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EX-31.1 - EXHIBIT 31.1 - POWIN ENERGY CORPex31_1.htm
EX-31.2 - EXHIBIT 31.2 - POWIN ENERGY CORPex31_2.htm
EX-32.1 - EXHIBIT 32.1 - POWIN ENERGY CORPex32_1.htm


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: September 30, 2011

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     
 
Commission File Number: 000-54015

POWIN CORPORATION
(Exact name of registrant as specified in its charter)

 
NEVADA
 
87-0455378
 
 
(State or other jurisdiction of incorporation or organization)
 
(IRS Employer Identification Number)
 

20550 SW 115th 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 o

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 o

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 o  Accelerated filer o  Non-accelerated filer o  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 o  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 September 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.
13
 
Note Regarding Forward Looking Statements
13
 
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.
19
     
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.
20
     
Item 6.
Exhibits.
23
 
 
 

 
 
PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements.

POWIN CORPORATION
Condensed Consolidated Balance Sheets

   
Sep 30, 2011
   
Dec 31, 2010
 
   
(Unaudited)
       
ASSETS
           
Current Assets
           
    Cash
  $ 2,957,658     $ 3,356,460  
    Trade accounts receivable, net of allowances for doubtful accounts of
$2,100 and $347,744, respectively
    4,621,802       5,032,531  
    Other receivables
    356,292       4,165  
    Inventory
    4,628,349       2,446,819  
    Prepaid expenses
    211,714       122,874  
    Deposits
    56,284       361,501  
    Deferred tax asset
    629,083       629,083  
Total current assets
    13,461,182       11,953,433  
Intangible assets
    12,491       12,176  
Property and equipment, net
    1,254,722       1,082,346  
TOTAL ASSETS
  $ 14,728,395     $ 13,047,955  
LIABILITIES and STOCKHOLDERS' EQUITY
               
Current Liabilities
               
    Trade accounts payable
  $ 6,061,496     $ 4,852,819  
    Accrued payroll and other accrued liabilities
    758,899       616,560  
    Notes payable-current portion
    100,000       0  
Total current liabilities
    6,920,395       5,469,379  
Long-Term Liabilities
               
   Notes payable-less current portion
    400,000       0  
Total liabilities
    7,320,395       5,469,379  
Stockholders' equity
               
    Preferred stock, $100 par value, 25,000,000 shares authorized; 6,009 and
5,660 shares issued and outstanding, respectively
    600,900       566,000  
    Common stock, $0.001 par value, 600,000,000 shares authorized;
162,147,538 and 161,980,879 shares issued and outstanding, respectively
    162,148       161,981  
    Additional paid-in capital
    9,006,724       8,852,130  
    Accumulated other comprehensive income (loss)
    (26,756 )     0  
    Accumulated deficit
    (2,292,447 )     (2,001,535 )
    Minority interest in subsidiaries
    (42,569 )     0  
Total stockholders' equity
    7,408,000       7,578,576  
TOTAL LIABILITIES and STOCKHOLDERS' EQUITY
  $ 14,728,395     $ 13,047,955  
                 
 
 
3

 

POWIN CORPORATION
Condensed Consolidated Statements of Operations
 
   
Three-months ended
Sept 30, 2011
   
Three-months ended
Sept 30, 2010
   
Nine-months ended
Sept 30, 2011
   
Nine-months ended
Sept 30, 2010
 
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
 
Sales revenue- net
  $ 10,367,793     $ 15,086,481     $ 34,050,914     $ 39,492,728  
Cost of sales
    9,296,089       13,359,211       29,960,283       34,929,983  
    Gross profit
    1,071,704       1,727,270       4,090,631       4,562,745  
Operating expenses
    1,503,924       1,135,047       4,356,998       3,099,046  
    Operating (loss) income
    (432,220 )     592,223       (266,367 )     1,463,699  
Other income (expense) non-operating
                               
