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EX-32.1 - NACEL ENERGY CORP | v190571_ex32-1.htm |
EX-31.1 - NACEL ENERGY CORP | v190571_ex31-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
x ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
fiscal year ended March 31,
2010
¨ TRANSITION REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
transition period from [ ] to [ ]
Commission
file number 0-053150
NACEL ENERGY
CORPORATION
(Name of
small business issuer in its charter)
Wyoming
|
20-4315791
|
(State
or other jurisdiction of incorporation or
organization)
|
(I.R.S.
Employer Identification No.)
|
9375 E. Shea Blvd, Suite 100,
Scottsdale, Arizona
|
85260
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Issuer's
telephone number (602)
235-0355
Securities
registered pursuant to Section 12(b) of the Act:
Title
of each class
|
Name
of each exchange on which registered
|
Nil
|
Nil
|
Securities
registered pursuant to Section 12(g) of the Act:
Common Shares, par value
$0.001
(Title of
class)
Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes x No ¨
Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act (check
one):
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
Non-accelerated
filer ¨
(Do
not check if a smaller
reporting
company)
|
Smaller
reporting
company
þ
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12-b-2 of the Exchange
Act).
Yes ¨ No x
State
issuer's revenues for its most recent fiscal year. $0
State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked prices of such common equity, as of the last
business day of the registrant’s most recently completed second fiscal
quarter.
Approximately
$14,518,350, as of September 30, 2009
(APPLICABLE
ONLY TO CORPORATE REGISTRANTS)
State the
number of shares outstanding of each of the issuer's classes of equity stock, as
of the latest practicable date.
24,017,846 common
shares issued and outstanding as of July 14, 2010
FORWARD
LOOKING STATEMENTS
This
annual report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These statements relate to future events or
our future financial performance. In some cases, you can identify
forward-looking statements by terminology such as “may”, “will”, “should”,
“expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”,
“potential” or “continue” or the negative of these terms or other comparable
terminology. These statements are only predictions and may involve known and
unknown risks, uncertainties and other factors, including the risks in the
section entitled “Risk Factors”, that may cause our or our industry’s actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking
statements.
Although
we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. Except as required by applicable law, including the securities
laws of the United States, we do not intend to update any of the forward-looking
statements to conform these statements to actual results.
Our
financial statements are stated in United States dollars and are prepared in
accordance with generally accepted accounting principles in the United States of
America.
In this
annual report, unless otherwise specified, all dollar amounts are expressed in
United States dollars.
As used
in this annual report, the terms “we”, “us”, “our company”, and “Nacel Energy”
means Nacel Energy Corporation, a Wyoming corporation, unless otherwise
indicated.
2
TABLE
OF CONTENTS
PART
I
|
||
Item
1:
|
Description
of Business
|
4
|
Item
2:
|
Description
of Property
|
11
|
Item
3:
|
Legal
Proceedings
|
12
|
Item
4:
|
Submissions
of Matters to a Vote of Security Holders
|
12
|
PART
II
|
||
Item
5:
|
Market
for Common Equity and Related Stockholder Matters
|
12
|
Item
7:
|
Management’s
Discussion and Analysis or Plan of Operation
|
13
|
Item
8:
|
Financial
Statements
|
18
|
Item
9:
|
Disagreements
with Accountants on Accounting and Financial Disclosure
|
35
|
Item
9A:
|
Controls
and Procedures
|
35
|
Item
9B:
|
Other
Information
|
36
|
PART III
|
||
Item
10:
|
Directors,
Executive Officers and Corporate Governance
|
37
|
Item
11:
|
Executive
Compensation
|
40
|
Item
12:
|
Security
Ownership of Certain Beneficial Owners and Management
|
42
|
Item
13:
|
Certain
Relationships and Related Transactions, and Director
Independence.
|
43
|
Item
14:
|
Principal
Accountant Fees and Services
|
44
|
Item
15:
|
Exhibits,
Financial Statement Schedules
|
45
|
3
PART
I
Item 1:
|
Description
of Business
|
Overview
Nacel
Energy Corporation (“Nacel” or the “Company” or “us” or “our”) is a Wyoming
corporation incorporated on February 6, 2006, with our principal executive
office located at 9375 E. Shea Blvd., Suite 100, Scottsdale, Arizona 85260. We
are a development stage wind power generation company engaged in the business of
developing wind power generation facilities from “green field” (or blank state)
up to and including operation. Our domestic development efforts are primarily
focused upon wind power generation facilities in the 10 MW to 30 MW range. We
have not ruled out the possibility of larger projects including
internationally.
As
discussed in greater detail below, we currently have six (6) wind energy
projects totaling 185 MW or more of potential capacity located on approximately
8,437 acres of land located in the Panhandle area of Texas and northern Arizona.
We are also engaged in efforts to locate and evaluate other “green field” sites
for development of additional wind power generation facilities. We do not have
any wind energy projects in operation currently and it is estimated that it will
be up to 18 to 24 months before any of our projects may become operational,
which requires that we obtain substantial additional financing and/or equity.
There are no assurances that we will be able to obtain any additional financing
and/or equity and, even if obtained, that any of our wind power generation
facilities will ultimately become operational or generate sufficient revenues to
be profitable.
Corporate Information and
History.
We have
incurred losses since our inception and have relied upon the sale of our
securities, loans provided by management and recent convertible debt financings
to cover our costs and expenses.
On June
7, 2007, the Securities and Exchange Commission (“SEC”) declared effective the
Company's Registration Statement on Form SB-2 relating to the offer and sale of
8,000,000 shares of common stock, at a price of $0.005 per share and 2,400,000
shares of common stock underlying a warrant issued to a third party in April,
2007, at an exercise price of $0.50. In late September, 2007, all 8,000,000
common shares under the Registration Statement had been sold to 50 investors in
exchange for sale proceeds of $40,000. On October 20, 2007, a 1:20 forward split
of our capital stock was authorized which resulted in total issued and
outstanding post-split common shares of 21,400,000. There was no change to the
warrant exercise price of $0.50. On November 19, 2007, all 2,400,000 post-split
shares underlying the warrant were delivered and the warrant-holder entered into
a promissory note of $1,200,000. Through the period ending March 31,
2008, we received $509,627 of the total $1,200,000 proceeds related to the
warrant exercise and the balance was recorded as a subscription receivable. On
April 10, 2008, the remaining $690,373 was received from the warrant-holder and
the subscription receivable was retired.
On
December 23, 2008, we sold 1,000,000 shares of restricted common stock to a
third party. These shares were sold under the terms of a non-brokered private
placement agreement in exchange for $750,000 in sale proceeds. In order to
prevent dilution in connection with this transaction, Brian Lavery, our then CEO
and a director, returned 1,000,000 of his founders’ shares for cancellation and
without any consideration being paid to him. These shares have been returned and
cancelled based on their par value of $.001 per share.
On March
13, 2008, we acquired from Murray S. Fleming, an officer, director and principal
shareholder, four (4) development stage wind energy projects known as Blue
Creek, Channing Flats, Kansas and the Dominican Republic. The transaction also
included wind data collected from anemometers at various locations over a period
of years in the States of Texas, Kansas, Wyoming, Colorado and New Mexico. Each
of these wind energy projects are discussed in greater detail
below.
4
Development
Strategy and Steps.
Our
strategy focuses upon developing our wind power generation facilities from
“green field” (or blank state) to operation. Prior to generating revenue from
our operations, several phases and steps must be completed, with the potential
value of our wind power generations facilities increasing through the steps of
the process. Key parts of the development stage, such as acceptable wind data,
an interconnection agreement and an off take or power purchase agreement,
generally add the most value to the development process.
Under our
wind energy development business model, we must complete many of the following
steps:
|
1.
|
Detailed
survey of regional wind data, topography, power market, transmission and
permitting characteristics to determine area of
interest
|
|
2.
|
Project
fatal flaw analysis
|
|
3.
|
Identification
of land owner(s)
|
|
4.
|
Secure
wind development rights option
agreement(s)
|
|
5.
|
Create
project legal structure
|
|
6.
|
Procure
anemometer and related equipment for the collection of site specific wind
data
|
|
7.
|
Environmental
assessment, archeological assessment, avian study, ALTA
survey
|
|
8.
|
Transmission
and interconnection review
|
|
9.
|
Pre-construction
review
|
10.
|
Electrical
engineering review, civil engineering
review
|
11.
|
Preliminary
turbine site plan
|
12.
|
Utility
transmission study
|
13.
|
Secure
turbine supply agreement
|
14.
|
Final
project construction estimates &
scheduling
|
15.
|
Final
permitting for project
|
16.
|
Power
purchase agreement
|
17.
|
Project
financing analysis
|
18.
|
Tax
partner identification (if
applicable)
|
19.
|
Equity
partner identification (if
applicable)
|
20.
|
Complete
power purchase agreement
|
21.
|
Complete
project financing agreement
|
22.
|
Commence
project construction
|
23.
|
Operations
& maintenance selection
|
24.
|
Complete
project construction
|
25.
|
Final
commissioning
|
Development
and completion of the foregoing steps carries significant risks. In total, the
process of development can take up to two years and cost $500,000 to $1,000,000
or more, before construction and project finance. Many steps in the development
process must be met precisely to prevent project failure. Wind power generation
facilities in development require significant capital expenditures. We will need
substantial additional financing and/or equity in the future in order to fund
development, operating and maintenance costs and expenses. There is no assurance
that we will be able to obtain sufficient additional financing and/or equity, or
that the terms thereof will be favorable. If we are unable to obtain additional
financing and/or equity on a timely basis, we may have to curtail our
development activities or be forced to sell assets, which could have a material
adverse effect on our business, financial condition and results of
operation.
Current
Wind Project Developments
We are
currently involved in the development of six (6) separate wind projects having
185 MW, or more, of total potential generating capacity. Pertinent information
concerning each of these wind projects is summarized in greater detail
below.
Blue Creek Wind Energy Facility LLC.
The Blue Creek project is located in Moore County, Texas and has an
estimated generating capacity of 40 MW or more when completed. In connection
with this project, Blue Creek Wind Facility LLC, a Texas limited liability
company was formed, with Nacel being the sole managing member and 100% owner.
The various aspects of the Blue Creek project are summarized
below.
5
Agreement
and Land Rights. In October, 2008, we entered into a Wind
Project Agreement covering 2,082 acres of land located in Moore County, Texas,
which pertains to the development of our Blue Creek wind energy project. In
addition, we entered into a Right of First Refusal Agreement whereby we can
lease an additional 1,413 acres of land located in Moore County, Texas, which
pertains to the development of our Channing Flat wind energy project. For more
information concerning the terms of the Wind Project Agreement, see discussion
in “Description of Properties” below.
Project
summary. Blue Creek will be developed in phases with total
potential capacity at build out of 40 MW or more of electrical production. Each
phase at Blue Creek is expected to be approximately 10 MW and comprised of
clusters of 5-7 wind turbines. The Company intends to complete the
build-out of the phases over 24 to 48 months.
Recent
Developments. In June, 2009, we filed an
Application for Interconnection with Southwestern Public Service Company (SPS),
a subsidiary of XCEL Energy, for the Blue Creek project. In October, 2009, after
considering our submission, SPS provided us with a scope of work, including a
detailed cost estimate of the transmission equipment and engineering resources
required to accommodate the Blue Creek project. Following an internal review, we
formally executed the necessary document from SPS, accepting the scope of work
without revision, and additionally forwarded $135,000 for the immediate
commencement of the work to be performed by SPS. On March 9, 2010, we placed a
stop work order with SPS citing adverse market conditions for wind power in the
Texas-SPP market and requested a refund of any balance remaining from the
$135,000 deposit. Subsequest to March 31, 2010, on June 9, 2010, we obtained a
refund of $105,50412. We must now re-evaluate the timetable for the
development and completion process for this project. We will likely shift out
immediate focus and efforts to the development and completion of milestones
relating to our other wind energy projects in Texas and Arizona.
In
September, 2009, we completed our environmental assessment work, significant
pre-construction work and other efforts at Blue Creek. We also received FAA
permits covering the placement of 27 turbines at the Blue Creek
project.
Capital
investment. In order to fully implement and complete this project, Blue
Creek Wind Facility LLC will be required to invest approximately $2.0 million
dollars of capital per megawatt for a total cost of $80 million dollars or more
at build out.
Implementation. We
have initiated and/or completed work on items one through nine of our wind
energy project development model. Work will begin as soon as practicable on the
other items of our wind energy project development business model.
Channing Flats
Wind Energy Facility LLC. The Channing Flats project is
located in Moore County, Texas and has an estimated generating capacity of 30 MW
or more when completed. In connection with this project, Channing Flats Wind
Facility LLC, a Texas limited liability company was formed, with Nacel being the
sole managing member and 100% owner. The various aspects of the Channing Flats
project are summarized below.
Agreement
and Land Rights. In October, 2008, we entered into a Wind
Project Agreement covering 2,082 acres of land located in Moore County, Texas,
which pertains to the development of our Blue Creek wind energy project. In
addition, we entered into a Right of First Refusal Agreement whereby we can
lease an additional 1,413 acres of land located in Moore County, Texas, which
pertains to the development of our Channing Flat wind energy project. For more
information concerning the terms of the Wind Project Agreement, see discussion
in “Description of Properties” below.
Project
summary. Channing Flats will be developed in phases with total potential
capacity at build out of 30 MW or more of electrical production. Each phase at
Channing Flats is expected to be approximately 10 MW and comprised of clusters
of 5-7 wind turbines. The Company intends to complete the build-out of the
phases over 24 to 48 months.
6
Recent
Developments. In July, 2009, we filed an Application for Interconnection
with Southwestern Public Service Company, a subsidiary of XCEL Energy, for the
Channing Flats project. In September, 2009, we completed our environmental
assessment work, significant pre-construction work and other efforts at Channing
Flats project.. We also received FAA permits covering the placement of 18
turbines at the Channing Flats Creek project.
Capital
investment. In order to fully implement the project, Channing
Flats Wind Facility LLC will be required to invest approximately $2.0 million
dollars of capital per megawatt for a total cost of $60 million dollars or more
at build out.
Implementation. We
have initiated and/or completed work on items one through nine of our wind
energy project development model. Work will begin as soon as practicable on the
other items of our wind energy project development business model.
Swisher Wind
Energy Facility LLC. The Swisher Wind project is located in
Swisher County, Texas and has an estimated generating capacity of 40 MW or more
when completed. In connection with this project, Swisher Wind Facility LLC, a
Texas limited liability company was formed, with Nacel being the sole managing
member and 100% owner. The various aspects of the Swisher Wind project are
summarized below.
Agreement
and Land Rights. In mid-January, 2009, we entered into a Wind Project
Agreement covering 1,573 acres of land located in Swisher County, Texas, which
pertains to the development of our Swisher wind energy project. For more
information concerning the terms of the Wind Project Agreement, see discussion
in “Description of Properties” below.
Project
summary. Swisher will be developed in phases with total
potential capacity at build out of 40 MW or more of electrical production. Each
phase at Swisher is expected to be approximately 10 MW and comprised
of clusters of 5-7 wind turbines. The Company intends to complete the build-out
of the phases over 24 to 48 months.
Recent
Developments. In July, 2009 we submitted an Application for Operation of
Customer Owned Generation to Swisher Energy Cooperative, Inc. for the Swisher
project. In September, 2009, we completed our environmental assessment work,
significant pre-construction work and other efforts at the Swisher project. We
also received FAA permits covering the placement of 18 turbines at the Blue
Creek project.
