UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: June 30, 2011

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission File Number: 000-54015

POWIN CORPORATION

(Exact name of registrant as specified in its charter)

20550 SW 115^th Ave.

Tualatin, OR 97062

(Address of principal executive offices)

T: (503) 598-6659

(Issuer’s telephone number)

(Former name, former address and former fiscal year, if changed since last report) N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [ X ]  No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes [X] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or 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 [  ]  Smaller reporting company [ X ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes [  ]  No [ X ]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.  As of June 30, 2011, there were 162,122,538 shares of Common Stock, $0.001 par value, outstanding and 6,009 shares of Preferred Stock, $100 par value, outstanding.

POWIN CORPORATION

Index

PART I.  FINANCIAL INFORMATION

Item 1.

Financial Statements.

  3

Condensed Consolidated Balance Sheets

  3

Condensed Consolidated Statements of Operations

  4

Consolidated Statements of Comprehensive Income (Loss)

  5

Condensed Consolidated Statements of Cash Flows

  6

Notes to Condensed Consolidated Financial Statements

  7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

12

Note Regarding Forward Looking Statements

12

Overview

13

Critical Accounting Policies

13

Results of Operations

14

Liquidity and Capital Resources

17

Off-Balance Sheet Arrangements

18

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

18

Item 4.  Controls and Procedures.

18

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings.

18

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

19

Item 3.  Defaults Upon Senior Securities.

19

Item 4.  [Removed and Reserved]

19

Item 5.  Other Information.

19

Item 6.  Exhibits.

22

PART I.  FINANCIAL INFORMATION

Item 1.

Financial Statements.

POWIN CORPORATION

Condensed Consolidated Balance Sheets

3

POWIN CORPORATION

Condensed Consolidated Statements of Operations

4

POWIN CORPORATION

Consolidated Statements of Comprehensive Income (Loss)

5

POWIN CORPORATION

Consolidated Statements of Cash Flows

6

POWIN CORPORATION

Notes to Condensed Consolidated Financial Statements

Note 1 – Description of Business and Summary of Significant Accounting Policies

The Company was originally named Powin Corporation (“Powin” or the “Company”) and was formed as an Oregon corporation on November 15, 1990 by Joseph Lu, a Chinese-American.  Since its incorporation, Powin has grown into a large original equipment manufacturer (“OEM”) utilizing six plants on two continents.  Powin provides manufacturing coordination and distribution support for companies throughout the United States (“U.S”).  More than 2,000 products and parts are supplied by Powin on a regular basis.

Basis of Preparation

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and with the instructions to Form 10-Q.  Accordingly, they do not include all of the information required by GAAP for complete annual financial statement presentation.

In the opinion of management, all adjustments (consisting only of normal and recurring adjustments) necessary for a fair presentation of the results of operations have been included in the accompanying condensed consolidated financial statements.  Operating results for the three and six months ended June 30, 2011, are not necessarily indicative of the results to be expected for the other interim periods or for the full year then ended December 31, 2011.  These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, as filed with the Securities Exchange Commission.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Cash and Cash Equivalents

For purposes of the condensed consolidated statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.  At June 30, 2011 and December 31, 2010, respectively, the Company had no cash equivalents.

Inventory

Inventory consists of parts and equipment including electronic parts and components, furniture, rubber products, plastic products and exercise equipment.  Inventory is valued at the lower of cost (first-in, first-out method) or market.  The Company capitalizes applicable direct and indirect costs incurred in the Company’s manufacturing operations to bring its products to a sellable state.  The following table represents the Company’s inventories at each of the indicated balance sheet dates.

7

Note 1 – Description of Business and Summary of Significant Accounting Policies (Continued)

Property and Equipment

Property and equipment assets are recorded at cost.  Depreciation is on a straight-line basis over the estimated useful lives of the asset.  Leasehold improvements for space leased on a month-to-month basis are expensed when incurred.  Expenditures for renewals and betterments are capitalized.  Expenditures for minor items, repairs and maintenance are charged to operations as incurred.  Any gain or loss upon sale or retirement due to obsolescence is reflected in the operating results in the period the event takes place.  Depreciation expense for the three-month period ended June 30, 2011 and 2010 were $48,774 and $85,802, respectively.  Depreciation expense for the six-month period ended June 30, 2011 and 2010 were $141,496 and $178,523, respectively.