    Other income
    42,330       8,590       76,988       10,951  
    Interest – net
    0       0       656       (4,121 )
    Gain (loss) on sales of assets
    0       (25,729 )     (30,529 )     0  
    Other expense
    (60,746 )     21,411       (114,229 )     (25,729 )
Total other income (expense) non-operating
    (18,416 )     4,272       (67,114 )     (18,899 )
(Loss) income before income taxes
    (450,636 )     596,495       (333,481 )     1,444,800  
Income taxes
    (37,670 )     254,548       0       539,694  
Net (loss) income
    (412,966 )     341,947       (333,481 )     905,106  
Net loss attributable to non-controlling interest in subsidiary
    (20,707 )     0       (42,569 )     0  
Net (loss) income attributable to Powin Corporation
    (392,259 )     341,947       (290,912 )     905,106  
Earnings per share
                               
    Basic
  $ (0.00 )   $ 0.00     $ (0.00 )   $ 0.01  
   Diluted
  $ (0.00 )   $ 0.00     $ (0.00 )   $ 0.01  
Weighted average shares
                               
    Basic
    162,122,546       161,781,912       162,066,661       161,016,465  
    Diluted
    174,300,219       173,880,070       174,300,219       173,114,623  
 
 
4

 
 
POWIN CORPORATION
Condensed Consolidated Statements of Comprehensive Income (Loss)

   
Three-months ended
Sept 30, 2011
   
Three-months ended
Sept 30, 2010
   
Nine-months ended
Sept 30, 2011
   
Nine-months ended
Sept 30, 2010
 
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
 
Net (loss) income
$   (412,966 )   $ 341,947   $   (333,481 )   $ 905,106  
Other Comprehensive income (loss)
                               
    Foreign currency translation adjustment
    57,659       0       (26,756 )     0  
                                 
Comprehensive (loss) income
    (355,307 )     341,947       (360,237 )     905,106  
Comprehensive loss attributable to non-controlling interest in subsidiary
    (20,707 )     0       (42,569 )     0  
Comprehensive (loss) income attributable to Powin Corporation
$ $ (334,600 )   $ 341,947   $ $ (317,668 )   $ 905,106  

 
 
 
 
 
 
5

 
 
POWIN CORPORATION
Condensed Consolidated Statements of Cash Flows

   
Nine-Months Ended
Sept 30, 2011
   
Nine-Months Ended
Sept 30, 2010
 
   
(Unaudited)
   
(Unaudited)
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net (loss) income
  $ (333,481 )   $ 905,106  
Adjustments to reconcile net income to net cash provided by (used) in operating activities
               
    Depreciation
    202,368       273,298  
    Shares issued for service
    43,250       10,500  
    Share based compensation
    69,784       17,875  
    Stock option comp expense
    51,127       0  
    Provision for doubtful accounts
    37,667       1,976  
    Provision for income tax
    0       539,694  
Changes in operating assets
               
    Increase in trade accounts receivable
    373,062       (1,389,596 )
    (Increase) decrease in other receivables
    (352,127 )     4,131  
    Increase in inventories
    (2,181,530 )     (169,514 )
    Increase in prepaid expenses
    (88,840 )     (33,819 )
    (Increase) decrease in deposits
    305,217       15,891  
Changes in operating liabilities
               
    Increase in trade accounts payable
    1,208,677       970,484  
    Increase (decrease) in accrued payroll and other liabilities
    142,340       (110,293 )
    Increase decrease in deferred taxes
    0       70,673  
Net cash (used in) provided by operating activities
    (522,486 )     1,106,406  
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
               
Acquisition of intangible assets
    (315 )     (2,588 )
Capital expenditures
    (374,745 )     (192,956 )
Proceeds from investment in joint venture
    25,500       0  
Net cash flows used in investing activities
    (349,560 )     (195,544 )
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
               
Payments under line-of-credit
    0       (650,000 )
Net proceeds from long-term borrowing
    500,000       0  
Net cash flows provided by (used in) financing activities
    500,000       (650,000 )
Impact of foreign exchange translation on cash
    (26,756 )     -  
Net (decrease) increase in cash
    (398,802 )     260,862  
Cash at beginning of period
    3,356,460       1,340,441  
Cash at end of period
  $ 2,957,658     $ 1,601,303  
SUPPLEMENTAL DISCLOURSE OF CASH FLOW INFORMATION
               
Interest paid
  $ 0     $ 4,189  
Income tax paid
  $ 250,000     $ 252,130  
 
 
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 nine months ended September 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 September 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.