Capital
investment. In order to fully implement the project, Swisher
Wind Facility LLC will be required to invest approximately $2.0 million dollars
of capital per megawatt for a total cost of $80 million dollars or more at build
out.
Implementation. We
have initiated and/or completed work on items one through nine of our wind
energy project development model. Work will begin as soon as practicable on the
other items of our wind energy project development business model.
Hedley Pointe
Wind Energy Facility LLC. The Hedley Pointe project is located
in Donley County, Texas and has an estimated generating capacity of
approximately 5 MW or more when completed. In connection with this project,
Hedley Pointe Wind Facility LLC, a Texas limited liability company was formed,
with Nacel being the sole managing member and 100% owner. The various aspects of
the Blue Creek project are summarized below.
Agreement
and Land Rights. In late January, 2009, we entered into a Wind Project
Agreement covering 636 acres of land located in Donley County, Texas, which
pertains to the development of our Hedley Pointe wind energy project. For more
information concerning the terms of the Wind Project Agreement, see discussion
in “Description of Properties” below.
Project
summary. Hedley Pointe will be developed with total potential
capacity at build out of 5 MW or more of electrical production. Hedley Pointe is
anticipated to comprise a cluster of 3-5 wind turbines. The Company intends to
complete the build-out of Hedley Pointe over 24 to 48 months.
7
Recent
Developments. In September, 2009, we submitted a Request for Small
Generator Interconnection to Golden Spread Electric Cooperative, Inc., acting as
agent for Swisher Electric Cooperative, Inc., for our Headley Pointe
project.
Capital
investment. In order to fully implement the project, Hedley
Pointe Wind Facility LLC will be required to invest approximately $2.0 million
dollars of capital per megawatt for a total cost of $10 million dollars or more
at build out.
Implementation. We
have initiated and/or completed work on items one through nine of our wind
energy project development model. Work will begin as soon as practicable on the
other items of our wind energy project development business model.
Leila
Lakes Wind Energy Facility LLC. The Leila Lakes
project is located in Donley County, Texas and has an estimated generating
capacity of approximately 40 MW or more when completed. In connection with
this project, Leila Lakes Wind Facility LLC, a Texas limited
liability company was formed, with Nacel being the sole managing member and 100%
owner. The various aspects of the Leila Lakes project are summarized
below.
Agreement
and Land Rights. In January, 2009, we entered into four (4) separate Wind
Project Agreement covering an aggregate of 1,025 acres of land located in Donley
County, Texas. In August, 2009, we entered into an additional three (3) Wind
Project Agreements covering an aggregate of 1,032 acres of land located in
Donley County, Texas. These lands comprise the development of our Leila Lakes
wind energy project.
Project
summary. Leila Lakes will be developed with total potential
capacity at build out of 40 MW or more of electrical production. Each phase at
Leila Lakes is expected to be approximately 10 MW and comprised of clusters of
5-7 wind turbines. The Company intends to complete the build-out of Leila Lakes
over 24 to 48 months.
Recent
Developments. In January,
2010, we submitted to American Electric Power Service Corporation (AEPSC), a
comprehensive bid, with input of a tier-one wind turbine manufacturer, for the
supply of 20 MW of renewable energy, from our Leila Lake wind project. The bid
was submitted in connection with a Request for Proposals (RFP) for the provision
of 1100 MW of new renewable energy to seven utility subsidiaries of AEP,
including Southwestern Electric, which serves east Texas. On March 2, 2010, we
received written notification that our Leila Lake Project would not be
considered in AEPSC’s evaluation process of wind projects capable of being on
line by December 2011. We must now re-evaluate the timetable for the development
and completion process for this project. We will likely shift our immediate
focus and efforts to the development and completion of milestones relating to
our other wind energy projects in Texas and Arizona.
Capital
investment. In order to fully implement the project, Leila
Lakes Wind Facility LLC will be required to invest approximately $2.0 million of
capital per megawatt for a total cost of $80 million or more at build
out.
Implementation. We
have initiated and/or completed work on items one through nine of our wind
energy project development model. Work will begin as soon as practicable on the
other items of our wind energy project development business model.
Snowflake Wind
Energy Facility LLC. The Snowflake project is located in
Navajo County, Arizona and has an estimated generating capacity of approximately
30 MW or more when completed. In connection with this project, Snowflake
Wind Facility LLC, an Arizona limited liability company was formed, with Nacel
being the sole managing member and 100% owner. The various aspects of the
Snowflake project are summarized below.
Agreement
and Land Rights. In July, 2009, we entered into a Wind Project Agreement
covering 640 acres of land located in Navajo County, Arizona, which pertains to
the development of our Snowflake wind energy project.
Project
summary. Snowflake will be developed with total potential
capacity at build out of 30 MW or more of electrical production. Each phase at
Snowflake is expected to be approximately 10-15 MW and comprised of clusters of
5-10 wind turbines. The Company intends to complete the build-out of Snowflake
over 24 to 48 months.
8
Recent
Developments. On January 27,
2010, Arizona Public Service Co. (APS) issued a formal solicitation for new wind
power generated from utility scale facilities of between 15 and 100 megawatts,
located entirely within the borders of Arizona.. APS requested that all bids be
submitted by April 14, 2010.
Subsequent to March 31, 2010, on April
14, 2010, we submitted a comprehensive bid with the assistance of a tier-one
wind turbine manufacturer to Arizona Public Service Co. (APS) for the supply of
19.5 megawatts of clean, renewable wind energy to be sourced from
our Snowflake wind project. A preliminary decision is expected to be
announced by APS on or about June 4, 2010, regarding the utility’s request for
proposals for the delivery of utility scale wind power.
Subsequent to March 31, 2010, on May
26, 2010, we received written notification from APS that
our Snowflake Project was not shortlisted among the projects which
would be considered in APS’s detailed evaluation process of wind projects which
might thereafter result in selection for final negotiation and possible contract
execution and regulatory approval.
Subsequent to March 31, 2010, on June
24, 2010, we submitted a comprehensive bid with the assistance of a tier-one
wind turbine manufacturer to Arizona Public Service Co. (APS) for the supply of
15 megawatts of clean, renewable wind energy to be sourced from
our Snowflake wind project with a commercial operation date of
December 31, 2012. A preliminary decision is expected to be announced by APS on
or about August 26, 2010, regarding whether a bidder would be included on a
short list or project to thereafter be considered in APS’s detailed evaluation
process of wind projects which might thereafter result in selection for final
negotiation and possible contract execution.
Capital
investment. In order to fully implement the project, Snowflake
Wind Facility LLC will be required to invest approximately $2.0 million of
capital per megawatt for a total cost of $60 million or more at build
out.
Implementation. We
have initiated and/or completed work on items one through nine of our wind
energy project development model. Work will begin as soon as practicable on the
other items of our wind energy project development business model.
Other
Wind Energy Projects
Our
operations team is constantly assessing new opportunities in areas with strong
and dependable wind speeds and which offer affordable land arrangements with
property owners, accessible power transmission and proximity to construction
resources. The following describes the status of other wind energy
projects.
Other Projects in
the United States. We have initiated and/or completed steps one and two
of our wind energy project development model with regard to four potential wind
energy projects to be located in Texas, Arizona, Kansas and Illinois. Work will
begin as soon as practicable on the other items of our wind project development
business model with respect to each of these potential projects.
Dominican
Republic. On May 19, 2008, the Company signed an agreement
encompassing terms for a proposed joint venture wind power project with Ridge
Partners Dominicano (Norte), S.A to be located in the Dominican Republic. Ridge
Partners Dominicano (Norte) S.A. is a Dominican corporation that has entered
into a lease agreement with Instituto Agrario Dominicano (IAD) for the use of up
to 300,000 hectares of land for the purpose of renewable energy
development. The proposed location, on approximately 2200 hectares of
land south of the town of Monte Cristi in the province of Monte Cristi, has been
determined by the Company to be unsuitable for commercial utility scale wind
power generation due to insufficient wind resources. Accordingly, the Company
has elected not to proceed with further development at the proposed location and
the agreement with Ridge Partners Dominicano (Norte), SA has terminated and
expired.
9
The
Company has identified potential sites to the southwest of the previous proposed
location on various ridge lines in the province of Monte Cristi, as well as an
additional coastal site in the province of Pedernales, each with indicated wind
resources and electrical infrastructure suitable for commercial utility scale
power generation. The Company intends to pursue a lease agreement with respect
to the new locations, directly with the IAD and other relevant Dominican
governmental authorities.
Regulation
The
following is a brief summary of certain applicable regulations in the United
States and is not, nor should it be considered, a full summary of the law or all
related issues.
Energy
Regulation. Under the Federal Power Act (FPA), FERC has
exclusive rate-making jurisdiction over wholesale sales of electricity and
transmission in interstate commerce. The FPA subjects “public utilities” within
the meaning of the FPA, among other things, to rate and corporate regulation by
FERC. In particular, sellers of electricity at wholesale in interstate commerce
and transmission of electricity in interstate commerce are regulated by FERC
with respect to: the review of the terms and conditions of wholesale electricity
sales and transmission of electricity; the need to obtain advance approval of
disposition of public utility facilities, mergers, purchases of securities of
other public utilities, acquisitions of existing generation facilities and
changes in upstream ownership interest; the regulation of their borrowing and
securities issuances and assumption of liabilities; and the review of
interlocking directorates. Wind parks with market-based rate authority are
subject to regulation by FERC as a “public utility” pursuant to
FPA.
In
addition to direct regulation by FERC, we believe that our wind project will be
subject to rules and terms of participation imposed and administered by regional
transmission operators and independent systems operators. Although these
entities are themselves ultimately regulated by FERC, they can impose rules,
restrictions and terms of service on marker participants, like our wind
projects, that can have a material impact on our business.
Some of
our wind projects will be subject to varying degrees of regulation by state
public utility commissions. State public utility commissions have historically
had broad authority to regulate both the rates charged by, and the financial
activities of, electric utilities that sell electricity at retail, and a number
of other matters related to electric utilities. State laws may also impose
certain regulatory and reporting requirements on other owners and operators of
generation facilities.
All of
our wind projects will, before construction can begin, require approval from the
zoning boards of the relevant county governments in which the projects are
located. Accordingly, before construction begins, we will need to obtain the
necessary zoning/conditional use permits. We have not applied for, nor obtained,
any such use permits for any of our existing wind projects.
Environmental
Regulation. Our wind project development activities are not,
at this time, subject to specific environmental laws or regulations in the State
of Texas. However, there can be no assurances that there will not be new
regulation passed in the future.
Local
laws may in the future also regulate other aspects of our wind project
development and operation, by setting limits on the use of local roads, setback
requirements and noise standards. If we fail to comply with these possible
future requirements, or with other regulatory standards, we may be denied
permits that are required for construction or operation, or become subject to
potential regulatory enforcement actions.
Competition.
In the
United States, large utility companies dominate the energy production industry
and coal continues to be the primary resource for electricity production.
Electricity generated from wind energy faces competition from other traditional
resources such as coal, hydro, natural gas and nuclear power. We expect that the
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. Also, as the relative advantages or disadvantages
of wind over fossil fuel-based generation are resolved over time, and potential
legislation regimes arise, it is likely that the utilities themselves will elect
to develop wind power assets themselves.
10
Non-utility
entrants in the wind power development market, however, face certain barriers to
entry. The capital cost of buying and maintaining turbines are high. Other
significant factors include the cost of land control and/or acquisition, the
availability of transmission lines and the cost to tie into those 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 project to the point
where they are able to secure interconnection agreements, power purchase
agreements and project financing for construction.
While we
are aware of several other companies that are working to develop medium size
wind energy projects, none of these companies are currently directly competing
with us in the geographic areas in which we are active.
Employees.
We have 2
full time equivalent employees including directors and part-time
consultants.
Patents
and Trademarks.
We have
no trademarks or other proprietary rights registered with the U.S. Patent and
Trademark Office.
We lease
our office at 9375 E. Shea Blvd., Suite 100, Scottsdale, Arizona 85260 on a
month to month, as needed basis. Our rent payment is approximately $100 per
month. We believe that our current facilities are adequate for our operations as
currently conducted and if additional facilities are required, that we could
obtain them at commercially reasonable prices.
We
generally do not own the property underlying our wind projects. Instead, we
typically enter into Wind Project Agreements whereby we received licenses and
easements from the landowners that give us the right to install our
meteorological equipment, turbines, transmission lines and related equipment and
prohibits the landowners from, among other things, building improvements that
interfere with or obstruct the operation or maintenance of our wind project, and
building or locating any power generation equipment on the subject property. The
term of the Wind Project Agreement usually cover two different periods. The
first is an evaluation period of five years, with our option to extend the
evaluation period for three additional, consecutive one (1) year periods. The
second is a 30-year operation period, with our option to extend the operation
period for two additional, consecutive ten (10) year periods.
The
provisions of our Wind Project Agreement are substantially similar for all of
our wind energy projects. Specific terms for individual landowners may differ
occasionally, but none of our current Wind Project Agreements differ
significantly from the general structure, the pertinent items of which are
summarized here:
· During
the evaluation period, the landowner receives various fees and payments
including an Evaluation Fee (annual fee based on $5.00 per acre for the land
comprising the wind project) and a Met Tower Fee (annual fee of $1,000 each year
during which a meteorological tower in located on the project).
· During
the operation period, the landowner receives a variety of fees and payments
including, without limitation, an Installation Fee (one time payment based on
each nameplate megawatt of installed wind turbine capacity), an
Operating Fee (annual payment based on each nameplate megawatt of installed wind
turbine capacity), a Substation Fee (one time payment for each substation or
interconnection facility installed on the property), a Transmission Fee (one
time payment per Rod for any above-ground high-voltage transmission lines
installed on the property) and a Royalty Percentage (a escalating percentage of
gross revenues throughout the terms of the operating period).
· We
have the right to conduct wind studies, access the land, install meteorological
towers and begin the permitting process with the landowners’
cooperation.
11
· By
the third anniversary of the Effective Date, if we have not satisfied, as
applicable, certain milestones pertaining to application to interconnect to the
transmission or distribution system, a wildlife monitoring study and a wildlife
site characterization study, then we and the subject owners will, in good faith,
negotiate means for us to satisfy such milestones. However, if the parties are
unable to reach such agreement, then we will release the subject owner from the
terms of the Agreement.
· The
landowner is prohibited from, among other things, building improvements that
interfere with or obstruct the operation or maintenance of our wind project, and
building or locating any power generation equipment on the subject
property
· We
have the ability to assign our rights to a third party without the owner’s
consent. Also, we have the right to encumber our interests with debt to finance
the wind project.
An
Addendum to our standard Wind Power Agreement was entered into with three
landowners involving approximately 1,070 acres of land located in Donley County,
Texas, which property is included in our Leila Lakes wind project. Among the
specific terms and provisions contained in the Addendum are the
following:
· We
agreed to pay the owner’s reasonable attorney’s fees incurred in negotiation of
the Agreement. If we fail to pay such attorney’s fees, the Agreement will be
void and of no legal effect.
· We
agreed to pay all taxes attributable to wind systems on the subject property
including, without limitation, any increase in real property taxes assessed as a
result of installation or attributable to reclassification of the subject
property. The parties agree to use commercially reasonable efforts to cause the
assessor to issue separate parcel number for the wind systems and to cause the
assessor to issue separate tax bills to both us and the property
owner.
