approving management continuity planning
processes.
We will
consider nominations for directors submitted by stockholders. Stockholder
nominations for election to the board of directors must be made by written
notification received by us not later than sixty days prior to the next annual
meeting of stockholders. Such notification shall contain, at a minimum, the
following information:
34
1.
|
The
name and residential address of the proposed nominee and of each notifying
stockholder;
|
2.
|
The
principal occupation of the proposed
nominee;
|
3.
|
A
representation that the notifying stockholder intends to appear in person
or by proxy at the meeting to nominate the person specified in the
notice;
|
4.
|
The
total number of our shares owned by the notifying
stockholder;
|
5.
|
A
description of all arrangements or understandings between the notifying
stockholder and the proposed nominee and any other person or persons
pursuant to which the nomination is to be made by the notifying
stockholder;
|
6.
|
Any
other information regarding the nominee that would be required to be
included in a proxy statement filed with the SEC;
and
|
7.
|
The
consent of the nominee to serve as one of our directors, if
elected.
|
The
Nominating and Corporate Governance Committee will return, without
consideration, any notice of proposed nomination which does not contain the
foregoing information.
The
Nominating and Corporate Governance Committee has not established specific
criteria or minimum qualifications that must be met by committee-nominated or
shareholder-nominated nominees for director. Regardless of the source of a given
nominee’s nomination, the Nominating and Corporate Governance Committee
evaluates each nominee based solely upon his/her educational attainments,
relevant experience and professional stature. The Nominating and Corporate
Governance Committee primarily seeks nominations for director from institutional
security holders, members of the investment banking community and current
directors.
Indebtedness
of Directors and Executive Officers
None of
our directors or executive officers or their respective associates or affiliates
is indebted to us.
Family
Relationships
There are
no family relationships among our directors and executive officers.
Legal
Proceedings
As of the
date of this report, there is no material proceeding to which any of our
directors, executive officers, affiliates or stockholders is a party adverse to
us.
2008
Incentive Compensation Plan
On June
16, 2008, our board of directors and holders of a majority of our outstanding
shares of common stock adopted and approved a new 2008 Incentive Compensation
Plan, which our board ratified on June 24, 2008. The purpose of our
Incentive Compensation Plan is to provide stock options, stock issuances and
other equity interests to employees, officers, directors, consultants,
independent contractors, advisors and other persons who have made or are
expected to make contributions to our company.
Administration. Our Incentive
Compensation Plan is to be administered by our Compensation Committee, provided,
however, that except as otherwise expressly provided in the plan, the committee
may delegate some or all of its power or authority to our President, Principal
Executive Officer or other executive officer. Subject to the terms of our plan,
the committee is authorized to construe and determine the stock option
agreements, other agreements, awards and the plan, prescribe, amend and rescind
rules and regulations relating to the plan and awards, determine acceleration of
vesting schedules or award payments and forfeitures, determine terms and
provisions of stock options agreements (which need not be identical), grant
awards for performance goals and option awards and stock appreciation rights
based upon a vesting schedule and correct defects, supply omissions or reconcile
inconsistencies in the plan or any award thereunder, and make all other
determinations as the committee may deem necessary or desirable for the
administration and interpretation of our plan.
Eligibility. The
persons eligible to receive awards under our Incentive Compensation Plan are the
employee, officers, directors, consultants, independent contractors and advisors
of our company or any parent or subsidiary of our company and other persons who
have made or are expected to make contributions to our company.
Types of
Awards. Our Incentive Compensation Plan provides for the issuance of
stock options, incentive stock options, restricted compensation shares,
restricted compensation share units, stock appreciation rights (or SARs),
performance shares, award shares and other stock-based
awards. Performance share awards entitle recipients to acquire
shares of common stock upon the attainment of specified performance goals within
a specified performance period, as determined by the committee.
35
Shares Available
for Awards; Annual Per-Person Limitations. Subject to certain
recapitalization events described in our plan, the aggregate number of shares of
common stock that may be issued pursuant to our Incentive Compensation Plan at
any time during the term of such plan is 2,897,111 shares, and as of December
31, 2009, there were a total of 1,245,000 shares issued under such
plan. If any award expires, or is terminated, surrendered or
forfeited, the common stock covered by such award will again be available for
the grant of awards under our plan. No participant may be granted awards during
a fiscal year to purchase more than 30,000 shares of common stock subject to
recapitalization events.