Intangible Assets

Intangible assets consist of costs associated with the application and acquisition of the Company’s patents and trademarks.  Patent application costs are capitalized and amortized over the estimated useful life of the patent, which generally approximates its legal life.  The Company did not have any amortization expense for the three and  six months ended June 30, 2011 and 2010, respectively.

Impairment of Long-Lived and Intangible Assets

The Company periodically reviews the carrying amounts of its property, equipment and intangible assets to determine whether current events or circumstances indicate that such carrying amounts may not be recoverable.  If the carrying amount of the asset is greater than the expected undiscounted cash flows to be generated by such asset, an impairment adjustment is to be recognized.  Such adjustment is measured by the amount that the carrying value of such assets exceeds their fair value.  The Company generally measures fair value by considering sale prices for similar assets or by discounting estimated future cash flows using an appropriate discount rate.  Considerable management judgment is necessary to estimate the fair value of assets; accordingly, actual results could vary significantly from such estimates.  Assets to be disposed of are carried at the lower of their financial statement carrying amount or fair value less costs to sell.  The Company determined that its long-lived assets as of June 30, 2011 and December 31, 2010 were not impaired.

Revenue Recognition

The Company will recognize revenue on arrangements in accordance with FASB ASC No. 605, “Revenue Recognition”.  In all cases, revenue is recognized only when the price is fixed and determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the resulting receivable is reasonably assured.  Most of the Company’s products are imported from China and shipped directly to the customer either FOB Port of Origin or FOB Shipping Destination U.S.  If the product is shipped FOB Port of Origin revenue is recognized at time of delivery to the Company’s representative in China, when the proper bills-of-lading have been signed by the customer’s agent and ownership passed to the customer.  For product shipped FOB Shipping Destination U.S., revenue is recognized when product is off-loaded at the U.S. Port of Entry and delivered to the customer, when all delivery documents have been signed by the receiving customer, and ownership has passed to the customer.  For product shipped directly to the Company’s warehouse or manufactured by the Company in the U.S. then shipped to the customer, revenue is recognized at time of shipment as it is determined that ownership has passed to the customer at shipment and revenue is recognized.  The Company considers the terms of each arrangement to determine the appropriate accounting treatment.  Amounts billed to customers for freight and shipping is classified as revenue.

For orders placed by a customer needing customized manufacturing, the Company requires the customer to issue its signed Purchase Order with documentation identifying the specifics of the product to be manufactured.  Revenue is recognized on customized manufactured product at completion and shipment of the product.  If the customer cancels the Purchase Order after the manufacturing process has begun, the Company invoices the customer for any manufacturing costs incurred and revenue is recognized.  Orders canceled after shipment are fully invoiced to the customer and revenue is recognized.

Cost of Goods Sold

Cost of goods sold includes cost of inventory sold during the period net of discounts and allowances, freight and shipping costs, warranty and rework costs, and sales tax.

8

Note 1: Description of Business and Summary of Significant Accounting Policies (Continued)

Advertising

The Company expenses the cost of advertising as incurred.  For the three-month period ended June 30, 2011 and 2010, the amount charged to advertising expense was $23,565 and $6,879, respectively.  Advertising expense for the six-month period ended June 30, 2011 and 2010 were $76,827 and $25,775, respectively.

Income Taxes

The Company accounts for income taxes using the asset and liability approach, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of such assets and liabilities.  This method utilizes enacted statutory tax rates in effect for the year in which the temporary differences are expected to reverse and gives immediate effect to changes in income tax rates upon enactment.  Deferred assets are recognized, net of any valuation allowance, for temporary differences and net operating loss and tax credit carry forwards.  Deferred income tax expense represents the change in net deferred assets and liability balances.

Earnings Per Common Share

Basic earnings per share is computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding (including shares reserved for issuance) during the period.  Diluted earnings per share is calculated by dividing net income attributable to common stockholders by the weighted average number of shares of common stock outstanding and all dilutive potential common shares that were outstanding during the period.

As of June 30, 2011 and 2010, there were 11,031,758 and 11,031,758 warrants outstanding and 6,009 and 5,332 convertible Preferred shares, respectively (convertible to 1,201,800 and 1,066,400 Common Shares) that are included in the computation of diluted earnings per share however, the dilutive shares had no impact to earning per share.