   
Sept 30, 2011
   
Dec 31, 2010
 
Raw Materials
  $ 190,909     $ 240,779  
Work in Progress
    261,448       245,359  
Finished Goods
    4,175,992       1,960,681  
    $ 4,628,349     $ 2,446,819  
 
 
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 September 30, 2011 and 2010 were $60,872 and $94,775, respectively.  Depreciation expense for the nine-month period ended September 30, 2011 and 2010 were $202,368 and $273,298, 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 nine months ended September 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 September 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 September 30, 2011 and 2010, the amount charged to advertising expense was $28,878 and $23,129, respectively.  Advertising expense for the nine-month period ended September 30, 2011 and 2010 were $105,705 and $48,904, 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 September 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 Translation

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.  The functional currency is the Mexican Peso.  All transactions are translated into U.S. dollars for financial reporting purposes.  Balance Sheet accounts are translated at the end-of-period rates while income and expenses are translated at the average of the beginning and end of period rate.  Translation gains or losses related to net assets are shown as a separate component of stockholders’ equity as accumulated other comprehensive income.  At September 30, 2011 and December 31, 2010, the cumulative translation adjustment was $26,756 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 September 30, 2011 and 2010, the foreign currency translation adjustment to other comprehensive income was $57,659 and zero, respectively.  For the nine-month period ended September 30, 2011 and 2010, the foreign currency translation adjustment to other comprehensive income was $26,756 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 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 September 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 September 30, 2011 and December 31, 2010, were $48,914 and $407,971 respectively.  Management does not normally require collateral for trade accounts receivable.  The Company’s allowance for doubtful accounts as of September 30, 2011 and December 31, 2010 was $2,100 and $347,744, respectively.

For the nine-month period ended September 30, 2011, the Company purchased a substantial portion of its supplies and raw materials from three suppliers, which accounted for approximately 72.9% of total accounts payable.  For the year ended December 31, 2010, these same three suppliers accounted for 65% of total accounts payable.  Further, the Company was required to make deposit payments to vendors for products being imported from Europe.  In September 2011, the Company was informed of the bankruptcy proceedings of the company in Europe and, after various discussions on asset recovery and legal issues with courts in Europe, the Company wrote off its prepaid deposits of $346,137, recording $308,470 to allowance for doubtful accounts and recording an additional expense to bad debt of $37,667.
 
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 September 30, 2011.  The Company’s operating line-of-credit outstanding balances as of September 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 September 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 September 30, 2011, the Company’s revolving equipment loan balance was $500,000.

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 granted awards in the form of incentive stock options to its key employees for up to 1,170,000 shares of common stock.  In the three-month period ended September 30, 2011, three employees left the Company electing not to exercise their vested options and 60,000 incentive stock options were forfeited.  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 included in general and administrative expense for the three and nine-month periods ended September 30, 2011, is $45,731 and $51,127, respectively.  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:
 
Expected volatility
    87
Expected dividends
    0
Expected terms (in years)
    6.92  
Risk-free rate
    1.55
Forfeiture rate
    0
 
 
11

 
 
Note 5:  Stock Options (Continued)
 
A summary of option activity as of September 30, 2011, and changes during the period then ended is presented below:

   
Options
   
Weighted
average exercise
price
   
Average
Remaining
Contractual Life
(Years)
   
Aggregate
Intrinsic Value
 
                         
Outstanding at March 31, 2010
    0     $ 0       0     $ 0  
  Options granted
    1,170,000       1.02       6.92       906,565  
  Options exercised
    0       0       0       0  
  Options forfeited or expired
    (60,000 )     0       0       (46,490 )
Outstanding at September 30, 2011
    1,110,000     $ 1.02       6.92     $ 860,475  
                                 
Exercisable at September 30, 2011
    0     $ 0       0     $ 0  
 
 
 
There were no options exercised during the three and nine months periods ended September 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 September 30, 2011 for each of the next 5 years and in the aggregate are:

Year Ended September 30
 
Amount
 
2012
  $ 422,160  
2013
    422,160  
2014
    422,160  
2015
    422,160  
2016
    422,160  
Subsequent to 2016
    2,040,440  
         
Total minimum future rental payments
  $ 4,151,240  

 
Note 7:  Joint Venture

In February 2011, the board of directors approved to establish a joint venture company in Mexico whereby Powin Corporation will hold an 85% controlling interest in the new company and whereby the Mexico company will provide metal manufacturing services that will mirror the operations to QBF Inc., a wholly owned company of Powin Corporation, in alignment with its program with Freightliner Corporation, and will provide other metal manufacturing services to further the growth of the joint venture.