· If
there is a material default by us under the Agreement, the property owner may
terminate the Agreement if we fail to cure the material default within sixty
(60) days from time of notice or fails to initiate steps to cure such material
default within sixty (60) days and thereafter diligently continue steps to cure
until completion.
· On
termination, we agreed to return and surrender the subject Property to its owner
and will remove all wind systems on the property within one year from date of
termination. If we fail to remove wind systems within the time allowed, the
owner may remove and sell such wind systems and we will reimburse the owner for
costs of removal less salvage value recovered. If salvage value exceeds removal
costs, the owner shall retain such excess.
Item
3: Legal Proceedings
We know
of no material, active or pending legal proceedings against our company, nor are
we involved as a plaintiff in any material proceeding or pending litigation.
There are no proceedings in which any of our directors, officers or affiliates,
or any registered or beneficial shareholder, is an adverse party or has a
material interest adverse to our interest.
Item
4: Submissions of Matters to a Vote of Security
Holders
No
matters were submitted to a vote by our security holders during the fourth
quarter of the fiscal year covered by this report.
PART
II
Item
5: Market for Common Equity and Related Stockholder
Matters
Our
common stock is traded in the over-the-counter market under the symbol “NCEN.”.
The following table sets forth the range of high and low closing bid prices for
each quarter of the last two fiscal years.
12
High
|
Low
|
|||||||
Year
Ended March 31, 2009
|
||||||||
First
Quarter
|
$
|
4.96
|
$
|
2.19
|
||||
Second
Quarter
|
2.88
|
0.46
|
||||||
Third
Quarter
|
1.37
|
0.58
|
||||||
Fourth
Quarter
|
2.05
|
0.85
|
||||||
Year
Ended March 31, 2010
|
||||||||
First
Quarter
|
$
|
1.37
|
$
|
0.85
|
||||
Second
Quarter
|
1.53
|
1.10
|
||||||
Third
Quarter
|
1.15
|
0.58
|
||||||
Fourth
Quarter
|
0.72
|
0.29
|
The
closing bid price on June 30, 2010 was $.12. Transactions on the
over-the-counter market reflect inter-dealer quotations, without adjustments for
retail mark-ups, mark-downs or commissions to the broker-dealer and may not
necessarily represent actual transactions.
As of
June 30, 2010, we had 24 shareholders of record. The majority of our
shares are held in “street name” with broker-dealers and custodians on behalf of
our shareholders. Our common shares are issued in registered form.
The transfer agent and registrar for our common stock is Island Stock Transfer,
100 Second Avenue South, Suite 104N, St. Petersburg, Florida 33701.
Dividend
Policy
We have
never paid a cash dividend on our common stock. Any future dividend on common
stock will be at the discretion of the Board of Directors and will be dependent
upon the Company’s earnings, financial condition, and other
factors.
Equity Compensation
Plans.
For
fiscal year ending March 31, 2010, there were no compensation plans under which
equity securities of the Company were authorized for issuance.
Issuer Purchases of Equity
Securities.
Nacel did
not repurchase any shares of its common stock during the fiscal year ending
March 31, 2010.
Item
6: Selected
Financial Data
We are
not required to provide any selected financial data since we qualify as a
“smaller reporting company.”
Item
7: Management’s
Discussion and Analysis or Plan of Operation
Plan
of Operation
Since our
inception, we have been a development stage company and, accordingly, have
incurred losses from our operations. For the fiscal year ended March 31, 2010,
we incurred net losses of $(2,849,202) and have an accumulated deficit since
inception of $(6,038,133). We currently have no revenues. The
potential future revenues we expect from our wind power generation projects,
will not be generated until sometime after the end of our current fiscal year,
March 31, 2011, perhaps longer, and will require the expenditure of additional
capital, obtaining of construction and project debt financing and establishing
turbine supply relationships.
For the foreseeable future, our
operating plan is dependent upon both the ability to conserve existing cash
resources and the ability to obtain additional capital through equity financing
and/or debt financing in an effort to provide the necessary funds and cash flow
to meet our obligations on a timely basis and to support our wind power project
development activities. In the event that we are unable to conserve existing
cash resources and/or obtain the additional and necessary capital, we may have
to cease or significantly curtail our operations. This could materially impact
our ability to continue operations.
13
Liquidity
and Capital Resources
The accompanying financial statements
have been prepared on a going concern basis, which contemplates the realization
of assets and satisfaction of liabilities in the normal course of
business. Since our inception, we have been a development stage
company and, accordingly, have incurred losses from our operations. For the
fiscal year ended March 31, 2010, we incurred net losses of $(2,849,202) and
have an accumulated deficit since inception of $(6,038,133). We currently have
no revenues. The potential future revenues we expect from our wind power
generation projects, will not be generated until sometime after the end of our
current fiscal year, March 31, 2011, and will require the expenditure of
additional capital, obtaining of construction and project debt financing and
establishing turbine supply relationships. Our $250,000 demand note
payable is due and payable within 15 days after demand for payment is received,
with demand for payment being at the discretion of the lender. These factors,
among others, indicate that we may be unable to continue as a going concern for
a reasonable period of time.
As of March 31, 2010, we had current
assets of $331,563 and working capital deficit of $(2,199,162). This compares to
cash of $564,677 and working capital of $303,246 at March 31,
2009. Based on commitments arising from our consulting agreements and
other general and administrative expenses, we anticipate that operating expenses
during each succeeding quarter will be, at a minimum, approximately $35,000.
This amount does not include any capital requirements for our wind energy
projects or project development costs which may be incurred. Based on the
foregoing, we will not have sufficient cash resources to finance our operations
except for several months unless we are able to raise additional equity
financing and/or debt financing in the immediate future. We have commenced, and
will continue to pursue, efforts to raise additional equity financing and/or
debt financing from a variety of sources and means. There are no assurances that
we will be able to obtain any additional financing and/or equity and, even if
obtained, that such financing will be in a sufficient amount to be able to
continue operations for a sufficient period until one or more of our wind power
generation facilities become operational or until we can generate sufficient
revenues to be profitable.
Additional
Financings
We completed the following financings
during the fiscal year ended at March 31, 2010.
Shareholder Line of
Credit. As of March 31, 2009, our $250,000 line of credit
facility extended by Murray Fleming, a director, was fully borrowed, thereby
leaving no additional funds available for future borrowing. However, on June 30,
2009, the line of credit was increased to $400,000 and then on September 29,
2009, the line of credit was increased to $442,143 and again on October 26, 2009
the line of credit was increased to $460,753. The terms of the line
of credit facility provides for simple interest of 8% per annum, to be paid upon
the outstanding balance, payable on the first day of the month after each
calendar quarter. As of March 31, 2010, we had borrowed the entire $460,753
under this credit facility, which currently leaves no additional funds available
for future borrowing.
Demand Note. In July 2009,
Nacel executed a new loan with a lender in the amount of $250,000, which
provides for simple interest of 10% to be paid in consecutive monthly
installments of interest only commencing on July 1st, 2009. Payment
is due when the lender has provided the borrower with written notice of demand.
The balance owing under this agreement will be paid within 15 days of any such
notice of demand. The loan is unsecured.
Senior Secured Convertible Note and
Warrants. On November 23, 2009, we entered into a Securities
Purchase Agreement and thereafter other related agreements pursuant to which we
agreed to issue a Senior Secured Convertible Note in the original principal
amount of $900,000 (the “Note”) and common stock warrants (the “Warrants”) for
an aggregate purchase price of $750,000 in a private placement (the “November
Private Placement”) with a single institutional investor (the “Investor”). The
November Private Placement closed on November 24, 2009. The principal purposes
of the November Private Placement were to strength our cash position and to
provide us with general working capital. The November Private Placement resulted
in gross proceeds to us of $730,000, with $20,000 of initial proceeds use to pay
legal costs of investor before placement agent fees and other expenses
associated with the transaction.
14
The Note
was payable in nine equal installments and matures on December 1, 2010. No
interest accrues on the principal amount outstanding unless an event of default
occurs in which event interest shall thereafter accrue at the rate of eighteen
percent per annum. We may pay installments of principal in cash or, at our
option, in shares of common stock.
We may
pay each monthly installment in cash or, at our option, subject to satisfaction
of customary equity conditions, in shares of our common stock., whereby the
value of each share is equal to the lower of (a) the initial conversion price of
$0.90 per share, or (b) 90% of the average of the volume weighted average prices
of our common stock on each of the twenty (20) consecutive trading days
immediately preceding the applicable payment date. In addition, at the option of
the Investor holding the Note, all or any part of the principal amount
outstanding under the Note is convertible at any time and from time to time into
shares of our common stock at an initial conversion price of $0.90 per share.
However, the conversion price may be reduced if we issue securities at a price
per share less than the conversion price of the Notes then in
effect.
The
Warrants issued to the Investor in the November Private Placement included the
following:
· Series
A Warrants, exercisable for a period of 5 years into an aggregate of 125% of the
number of shares of common stock initially issuable upon conversion of the Note,
with the Series A Warrant being exercisable into 1,250,000 shares immediately
upon issuance.
· Series
B Warrants, exercisable beginning November 24, 2009 into 100% of the shares
of common stock initially issuable upon conversion of the Notes
(initially 1,000,000 shares) and remaining exercisable for a period equal to the
earlier of (a) 12 months after a registration statement covering the shares of
our common stock issuable upon conversion or exercise (as the case may be) of
the Note and Warrants is declared effective by the SEC, or (b) November 24,
2011; and
· Series
C Warrants, exercisable for a period of 5 years beginning November
24, 2009, but only to the extent that the Series B Warrant are exercised and
only in the same percentage that the Series B Warrants are exercised, up to a
maximum percentage of 125% of the number of shares of our common stock initially
issuable upon conversion of the Note (initially a maximum of 1,000,000
shares).
The
initial exercise price of each Series A Warrant, Series B Warrant and Series C
Warrant was the same as the initial conversion price under the Note ($0.90 per
share). Like the conversion price of the Note, the exercise price of the
Warrants is subject to a full-ratchet adjustment upon the occurrence of certain
events, including our issuance of securities at a price per share less than the
exercise price then in effect. If we issue shares of common stock or options
exercisable for or securities convertible into common stock at an effective
price per share of common stock less than the exercise price then in effect, the
exercise price will be reduced to the effective price of the new
issuance.
The Note
and the Warrants have conversion features which result in them being recorded as
derivative liabilities as described further in Note 10 to the consolidated
financial statements for the year ended at March 31, 2010. As derivative
liabilities, the existing uncertainties as to the ultimate amount of shares
which could be required to issue is not known and may increase significantly.
Accordingly, these uncertainties are reflected as obligations until they are
resolved through conversion, exercise or expiration.
For
further description of this transaction, the documents executed and delivered
and other pertinent terms and provisions , see Nacel Energy’s Form 8-K dated
November 23, 2009, as filed with the SEC on November 27, 2009.
Subsequent
to March 31, 2010, on April 23, 2010, we entered into an Exchange Agreement
which effectively amended and modified the terms of the Note and the Warrants
held by the Investor. Under the terms of the Exchange Agreement, the Note was
exchanged for a New Note and the Warrants were exchanged for New Warrants
containing various changes and modifications in their respective terms and
provisions.
15
The
principal amount of the New Note is $935,000 consisting to the original
principal amount of $900,000 plus an additional $35,000 in costs and expenses
(including attorney’s fees) which we were obligated to reimburse under the
original transaction documents and the negotiation and preparation of the
Exchange Agreement and Exchange Documents (as defined in the Exchange
Agreement). The New Note provides for payment in seven equal
installments of $133,571.42 beginning 21 trading days after the earlier of (a)
May 24, 2010, or (b) the date a registration statement covering the shares of
our common stock issuable upon conversion or exercise (as the case may be) of
the New Note and New Warrants is declared effective by the SEC. Accordingly, the
maturity date of the New Note will be no later than December 23,
2010. No interest accrues on the principal amount outstanding unless
an event of default occurs in which event interest shall thereafter accrue at
the rate of eighteen percent per annum. We may pay installments of principal in
cash or, at our option, in shares of common stock.. If we elect to pay the
principal in shares of our common stock, the value of each share of common stock
will be equal to the lower of (a) the new conversion price of $0.30 per share,
or (b) 90% of the average of the volume weighted average prices of our common
stock on each of the twenty (20) consecutive trading days immediately preceding
the applicable payment date. In addition, at the option of the holder
of the Note, all or any part of the principal amount outstanding
under the Note is convertible at any time and from time to time into shares of
our common stock at the new conversion price of $0.30 per share.
However, the conversion price may be reduced if we issue securities at a price
per share less than the conversion price of the Notes then in
effect.
For
further description of the Exchange Agreement, the documents executed and
delivered and other pertinent terms and provisions , see Nacel Energy’s Form 8-K
dated April 23, 2010, as filed with the SEC on April 27, 2010.
Additional Convertible
Note. On March 24, 2010, we executed and delivered, pursuant
to a private placement with a single institutional investor, our $300,000
Convertible Promissory Note (the “Convertible Note”) in exchange for the
investor’s execution and delivery to us of a $300,000 Secured &
Collateralized Promissory Note (the “Secured Note”).
The
original principal amount of the Convertible Note is $300,000, and the
Convertible Note provides for a 12% one-time interest charge. The Convertible
Note has a maturity date of three (3) years from March 24, 2010 at which time
all principal and accrued interest shall be due and payable in full. Prepayment
is not permitted unless approved by the holder in writing. However, the
Convertible Note is payable on demand by the holder in an amount not to exceed
the cash amount paid under the Secured Note.
The
Convertible Note can only
be converted to the extent payments have been received on the Secured
Note. The subject conversion amount is converted into shares of our common stock
based on a conversion price of seventy percent (70%) of the lowest trade price
in the 30 trading days prior to the conversion. However, we have the right to
enforce a conversion floor of $0.65 per share. Thus, if the conversion price is
less than $0.65 per share, the holder would incur a conversion loss which is
satisfied by either (a) cash payment in an amount sufficient to pay the
conversion loss (($0.65 per share less the conversion
price) times
the number of shares being converted), or (b) we may convert the conversion
amount into shares at $0.65 per share and adding the conversion loss to the
unpaid balance of the Convertible Note.
16
As of
March 31, 2010, if the $50,000 Convertible Note were converted based on the
terms above, the Company would incur a conversion loss of
$33,308. Accordingly, the amount of the potential conversion loss is
recorded as a derivative liability in the consolidated balance sheet as of March
31, 2010, with the same amount included as a loss on derivatives in the
consolidated statement of operations for the year ended March 31, 2010. The
potential conversion loss associated with the Convertible Note will be
re-measured at the end.
The
Secured Note is a full recourse obligation of the investor to repay the original
principal amount of $300,000 and includes a 13.6% one-time interest charge. The
Secured Note has a maturity date of three (3) years from March 24, 2010 at which
time all principal and accrued interest shall be due and payable in
full. The Secured Note provides that the investor will plan to make,
without obligation, monthly payments of $50,000 beginning at the date of
execution of the Secured Note subject to conversions being honored as set forth
under the Convertible Note and Rule 144 being available to remove restrictive
legend from shares obtained in conversions such that the shares are freely
tradeable. On March 24, 2010, the investor made a $50,000 payment. Accordingly,
the Convertible Note payable balance as of March 31, 2010 is $50,000, which
includes the $300,000 outstanding Convertible Note balance, offset by the
$250,000 outstanding Secured Note balance.
The
investor granted the Company a security interest in specified collateral having
a $300,000 value to secure payment and performance of its obligations under the
Secured Note. The security interest in the collateral automatically
terminates at the time the Secured Note is paid in full.