Foreign Currency Transaction

In February 2011, the Company entered into a joint venture establishing a new company in Mexico under which the Company will hold an 85% majority interest.  All transactions are translated into U.S. dollars for financial reporting purposes.  Balance Sheet accounts are translated at the end-of-month or historical rates while income and expenses are translated at the average of the beginning of the month rate and the end of the month rate.  Transaction gains or losses related to net assets are shown as a separate component of shareholders’ equity as accumulated other comprehensive income.  At June 30, 2011 and December 31, 2010, the cumulative translation adjustment was $84,415 and zero, respectively.  Gains and losses resulting from realized foreign currency transactions (transactions denominated in a currency other than the entities’ functional currency) are included in other comprehensive income.  For the three-month period ended June 30, 2011 and 2010, the foreign currency translation adjustment to other comprehensive income was $84,428 and zero, respectively.  For the six-month period ended June 30, 2011 and 2010, the foreign currency translation adjustment to other comprehensive income was $84,415 and zero, respectively.

Note 2:  Recently Issued and Adopted Accounting Pronouncements

In October 2010, the Financial Accounting Standards Board ("FASB") issued authoritative guidance that amends earlier guidance addressing the accounting for contractual arrangements in which an entity provides multiple products or services (deliverables) to a customer. The amendments address the unit of accounting for arrangements involving multiple deliverables and how arrangement consideration should be allocated to the separate units of accounting, when applicable, by establishing a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific nor third-party evidence is available.  The amendments also require that arrangement consideration be allocated at the inception of an arrangement to all deliverables using the relative selling price method.  The guidance is effective for fiscal years beginning on or after June 15, 2010, with earlier application permitted.  The adoption of this guidance did not have a material impact to our condensed consolidated financial statements.

9

Note 2:  Recently Issued and Adopted Accounting Pronouncements (Continued)

In October 2010, the FASB issued authoritative guidance that amends earlier guidance for revenue arrangements that include both tangible products and software elements. Tangible products containing software components and non-software components that function together to deliver the tangible product’s essential functionality are no longer within the scope of guidance for recognizing

revenue from the sale of software, but would be accounted for in accordance with other authoritative guidance.  The guidance is effective for fiscal years beginning on or after June 15, 2010, with earlier application permitted.  The adoption of this guidance did not have a material impact to our condensed consolidated financial statements.

In January 2010, the FASB issued revised authoritative guidance that requires more robust disclosures about the different classes of assets and liabilities measured at fair value, the valuation techniques and inputs used, the activity in Level 3 fair value measurements, and the transfers between Levels 1, 2 and 3. This guidance is effective for interim and annual reporting periods beginning after December 15, 2010 (which is January 1, 2011 for the Company) except for the disclosures about purchases, sales, issuances, and settlements in the roll forward activity in Level 3 fair value measurements.   

Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years (which is January 1, 2011 for the Company).  Early application is encouraged.  The revised guidance was adopted as of January 1, 2010.  The adoption of this guidance did not have a material impact to our condensed consolidated financial statements.

In May 2011, the Financial Accounting Standards Board ("FASB") issued a new accounting standard on fair value measurements that clarifies the application of existing guidance and disclosure requirements, changes certain fair value measurement principles and requires additional disclosures about fair value measurements.  The standard is effective for interim and annual periods beginning after December 15, 2011.  Early adoption is not permitted.  The Company does not expect the adoption of this accounting guidance to have a material impact on its consolidated financial statements and related disclosures.

In June 2011, the FASB issued new guidance on the presentation of comprehensive income.  The new guidance allows an entity to present components of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements.  The new guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in stockholders’ equity.  While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income from that of current accounting guidance.  This new guidance is effective for fiscal years and interim periods beginning after December 15, 2011.  Upon adoption, the Company will present its consolidated financial statements under this new guidance.  The Company does not expect the adoption of this accounting guidance to have a material impact on its consolidated financial statements and related disclosures.

Note 3:  Concentration of Credit Risk

At June 30, 2011, three customers accounted for 68% of the Company’s trade receivables, with no amounts in excess of 90 day past due.  At December 31, 2010, these same three customers accounted for 57% of the Company’s trade receivables with no amounts in excess of 90 days past due.  Trade accounts receivable past due over 90 days at June 30, 2011 and December 31, 2010, were $870,991and $407,971 respectively.  Management does not normally require collateral for trade accounts receivable.  The Company’s allowance for doubtful accounts as of June 30, 2011 and December 31, 2010 was $308,195 and $347,744, respectively.