Stock Options and
Stock Appreciation Rights. The committee is authorized to grant stock
options, including both incentive stock options (or ISOs) and non-qualified
stock options, restricted compensation shares, restricted compensation share
units, stock appreciation rights, performance shares and award shares. The terms
and conditions of awards under the plan including number of shares covered,
exercise price per share and term are determined by the committee, but in the
case of an ISO, the exercise price must not be less than the fair market value
of a share of common stock on the date of grant. For purposes of our Incentive
Compensation Plan, if at the time of a grant, our company’s common stock is
publicly traded, the term “fair market value” means (i) if listed on an
established stock exchange or national market system, the last reported sales
price or the closing bid if no sales were reported on such exchange or system,
or (ii) the average of the closing bid and asked prices last quoted by an
established quotation service for over-the-counter securities if the common
stock is not reported on a national market system. In the absence of an
established market for our common stock, the fair market value shall be
determined in good faith by the committee. The number of shares
covered by each option or stock appreciation right, the times at which each
option or stock appreciation right will be exercisable, and provisions requiring
forfeiture of unexercised options or stock appreciation rights at or following
termination of employment generally are fixed by the committee, except that no
option or stock appreciation right may have a term exceeding ten years. The
committee also determines the terms and conditions of restricted compensation
shares, restricted compensation share units, performance shares, award shares
and other stock-based awards under our plan.
Restricted
Compensation Shares and Restricted Compensation Share Units. The
committee is authorized to grant restricted compensation shares and restricted
compensation shares units. An award of restricted compensation shares is a grant
which entitles recipients to acquire shares of common stock subject to
restrictions on transfer and which may be forfeited if all specified employment,
vesting and/or performance conditions as determined by the committee are not
met. An award of restricted compensation share units confers upon a recipient
the right to acquire, at some time in the future, restricted compensation
shares, subject to forfeiture if all specified award conditions as determined by
the committee are not met.
Performance
Shares and Award Shares. The committee is authorized to grant awards
entitling recipients to acquire shares of common stock upon the attainment of
specified performance goals and grant awards entitling recipients to acquire
shares of common stock subject to such terms, restrictions, conditions,
performance criteria, vesting requirements and payment needs as determined by
the committee, subject to such other terms as the committee may
specify.
Other Stock-Based
Awards. The committee is authorized to grant other awards based upon the
common stock having such terms and conditions as the committee may determine
including, without limitation, the grant of securities convertible into common
stock and the grant of phantom stock awards or stock units.
Performance Goals
and Other Criteria. The committee shall establish objective performance
goals for participants or groups of participants for performance-based awards
under the plan excluding options and stock appreciation rights. With respect to
participants who are “covered employees” (within the meaning of Section 162(m)
of the Internal Revenue Code of 1986, as amended), an award other than an option
or a stock appreciation right may be based only on performance factors that are
compliant with applicable regulations.
Other Terms of
Awards. Options may be exercised by written notice of exercise to us by
way of cashless exercise, settlement of which shall be made solely in cash.
Unless otherwise determined by the committee, awards may not be transferred
except by will or the laws of descent and distribution and, during the life of
the participant, may be exercisable only by the participant. However, except as
the committee may otherwise determine, nonstatutory options and restricted
compensation shares may be transferred pursuant to a qualified domestic
relations order (as defined by ERISA) or pursuant to certain estate-planning
vehicles. To the extent not inconsistent with the plan or applicable law, the
committee may include additional provisions in awards such as, among other
things, restrictions on transfer, commitments to pay cash bonuses and guaranty
loans. The committee shall determine the effect on awards of disability, death,
retirement, leave of absence or other change in participant status. We have the
right to deduct applicable taxes from payments to award recipients. Participants
have no right to continued employment or other relationship with us, and subject
to award provisions, participants have no rights as stockholders of our company
until becoming record stockholders.
36
Acceleration or
Extension of Vesting; Change in Control. The committee may, in its
discretion, accelerate the dates on which all or any particular option or award
under the plan may be exercised and may extend the dates during which all or any
particular option or award under the plan may be exercised or vest. In the case
of a “change in control” of our company, as defined in our Incentive
Compensation Plan, we will take one or a combination of the following actions:
(a) make appropriate provision for the continuation or assumption of the awards;
(b) acceleration of exercise or vesting of the awards; (c) exchange of the
awards for the right to participate in a benefit plan of a successor; (d)
repurchase of awards; or (e) termination of awards immediately prior to a change
in control.
Amendment and
Termination. The board of directors may amend, suspend or terminate our
Incentive Compensation Plan provided, however, that no amendment may be made
without stockholder approval if such approval is necessary to comply with any
applicable law, rules or regulations. Our plan became effective upon the date it
was adopted by the committee and approved by our stockholders, and no awards may
be granted under the plan after the completion of ten years thereafter. Awards
previously granted may extend beyond that date.
Section 16(a)
Beneficial Ownership Reporting Compliance
We do not
have securities registered under Section 12 of the Exchange Act and,
accordingly, our directors, officers and affiliates are not required to file
reports under Section 16(a) of the Exchange Act.
Code
of Ethics
Our board
of directors has adopted a code of ethics, which applies to all our directors,
officers and employees. Our code of ethics is intended to comply with
the requirements of Item 406 of Regulation S-K.
Our code
of ethics is posted on our Internet website at www.juhlwind.com. We
will provide our code of ethics in print without charge to any stockholder who
makes a written request to us at Juhl Wind, Inc., 996 190th Avenue,
Woodstock, Minnesota 56186. Any waivers of the application, and any
amendments to, our code of ethics must be made by our board of
directors. Any waivers of, and any amendments to, our code of ethics
will be disclosed promptly on our Internet website,
www.juhlwind.com.