In May 2011, the Company entered into a strategic cooperation joint venture agreement with Shandong RealForce Enterprises Co., Ltd., Jining City, Shandong Province, China, to establish a joint venture company, RealForce-Powin Joint Venture Company, whereby Powin Corporation will hold a 49% controlling interest in the joint venture.  The joint venture will produce, market and sell lithium-ion batteries, storage batteries, energy storage power plants, solar cells and related energy products.  The joint venture agreement calls for Shandong RealForce Enterprises Co., Ltd., to produce the products in China with the joint venture company, RealForce-Powin Joint Venture Company, providing marketing, selling and distribution services throughout the United States, Canada and Mexico
 
 
12

 
 
Note 8  Subsequent Events

In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through November 11, 2011, the date the financial statements were issued.


Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Note Regarding Forward Looking Statements

This information should be read in conjunction with the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2010 as filed with the Securities and Exchange Commission on March 18, 2011, and the unaudited condensed interim consolidated financial statements and notes thereto included in this Quarterly Report.

References to “Powin,” the “Company,” “we,” “our” and “us” refer to Powin Corporation and its wholly owned and majority-owned subsidiaries, unless the context otherwise specifically defines.
 
Overview

Powin Corporation has relationships with various manufacturers in China and Taiwan that manufacture a variety of products for the Company’s U.S. customers which they sell and distributed throughout the U.S.  The Company’s customer base includes distributors in the transportation, medical, sports, camping, fitness, packaging and furniture industries.

Critical Accounting Policies

Our discussion and analysis of our results of operations and liquidity and capital resources are based on our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2011 and 2010, which have been prepared in accordance with GAAP.

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities.  We base our estimates on historical and anticipated results, trends, and various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. These estimates form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.  By their nature, estimates are subject to an inherent degree of uncertainty. Actual results may materially differ from our estimates.
 
 
13

 
 
Results of Operations

The following table set forth key components of the Company’s results of operations (unaudited), for the three and nine-month period ended September 30, 2011 and 2010, in dollars of sales revenue and its key segment’s revenue and cost.

   
Three-months
Sept 30, 2011
   
Three-months
Sept 30, 2010
   
$ Change
   
% Change
   
Nine-months
Sept 30, 2011
   
Nine-months
Sept 30,2010
   
$ Change
   
% Change
 
Sales
                                               
  OEM
    8,801,556       13,569,243       (4,767,687 )     -35.1%       29,536,278       35,704,233       (6,167,955 )     -17.3%  
  QBF
    1,436,206       1,194,122       242,084       20.3%       3,929,571       3,009,342       920,229       30.6%  
  Mexico
    0       0       0       0.0%       0       0       0       0.0%  
  Powin DC
    48,353       215,738       (167,385 )     -77.6%       253,926       435,482       (181,556 )     -41.7%  
  Maco
    55,241       107,378       (52,137 )     -48.6%       221,525       343,671       (122,146 )     -35.5%  
  CPP
    10,500       0       10,500       100.0%       15,037       0       15,037       100.0%  
  Powin Energy
    2,774       0       2,774       100.0%       81,414       0       81,414       100.0%  
  RealForce-Powin
    12,733       0       12,733       100.0%       12,733       0       12,733       100.0%  
  Gladiator
    430       0       430       100.0%       430       0       430       100.0%  
Total sales
    10,367,793       15,086,481       (4,718,688 )     -31.35       34,050,914       39,492,728       (5,441,814 )     -13.8%  
Cost of sales
                                                               
  OEM
    7,639,047       12,137,929       (4,498,882 )     -37.1%       25,599,397       31,738,959       (6,139,562 )     -19.3%  
  QBF
    1,583,386       1,120,280       463,106       41.3%       4,108,096       2,903,619       1,204,477       41.5%  
  Mexico
    0       0       0       0.0%       0       0       0       0.0%  
  Powin DC
    0       0       0       0.0%       0       0       0       0.0%  
  Maco
    59,165       101,002       (41,837 )     -41.4%       187,585       287,405       (99,820 )     -34.7%  
  CPP
    -       0       0       0.0%       366       0       366       100.0%  
  Powin Energy
    1,830       0       1,830       100.0%       52,178       0       52,178       100.0%  
  RealForce-Powin
    12,606       0       12,606       100.0%       12,606       0       12,606       100.0%  
  Gladiator
    55       0       55       100.0%       55       0       55       100.0%  
Total cost of sales
    9,296,089       13,359,211       (4,063,122 )     -30.4%       29,960,283       34,929,983       (4,969,700 )     -14.2%  
Gross profit
    1,071,704       1,727,270       (655,566 )     -38.0%       4,090,631       4,562,745       (472,114 )     -10.3%  
Operating expense
                                                               