For
further description of the Convertible Note and the Secured Note and other
pertinent terms and provisions of this transaction, see Nacel Energy’s Form 8-K
dated March 24, 2010, as filed with the SEC on March 30, 2010.
Results of
Operations
Results
of Operations for the year ended March 31, 2010 compared to March 31,
2009
We
generated no revenues from our operations for the twelve months ended March 31,
2010 (“Fiscal 2009-10 Period”) and for the twelve months ended March 31, 2009
(“Fiscal 2008-9 Period”).
Our total
operating expenses were $2,056,817 for the Fiscal 2009-10 Period compared to
total operating expenses of $2,324,243 for the Fiscal 2008-9 Period. Our
operating expenses for the Fiscal 2009-10 Period included $1,204,169 in wind
project development expenses compared to $686,768 reported for the Fiscal 2008-9
Period and $839,444 in general and administrative expenses for the Fiscal
2009-10 period compared to $1,635,793 reported for the Fiscal 2008-9
Period. Our general and administrative expenses included $308,750 in
executive compensation for the Fiscal 2009-10 period compared to $1,018,000
reported for the Fiscal 2008-9 period; $42,771 in marketing expenses for the
Fiscal 2009-10 period compared to $72,319 reported for the Fiscal 2008-9 Period
and $465,456 in legal and professional fees for the Fiscal 2009-10 Period
compared to $344,832 for the Fiscal 2008-9 Period.
Our net
other expenses/income for the Fiscal 2009-10 Period were $792,385 compared to
$9,286 reported for the Fiscal 2008-9 Period. Our other expenses included loss
on derivative financial instruments of $299,635 for the Fiscal 2009-10 period
compared to $0 for the Fiscal 2008-9 Period. Our other expenses also included
interest expense of $492,750 for the for the Fiscal 2009-10 period compared to
$13,236 for the Fiscal 2008-9 Period. Our other income for the Fiscal 2009-10
Period included interest income of $0 compared to interest income of $3,671 for
the Fiscal 2008-9 Period.
Capital Structure and
Resources.
We had
total assets of $507,464 as of March 31, 2010, which consisted of cash of
$57,763, prepaid expenses of $187,261, deferred financing costs of $86,539 and
fixed assets net of depreciation of $175,901.
17
We had
total liabilities of $2,530,725 as of March 31, 2010 consisting of accounts
payable of $307,301, accounts payable – related party of $19,500, accrued
interest payable of $3,333, a demand
note payable of $250,000, a convertible note of $300,000, a line of
credit extended by a director of $460,753, a convertible note (net of discount)
of $341,611 and a derivative liability of $1,098,227.
At March
31, 2010 we had paid-in capital of $3,992,691.
We have
had net losses since inception and had an accumulated deficit of $6,038,133 at
March 31, 2010.
We had
net cash used in operating activities of $1,770,057 for the year ended March 31,
2010. We had a net loss of $2,849,202 including a non-cash item of
$191,200 related to stock issued for services.
We had
$22,610 in net cash used in investing activities for the year ended March 31,
2010, including $22,610 paid for fixed assets.
We had
$1,285,753 in net cash provided by financing activities for the year ended March
31, 2010, including $210,753 from a line of credit extended by a director,
$50,000 proceeds from a note receivable, $980,000 from proceeds on notes
payable, $165,000 proceeds from sales of stock and paid $120,000 for financing
costs.
We had no
outstanding cash commitments as of March 31, 2010.
As we
expand, we may need to make sizeable cash commitments to develop our wind power
generation facilities, and the impact of this potential trend on our business is
uncertain. We believe that our mix of capital resources will shift from
short-term debt to equity-based financing, which will cause dilution of current
shareholders. Because the Company has generated no operating revenues to date,
the predominant component of our liquidity is cash on hand.
Cautionary Note Regarding
Forward Looking Statements
Some of
the statements in this report are “forward-looking statements.” These
forward-looking statements involve certain known and unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements to be materially different from any future results, performance
or achievements expressed or implied by these forward-looking statements. These
factors include, among others, the factors set forth above under “Risk Factors.”
The words “believe,” “expect,” “anticipate,” “intend,” “plan,” and similar
expressions identify forward-looking statements. We caution you not to place
undue reliance on these forward-looking statements. We undertake no obligation
to update and revise any forward-looking statements or to publicly announce the
result of any revisions to any of the forward-looking statements in this
document to reflect any future or developments. However, the Private Securities
Litigation Reform Act of 1995 is not available to us as a penny stock issuer and
thus we may not rely on the statutory safe harbor from liability for
forward-looking statements. Further, Section 27A(b)(2)(D) of the Securities Act
and Section 21E(b)(2)(D) of the Securities Exchange Act expressly state that the
safe harbor for forward looking statements does not apply to statements made in
connection with this offering.
Item
8: Financial
Statements
Our
financial statements are stated in United States dollars (US$) and are prepared
in accordance with United States Generally Accepted Accounting
Principles.
The
following consolidated financial statements are filed as part of this annual
report:
Report
of Independent Registered Public Accounting Firm
|
19
|
|
Consolidated
Balance Sheets
|
20
|
|
Consolidated
Statements of Expenses
|
21
|
|
Consolidated
Statements of Cash Flows
|
23
|
|
Consolidated
Statements of Changes in Stockholders' Equity (Deficit)
|
22
|
|
Notes
to the Consolidated Financial Statements
|
24
|
18
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors
Nacel
Energy Corporation
(a
development stage company)
Scottsdale,
Arizona
We have
audited the accompanying consolidated balance sheets of Nacel Energy Corporation
(“Nacel Energy”) as of March 31, 2010 and 2009 and the related consolidated
statements of expenses, stockholders’ equity (deficit), and cash flows for the
years ended March 31, 2010 and 2009 and for the period from February 7, 2006
(inception) through March 31, 2010. These financial statements are the
responsibility of Nacel Energy. Our responsibility is to express an opinion on
these financial statements based on our audits.
We
conducted our audits in accordance with 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 misstatements. Nacel
Energy 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 Nacel Energy’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Nacel Energy as of
March 31, 2010 and 2009, and the consolidated results of its operations and its
cash flows for the years ended March 31, 2010 and 2009 and for the period from
February 7, 2006 (inception) through March 31, 2010 in conformity with
accounting principles generally accepted in the United States of
America.
The
accompanying consolidated financial statements have been prepared assuming that
Nacel Energy will continue as a going concern. As discussed in Note 2
to the consolidated financial statements, Nacel Energy has suffered recurring
losses from operations, which raises substantial doubt about its ability to
continue as a going concern. Management’s plans regarding those
matters are described in Note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
MALONE
& BAILEY, LLP
www.malone-bailey.com
Houston,
Texas
July 14,
2010
19
Nacel
Energy Corporation
(A
Development Stage Company)
Consolidated
Balance Sheets
March
31,
|
||||||||
2010
|
2009
|
|||||||
ASSETS
|
||||||||
Current
Assets
|
||||||||
Cash
|
$ | 57,763 | $ | 564,677 | ||||
Deposits
|
183,220 | - | ||||||
Prepaid
expenses
|
4,041 | - | ||||||
Deferred
financing costs
|
86,539 | - | ||||||
Total
current assets
|
331,563 | 564,677 | ||||||
Property,
plant and equipment, net of accumulated depreciation of $14,886 and $1,682
at March 31, 2010 and March 31, 2009, respectively
|
175,901 | 166,495 | ||||||
TOTAL
ASSETS
|
$ | 507,464 | $ | 731,172 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
||||||||
Current
Liabilities
|
||||||||
Accounts
payable
|
$ | 307,301 | $ | 7,537 | ||||
Accounts
payable - related party
|
19,500 | - | ||||||
Accrued
interest - related party
|
3,333 | 3,894 | ||||||
Notes payable
|
300,000 | - | ||||||
Shareholder
line of credit
|
460,753 | - | ||||||
Convertible
note, net of discount of $558,389
|
341,611 | - | ||||||
Derivative
liabilities
|
1,098,227 | - | ||||||
Total
current liabilities
|
2,530,725 | 11,431 | ||||||
Shareholder
line of credit
|
- | 250,000 | ||||||
Total
liabilities
|
2,530,725 | 261,431 | ||||||
Stockholders'
equity
|
||||||||
Common
stock of $.001 par value. Authorized 50,000,000 shares; issued
22,181,000 and 21,786,000 at March 31, 2010 and March 31, 2009,
respectively
|
22,181 | 21,786 | ||||||
Additional
paid-in capital
|
3,992,691 | 3,636,886 | ||||||
Deficit
accumulated during the development stage
|
(6,038,133 | ) | (3,188,931 | ) | ||||
Total
stockholders' equity (deficit)
|
(2,023,261 | ) | 469,741 | |||||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
|
$ | 507,464 | $ | 731,172 |
See
accompanying summary of accounting policies and notes to consolidated financial
statements
20
Nacel
Energy Corporation
(A
Development Stage Company)
Consolidated
Statements of Expenses
Years
Ended March 31, 2010 and 2009 and For The Period
From
February 7, 2006 (Inception) Through March 31, 2010
February 7,
|
||||||||||||
2006
|
||||||||||||
(Inception)
|
||||||||||||
Through
March
|
||||||||||||
2010
|
2009
|
31, 2010
|
||||||||||
General
and administrative expenses
|
$ | 839,444 | $ | 1,635,793 | $ | 2,830,604 | ||||||
Wind
projects donated by related party
|
- | - | 490,000 | |||||||||
Wind
project development costs
|
1,204,169 | 686,768 | 1,890,937 | |||||||||
Depreciation
|
13,204 | 1,682 | 14,886 | |||||||||
Net
loss from operations
|
(2,056,817 | ) | (2,324,243 | ) | (5,226,427 | ) | ||||||
Other
Income (Expenses)
|
||||||||||||
Interest
expense
|
(492,750 | ) | (13,236 | ) | (516,338 | ) | ||||||
Interest
income
|
- | 3,671 | 3,848 | |||||||||
Other
income
|
- | 279 | 419 | |||||||||
Loss
on derivative financial instruments
|
(299,635 | ) | - | (299,635 | ) | |||||||
Total
other expense
|
(792,385 | ) | (9,286 | ) | (811,706 | ) | ||||||
Net
loss
|
$ | (2,849,202 | ) | $ | (2,333,529 | ) | $ | (6,038,133 | ) | |||
Basic
and diluted net loss per share
|
$ | (0.13 | ) | $ | (0.11 | ) | N/A | |||||
Basic
and diluted weighted average common shares outstanding
|
21,988,096 | 21,628,466 | N/A |
See
accompanying summary of accounting policies and notes to consolidated financial
statements
21
Nacel
Energy Corporation
(A
Development Stage Company)
Consolidated
Statements of Changes in Stockholders’ Equity (Deficit)
For
The Period From February 7, 2006 (Inception) Through March 31, 2010
Additional
|
||||||||||||||||||||||||||||
Common
Stock
|
Paid
in
|
Accumulated
|
Subscription
|
Comprehensive
|
Equity
|
|||||||||||||||||||||||
Shares
|
Par
|
Capital
|
Deficit
|
Receivable
|
Income
(Loss)
|
(Deficit)
|
||||||||||||||||||||||
Balance
at February 7, 2006 (Inception)
|
- | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | |||||||||||||||
Founders
shares issued for reimbursement of expenses
|
11,000,000 | 11,000 | (10,450 | ) | - | - | - | 550 | ||||||||||||||||||||
Net
Loss
|
(792 | ) | - | - | (792 | ) | ||||||||||||||||||||||
Balance,
March 31, 2006
|
11,000,000 | 11,000 | (10,450 | ) | (792 | ) | - | - | (242 | ) | ||||||||||||||||||
Imputed
Interest
|
- | - | 1,025 | - | - | - | 1,025 | |||||||||||||||||||||
Unrealized
loss on marketable securities
|
- | - | - | - | - | (227 | ) | (227 | ) | |||||||||||||||||||
Net
Loss
|
(27,429 | ) | - | - | (27,429 | ) | ||||||||||||||||||||||
Balance,
March 31, 2007
|
11,000,000 | 11,000 | (9,425 | ) | (28,221 | ) | - | (227 | ) | (26,873 | ) | |||||||||||||||||
Shares
issued for cash
|
8,000,000 | 8,000 | 32,000 | - | - | - | 40,000 | |||||||||||||||||||||
Shares
issued for exercise of warrant
|
2,400,000 | 2,400 | 1,197,600 | - | (690,373 | - | 509,627 | |||||||||||||||||||||
Wind
projects donated by related party
|
- | - | 490,000 | - | - | - | 490,000 | |||||||||||||||||||||
Imputed
Interest
|
- | - | 9,327 | - | - | - | 9,327 | |||||||||||||||||||||
Unrealized
gain on marketable securities
|
- | - | - | - | - | 227 | 227 | |||||||||||||||||||||
Net
Loss
|
- | - | - | (827,181 | ) | - | - | (827,181 | ) | |||||||||||||||||||
Balance,
March 31, 2008
|
21,400,000 | 21,400 | 1,719,502 | (855,402 | ) | (690,373 | - | 195,127 | ||||||||||||||||||||
Shares
issued for cash
|
1,000,000 | 1,000 | 749,000 | - | - | - | 750,000 | |||||||||||||||||||||
Shares
issued for executive compensation
|
250,000 | 250 | 1,007,250 | - | - | - | 1,007,500 | |||||||||||||||||||||
Shares
issued for outside services
|
136,000 | 136 | 157,504 | - | - | - | 157,640 | |||||||||||||||||||||
Imputed
interest
|
- | - | 2,630 | - | - | - | 2,630 | |||||||||||||||||||||
Shares
cancelled
|
(1,000,000 | (1,000 | 1,000 | - | - | - | - | |||||||||||||||||||||
Collection
of subscription receivable
|
- | - | - | - | 690,373 | - | 690,373 | |||||||||||||||||||||
Net
Loss
|
- | - | - | (2,333,529 | ) | - | - | (2,333,529 | ) | |||||||||||||||||||
Balance,
March 31, 2009
|
21,786,000 | 21,786 | 3,636,886 | (3,188,931 | ) | - | - | 469,741 | ||||||||||||||||||||
Shares
issued for cash
|
220,000 | 220 | 164,780 | - | - | - | 165,000 | |||||||||||||||||||||
Shares
issued for outside services
|
175,000 | 175 | 191,025 | - | - | - | 191,200 | |||||||||||||||||||||
Net
Loss
|
(2,849,202 | ) | - | - | (2,849,202 | ) | ||||||||||||||||||||||
Balance,
March 31, 2010
|
22,181,000 | $ | 22,181 | $ | 3,992,691 | $ | (6,038,133 | ) | $ | - | $ | - | $ | 2,023,261 |
22
Nacel
Energy Corporation
(A
Development Stage Corporation)
Consolidated
Statements of Cash Flows
Years
Ended March 31, 2010 and 2009 and For The Period
From
February 7, 2006 (Inception) Through March 31, 2010
2010
|
2009
|
February 7, (Inception)
Through March 31,
2010
|
||||||||||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||||||
Net
Loss
|
$ | (2,849,202 | ) | $ | (2,333,529 | ) | $ | (6,038,133 | ) | |||
Adjustments
to reconcile net loss to cash used in operating
activities:
|
||||||||||||
Depreciation
|
13,204 | 1,682 | 14,886 | |||||||||
Amortization
of debt discount and deferred financing costs
|
443,664 | - | 443,664 | |||||||||
Stock
for services
|
191,200 | 157,640 | 349,390 | |||||||||
Wind
projects donated by related party
|
- | - | 490,000 | |||||||||
Imputed
interest
|
- | 2,630 | 15,725 | |||||||||
Stock
issued for executive compensation
|
- | 1,007,500 | 1,007,500 | |||||||||
Derivative
loss
|
299,635 | - | 299,635 | |||||||||
Changes
in:
|
||||||||||||
Prepaid
and other current assets
|
(4,041 | ) | 1,277 | (4,041 | ) | |||||||
Deposits
|
(183,220 | ) | - | (183,220 | ) | |||||||
Accounts
payable
|
299,764 | (71,123 | ) | 307,301 | ||||||||
Accounts
payable - related party
|
19,500 | - | 19,500 | |||||||||
Accrued
interest
|
(561 | ) | 6,637 | 3,333 | ||||||||
Cash
flows used in operating activities
|
(1,770,057 | ) | (1,227,286 | ) | (3,274,460 | ) | ||||||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||||||
Purchase
of fixed assets
|
(22,610 | ) | (138,159 | ) | (190,787 | ) | ||||||
Cash
flows used in investing activities
|
(22,610 | ) | (138,159 | ) | (190,787 | ) | ||||||
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||||||
Cash
paid for financing costs
|
(120,000 | ) | - | (120,000 | ) | |||||||
Proceeds
from shareholder line of credit
|
210,753 | 109,182 | 458,010 | |||||||||
Borrowings
on debt
|
1,030,000 | - | 1,030,000 | |||||||||
Proceeds
from sale of common stock
|
165,000 | 750,000 | 955,000 | |||||||||
Proceeds
from exercise of warrant
|
- | 690,373 | 1,200,000 | |||||||||
Cash
flows provided by financing activities
|
1,285,753 | 1,549,555 | 3,523,010 | |||||||||
Net
increase in cash
|
(506,914 | ) | 184,110 | 57,763 | ||||||||
Cash,
beginning of period
|
564,677 | 380,567 | - | |||||||||
Cash,
end of period
|
$ | 57,763 | $ | 564,677 | $ | 57,763 | ||||||
SUPPLEMENTAL
CASH FLOW INFORMATION
|
||||||||||||
Interest
paid
|
$ | 42,218 | $ | 3,969 | $ | 46,187 | ||||||
Income
taxes paid
|
- | - | - | |||||||||
NON-CASH
TRANSACTIONS
|
||||||||||||
Debt
discount from derivative liabilities
|
730,000 | - | 730,000 | |||||||||
Warrants
issued for deferred financing costs
|
68,592 | - | 68,592 | |||||||||
See
accompanying summary of accounting policies and notes to consolidated
financial statements
|
23
NACEL
ENERGY CORPORATION
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature
of organization & business.