37
ITEM
11 EXECUTIVE COMPENSATION
The
following table sets forth, for the most recent two fiscal years, all cash
compensation paid, distributed or accrued, including salary and bonus amounts,
for services rendered to us by our Principal Executive Officer and four other
executive officers in such year who received or are entitled to receive
remuneration in excess of $100,000 during the stated period and any individuals
for whom disclosure would have been made in this table but for the fact that the
individual was not serving as an executive officer as at December 31,
2009:
Summary
Compensation Table
|
|||||||||
Name
and Principal Position
|
Fiscal
Year
|
Salary
$
|
Bonus
$
|
Stock
Awards
$
|
Option
Awards5
$
|
Non-Equity
Incentive Plan Compen-
sation
$
|
Nonqualified
Deferred Compen-sation Earnings
$
|
All
Other Compen-sation*
$
|
Totals
$
|
Daniel
J. Juhl
Chairman
and Principal
Executive
Officer
|
2009
2008
|
185,065
147,130
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
9,000
-
|
194,065
147,130
|
John
P. Mitola 1
President
|
2009
2008
|
185,061
153,330
|
-
-
|
-
-
|
176,120
92,107
|
-
-
|
-
-
|
9,000
-
|
370,181
245,437
|
John
Brand 2
Principal
Financial Officer
|
2009
2008
|
101,834
-
|
-
-
|
-
-
|
142,885
-
|
-
-
|
-
-
|
6,500
-
|
251,219
-
|
Jeffrey
C. Paulson3
General
Counsel, Vice
President,
Secretary
|
2009
2008
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
Cory
Heitz 4
Former
Director, Principal
Executive
Officer, Principal Financial Officer and Principal Accounting
Officer
|
2008
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
*Represents
Car Allowance
1 Mr.
Mitola joined Juhl Energy in April 2008.
2 Mr.
Brand joined Juhl Wind in January 2009.
3 Mr.
Paulson was removed as General Counsel, Vice President and Secretary on March
24, 2009.
4 Mr.
Heitz resigned as an officer and director of our Company on June 24,
2008.
5The
determination of value of option awards is based upon the Black-Scholes Option
pricing model, details and assumptions of which are set out in our financial
statements included in this annual report. The amounts represent annual
amortization of fair value of stock options granted to the named executive
officer.
The
aggregate amount of benefits in each of the years indicated did not exceed the
lesser of $50,000 or 10% of the compensation of any named officer.
38
Outstanding
Equity Awards at Fiscal Year-End
Option
Awards
|
Stock
Awards
|
||||||||
Name
|
Number
of Securities Underlying Unexercised Options (#)
Exercisable
|
Number
of Securities Underlying Unexercised Options (#)
Unexercisable
|
Equity
Incentive Plan Awards:
Number
of Securities Underlying Unexercised Unearned Options (#)
|
Option
Exercise Price
($)
|
Option
Expiration Date
|
Number
of Shares or Units of Stock That Have Not Vested
(#)
|
Market
Value of Shares or Units of Stock That Have Not Vested
($)1
|
Equity
Incentive Plan Awards:
Number
of Unearned Shares, Units or Other Rights That Have Not
Vested
(#)
|
Equity
Incentive Plan Awards: Market or Payout Value of Unearned
Shares, Units or Other Rights That Have Not Vested
($)
|
John
P. Mitola
|
174,158
|
335,842
|
-
|
$1.00
|
06/24/2018
|
335,842
|
671,6841
|
-
|
-
|
John
J. Brand
|
50,000
|
50,000
|
-
|
$1.95
|
01/26/2019
|
50,000
|
100,0001
|
-
|
-
|
John
J. Brand
|
37,500
|
112,500
|
-
|
$2.11
|
08/13/2019
|
112,500
|
225,0001
|
-
|
-
|
1The
market value of shares with respect to options that have not vested are valued
using $2.00 per share, the average bid/ask price.
Compensation
of Directors
Directors
are expected to timely and fully participate in all regular and special board
meetings, and all meetings of committees on which they serve. We compensate
directors through stock options granted under our 2008 Incentive Compensation
Plan and an annual cash stipend.
On
January 14, 2009, General Wesley K. Clark was appointed as a director of the
Company to serve under the terms of a letter agreement between the Company and
General Clark dated January 13, 2009. The letter agreement, a copy of
which is attached as an exhibit to this annual report, provides for, among other
things, annual cash compensation of $10,000, $1,500 per day compensation while
conducting Company business and expense reimbursement during his term of
office. In January 2009, we granted General Clark stock options
to purchase 10,000 shares of common stock at $2.11 per share. In
addition, on June 29, 2009, we granted General Clark stock options to purchase
500,000 shares of our common stock outside of our 2008 Incentive Compensation
Plan at $2.00 per share, with 166,666 shares immediately exercisable, 166,667
options vesting on June 29, 2010 and 166,667 options vesting on June 29,
2011.