  OEM
    865,123       854,108       11,015       1.3%       2,432,751       2,396,533       36,218       1.5%  
  QBF
    87,226       25,112       62,114       247.3%       501,953       109,798       392,155       357.2%  
  Mexico
    126,077       0       126,077       100.0%       271,826       0       271,826       100.0%  
  Powin DC
    91,367       134,695       (43,328 )     -32.2%       272,732       256,152       16,580       6.5%  
  Maco
    100,741       121,132       (20,391 )     -16.8%       274,166       336,563       (62,397 )     -18.5%  
  CPP
    61,544       0       61,544       100.0%       166,655       0       166,655       100.0%  
  Powin Energy
    138,629       0       138,629       100.0%       367,772       0       367,772       100.0%  
  RealForce-Powin
    9,684       0       9,684       100.0%       12,174       0       12,174       100.0%  
  Gladiator
    23,533       0       23,533       100.0%       56,969       0       56,969       100.0%  
Total Operating Expense
    1,503,924       1,135,047       368,877       32.5%       4,356,998       3,099,046       1,257,952       40.6%  
Other income/(expense)
    (18,416 )     4,272       (22,688 )     -531.15       (67,114 )     (18,899 )     (48,215 )     255.1%  
Pre-tax income (loss)
    (450,636 )     596,495       (1,047,131 )     -175.55       (333,481 )     1,444,800       (1,778,281 )     -123.1%  
Income tax
    (37,670 )     254,548       (292,218 )     -114.8%       -       539,694       (539,694 )  
FALSE
 
Consolidated net income
    (412,966 )     341,947       (754,913 )     -220.8%       (333,481 )     905,106       (1,238,587 )     -136.8%  
Net loss attributable to non-c
ontrolling interest in subsidiary
    (20,707 )     0       (20,707 )     100.0%       (42,569 )     0       (42,569 )     100.0%  
Net income attributable to Powin
Corporation
    (392,259 )     341,947       (734,206 )     -214.7%       (290,912 )     905,106       (1,196,018 )     -132.1%  

 
14

 

Results of Operations (Continued)

Consolidated net revenues for the three-month period ended September 30, 2011, were down 31.3% or approximately $4.7 million from the same period of 2010.  The Company’s OEM segment net revenues decreased 35.1% or approximately $4.8 million, the QBF segment net revenues increased 20.3% or approximately $242 thousand, the Maco segment net revenues decreased 48.6% or approximately $52 thousand and the Wooden segment net revenues decreased 77.6% or approximately $167 thousand, while the Company’s new segments, CPP, Powin Energy, RealForce-Powin and Gladiator is beginning to realize revenues and in aggregate recorded revenues of approximately $26 thousand.

As reported by the Company in its second quarter financial results for the three-month period ended June 30, 2011 on FORM 10-Q, the Company’s OEM segment sales were negatively impacted by one customer, which lost one of its major national chain store customers in June 2011, with the Company further expecting the impact to also affect its sales in the third and fourth quarters of 2011.  The negative impact to the OEM segment’s sales for the three-month period ended September 30, 2011 was approximately $5.7 million.  The Company’s management continues to believe the un-certainty in the economy is impacting the Company’s OEM customers.  However, purchase orders received in September 2011 from this same OEM customer are demonstrating a return of sales back to the levels the company experienced in its fourth quarter 2010, which will diminish the negative impact the company was expecting in its fourth quarter 2011.  Further, the Company's OEM segment’s sales and marketing program, initiated in 2010, is beginning to show positive movement with signing new customers it has been working with for several months.  New customer sales for the three-month period ended September 30, 2011 was approximately $381 thousand.