i)
Organization
We were
incorporated in the State of Wyoming on February 7, 2006. On March 13th, 2006 we
applied and subsequently received the approval of the Wyoming Secretary of State
on March 31, 2006, to amend Article 5 of our Articles of Incorporation to
authorize the issuance of an unlimited number of common and preferred shares
without further application to the State as provided for under Wyoming law.
Currently, our Board of Directors has authorized a total of 50 million common
shares, of which 22,181,000
are issued and outstanding, and no preferred shares. We changed our name to
Nacel Energy Corporation (“Nacel Energy”) from Zephyr Energy Corporation on
April 3, 2007.
ii)
Business
We intend
to become a wind power generation and wind project development, company. We
intend to identify and evaluate the economic feasibility and resource potential
of wind development properties, domestically and internationally, for the
purposes of developing utility scale wind turbine projects. We may participate
in these projects with development partners and receive revenue from the sale of
electric energy through our working interests in the partnerships or through the
sale of our interests in the development projects.
Since our
inception, we have been engaged in business planning activities, including
researching wind energy technologies, developing our economic models and
financial forecasts, performing due-diligence regarding potential development
partners, investigating wind electric energy properties and project
opportunities, and raising capital. We are a development stage company and have
commenced entering into agreements and various operations in furtherance of our
wind power generation business.
Basis
of Presentation.
The
financial statements of the Company have been prepared in accordance with
generally accepted accounting principles in the United States of
America.
Use
of Estimates.
In
preparing financial statements, management makes estimates and assumptions that
affect the reported amounts of assets and liabilities in the balance sheet and
revenue and expenses in the statement of expenses. Actual results could differ
from those estimates.
Cash
and Cash Equivalents.
For
purposes of the statement of cash flows, Nacel Energy considers all highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents.
24
Property
and equipment
Property
and equipment is recorded at cost and depreciated on the straight-line method
over the estimated useful lives. Expenditures for normal repairs and
maintenance are charged to expense as incurred. The cost and related accumulated
depreciation of assets sold or otherwise disposed of are removed from the
accounts, and any gain or loss is included in operations.
Derivative
Financial Instruments
Nacel
does not use derivative instruments to hedge exposures to cash flow, market, or
foreign currency risks. Nacel evaluates all of its financial
instruments to determine if such instruments are derivatives or contain features
that qualify as embedded derivatives. For derivative financial
instruments that are accounted for as liabilities, the derivative instrument is
initially recorded at its fair value and is then re-valued at each reporting
date, with changes in the fair value reported as charges or credits to
income. For option-based derivative financial instruments, Nacel uses
the Black-Scholes option-pricing model to value the derivative instruments at
inception and subsequent valuation dates. The classification of derivative
instruments, including whether such instruments should be recorded as
liabilities or as equity, is re-assessed at the end of each reporting
period. Derivative instrument liabilities are classified in the
balance sheet as current or non-current based on whether or not net-cash
settlement of the derivative instrument could be required within 12 months of
the balance sheet date.
Fair
Value Measurements
In
September 2006, the FASB issued ASC 820 (previously SFAS 157) which defines fair
value, establishes a framework for measuring fair value, and expands disclosures
about fair value measurements. The provisions of ASC 820 were effective
January 1, 2008. The FASB has also issued Staff Position (FSP) SFAS 157-2
(FSP No. 157-2), which delays the effective date of SFAS 157 for
nonfinancial assets and liabilities, except for items that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually), until fiscal years beginning after November 15,
2008.
As
defined in ASC 820, fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date (exit price). The Company utilizes market
data or assumptions that market participants would use in pricing the asset or
liability, including assumptions about risk and the risks inherent in the inputs
to the valuation technique. These inputs can be readily observable, market
corroborated, or generally unobservable. The Company classifies fair value
balances based on the observations of those inputs. ASC 820 establishes a fair
value hierarchy that prioritizes the inputs 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 measurement) and the lowest
priority to unobservable inputs (level 3 measurement).
The three
levels of the fair value hierarchy defined by ASC 820 are as
follows:
Level 1 –
Quoted prices are available in active markets for identical assets or
liabilities as of the reporting date. Active markets are those in which
transactions for the asset or liability occur in sufficient frequency and volume
to provide pricing information on an ongoing basis. Level 1 primarily consists
of financial instruments such as exchange-traded derivatives, marketable
securities and listed equities.
Level 2 –
Pricing inputs are other than quoted prices in active markets included in level
1, which are either directly or indirectly observable as of the reported date.
Level 2 includes those financial instruments that are valued using models or
other valuation methodologies. These models are primarily industry-standard
models that consider various assumptions, including quoted forward prices for
commodities, time value, volatility factors, and current market and contractual
prices for the underlying instruments, as well as other relevant economic
measures. Substantially all of these assumptions are observable in the
marketplace throughout the full term of the instrument, can be derived from
observable data or are supported by observable levels at which transactions are
executed in the marketplace. Instruments in this category generally include
non-exchange-traded derivatives such as commodity swaps, interest rate swaps,
options and collars.
25
Level 3 –
Pricing inputs include significant inputs that are generally less observable
from objective sources. These inputs may be used with internally developed
methodologies that result in management’s best estimate of fair
value.
The
following table sets forth by level within the fair value hierarchy the
Company’s financial assets and liabilities that were accounted for at fair value
as of March 31, 2010. As required by SFAS 157, financial assets and liabilities
are classified in their entirety based on the lowest level of input that is
significant to the fair value measurement. The Company’s assessment of the
significance of a particular input to the fair value measurement requires
judgment, and may affect the valuation of fair value assets and liabilities and
their placement within the fair value hierarchy levels.
March 31, 2010
|
||||||||||||||||
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
Freestanding
and Embedded derivatives
|
$ | — | $ | 1,098,227 | $ | — | $ | 1,098,227 |
The
derivatives listed above are carried at fair value. The fair value amounts in
current period earnings associated with the Company’s derivatives resulted from
Level 2 fair value methodologies; that is, the Company is able to value the
assets and liabilities based on observable market data for similar instruments.
This observable data includes the quoted market prices and estimated volatility
factors.
Reclassifications.
Certain
prior year amounts have been reclassified to conform with the current year
presentation.
Consolidation.
The
consolidated financial statements include the accounts of Nacel Energy and its
wholly-owned subsidiaries, 0758817 BC Ltd., Blue Creek Wind Energy Facility,
LLC, Channing Flats Wind Energy Facility, LLC, Swisher Wind Energy Facility,
LLC, Hedley Pointe Wind Energy Facility, LLC. Leila Lakes Wind Energy Facility,
LLC and Snowflake Wind Energy Facility, LLC. Significant
inter-company accounts and transactions have been eliminated.
26
Wind
Project Development Costs
Wind
project development costs are charged to expense as incurred. These
costs consist of such costs as contracted operations and maintenance fees,
turbine and related equipment warranty fees, land rent, insurance, professional
fees, operating personnel and permit compliance.
Leases
The
Company has entered into several Wind Project Agreements granting the right to
install equipment and restricting use of the property by the
landowner. Fees paid in conjunction with these agreements are
expensed as incurred.
Income
taxes.
The
Company has adopted the provisions of FASB ASC Topic 740, “Income Taxes ” (“ASC 740”).
As required under ASC 740, the Company accounts for income taxes using an asset
and liability approach, which requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of temporary
differences
between
the financial statements and tax bases of assets and liabilities at the
applicable tax rates. A valuation allowance is utilized when it is more likely
than not, that some portion of, or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.
27
Basic
and diluted net loss per share.
The
Company computes loss per share in accordance with ASC 260, ‘‘Earnings per
Share’’ which requires presentation of both basic and diluted earnings per share
on the face of the statement of operations. Basic loss per share is computed by
dividing net loss available to common shareholders by the weighted average
number of outstanding common shares during the period. Diluted loss per share
gives effect to all dilutive potential common shares outstanding during the
period including stock options and warrants using the treasury method. Dilutive
loss per share excludes all potential common shares if their effect is
anti-dilutive.
Stock
Compensation.
Nacel
Energy follows Financial Accounting Standard No. 123R (ASC 718), “Share-Based
Payment” as interpreted by SEC Staff Accounting Bulletin No. 107 for financial
accounting and reporting standards for stock-based employee compensation plans.
It defines a fair value based method of accounting for an employee stock option
or similar equity instrument. There were no compensatory options or warrant
granted since inception through March 31, 2010.
Consolidation.
The
consolidated financial statements include the accounts of Nacel Energy and its
wholly-owned subsidiaries, 0758817 BC Ltd., Blue Creek Wind Energy Facility,
LLC, Channing Flats Wind Energy Facility, LLC, Swisher Wind Energy Facility,
LLC, Hedley Pointe Wind Energy Facility, LLC, Leila Lakes Wind Energy Facility
LLC and Snowflake Wind Energy Facility, LLC. Significant inter-company accounts
and transactions have been eliminated.
NOTE
2 - GOING CONCERN
The
accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. Nacel Energy has incurred material
recurring losses from operations. Since inception, Nacel Energy has
incurred losses of approximately $6.04 million. In addition, Nacel
Energy is experiencing a continuing operating cash flow deficiency. These
factors, among others, raise substantial doubt about Nacel Energy’s ability to
continue as a going concern for a reasonable period of time.
Nacel
Energy is pursuing, and will continue to pursue, additional equity
financing and/or debt financing while managing cash flow in an effort to provide
funds and cash flow to meet its obligations on a timely basis and to support
wind project development activities.
The
consolidated financial statements do not contain any adjustments to reflect the
possible future effects on the classification of assets or the amounts and
classification of liability that may result should Nacel Energy be unable to
continue as a going concern.
NOTE
3 – DEMAND NOTES PAYABLE
In July
2009, Nacel executed a new loan with a lender in the amount of $250,000, which
provides for simple interest of 10% per
annum to be paid monthly upon the outstanding balance. The
note is due on demand and is unsecured.
NOTE
4 - SHAREHOLDER LINE OF CREDIT
At
inception, Nacel Energy entered into an agreement with Mr. Fleming with respect
to an unsecured, no-interest $250,000 line of credit repayable at an unspecified
future date.
28
Effective
July 1, 2008, Nacel Energy agreed to new terms for the line of credit, which
provided for simple interest to be added to the outstanding balance of the line
of credit, once each quarter, based upon the current 3 month LIBOR plus 500
basis points. Prior to that date, interest on the line of credit was
imputed to paid-in capital based on the market rate of interest for the
period.
On June
30, 2009, Mr. Fleming loaned an additional $150,000 on the line of
credit. On July 1, 2009, we ratified the terms for the line of credit
to allow an increase in the balance to $400,000, which provides for simple
interest of 8% per annum on the outstanding balance with interest payments
beginning October 1, 2009.
On
September 29, 2009, we ratified the terms for the line of credit to allow an
additional increase in the balance to $442,143. The terms and payment
arrangements remain the same as agreed upon on June 30, 2009.
On
October 26, 2009, we ratified the terms for the line of credit to allow an
additional increase in the balance to $460,753. The terms and payment
arrangements remain the same as agreed upon on June 30, 2009.
As of
March 31, 2010, the $460,753 line of credit extended by the director was fully
drawn upon, and no further amounts are available for borrowing unless the
agreement is re-negotiated, of which there is no certainty. There was
a balance of accrued interest in the amount of $3,333 as of March 31,
2010.
NOTE
5 – CONVERTIBLE NOTES PAYABLE
Senior Secured Note – On
November 24, 2009, Nacel entered into a definitive Securities Purchase Agreement
for the issuance of a Senior Secured Convertible Note (the “Note”) and 3,500,000
Warrants in a private placement with a single institutional
investor. Proceeds from the Note were $730,000 with repayment amount
of $900,000. The Note has an original issue discount of
$150,000. $20,000 of the initial proceeds were used to pay legal
costs for the investor. In addition, Nacel paid an additional $25,000
in separate legal fees associated with the offering. The legal fees
were deferred and will be amortized until maturity to interest
expense.
The note
is payable over nine monthly installments and matures on December 1,
2010. The repayment amount of $900,000 does not accrue interest
unless an event of default occurs, in which case the interest rate shall be 18%
per annum. Subsequent to March 31, 2010, the terms of this note were
modified. See Note 12.
Nacel may
pay each monthly installment in cash or, at its option, subject to the
satisfaction of customary equity conditions, in shares of common
stock. The Note is convertible into shares of Nacel’s common stock at
an initial conversion price of $0.90 per share. The embedded
conversion option contains a reset provision that can cause an adjustment to the
conversion price if Nacel sells or issues an equity instrument at a price lower
than the initial conversion price. Due to this provision, the
embedded conversion option qualifies for derivative accounting under ASC 815-15
(See Note 10 below). The fair value of the embedded conversion option
was determined to be $374,228 at the inception of the note. This fair
value in conjunction with the fair value of the warrants issued with the note
(See Note 9 below) resulted in a full discount to the note payable at
inception. As of March 31, 2010, $341,611 of the discount had been
amortized.