On
November 24, 2009, James W. Beck was appointed as a director of the
Company. In connection with his election, we granted Mr. Beck stock
options to purchase 10,000 shares of Company common stock at $1.89 per share
over a two year vesting period. Mr. Beck shall also receive the
following: annual compensation of $10,000, $1,500 per day compensation while
conducting Company business and expense reimbursement during this term of
office.
39
The table
below summarizes the compensation that we paid to non-management directors for
the fiscal year ended December 31, 2009 and 2008.
Director
Compensation
Name
|
Year
|
Fees
Earned or Paid in Cash
($)
|
Stock
Awards
($)
|
Option
Awards1
($)
|
Non-Equity
Incentive Plan Compensation
($)
|
Nonqualified
Deferred Compensation Earnings
($)
|
All
Other Compensation ($)
|
Total
($)
|
Edward
C. Hurley
General
Wesley Clark
James
Beck
|
2009
2008
2009
2008
2009
2008
|
10,000
-
10,000
-
835
-
|
-
-
-
|
6,120
4,080
306,032
-
463
-
|
-
-
-
-
-
-
|
-
-
-
-
-
-
|
-
-
-
-
-
-
|
16,120
4,080
316,032
-
1,298
-
|
1The
determination of value of option awards is based upon the Black-Scholes Option
pricing model, details and assumptions of which are set out in our financial
statements included in this annual report. The amounts represent annual
amortization of fair value of stock options granted to the named
director.
Employment
Agreements
On June
7, 2008, Juhl Energy entered into an Executive Employment Agreement with Daniel
J. Juhl (the “Juhl Employment Agreement”). Under the Juhl Employment Agreement,
which was assigned to us at the closing of the share exchange transaction, we
will employ Mr. Juhl as Chief Executive Officer for a term beginning on the
closing date of the share exchange transaction and ending on December 31, 2011.
Mr. Juhl’s monthly salary during the three and a half years of the employment
agreement will be $14,583 from June 24, 2008, $16,667 from June 24, 2009 and
$18,750 from June 24, 2010, respectively. We will pay Mr. Juhl an annual
performance bonus of a maximum of his annual salary upon reaching certain goals
established by the board of directors. The performance bonus is conditioned upon
(a) profitable operation of our company for the full year for which the bonus is
to be paid and (b) minimum revenue growth during the year for which the bonus is
to be paid as established by the board and set for 2008 and 2009 at $4.9 million
and $8.9 million, respectively. Mr. Juhl receives an automobile allowance of
$750 per month and other employee benefits provided to similarly-situated
employees. In the event Mr. Juhl terminates his employment for good reason, he
will receive severance compensation in the amount equal to 90 days’
pay.
On June
7, 2008, Juhl Energy entered into an Executive Employment Agreement with John P.
Mitola (the “Mitola Employment Agreement”). Under the Mitola Employment
Agreement, which was assigned to us at the closing of the share exchange
transaction, we will employ Mr. Mitola as President for a term beginning on the
closing date of the share exchange transaction and ending on December 31, 2011.
Mr. Mitola’s monthly salary during the three and a half years of the employment
agreement will be $14,583 from April 1, 2008, $16,667 from June 24, 2009 and
$18,750 from June 24, 2010, respectively. We will pay Mr. Mitola an annual
performance bonus of a maximum of his annual salary upon reaching certain goals
established by the board of directors. The performance bonus is conditioned upon
(a) profitable operation of our company for the full year for which the bonus is
to be paid and (b) minimum revenue growth during the year for which the bonus is
to be paid as established by the board and set for 2008 and 2009 at $4.9 million
and $8.9 million, respectively. Mr. Mitola received stock options to purchase
500,000 shares of our common stock exercisable at $1.00 per share, which options
vest in three increments of one-third each upon completion of each year of
employment. Mr. Mitola receives an automobile allowance of $750 per month and
other employee benefits provided to similarly-situated employees. In the event
Mr. Mitola terminates his employment for good reason, he will receive severance
compensation in the amount equal to 90 days’ pay.
On
January 26, 2009, our board of directors appointed John J. Brand as our Chief
Financial Officer. On August 13, 2009, we entered into an Executive
Employment Agreement with Mr. Brand pursuant to which we agreed to employ Mr.
Brand as our Chief Financial Officer through December 31, 2011. The
employment agreement provides that Mr. Brand’s initial monthly salary will be
$10,417 and will increase to $12,500 based on the occurrence of certain business
events. We have also agreed to pay Mr. Brand an annual performance
bonus of a maximum of his annual salary upon reaching certain goals established
by senior management and approved by the board of directors. In
connection with his employment agreement, Mr. Brand also received, in addition
to an existing stock option grant in January 2009 to purchase an aggregate of
100,000 shares of our common stock exercisable at $1.95 per share according to
the following vesting schedule: 25,000 shares on January 26, 2009;
25,000 shares on July 26, 2009; 25,000 shares on January 26, 2010; and 25,000
shares on July 26, 2010, an additional stock option grant to purchase an
aggregate of 150,000 shares of our common stock exercisable at the closing price
per share on August 13, 2009 with such options vesting over four years beginning
September 1, 2009 through September 1, 2012. Mr. Brand will receive
an automobile allowance of $750 per month and other employee benefits provided
to similarly-situated employees. In the event Mr. Brand terminates
his employment for good reason as defined within the agreement, he will receive
severance compensation in the amount equal to 90 days’ pay.