The Company’s QBF segment’s increase in sales is related to its primary customer increasing its orders due to increases in its production volumes and, to a new California customer (LiteSolar) QBF acquired, through the efforts of a sister segment POWIN Energy, to provide parts and components for carport structures that incorporate solar and renewable energy storage devices, which the Company mentioned in its second quarter 2011 report on FORM 10-Q.  Sales to this new customer in the three-month period ended September 30, 2011 was approximately $96.5 thousand.  Further discussion on this customer is provided below under, Item 5. Other Information.  However, as reported in the Company’s reports on FORM 10-Q dated March 31, 2011 and June 30, 2011, QBF had to take a 25% reduction in its pricing in 2010, which continues to have a negative impact to QBF’s sales and its margin.  Management is continuing to negotiating with this QBF customer to return pricing back to 2010 levels.

The Wooden segment (name change to Powin DC) sales are down primarily due to one of the OEM segment’s customers losing a customer which that customer used the warehousing services of Powin DC and, from sales this segment had in 2010 from the selloff of old cabinet inventory.

The Maco segment’s net revenue decrease is primarily due to continued slow demand for the MACO furniture line on the west coast and this segment’s east coast program, which the company hoped would materialize in the third and fourth quarters of 2011, is now not expected to materialize until the fourth quarter of 2011.  Further, as previously reported, the MACO segment continues to show net losses in its operations and management cannot assure that this segment can continue to be a going concern.

The new segments the Company created in 2010 and 2011, CPP, PRER (now POWIN Energy), Gladiator or it joint-ventured, Mexico and RealForce, are still in the start-up stages, but are showing minor returns on investments made by the Company, with the greatest amount of activity for revenue generation coming from the POWIN Energy segment.  Accomplishments achieved by the Powin Energy segment for the three-month period ended September 30, 2011, consist of the following.

 
·
Finalized agreement with Affiliated Distributors (press release August 11, 2011), which will gave POWIN Energy immediate access to several hundred electrical distributors with over 1500 branch operations in the US and Canada.  A direct marketing campaign began and management believes POWIN Energy will post stronger revenues in the Company's fourth-quarter 2011.

 
·
POWIN Energy received its first significant purchase order for approximately $400,000 from LiteSolar (press release September 21, 2011) for lithium rechargeable batteries and was instrumental in procuring a purchase order in the amount of $150,000 for the Company's QBF segment from LiteSolar.  Additional expectations and future growth of the company's POWIN Energy segment is discussed further below under, Item 5.  Other Information.

 
15

 
 
Results of Operations (Continued)

Consolidated cost of sales for the three-month period ended September 30, 2011, are down 30.4% or approximately $4.1 million when compared with the same period in 2010.  As a percent of net revenue, consolidated cost of sales was 88.0% for the three-month period ended September 30, 2011, compared to 88.4% for the same period in 2010.

Consolidated gross profits for the three-month period ended September 30, 2011, decreased approximately $655 thousand when compared with the same period in 2010, and as a percent of net revenues gross profit was 10.3% for the three-month period ended September 30, 2011, compared to 11.4% for the same period in 2010.

Consolidated operating expenses for the three-month period ended September 30, 2011, increased 32.5% or approximately $369 thousand from the same period in 2010, primarily due to the Company’s investments in its new segments.  As a percent of net revenues, operating expenses for the three-month period ended September 30, 2011, was 14.5% compared to 7.5% for the same period in 2010.  The following table is reflective of the changes in operating expenses in dollars and percentage of change for the three-month periods ended March 31.

   
For the three-months ended Sept 30,
 
   
2011
   
2010
   
Change
   
% Change
 
Salaries & Related
  $ 912,259     $ 675,115     $ 237,144       35.1%  
Advertising
    28,878       23,129       5,749       24.9%  
Professional Services
    263,019       201,270       61,749       30.7%  
All Other
    299,768       235,533       64,235       27.3%  
   TOTAL
  $ 1,503,924     $ 1,135,047     $ 368,877       32.5%  

Consolidated net revenues for the nine-month period ended September 30, 2011, were down 13.8% or approximately $5.4 million from the same period of 2010.  The Company’s OEM segment net revenues decreased 17.3% or approximately $6.2 million, the QBF segment net revenues increased 30.6% or approximately $920 thousand dollars, the Maco segment net revenues decreased 35.5% or approximately $122 thousand dollars and the Wooden segment (re-named Powin DC) net revenues decreased 41.7% or approximately $182 thousand.