In
conjunction with the note payable, Nacel paid $75,000 and issued 83,333 warrants
to a placement agent with a fair value of $68,950. Both amounts
were deferred and will be amortized until maturity to interest
expense. As of March 31, 2010, $102,053 of the amounts deferred
(including legal fees mentioned above) had been amortized.
29
Additional Convertible Note –
On March 24, 2010, we executed and delivered, pursuant to a private placement
with a single institutional investor, our $300,000 Convertible Promissory Note
(the “Convertible Note”) in exchange for the investor’s execution and delivery
to us of a $300,000 Secured & Collateralized Promissory Note (the “Secured
Note”).
The
original principal amount of the Convertible Note is $300,000, and the
Convertible Note provides for a 12% one-time interest charge. The Convertible
Note has a maturity date of three (3) years from March 24, 2010 at which time
all principal and accrued interest shall be due and payable in full. Prepayment
is not permitted unless approved by the holder in writing. However, the
Convertible Note is payable on demand by the holder in an amount not to exceed
the cash amount paid under the Secured Note.
The
Convertible Note can only
be converted to the extent that payments have been received on the
Secured Note. The subject conversion amount is converted into shares of our
common stock based on a conversion price of seventy percent (70%) of the lowest
trade price in the 30 trading days prior to the conversion. However, we have the
right to enforce a conversion floor of $0.65 per share. Thus, if the conversion
price is less than $0.65 per share, the holder would incur a conversion loss
which is satisfied by either (a) cash payment in an amount sufficient to pay the
conversion loss (($0.65 per share less the conversion
price) times
the number of shares being converted), or (b) we may convert the conversion
amount into shares at $0.65 per share and adding the conversion loss to the
unpaid balance of the Convertible Note.
As of
March 31, 2010, if the $50,000 Convertible Note were converted based on the
terms above, the Company would incur a conversion loss of
$33,308. Accordingly, the amount of the potential conversion loss is
recorded as a derivative liability in the consolidated balance sheet as of March
31, 2010, with the same amount included as a loss on derivatives in the
consolidated statement of operations for the year ended March 31, 2010. The
potential conversion loss associated with the Convertible Note will be
re-measured at the end of each reporting period and the changes in the amount
recorded through earnings.
The
Secured Note is a full recourse obligation of $300,000 and includes
a 13.6% one-time interest charge. The Secured Note has a maturity date of
three (3) years from March 24, 2010 at which time all principal and accrued
interest shall be due and payable in full. The Secured Note provides that the
investor will plan to make, without obligation, monthly payments of $50,000
beginning at the date of execution of the Secured Note subject to conversions
being honored as set forth under the Convertible Note and Rule 144 being
available to remove restrictive legend from shares obtained in conversions such
that the shares are freely tradeable. On March 24, 2010, the investor made
a $50,000 payment. Accordingly,
the Convertible Note payable balance as of March 31, 2010 is $50,000, which
includes the $300,000 outstanding Convertible Note balance, offset by the
$250,000 outstanding Secured Note balance.
The
investor granted the Company a security interest in a money
market account having a $300,000 value to secure payment and performance
of its obligations under the Secured Note. The security interest in the
collateral automatically terminates at the time the Secured Note is paid in
full.
30
NOTE
6 - COMMITMENTS
Nacel
Energy’s principal office is located at 9375 E. Shea Blvd., Suite 100,
Scottsdale, Ariziona 85260. The rent is approximately $100 per month in a month
to month agreement.
NOTE
7 - INCOME TAXES
Nacel
Energy uses the liability method, where deferred tax assets and liabilities are
determined based on the expected future tax consequences of temporary
differences between the carrying amounts of assets and liabilities for financial
and income tax reporting purposes.
Nacel
Energy has incurred net losses since inception and therefore has no tax
liability. The net deferred tax asset generated by the loss carry-forward has
been fully reserved. The cumulative net operating loss carry-forward is
approximately $1,465,000 as of March 31, 2010 and will expire in the years 2026
through 2030.
The
components of the deferred tax asset, the statutory tax rate, the effective tax
rate and the elected amount of the valuation allowance are indicated
below:
March31, 2010
|
March 31, 2009
|
|||||||
Statutory
Tax Rate
|
34 | % | 34 | % | ||||
Deferred
Tax Asset
|
$ | 1,465,000 | $ | 628,000 | ||||
Valuation
Allowance
|
$ | (1465,000 | ) | $ | (628,000 | ) | ||
Net
Deferred Tax Asset
|
$ | — | $ | — |
The
changes in the valuation allowance for the years ending March 31, 2010 and 2009
were $837,000 and $100,000, respectively. The effective rate differs
from the statutory rate due to the valuation allowance.
NOTE
8 - EQUITY TRANSACTIONS
At
inception, February 7, 2006, Nacel Energy issued 11,000,000 shares of common
stock at par value to two founders for reimbursement of expenses paid by the
founders.
On April
16, 2007, the Company issued a warrant with an exercise price of $0.50 per share
to a third party for which the fair value of the warrant was nominal. On June 7,
2007, the Securities and Exchange Commission declared effective the Company's
registration statement on Form SB-2 relating to the offer and sale of 8,000,000
shares of common stock, at a price of $0.005 per share and 2,400,000 shares of
common stock underlying a warrant, at an exercise price of $0.50. On September
24, 2007, the Company sold all 8,000,000 common shares to 50 investors for
proceeds of $40,000. On October 20, 2007, the Company enacted a 1:20 forward
split of its capital stock resulting in total issued and outstanding post-split
common shares of 21,400,000. There was no change to the warrant exercise price
of $0.50. On November 19, 2007, all 2,400,000 post-split shares underlying the
warrant were delivered and the warrant-holder entered into a promissory note of
$1,200,000. Through the period ending March 31, 2008, the Company
received $509,627 of the total $1,200,000 proceeds related to the warrant
exercise and the balance was recorded as a subscription receivable. On April 10,
2008, the remaining $690,373 was received from the warrant-holder and the
subscription receivable was retired.
31
On
December 01, 2007, the Company reduced total authorized post-split capital stock
from 100,000,000 to 50,000,000 common shares. The director’s determined the
reduced capital stock was sufficient to accommodate future capital
requirements.
On May
16, 2008, we issued 16,000 shares of common stock under our S-8 plan for
Director’s fees. The share awards were non-cancellable and vested immediately.
These shares were recorded at their fair value of $62,240.
On August
27, 2008, the Company issued 250,000 shares of restricted common stock to our
former President and CEO, Mr. Daniel Leach, as compensation. The share award was
non-cancellable and vested immediately. These shares were recorded at their fair
value of $1,007,500.
In
November and December of 2008, we issued 120,000 restricted shares of common
stock to Renergix Wind LLC, our project development consultants, for services
related to the achievement of wind project development milestones as specified
in our joint development agreement. The share awards were non-cancellable and
vested immediately. These shares were recorded at their fair value of
$95,400.
On
December 23, 2008, the Company sold 1,000,000 shares of common stock to a third
party. These shares were sold under the terms of a non-brokered private
placement agreement in exchange for proceeds of
$750,000.
On
December 31, 2008, Company CEO, Mr. Brian Lavery, returned 1,000,000 of his
founders’ shares for cancellation simultaneously with the issuance of the
1,000,000 share of common stock. The cancellation of Mr. Lavery’s shares was
done to prevent diluting the Company’s common stock and shareholders. The shares
were returned to the Company and cancelled at par value of $.001 per
share.
On
September 24, 2009, the Company sold 220,000 shares of common stock to a third
party. These shares were sold under the terms of a non-brokered
private placement agreement in exchange for proceeds of $165,000.
During
the year ended March 31, 2010, the Company issued 175,000 shares of
restricted common stock to Renergix Wind LLC, our project development
consultants, for services related to the achievement of a wind project
development milestone as specified in our joint development
agreement. We expensed $191,200 during the period related to this
stock issuance.
32
Equity
Compensation Plan Information
Effective
April 1, 2008, Nacel Energy adopted a STOCK AWARD PLAN with the following
provisions:
|
·
|
The
Stock Award Plan (the 'Plan') is for selected employees, consultants and
advisors to the Company and is intended to advance the best interests of
the Company by providing stock-based compensation to employees and
consultants of the Company.
|
|
·
|
The
Plan shall be administered by the board of directors of the
Company
|
|
·
|
The
total number of shares of common stock available under the Plan shall not
exceed in the aggregate 100,000, subject to increase at the discretion of
the board of directors.
|
|
·
|
The
individuals who shall be eligible to participate in the Plan shall be any
employee, consultant, advisor or other person providing services to the
Company, provided the services are not related to any prohibited activity
(hereinafter such persons may sometimes be referred to as the 'Eligible
Individuals'). Prohibited Activity shall include the
following:
|
|
o
|
Any
services in connection with the offer or sale of securities in a
capital-raising transaction, any services that directly or indirectly
promote or maintain a market for the Company’s securities, and any
services in connection with a shell
merger.
|
|
·
|
During
the 12 months ended March 31, 2009 the following shares were issued under
the Plan.
|
|
o
|
12,000
to Dr. Nedal Deeb
|
|
o
|
2,000
to Michael Williams, Esq.
|
|
o
|
1,000
to Roger Hoad
|
|
o
|
1,000
to Ben Lowther
|
|
·
|
The
Company’s Stock Award Plan was terminated on March 31,
2009
|
NOTE
9 – WARRANTS
During
the year, Nacel issued 3,500,000 warrants in relation to convertible notes and
an additional 83,333 to the placement agent in the transaction (see Note 6
above). The warrants are exercisable at $0.90 per share for 5
years. The warrants granted contain reset provisions that can cause
an adjustment to the exercise price if Nacel sells or issues an equity
instrument at a price lower than the initial exercise price. Due to
this provision, the warrants qualify for derivative accounting under ASC 815-15
(See Note 7 below).
33
A summary
of the options issued by us for the year ended March 31, 2010 as
follows:
Warrants
|
Weighted-
Average Exercise
Price
|
Weighted-
Average
Remaining
Contracted Life
(Years)
|
Aggregate
Intrinsic
Value
|
|||||||||||||
Outstanding
on March 31, 2009
|
- | $ | - | $ | - | |||||||||||
Granted
|
3,583,333 | 0.90 | 5.00 | - | ||||||||||||
Exercised
|
- | - | - | - | ||||||||||||
Forfeited
|
- | - | - | - | ||||||||||||
Expired
|
- | - | - | - | ||||||||||||
Outstanding
on March 31, 2010
|
3,583,333 | $ | 0.90 | 4.66 | $ | - |
NOTE
10 - DERIVATIVE LIABILITY
Embedded
feature of equity-linked financial instrument:
ASC
815-15, "Determining Whether an Instrument (or Embedded Feature) is indexed to
an Entity's Own Stock" lays out a procedure to determine if an equity linked
financial instrument (or embedded feature) is indexed to its own common stock.
The ASC 815-15 is effective for fiscal years beginning after December 15, 2008.
Senior
Secured Note - The embedded conversion option in Nacel’s $900,000 note
described in Note 5 and the related warrants contain a reset provision that can
cause an adjustment to the conversion price if Nacel sells or issues an equity
instrument at a price lower than the initial conversion
price. Nacel’s 3,583,333 outstanding warrants and the embedded
conversion option in its convertible note were classified as derivative
liabilities on November 24, 2009 as a result of this reset provision in
accordance with ASC 815-15. The fair value of these liabilities at
inception of the instruments was $3,323,593. Because the fair value
of the instruments at inception exceeded the carrying amount of the note
payable, a loss of $2,525,001 was recorded. The fair value of these
liabilities will be re-measured at the end of every reporting period and the
change in fair value will be reported in our consolidated statement of
operations as a gain or loss on derivative financial instruments. The fair value
of these liabilities as of March 31, 2010 was $1,064,919. The change
in fair value from inception of the instruments through March 31, 2010 resulted
in a gain of $2,258,674 resulting in a net derivative loss for the year ended
March 31, 2010 of $266,327 from these instruments.
Nacel
used the Black-Scholes option pricing model to value the embedded conversion
feature and warrants above using the following assumptions: number of options as
set forth in the convertible note and warrant agreements; no expected dividend
yield; expected volatility ranging from 84% - 152%; risk-free interest rates
ranging from 0.06% - 2.69% and expected terms based on the contractual
term.
Additional
Convertible Note - As mentioned in Note 5, as of March 31, 2010, if the $50,000
Convertible Note were converted based on its terms, the Company would incur a
conversion loss of $33,308. Accordingly, the amount of the potential
conversion loss is recorded as a derivative liability in the consolidated
balance sheet as of March 31, 2010, with the same amount included as a loss on
derivatives in the consolidated statement of operations for the year ended March
31, 2010. The potential conversion loss associated with the Convertible Note
will be re-measured at the end of each reporting period and the changes in the
amount recorded through earnings.
NOTE
11 – CONCENTRATIONS OF RISK
Cash and
cash equivalents deposited with financial institutions are insured by the
Federal Deposit Insurance Corporation(“FDIC”). Nacel Energy held cash
in excess of FDIC insurance coverage at a financial institution as of March 31,
2010 and 2009 in the amount of $0 and $314,677, respectively.
NOTE
12 – SUBSEQUENT EVENTS
Effective
as of April 23, 2010, Nacel entered into an Exchange Agreement which
amended the Note and 3,500,000 Warrants held by an institutional investor. (See
Note 6 above), Under the Exchange Agreement, the Note was exchanged for a new
Senior Secured Convertible Note (the “New Note”) and the 3,500,000 Warrants were
exchanged for 10,500,000 Warrants (“New Warrants”).
34
The
principal amount of the New Note is $935,000 which is payable in seven equal
installments of $133,571 beginning June 23, 2010 and matures on December 23,
2010.
Nacel may
pay each monthly installment in cash or, at its option, subject to the
satisfaction of customary equity conditions, in shares of common stock. The New
Note is convertible into shares of Nacel’s common stock at an initial conversion
price of $0.65 per share. The embedded conversion option contains a reset
provision that can cause an adjustment to the conversion price if Nacel sells or
issues an equity instrument at a price lower than the initial conversion price.
Due to this provision, the embedded conversion option qualifies for derivative
accounting under ASC 815-15. (See Note 10 above).
The New
Warrants are exercisable at $0.65 per share for 5 years. The New Warrants
contain reset provisions that can cause an adjustment to the exercise price if
Nacel sells or issues an equity instrument at a lower price than the new
exercise price. Due to this provision, the New Warrants qualify for derivative
accounting under ASC 815-15. (See Note 10 above).
On April
25, 2010, Nacel issued 300,158 shares to Renergix as payment for accrued and
deferred compensation of $90,047.50.
On April
25, 2010, Nacel issued 250,000 shares and 45,000 shares to former executive
officers as payment for accrued and deferred compensation of $75,000 and
$13,500, respectively.
On May
23, 2010, Nacel issued an aggregate of 462,569 shares to the institutional
investor in connection with the pre-installment payment obligation under the New
Note.
On June
23, 2010, Nacel issued an aggregate of 158,275 shares, which coupled with the
earlier 462,569 shares issued on May 23, 2010, satisfied the initial monthly
installment due on June 23, 2010. Also on June 23, 2010, Nacel issued an
aggregate of 620,844 shares to the institutional investor in connection with the
pre-installment payment obligation under the New Note.