40
ITEM
12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
Equity
Compensation Plan Information
There are
2,897,111 shares of common stock reserved for issuance under our 2008 Incentive
Compensation Plan. We adopted our 2008 Incentive Compensation Plan on June 16,
2008, and prior to that date, we did not have in place any equity compensation
plan.
The
following table provides information as of December 31, 2009, with respect to
the shares of common stock that may be issued under our existing equity
compensation plan.
Equity
Compensation Plan Information
Plan
Category
|
Number
of shares of common stock to be issued upon exercise of outstanding
options, warrants and rights
(a)
|
Weighted-average
exercise price of outstanding options, warrants and rights
(b)
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
(c)
|
Equity
compensation plans approved
by security holders |
1,245,000
|
$1.59
|
1,652,111
|
Equity
compensation plans not approved
by security holders |
500,000
|
$2.00
|
-
|
Total
|
1,745,000
|
$1.71
|
1,652,111
|
Security
Ownership of Certain Beneficial Owners and Management
The
following table sets forth information regarding the number of shares of our
common stock beneficially owned on March 22, 2010 by:
|
•
|
each
person who is known by us to beneficially own 5% or more of our common
stock,
|
|
•
|
each
of our directors and executive officers,
and
|
|
•
|
all
of our directors and executive officers as a
group.
|
Beneficial
ownership is determined in accordance with the rules of the SEC and generally
includes voting or investment power with respect to securities. Shares of
our common stock which may be acquired upon exercise of stock options or
warrants which are currently exercisable or which become exercisable within 60
days after the date indicated in the table are deemed beneficially owned by the
optionees. Subject to any applicable community property laws, the persons
or entities named in the table above have sole voting and investment power with
respect to all shares indicated as beneficially owned by them.
41
Name
(1)
|
Number of
Shares
Beneficially
Owned
(2,10)
|
Percentage of
Shares
Beneficially
Owned
(3)
|
|||||
5% Stockholders:
|
|
||||||
Vision
Opportunity Master Fund,
Ltd.
|
12,141,560
|
(4,13)
|
38.62%
|
||||
Greenview
Capital,
LLC
|
2,955,435
|
(5,13)
|
13.5%
|
||||
Daybreak
Special Situations Master Fund, Ltd.
|
2,955,435
|
(6,13)
|
13.5%
|
||||
Executive
Officers and Directors:
|
|||||||
Daniel
J.
Juhl
|
14,000,000
|
7
|
66.54%
|
||||
John
P.
Mitola
|
1,426,238
|
8
|
6.7%
|
||||
John
J.
Brand
|
112,500
|
9
|
*
|
||||
Edward
C. Hurley
|
9,572
|
10
|
*
|
||||
General
Wesley
Clark
|
178,626
|
11
|
*
|
||||
James
Beck
|
2,500
|
12
|
|||||
All
executive officers and directors as a group (6 persons)
|
73.24%
|
____________________
|
*
|
Represents
less than 1%.
|
1 Other
than the 5% Stockholders listed above, the address of each person is c/o Juhl
Wind, Inc., 996 190th Avenue, Woodstock, Minnesota 56186.
2 Unless
otherwise indicated, includes shares owned by a spouse, minor children and
relatives sharing the same home, as well as entities owned or controlled by the
named person. Also includes shares if the named person has the right to acquire
those shares within 60 days after March 31, 2010, by the exercise or conversion
of any warrant, stock option or convertible preferred stock. Unless otherwise
noted, shares are owned of record and beneficially by the named
person.
3 The
calculation in this column is based upon 21,039,526 shares of common stock
outstanding on March 22, 2010. The shares of common stock underlying warrants,
stock options and convertible preferred stock are deemed outstanding for
purposes of computing the percentage of the person holding them but are not
deemed outstanding for the purpose of computing the percentage of any other
person.
4 Consists
of (a) 1,742,810 shares of common stock currently held by Vision Opportunity
Master Fund, (b) 4,560,000 shares of common stock issuable upon the conversion
of Series A convertible preferred stock and (c) 5,838,750 shares of common stock
issuable upon the conversion of Series B convertible preferred stock. Adam
Benowitz is the Portfolio Manager of Vision Capital Advisors, LLC, the
investment manager of Vision Opportunity Master Fund, Ltd., which is the
registered holder of the securities. Mr. Benowitz, as the Managing
Member of Vision Capital Advisors, LLC and the Director of Vision Opportunity
Master Fund, has voting and dispositive power over the securities owned by
Vision Opportunity Master Fund. The preferred stock is subject to the
ownership limitation detailed in Note 13 below. The address for Vision
Opportunity Master Fund, Ltd. is c/o Citi Hedge Fund Services (Cayman) Limited,
Cayman Corporate Cenre, 27 Hospital Road, 5th Floor,
Grand Cayman KY1-1109, Cayman Islands.