For the six-month period ended June 30, 2011, the Company purchased a substantial portion of its supplies and raw materials from three suppliers, which accounted for approximately 76% of total purchases.  For the six-month period ended June 30, 2010, these same three suppliers accounted for 74% of total purchases.  Further; in 2010, the Company was required to make deposit payments to vendors for products being imported from Europe.  For the six-month period ended June 30, 2010, deposit payments paid were $369,409, no additional deposit payments have been paid during the six-month period ended June 30, 2011.

The Company places its cash with high credit quality financial institutions but retains a certain amount of exposure as cash is held primarily with two financial institutions and deposits are only insured to the Federal Deposit Insurance Corporation limit of $250,000.

The Company maintains its cash in bank accounts, which, at times, may exceed federally insured limits.  The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk.

10

Note 4:  Bank Line-of-Credit

At December 31, 2010 the Company had a short-term operating line-of-credit with a bank with maximum borrowings available of $1,750,000, with a maturity date of March 1, 2011.  In February 2011 the Company requested an extension, which was granted, so it could renegotiate its banking facility’s terms and fees.  On March 24, 2011 the Company signed a new banking facility with the same bank for a two-year $2,000,000 line-of-credit with a maturity date of May 15, 2013 and, like the previous line-of-credit, the new line is not personally guaranteed by any board member or stockholder but is secured by all receivables, inventory and equipment.  Further, interest on the previous operating line-of-credit was indexed to the prime rate plus one-half point and was 3.75% at December 31, 2010, the new line-of-credit is indexed to the prime rate less three-fourth point and was 2.50% at June 30, 2011.  The Company’s operating line-of-credit outstanding balances as of June 30, 2011 and December 31, 2010 were zero, respectively.

The Company’s operating line-of-credit is subject to negative and standard financial covenants.  The negative covenants restrict the Company from incurring any indebtedness and liens except for trade debt incurred in the normal course of doing business; such as, borrow money including capital leases; sell, mortgage, assign, pledge, lease, grant security interest in, or encumber any of the Company’s assets or accounts; engage in any business substantially different than in which the Company is currently engaged; loan, invest or advance money or assets to any other person, enterprise or entity.  Other standard financial covenants consist of; current ratio of 1.25 to 1.00 tested at the end of each quarter; total liabilities to capital ratio of 2.50 to 1.00 tested at the end of each year; operating cash flow to fixed charge ratio of not less than 1.25 to 1.00 tested at the end of each year.  As of June 30, 2011 and December 31, 2010, the Company was in compliance with all covenants.

In June 2011, the Company entered into a five-year revolving equipment loan with the same bank that holds the Company’s operating line-of-credit facility, with maximum borrowings available of $500,000, with a maturity date of June 21, 2016.  The interest rate on this equipment loan is fixed at 3.05%.  The proceeds of this equipment loan will be used to upgrade old outdated equipment and to add new state-of-the-art metal manufacturing equipment to the Company’s QBF and Mexico segments.  At June 30, 2011, the Company had taken no draws against its equipment loan.

Note 5:  Stock Options

The Company records stock-based compensation expense related to stock options and the stock incentive plan in accordance with ASC 718, “Compensation – Stock Compensation”.

On June 15, 2011, the Company has granted awards in the form of incentive stock options to its key employees for up to 1,170,000 shares of common stock.  Awards are generally granted with an exercise price that approximates the market price of the Company’s common stock at the date of grant.

The stock-based compensation expense was included in general and administrative expense in the amount of $5,396.  ASC 718. “Compensation-Stock Compensation” requires that only the compensation expense expected to vest be recognized.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted in the following table.  The expected volatility is based on the daily historical volatility of comparative companies, measured over the expected term of the option.  The risk-free rate is based on the implied yield on a U.S. Treasury zero-coupon issue with a remaining term closest to the expected term of the option.  

The dividend yield reflects that the Company has not paid any cash dividends since inception and does not intend to pay any cash dividends in the foreseeable future.  

The following assumptions were used to determine the fair value of the options at date of issuance on June 15, 2011:

11

A summary of option activity as of June 30, 2011, and changes during the period then ended is presented below:

There were no options exercised during the three months ended June 30, 2011.

Note 6:  Related Party Transaction

The Company entered into a lease agreement with Powin Pacific Properties, LLC, which is owned by Joseph Lu, a major shareholder of the Company.  The lease term is 122 months, commencing on June 1, 2011, with monthly rental fixed at $35,180.  Minimum future rental payments under the agreement having remaining terms in excess of 1 year as of June 30, 2011 for each of the next 5 years and in the aggregate are:

Note 7:  Subsequent Events

In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through August 12, 2011, the date the financial statements were issued.

12

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.