On July
1, 2010, the due date of the director's line of credit was extended to April 1,
2011. There were no other changes to the terms of the
agreement.
Item
9:
|
Disagreements
with Accountants on Accounting and Financial
Disclosure
|
We have
no disagreement with our auditors.
Item
9A:
|
Controls
and Procedures
|
Evaluation of Disclosure
Controls and Procedures
The
Company maintains a system of disclosure controls and procedures that are
designed for the purpose of ensuring that information required to be disclosed
in its SEC reports is recorded, processed, summarized and reported within the
time periods specified in the SEC’s rules and forms, and that such information
is accumulated and communicated to the Company’s management, including the Chief
Executive Officer and the Principal Accounting Officer, as appropriate to allow
timely decisions regarding required disclosures.
For the
period ended March 31, 2010, we carried out an evaluation, under the supervision
and with the participation of our Chief Executive Officer and our Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures as defined in Rule 13a-15(e) or Rule
15d-15(e) under the Exchange Act. Based on that evaluation, as of March 31,
2010, our Chief Executive Officer and our Chief Financial Officer concluded that
our disclosure controls and procedures were effective for the purposes stated
above
35
Management’s Report on
Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in
Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control
system was designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes, in accordance with generally accepted accounting principles. Because
of inherent limitations, a system of internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate due to change in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
Our
management, including our Chief Executive Officer and Chief Financial Officer at
the end of the fiscal year covered by this Annual Report, conducted an
evaluation of the effectiveness of our internal control over financial
reporting. In the course of this evaluation, our management
considered the material weaknesses in our internal control over financial
reporting as discussed in our Annual Report on Form 10-K for the fiscal year
ended March 31, 2009. Based on this evaluation, as of March 31, 2010, our
management concluded that the Company’s internal control over financial
reporting was effective.
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 our registered public
accounting firm pursuant to temporary rules of the SEC that permit us to provide
only management’s report in this Annual Report on Form 10-K.
Changes in Internal Control
Over Financial Reporting
To
address the issues associated with our material weaknesses as described in our
Annual Report on Form 10-K for the fiscal year ended March 31, 2009, we made
changes in our internal controls over financial reporting during the nine month
period ending December 31, 2009. A financial consultant was engaged which
allowed implementation of additional procedures for monitoring and review of
work performed by our Chief Financial Officer and to mitigate the segregation of
duty issue where the Chief Financial Officer is involved in drafting financial
statements and cannot conduct an independent review. In addition, we hired a new
Chief Financial Officer with more extensive public accounting and SEC
experience. We believe these remedial actions will result in proper
segregation of duties and provide more checks and balances in our disclosure
controls and procedures.
We will
continue to monitor and evaluate the effectiveness of our internal controls and
procedures and our internal controls over financing reporting on an ongoing
basis and are committed to taking further action and implementing additional
enhancements or improvements, as necessary and as funds allow.
Except as
noted above, there have been no changes in our internal control over financial
reporting that occurred during the quarter ended March 31, 2010 that have
materially affected, or were reasonably likely to materially affect, our
internal control over financial reporting.
Item
9B:
|
Other
Information
|
There is
no information required to be disclosed on Form 8-K during the fourth quarter of
the year ended March 31, 2010 that has not been reported.
36
PART
III
Item
10:
|
Directors,
Executive Officers and Corporate
Governance
|
Directors
and Executive Officers
The
directors serve until their successors are elected and qualified. Executive
officers are elected by the Board of Directors and serve at the discretion of
the directors.
At March
31, 2010, our directors and executive officers, their ages, positions held, and
duration of such, are as follows:
Name
|
Position Held with our Company
|
Age
|
Date First
Elected or
Appointed
|
|||
Paul
Turner
|
Chief
Executive Officer
|
45
|
July
15, 2009
|
|||
Andre
Schwegler
|
Chief
Financial Officer
|
53
|
January
8, 2010
|
|||
Murray
Fleming
|
Director
|
47
|
February
6, 2006
|
|||
Mark
Schaftlein
|
|
Director
|
|
51
|
|
July
15, 2009
|
Subsequent
to March 31, 2010, on April 23, 2010, the services of Paul Turner and Andre
Schwegler as Chief Executive Officer and Chief Financial Officer, respectively,
were terminated in accordance with separate Termination Agreements between us
and each executive officer. For more information concerning these terminations,
see our Form 8-K dated April 23, 2010, as filed with the SEC on April 27,
2010.
Subsequent
to March 31, 2010, on April 23, 2010, Mark Schaftlein became our Chief Executive
Officer and Chief Financial Officer.
Business
Experience
The
following is a brief account of the education and business experience of each
director and executive officer during at least the past five years, indicating
each person's principal occupation during the period, and the name and principal
business of the organization by which he was employed.
Paul Turner, CEO
and Director; Dr. Turner is a principal of Renergix Wind LLC.,
an entity which, effective as of January 1, 2009, has provided consulting
services for and on behalf of the Company. Since August 2008, Dr.
Turner has assisted in the implementation of the Company’s wind power
development strategies. From 2001 to 2006, Dr. Turner was Managing
Director of People’s Energy Resources Corp (PERC), an affiliate of Peoples
Energy of Chicago, IL. While at PERC, Dr. Turner was responsible for
the development of electric power generation facilities and asset
acquisitions. Prior to his career with PERC, Dr. Turner was a
founding principal of Cornerstone Energy Advisors, a boutique mergers and
acquisition firm which provided strategic and financial advice on over $2
billion in acquisitions and divestitures of natural gas, oil and coal-fired
electric generating facilities. Also, from 1999 to 2000, Dr. Turner
served as an Assistant Professor of Economics at New Mexico State University and
was a consultant to the New Mexico Attorney General concerning the deregulation
of electrical markets. Mr. Turner earned his B.Sc. in electrical
engineering (power concentration) from the University of Illinois in 1987, his
M.Sc. in electrical engineering (Electric Utility Management Program)
from New Mexico State University in 1991 and his Ph.D. in economics
(environmental and regulatory concentration) in 1997, from the University of
Wyoming.
37
Andre Schwegler,
CFO; Since 2003, Andre Schwegler has been a managing director
and licensed securities representative of TerraNova Capital Partners, Inc. and
its wholly-owned subsidiary, European American Equities, Inc., a broker-dealer
which, effective as of June 15, 2009, has provided investment banking services
to the Company. Mr. Schwegler earned his Bachelor of Science in
Business and Engineering from the Clarkson University in 1978.
Murray Fleming,
Director; Mr. Fleming joined
Nacel Energy on February 6, 2006 and is currently a Director. From February 2005
to present, he has been a principal of Before the Bell Publishing LLC, an
organization which provides investor relations services. From May 2005 to July
2005, he was president and chief executive officer of Iguana Ventures an
exploration stage company engaged in the acquisition and exploration of resource
properties. In 1986, he earned a Bachelor of Arts degree in Economics &
Environmental Studies from the University of Victoria.
Mark Schaftlein,
Director; Mark Schaftlein, earlier in 2009 prior to his
appointment as an executive officer, served in an advisory capacity to the
Company, focusing upon improving our management, financial and corporate
structure. Mr. Schaftlein was our Chief Financial Officer from July
15, 2009 until his resignation on January 10, 2010, at which time he was
appointed a director. On April 23, 2010, Mr. Schaftlein was appointed
the President and Chief Financial Officer. Mr. Schaftlein is the
founder and Chief Executive Officer of Capital Consulting, Inc., an advisory
firm which for the past 8 years has assisted smaller public companies in the
areas of capital sourcing, debt restructuring and business strategy. In addition
to NACEL Energy, Mr. Schaftlein has also previously served in officer and
director capacities with other public companies including Far East Energy
Corporation, SP Holdings (later Organic to Go) and Ortec
International. From 1982 to 2000, Mr. Schaftlein held a number of
management positions in the banking industry, initially with Citicorp through
1992, then Fleet Financial, National Lending Center and Westmark Group Holdings
from 1995 to 2000. During his tenure at Westmark, Mr. Schaftlein
served as CEO and helped it achieve $100M in corporate financing. Mr. Schaftlein
earned a degree in Business Administration from Western Kentucky University in
1980.
Family
Relationships
There are
no family relationships between any director or officer.
Involvement in Certain Legal
Proceedings
None of
our directors, executive officers, promoters or control persons have been
involved in any of the following legal proceedings during the past ten years:
(a) any bankruptcy petition filed by or against any business of which
such person was a general partner or executive officer either at the time of the
bankruptcy or within two years prior to that time; (b) any conviction in a
criminal proceeding or being subject to a pending criminal proceeding (excluding
traffic violations and other minor offences); (c) any order, judgment, or
decree, not subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining, barring,
suspending or otherwise limiting his involvement in any type of business,
securities or banking activities; or (d) any finding by a court of competent
jurisdiction (in a civil action), the Commission or the Commodity Futures
Trading Commission to have violated a federal or state securities or commodities
law, and the judgment has not been subsequently reversed, suspended, or
vacated.
38
Audit Committee Financial
Expert
We do not
have a separately designated audit committee, but rather the entire Board of
Directors serves as its audit committee. None of the current board
members have been designated as the equivalent of the “audit committee financial
expert” as neither member is considered independent and neither
member would otherwise satisfy the criteria adopted under the Securities
Exchange Act for financing accounting expertise. During the ensuing
fiscal year, we expect to consider expanding our Board of Directors and believe
that such expansion will include the appointment of independent directors, the
establishment of a formal audit committee and the appointment of an audit
committee member who meets the criteria adopted under the Securities Exchange
Act for financial accounting expertise and independence. However, we
caution, given the risk and exposure associated with board participation,
recruiting independent directors, especially those that qualify as a financial
expert, may prove difficult. Furthermore, director compensation and insurance
premiums could prove costly. Accordingly, we may alter or vary our
plans based upon these concerns in addition to changes in circumstances, lack of
funds, and/or other events which we are not able to anticipate.
Changes
to Nominating Process.
Given our
small size and the small size of our Board, we do not currently have a
Nominating Committee and no formal procedures have been established concerning
the selection and nomination of directors. The Board will evaluate potential
candidates to serve as a director by considering a candidate’s background and
accomplishments, skills, expertise, character and to insure that the board
reflects a range of talents, ages, skills, diversity and expertise. The Board
seeks to maintain a diverse membership, but there is no separate policy on
diversity. The Board is open to receiving recommendations from shareholders as
to potential candidates it might consider.
Section 16(a) Beneficial Ownership
Compliance
Section
16(a) of the Securities Exchange Act requires executive officers and directors,
and persons who own more than 10% of our common stock, to file reports regarding
ownership of, and transactions in, our securities with the Securities and
Exchange Commission and to provide us with copies of those filings. Based solely
on the review of the copies of such forms received by us, or written
representations from certain reporting persons, we believe that during fiscal
year ended March 31, 2010, all filing requirements applicable to officers,
directors and greater than ten percent beneficial owners were complied
with.
Code
of Ethics.
Due to
our small size and efforts to establish our business, we have not yet adopted a
Code of Ethics which applies to executive officers and employees, including our
Chief Executive Officer and Chief Financial Officer. However, the Board does
intend to adopt a Code of Ethics in the ensuing months which will be disclosed
in a Current Report on Form 8-K. Once adopted, we will provide a copy of the
Code of Ethics to any person without charge, upon request. The request for a
copy can be made in writing to Nacel Energy, Inc., 9375 E. Shea Blvd., Suite
100, Scottsdale, Arizona 85260.
39
Item
11:
|
Executive
Compensation
|
Summary
Compensation Table
The
following table sets forth the compensation paid or accrued to our Chief
Executive Officers, former President and Chief Financial Officer for fiscal 2010
and 2009. No other director, officer or employee received annual compensation
that exceeded $100,000.
Stock
|
Non-Equity
|
All
|
|||||||||||||||||
Name
and
|
Fiscal
|
Salary
|
Awards
|
Incentive
Plan
|
Other
|
Total
|
|||||||||||||
Principal Position
|
Year
|
($)
|
($)
|
Compensation
|
Compensation
|
($)
|
|||||||||||||
(1)(2)
|
(3)
|
||||||||||||||||||
Paul Turner(4)
|
2010
|
$
|
125,000
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
125,000
|
||||||||
Chief Executive Officer
|
2009
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
||||||||
Brian Lavery
|
2010
|
$
|
60,000
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
60,000
|
||||||||
Chief Executive Officer
|
2009
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
||||||||
Daniel
Leach
|
2010
|
$
|
0
|
$
|
0
|
0
|
|||||||||||||
President
|
2009
|
$
|
1,007,500
|
1,007,500
|
|||||||||||||||
Mark
Schaftlein(5)
|
2010
|
$
|
64,750
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
64,750
|
||||||||
President
and Chief Financial Officer
|
2009
|
$
|
10,500
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
10,500
|
||||||||
Murray
Fleming
|
2010
|
$
|
27,500
|
$
|
0
|
$
|
―
|
$
|
―
|
$
|
27,500
|
||||||||
Chief
Financial Officer
|
2009
|
$
|
0
|
0
|
0
|
||||||||||||||
Andre
Schwegler(6)
|
2010
|
$
|
31,500
|
$
|
$
|
$
|
$
|
31,500
|
|||||||||||
Chief
Financial Officer
|
$
|
$
|
$
|
$
|
$
|
(1)
|
The amount shown for each
executive officer is the fair value of the stock awards issued during
fiscal 2010 and fiscal 2009.
|
(2)
|
As noted in the above table,
during fiscal year 2009, we issued 250,000 shares of restricted common
stock to Daniel Leach, our former CEO, as compensation. These shares
were recorded at their fair value of
$1,007,500.
|
(3)
|
During
fiscal year 2009, we issued a total of 16,000 shares to four (4) persons
pursuant to the terms of our Stock Award Plan. For further information
concerning the Stock Award Plan, see Note 9 – Equity Transactions – Equity
Compensation Plan Information.”
|
(4)
|
The
amounts shown for Mr. Turner represent amounts paid to him for services
rendered as a Nacel executive officer. In addition to the indicated
amount, there is $75,000 in accrued compensation due and owing for fiscal
year 2010.
|
(5)
|
The
amounts shown for Mr. Schaftlein represent amounts paid to him for
services rendered as a Nacel executive officer. In addition to the
indicated amounts, there are $23,500 in accrued compensation due and owing
for fiscal year 2010.
|
(6)
|
The
amounts shown for Mr. Schwegler represent amounts paid to him
for services rendered as a Nacel executive officer. In addition
to the indicated amount, there is $13,500 in accrued compensation due and
owing for fiscal year 2010.
|
40
Employment/Consulting
Agreements
Except as
indicated below, we have not entered into any employment agreement or consulting
agreements with our directors and executive officers.
Effective
as of July 15, 2009, we entered into an Employment Agreement with Paul Turner,
as Chief Executive Officer, which is for a term which expires on July 1, 2012
unless terminated sooner. As compensation, Dr. Turner received a base salary of
$25,000 per month together with fringe benefits and other perquisites offered by
us including public holidays and 14 days of paid vacation per 12 month period,
which vacation benefit does not accrue or extend into subsequent periods and no
right exits to receive payment for any unused vacation time. The
Employment Agreement contains various other provisions which includes, without
limitation, confidentiality, non-solicitation and non-compete provisions,
provisions applicable to termination of employment (with and without cause) and
other miscellaneous provisions.