5 Consists
of (a) 1,886,239 shares of common stock owned by Greenview Capital, LLC and its
individual members (John Prinz and Gene Maher), (b) 208,982 shares of common
stock currently held by Daybreak Special Situations Master Fund, an affiliate of
Greenview Capital, LLC, (c) 260,000 shares of common stock issuable upon the
conversion of Series A convertible preferred stock held by Daybreak Special
Situations Master Fund, and (d) 600,214 shares of common stock issuable upon the
conversion of Series B convertible preferred stock held by Daybreak Special
Situations Master Fund. The preferred stock is subject to the ownership
limitation detailed in Note 13 below. Larry Butz as Managing Partner
of Daybreak Capital Management LLC, the investment advisor to Daybreak Special
Situations Master Fund, Ltd., has voting and dispositive power over the shares
held by Daybreak Special Situations Master Fund, Ltd. Mr. Butz, as
Managing Partner of Daybreak Capital Management LLC, may be deemed to
beneficially own the shares of common stock held by Daybreak Special Situations
Master Fund, Ltd. Each of Daybreak Capital Management LLC and Mr.
Butz disclaim beneficial ownership of such shares. Daybreak Capital
Management LLC is an affiliate of Greenview Capital LLC, and the beneficial
ownership figures, before and after the offering, includes shares beneficially
owned by Greenview Capital. The address for Greenview Capital, LLC is
100 E. Cook Road, Suite 101, Libertyville, Illinois 60048.
42
6 Consists
of (a) 1,886,239 shares beneficially owned by Greenview Capital, LLC, an
affiliate of Daybreak Special Situations Master Fund, (b) 208,982 shares of
common stock, (c) 260,000 shares of common stock issuable upon the conversion of
Series A convertible preferred stock and (d) 600,214 shares of common stock
issuable upon the conversion of Series B convertible preferred stock. The
preferred stock is subject to the ownership limitation detailed in Note 13
below. The address for Daybreak Special Situations Master Fund, Ltd. is 100 E.
Cook Road, 2nd Floor, Libertyville, Illinois 60048.
7 Includes
3,500,000 shares of common stock held by Mary Juhl, Mr. Juhl’s spouse, and
7,000,000 shares held by the Juhl Family Limited Partnership, a Delaware limited
partnership in which Mr. Juhl is the general partner.
8 Includes
(a) 125,000 shares held by the Mitola Family Limited Partnership, a Delaware
limited partnership in which Mr. Mitola is the general partner and (b) 176,238
shares of common stock issuable upon the exercise of stock options exercisable
within 60 days. 9 Consists
of shares of common stock issuable upon the exercise of stock options granted to
him as compensation exercisable within 60 days.
9 Consists
of (i) 112,500 shares of common stock issuable upon the exercise of stock
options granted to him as compensation exercisable within 60 days.
10
Consists of shares of common stock issuable upon the exercise of stock
options granted to him as compensation for board membership exercisable within
60 days.
11
Consists of (i) 5,300 shares of common stock and (ii) 173,326 shares of
common stock issuable upon the exercise of stock options granted to him as
compensation for board membership exercisable within 60 days.
12
Consists of shares of common stock issuable upon the exercise of stock
options granted to him as compensation for board membership exercisable within
60 days.
13 Vision
Opportunity Master Fund and Daybreak Special Situations Master Fund each hold
Series A preferred stock and Series B Preferred Stock that are convertible into
shares of common stock. The agreement with respect to which these stockholders
purchased the preferred stock contains a limitation of 9.9% (a so-called
“blocker”) on the number of shares such stockholders may beneficially own at any
time. The 9.9% ownership limitation, however, does not prevent a stockholder
from selling some of its holdings and then receiving additional
shares. In this way, a stockholder could sell more than the 9.9%
ownership limitation while never holding more than this limit. These numbers do
not reflect the 9.9% ownership limitation.
ITEM
13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
Juhl Wind
provides management, administrative and accounting services to four wind farm
operations in which Dan Juhl and immediate family members have less than 5%
equity interests in each entity. The revenues earned in the years ended December
31, 2009 and 2008 was $295,000 and $130,226, respectively.
On June
30, 2009, Daybreak Special Situations Master Fund executed a promissory note in
favor of us in the aggregate principal amount of $196,710 in order to exercise
the Series A Warrants. The principal amount of the note was collected on
December 30, 2009. The note may be prepaid in whole or in part without
penalty or premium. The proceeds of the note were used by Daybreak to
exercise 157,368 Series A Warrants in connection with the 2009 warrant
exchange.