Effective
as of July 15, 2009, we entered into an Employment Agreement with Mark
Schaftlein, as Chief Financial Officer, which is for a term which expires on
July 1, 2012 unless terminated sooner. As compensation, Mr. Schaftlein received
a base salary of $10,000 per month until March 31, 2010 and thereafter until the
end of the term in the amount of $12,500 per month. In addition, Mr.
Schaftlein receives fringe benefits and other perquisites offered by us
including public holidays and 14 days of paid vacation per 12 month period,
which vacation benefit does not accrue or extend into subsequent periods and no
right exits to receive payment for any unused vacation time. The
Employment Agreement contains various other provisions which includes, without
limitation, confidentiality, non-solicitation and non-compete provisions, and
other miscellaneous provisions.
Effective
as of January 8, 2010, the Employment Agreement between the Company and Mark
Schaftlein was modified and amended in connection with his appointment as a
member of the Board of Directors and his resignation as our Chief
Financial Officer. Mr. Schaftlein’s base salary was reduced to $7,500
per month effective as of November 1, 2009, subject to review and potential
adjustment at the end of each year. Except for the foregoing,
no other terms of the Employment Agreement were modified or
amended. In connection with the reduced $7,500 monthly salary, $3,500
was paid monthly and the other $4,000 was accrued for subsequent payment. As of
March 31, 2010, a total of $23,500 in accrued salary was due to Mr.
Schaftlein.
Effective
as of January 8, 2010, we entered into an Employment Agreement with Andre
Schwegler, as Chief Financial Officer, which is for a term which expires on
December 31, 2013 unless terminated sooner. As compensation, Mr. Schwegler
received a base salary of $10,000 per month until November 30, 2010 and
thereafter until the end of the term in the amount of $12,500 per
month. Mr. Schwegler is entitled to receive bonus compensation
consisting of (a) $5,000 per MW installed on each of our wind energy projects,
due and payable 5 days after completion of construction on such wind project,
and (b) an amount equal to 25 basis points on equity amounts raised by, or loan
or other indebtedness amounts received by us, due and payable 5 days after our
receipt of the subject equity or debt proceeds. In addition, Mr. Schwegler
received fringe benefits and other perquisites offered by us including public
holidays and 14 days of paid vacation and 14 days of unpaid vacation per 12
month period, which vacation benefit does not accrue or extend into subsequent
periods and no right exits to receive payment for any unused vacation
time. The Employment Agreement contains various other provisions
which includes, without limitation, confidentiality, non-solicitation and
non-compete provisions, provisions applicable to termination of employment (with
and without cause) and other miscellaneous provisions.
41
Subsequent
to March 31, 2010, effective as of April 22, 2010, we entered into separate
Termination Agreements with Paul Turner, President, and Andre Schwegler, Chief
Financial Officer, whereby each person’s employment as an officer of the Company
was terminated, with such termination being without cause under terms of their
respective Employment Agreement.
Under the
terms of his Termination Agreement, the accrued and deferred compensation
amounts due to Mr. Turner totaling $75,000 for the period from October 1, 2009
through March 31, 2010 was paid to him through the issuance of 250,000 shares of
our common stock based on a value of $0.30 per share.
Under the
terms of his Termination Agreement, the accrued and deferred compensation
amounts due to Mr. Schwegler totaling $13,500 for the period from October 1,
2009 through March 31, 2010 was paid to him through the issuance by the Company
of 45,000 shares of the Company’s common stock based on a value of $0.30 per
share.
There are
no arrangements or plans in which we provide pension, retirement or similar
benefits for directors or executive officers. We do not have any material bonus
or profit sharing plans pursuant to which cash or non-cash compensation is or
may be paid to our executive officers except for our Stock Award Plan which
expired on March 31, 2010.
Directors
Compensation
Members
of our Board of Directors are entitled to an award of up to $15,000 in
director’s fees and up to 12,000 shares of common stock each fiscal year. Our
directors are reimbursed for reasonable travel and other out-of-pocket expenses
incurred in connection with attendance at meetings of our board of directors. In
addition, our Board of Directors may award special remuneration to any director
undertaking any special services on our behalf other than services ordinarily
required of a director.
During
the 12 months ended March 31, 2010, no directors received special
remuneration.
Item
12:
|
Security
Ownership of Certain Beneficial Owners and
Management
|
As of
July 7, 2010, there were 24,017,846 shares of our common stock issued and
outstanding. The following table sets forth certain information known to us with
respect to the beneficial ownership of our common stock as of that date by (i)
each of our directors, (ii) each of our executive officers, and (iii) all of our
directors and executive officers as a group. Except as set forth in the table
below, there is no person known to us who beneficially owns more than 5% of our
common stock. The number of shares beneficially owned is determined under rules
of the SEC and the information is not necessarily indicative of beneficial
ownership for any other purpose. Under such rules, beneficial ownership includes
any shares as to which the individual has the sole or shared voting power or
investment power and any shares which the individual has the right to acquire
within 60 days of March 31, 2010 through the exercise of any stock option or
other right. Unless otherwise noted, we believe that each person has sole
investment and voting power (or shares such powers with his or her spouse) with
respect to the shares set forth in the following
42
Name and Address of
Beneficial Owner
|
Amount and
Nature of
Beneficial
Ownership(1)
|
Percentage
of Class (1)
|
||||||
Brian
Lavery (2)
9375
E. Shea Blvd., Suite 100
Scottsdale,
Arizona 85260
|
6,650,000
|
27.7
|
%
|
|||||
Murray
Fleming (3)
9375
E. Shea Blvd., Suite 100
Scottsdale,
Arizona 85260
|
1,000,000
|
4.2
|
%
|
|||||
Mark
Schaftlein (4)
9375
E. Shea Blvd. Suite 100
Scottsdale,
Arizona 85260
|
80,000
|
0.3
|
%
|
|||||
Directors and Executive
Officers as a Group (2
persons))(3)(4)
|
1,080,000
|
4.5
|
%
|
|
(1)
|
Based on 24,071,846 shares of
common stock issued and outstanding as of July 7,
2010.
|
|
(2)
|
All 6,650,000 shares are owned
directly by Mr. Lavery.
|
|
(3)
|
All 1,000,000 shares are owned
directly by Mr. Fleming
|
|
(4)
|
All
80,000 shares are owned directly by Mr.
Schaftlein
|
Changes
in Control
We are
unaware of any contract or other arrangement the operation of which may at a
subsequent date result in a change of control of our company.
Item
13: Certain Relationships and Related Transactions, and Director
Independence
Except as
disclosed herein, there have been no transactions or proposed transactions in
which the amount involved exceeds the lesser of $120,000 or one percent of the
average of our total assets at year-end for the last three completed fiscal
years in which any of our directors, executive officers or beneficial holders of
more than 5% of the outstanding shares of our common stock, or any of their
respective relatives, spouses, associates or affiliates, has had or will have
any direct or material indirect interest.
On
January 7, 2009, Murray Fleming, an officer, director and principal shareholder,
entered into a stock purchase agreement with Darby Investments LLC, a personal
holding company of our former CEO, Daniel Leach, for the exchange of 1,000,000
shares of Mr. Fleming’s personal holdings of Nacel Energy common stock in return
for the organization and delivery of four development stage wind energy projects
known as Blue Creek, Channing Flats, Kansas and the Dominican Republic. The
transaction also included wind data collected from anemometers at various
locations over a period of years in the States of Texas, Kansas, Wyoming,
Colorado and New Mexico. The scope of organization and delivery included a
survey of regional characteristics including topography, power market,
transmission and permitting, the opening of discussions with local power
authorities, securing the wind development rights related to the projects, the
sourcing of anemometers to be located at the project sites and the sourcing and
implementation of software to manage the collection of the data. On
March 13, 2009, we acquired these four wind power generation projects in a
non-arms length transaction with Mr. Fleming for $1. In addition, we acquired
the wind data. The acquisition of the projects and the wind data is recorded in
our consolidated statement of expenses as wind project development costs of
$490,000.
43
At
inception, Nacel Energy entered into an agreement with Murray Fleming, an
officer, director and principal shareholder, whereby Mr. Fleming provided us an
unsecured, no-interest $250,000 line of credit repayable at an unspecified
future date. As of March 31, 2009, our $250,000 line of credit facility extended
by Murray Fleming was fully borrowed, thereby leaving no additional funds
available for future borrowing. However, on June 30, 2009, the line of credit
was increased to $400,000 and then on September 29, 2009, the line of credit was
increased to $442,143 and again on October 26, 2009 the line of credit was
increased to $460,753. The terms of the line of credit facility
provides for simple interest of 8% per annum, to be paid upon the outstanding
balance, payable on the first day of the month after each calendar quarter. As
of March 31, 2010, the $460,753 line of credit extended by the Mr. Fleming was
fully drawn upon, and no further amounts are available for borrowing unless the
loan agreement is re-negotiated, of which there are no assurances. Total
interest on the line of credit for the fiscal year ended March 31, 2010 was
$26,648, of which $23,315 was paid and $3,333 was accrued.
On
January 6, 2009, we cancelled a total of 1,000,000 shares of common stock owned
by Brian Lavery, an officer, director and principal shareholder, with such
cancellation being made without any consideration being received by Mr. Lavery.
The cancellation of these shares, as requested by Mr. Lavery, to avoid dilution
of shareholders in the private placement of 1,000,000 shares of our common stock
on December 23, 2009.
Item
14: Principal Accountant Fees and Services
The
following table discloses the fees that the Company was billed for professional
services rendered by its independent public accounting firm in each of the last
two fiscal years.
|
|
Years Ended
|
|
|||||
|
|
March 31,
|
|
|||||
|
|
2010
|
|
|
2009 |
|
||
Audit
fees (1)
|
$
|
25,000
|
$
|
20,000
|
||||
Audit-related
fees (2)
|
2,000
|
—
|
||||||
Tax
fees (3)
|
2,500
|
—
|
||||||
All
other fees (4)
|
—
|
—
|
||||||
Total
|
$
|
29,500
|
$
|
20,000
|
(1)
|
Reflects
fees billed for the audit of the Company’s consolidated financial
statements included in its Form 10-K and review of its quarterly reports
on Form 10-Q.
|
(2)
|
Reflects
fees, if any, for consulting services related to financial accounting and
reporting matters.
|
(3)
|
Reflects
fees billed for tax compliance, tax advice and preparation of the
Company’s federal tax return.
|
(4)
|
Reflects
fees, if any, for other products or professional services not related to
the audit of the Company’s consolidated financial statements and review of
its quarterly reports, or for tax
services.
|
Pre-Approval
Policies and Procedures
The Board
of Directors, acting as its audit committee, approves all audit, audit-related
services, tax services and other services provided. Any services provided that
are not specifically included within the scope of the audit must be pre-approved
by the Board of Directors in advance of any engagement. Under the Sarbanes-Oxley
Act of 2002, audit committees are permitted to approve certain fees for
audit-related services, tax services and other services pursuant to a de minimus
exception prior to the completion of an audit engagement. In fiscal 2010, none
of the fees paid to Malone and Bailey were approved pursuant to the de minimus
exception.
44
PART
IV
Item
15: Exhibits,
Financial Statement Schedules
(a) List
of documents filed as part of this Report:
None
(b) Exhibits:
The
following exhibits listed are filed as part of this Report:
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
Exhibit No.
|
Description
|
|
3(i).1
|
Articles
of Incorporation (1).
|
|
3(i).2
|
Amended
Articles of Incorporation (1).
|
|
3(ii).1
|
Bylaws
(1).
|
|
4.1
|
Senior
Secured Convertible Note dated November 24, 2009 (2).
|
|
4.2
|
Form
of Series A Warrant (2)
|
|
4.3
|
Form
of Series B Warrant (2)
|
|
4.4
|
Form
of Series C Warrant (2)
|
|
4.5
|
Senior
Secured Convertible Note dated April 23, 2010 (7)
|
|
4.6
|
New
Series A Warrant (7)
|
|
4.7
|
New
Series B Warrant (7)
|
|
4.8
|
New
Series C Warrant (7)
|
|
10.1
|
Wind
Power Agreement (Oglesby Farm)(3)
|
|
10.2
|
Joint
Development Agreement, dated February 1, 2009, between Renergix Wind LLC
and NACEL Energy Corporation (4)
|
|
10.3
|
Wind
Power Agreements (Swisher Farm and Dalluge) (4)
|
|
10.4
|
Wind
Power Agreements (Naylor and Lewis) (4)
|
|
10.5
|
Wind
Power Agreement (Leathers) (5)
|
|
10.6
|
Wind
Power Agreement (Shields) (5)
|
|
10.7
|
Wind
Power Agreement (Owens) (5)
|
|
10.8
|
Wind
Power Agreement (Cox) (5)
|
|
10.9
|
Wind
Power Agreement and Addendum (White) (5)
|
|
10.10
|
Wind
Power Agreement and Addendum (Wade) (5)
|
|
10.11
|
Wind
Power Agreement and Addendum (Holland Family Trust) (5)
|
|
10.12
|
Wind
Power Agreement (Langley Ranches)(5)
|
|
10.13
|
Securities
Purchase Agreement dated November 23, 2009 between NACEL Energy
Corporation and the institutional investor (2)
|
|
10.14
|
Registration
Rights Agreement dated November 24, 2009 (2)
|
|
10.15
|
Security
Agreement dated November 24, 2009(2)
|
|
10.16
|
Guaranty
dated November 24, 2009 (2)
|
|
10.17
|
Termination
and Settlement Agreement (Renergix Wind LLC)(7)
|
|
10.18
|
Termination
Agreement (Paul Turner) (7)
|
|
10.19
|
Termination
Agreement (Andre Schwegler) (7)
|
|
21.1
|
Subsidiaries
of Registrant (6)
|
|
31.1
|
Certificate
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Mark
Schaftlein, Chief Executive Officer and Principal Accounting Officer)
*
|
|
32.1
|
Certificate
Pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (Mark Schaftlein, Chief Executive Officer and
Principal Accounting
Officer)*
|
45
(1) Previously filed
as exhibits to Registrant’s Form SB-2 filed on May 11, 2007 and incorporated
herein by reference.
(2) Previously filed
as exhibits to Registrant’s Form 8-K filed on November 24, 2009 and incorporated
herein by reference.
(3) Previously filed
as exhibit to Registrant’s Form 10-Q filed on February 17, 2009 and incorporated
herein by reference.
(4) Previously filed
as exhibits to Registrant’s Form 10-K filed on June 26, 2009 and incorporated
herein by reference.
(5) Previously filed
as exhibits to Registrant’s Form 10-Q/A filed on December 31, 2009 and
incorporated herein by reference.
(6) Previously filed as
exhibits to Registrant’s Form S-1 Registration Statement filed on January 4,
2009 and incorporated herein by reference.
(7) Previously filed as
exhibits to Registrant’s Form 8-K filed on April 27, 2010 and incorporated
herein by reference.
* Exhibit
filed herein.
46
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned in the capacities they
occupied at the end of the fiscal year covered by this report, thereunto duly
authorized.
NACEL
ENERGY CORPORATION
|
|
/s/
Mark Schaftlein
|
|
Principal
Executive Officer and
|
|
Principal
Accounting Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the Registrant and in the
capacities they occupied at the end of the fiscal year covered by this report
and on the dates indicated.
SIGNATURE
|
TITLE
|
DATE
|
||
/s/ Murray Fleming
|
Director
|
July
14 , 2010
|
||
/s/
Mark Schaftlein
|
Director
|
July
14 , 2010
|
47