Three of
our directors, Edward C. Hurley, General Wesley K. Clark, and James W. Beck are
“independent” directors as that term is defined under NASDAQ rules and by the
regulations of the Securities Exchange Act of 1934.
43
ITEM
14 PRINCIPAL ACCOUNTING FEES AND SERVICES
The total
fees charged to the Company for audit services were approximately $167,000, and
for audit-related services approximately $73,000 during the year ended December
31, 2009. The audit-related services were in conjunction with registration
statements on Form S-1 filed with the SEC during the year ended December 31,
2009. The Company incurred approximately $6,000 for tax or other services for
the year ended December 31, 2009.
For the
year ended December 31, 2008, the total fees charged to the Company for audit
services were $136,000, and for audit-related services $25,000. The
audit-related services were in conjunction with the audit of NextGen financial
statements.
The
current policy of the board of directors, acting as the audit committee for the
year ended December 31, 2009 is to approve the appointment of the principal
auditing firm and any permissible audit-related services. The audit and
audit-related fees have not been approved by specific board action in 2009, and
alternatively audit and audit-related fees are reviewed and approved by the
Principal Financial Officer and Principal Executive Officer. Upon establishment
of the audit committee in the near future, the roles and responsibilities of the
committee will include additional oversight of the approval of the audit-related
services.
ITEM
15 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The
Company’s financial statements filed as part of this annual report are listed in
the Table of Contents and provided in response to Item 8.
Exhibits
required by Item 601 of Regulation S-K:
No.
|
Description
|
|
3.1
|
Certificate
of Incorporation of Juhl Wind, Inc. (2)
|
|
3.2
|
Certificate
of Amendment of Certificate of Incorporation amending the name of
Help-U-Drive, Incorporated to MH&SC Incorporated, filed September 26,
2006 with the Delaware Secretary of
State. (2)
|
|
3.3
|
Certificate
of Amendment of Certificate of Incorporation amending, among other things,
the name of MH & SC, Incorporated to Juhl Wind, Inc., filed June 20,
2008 and effective June 24, 2008, with the Delaware Secretary of State.
(1)
|
|
3.4
|
Amended
and Restated Certificate of Designation of Preferences, Rights and
Limitations of Series A 8% Convertible Preferred Stock of Juhl Wind, Inc.
filed June 11, 2009 with the Delaware Secretary of
State. (9)
|
|
3.5
|
Amended
and Restated Certificate of Designation of Preferences, Rights and
Limitations of Series B Convertible Preferred Stock of Juhl Wind, Inc.
filed September 28, 2009 with the Delaware Secretary of
State. (14)
|
|
3.6
|
Bylaws
of Juhl Wind, Inc. (2)
|
|
10.1
|
2008
Incentive Compensation Plan. (4)
|
|
10.2
|
Form
of management Administrative Services Agreement between Juhl Wind, Inc.
and wind farm customers. (5)
|
|
10.3
|
Amendment
No. 1 to Registration Rights Agreement in connection with Juhl Wind,
Inc.’s 2008 private placement of units in Juhl Wind, Inc.
(5)
|
|
10.4
|
Letter
Agreement dated January 13, 2009 between the Company and General Wesley K.
Clark (13)
|
|
10.5
|
Amendment
Agreement dated March 27, 2009 between Juhl Wind, Inc. and each of Vision
Opportunity Master Fund, Ltd., Daybreak Special Situations Master Fund,
Ltd., Bruce Meyers and Imtiaz
Khan. (7)
|
44
10.6
|
Memorandum
of Understanding dated April 13, 2009 between Juhl Wind, Inc. and each of
Vision Opportunity Master Fund, Ltd., Daybreak Special Situations Master
Fund, Ltd., Bruce Meyers and Imtiaz
Khan. (7)
|
|
10.7
|
Waiver
Agreement dated May 13, 2009 between Juhl Wind, Inc., and each of Vision
Opportunity Master Fund, Ltd., Daybreak Special Situations Master Fund,
Ltd., Bruce Meyers and Imtiaz Khan. (8)
|
|
10.8
|
Warrant
Amendment Agreement dated June 29, 2009 among Juhl Wind, Inc. and each of
Vision Opportunity Master Fund, Ltd., Daybreak Special Situations Master
Fund, Ltd., Bruce Meyers and Imtiaz Khan (Exhibit A of the Warrant
Amendment Agreement is filed as Exhibit 3.5 hereto. – Amended and Restated
COD Series B filed September 28, 2009)). (3)
|
|
10.9
|
Securities
Exchange Agreement dated June 30, 2009 among Juhl Wind, Inc. and each of
Vision Opportunity Master Fund, Ltd., Daybreak Special Situations Master
Fund, Ltd., Bruce Meyers and Imtiaz Khan (Exhibit A of the Securities
Exchange Agreement is filed as Exhibit 3.5
hereto) (3)
|
|
10.10
|
Form
of Employment Agreement, dated August 13, 2009, between Juhl Wind, Inc.
and John J. Brand. (10)
|
|
10.11
|
Waiver
Agreement dated September 23, 2009 between Juhl Wind, Inc. and each of
Vision Opportunity Master Fund, Ltd., Daybreak Special Situations Master
Fund, Ltd., Bruce Meyers and Imtiaz Khan. (filed with S-1 on September 30)
(12)
|
|
10.12
|
Development
and Construction Services Agreement, dated November 6, 2009, by and
between Grant County Wind, LLC, a Minnesota limited liability company
(“GCW”) and ten additional signatories who are each individual wind
generator companies and the members of GCW (each a “Generator LLC”, the
Generator LLCs and GCW, collectively “Owner”) and Juhl Energy Development,
Inc., a Minnesota corporation (excluding
exhibits). (11)
|
|
14
|
Code
of Ethics (13)
|
|
21
|
Subsidiaries
of the Registrant*
|
|
31.1
|
Certification
of Principal Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002*
|
|
31.2
|
Certification
of Principal Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002*
|
|
32.1
|
Certification
of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002*
|
|
32.2
|
Certification
of Principal Financial Officer Pursuant 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002*
|
|
*Filed
herewith
|
(1)
|
Incorporated
by reference to the exhibits included with our Current Report on Form 8-K,
dated June 24, 2008, and filed with the U.S. Securities and Exchange
Commission on June 24, 2008
|
|
(2)
|
Incorporated
by reference to the exhibits included with our Registration Statement on
Form SB-2 filed with the U. S. Securities and Exchange Commission on March
31, 2007.
|
|
(3)
|
Incorporated
by reference to the exhibits included with our Current Report on Form 8-K,
dated July 1, 2009, and filed with the U.S. Securities and Exchange
Commission on July 1, 2009
|
|
(4)
|
Incorporated
by reference to the exhibits included with our Current Report on Form 8-K,
dated June 24, 2008, and filed with the U.S. Securities and Exchange
Commission on June 25, 2008
|
|
(5)
|
Incorporated
by reference to the exhibits included with Amendment No. 1 to our
Registration Statement on Form S-1 (registration no. 333-154617), filed
with the U.S. Securities and Exchange Commission on January 21,
2009.
|
|
(6)
|
Supersedes
the Amendment Agreement dated March 27, 2009 among the parties that was
included in error as Exhibit 10.10 to our Annual Report on Form 10-K for
the year ended December 31, 2008, filed with the U.S. Securities and
Exchange Commission on March 30, 2008.
|
|
(7)
|
Incorporated
by reference to the exhibits included with Amendment No. 2 to our
Registration Statement on Form S-1 (registration no. 333-154617), filed
with the U.S. Securities and Exchange Commission on April 15,
2009.
|
|
(8)
|
Incorporated
by reference to the exhibits included with our Quarterly Report on Form
10-Q for the quarter ended March 31, 2009, filed with the U.S. Securities
and Exchange Commission on May 15, 2009.
|
|
(9)
|
Incorporated
by reference to the exhibits included with Amendment No. 4 to our
Registration Statement on Form S-1 (registration no. 333-154617), filed
with the U.S. Securities and Exchange Commission on June 12,
2009.
|
|
(10)
|
Incorporated
by reference to the exhibits included with our Quarterly Report on Form
10-Q for the quarter ended June 30, 2009, filed with the U.S. Securities
and Exchange Commission on August 14, 2009.
|
|
(11)
|
Incorporated
by reference to the exhibits included with our Quarterly Report on Form
10-Q for the quarter ended September 30, 2009, filed with the U.S.
Securities and Exchange Commission on November 13,
2009.
|
|
(12)
|
Incorporated
by reference to the exhibits included with our Registration Statement on
Form S-1 (registration no. 333-162232), filed with the U.S. Securities and
Exchange Commission on September 30, 2009.
|
|
(13)
|
Incorporated
by reference to the exhibits included with our Annual Report on Form 10-K
for the year ended December 31, 2008, filed with the U. S. Securities and
Exchange Commission on March 31, 2009
|
|
(14)
|
Incorporated
by reference to the exhibits included with our Current Report, dated
September 28, 2009, and filed with the U.S. Securities and Exchange
Commission on September 28,
2009.
|
45
SIGNATURES
In
accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JUHL
WIND, INC.
|
|
Date: March
31, 2010
|
By: /s/ John P. Mitola
|
John P. Mitola
|
|
President
|
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
/s/John P. Mitola
John
P. Mitola
|
President
and Director
(Principal
Executive Officer)
|
March
31, 2010
|
/s/Daniel J. Juhl
Daniel
J. Juhl
|
Principal
Executive Officer and Director
|
March
31, 2010
|
/s/John J. Brand
John
J. Brand
|
Principal
Financial Officer
(Principal
Financial and Accounting Officer)
|
March
31, 2010
|
/s/Wesley K. Clark
Wesley
K. Clark
|
Director
|
March
31, 2010
|
/s/Edward C. Hurley
Edward
C. Hurley
|
Director
|
March
31, 2010
|
/s/James Beck
James
Beck
|
Director
|
March
31, 2010
|
46