 As reported above, the primary decrease in sales of the OEM segment is primarily due to one customer, which lost one of its major national chain store customers in June 2011 negatively impacting the OEM sales in the nine-month period ended September 30, 2011, by approximately $8.6 million.  The Company’s QBF segment favorable increase in net revenues is related to a new product it manufactured for a new customer that was sold throughout Costco stores during the month of January 2011, bringing new sales of $775 thousand to this segment and, as mentioned above, an additional new customer, LiteSolar, which generated approximately $96.5 thousand in new sales.  Further, QBF’s primary customer has now increased its orders, which provided additional sales of approximately $145 thousand for the nine-month period ended September 30, 2011.  The Maco segment’s net revenue decrease is primarily due to continued slow demand for the MACO furniture line on the west coast and, this segment East Coast sales and marketing program is just now starting to show activity but the Company’s management does not expect any material returns until in the company's fourth-quarter 2011.  However, the MACO segment continues to show net losses in its operations and management cannot assure that this segment can continue to be a going concern.

The new segments the Company created in 2010 and 2011, CPP, PRER (now POWIN Energy), Gladiator or it joint-ventured, Mexico and RealForce, are still in the start-up stages, but are showing minor returns on investments made by the Company, with the greatest amount of activity for revenue generation coming from the POWIN Energy segment, which has been discussed above.

Consolidated cost of sales for the nine-month period ended September 30, 2011, are down 14.2% or approximately $5 million when compared to the same period in 2010, which is expected due to the Company’s decrease in net revenues.  As a percent of net revenue, consolidated cost of sales was 88% for the nine-month period ended September 30, 2011, compared to 88.4% for the same period of 2010.

Consolidated gross profits decreased approximately $472 thousand and as a percent of net revenues total gross profit was 12% for the nine-month period ended September 30, 2011, compared to 11.6% for the same period in 2010.
 
 
16

 
 
Results of Operations (Continued)

In February 2011, the Company entered into a joint venture establishing a corporation in Mexico whereby Powin Corporation owns 85% of the corporation, with organizational operations and general management processes started.  The Mexico segment will serve as a metal manufacturer to support the Freightliner Corporation’s Mexico operation as well as seek out other metal manufacturing opportunities with other truck and automobile manufacturers in Mexico.  For the three and nine months ended September 30, 2011, there have been no sales or cost of sales generated from the Mexico program.  All operating costs are included in operating expense.
 
Consolidated operating expense for the nine-month period ended September 30, 2011, increased 40.6% or approximately $1.2 million when compared to the same period in 2010.  Primarily, most of the increase comes from the Company now accruing for certain annual costs, which until 2010 was not a practice of the company; such as bonus compensation accruals of $495 thousand compared to $333 thousand accrued in the same period of 2010 and, royalty expenses of $170 thousand and commissions of $43 thousand related to the QBF segment’s new customer mentioned above.  Further, the Company increased operating expense because of its new segment activities in the nine-month period ended September 30, 2011 of $875 thousand.  As a percent of net revenues, operating expense for the nine-month period ended September 30, 2011, was 12.8%, compared to 7.8% for the same period of 2010.  However, allowing for the bonus accrual increase and the additional new segment operating expenses, operating expenses as a percent of revenues would have been 9.2%, compared to 7.8% for the same period in 2010.  The following table is reflective of the changes in operating expenses and percentage of change for the nine-month period ended June 30.
 
   
For the Nine-months ended Sept 30,
 
   
2011
   
2010
   
Change
   
% Change
 
Salaries & Related
  $ 2,490,820     $ 1,841,524     $ 649,296       35.3%  
Advertising
    105,705       48,904       56,801       116.1%  
Professional Services
    834,645       604,074       230,571       38.2%  
All Other
    925,828       604,544       321,284       53.1%  
   TOTAL
  $ 4,356,998     $ 3,099,046     $ 1,257,952       40.6%  
 
Liquidity and Capital Resources

The Company finances its operations primarily through cash flows generated from operations and borrowings from the Company’s line-of-credit.  For the nine-month period ended September 30, 2011, cash used by operating activities was $522 thousand compared to $1.1 million provided by operating activities during the same period in 2010.  Cash used in investing activities was $350 thousand in the nine-month period ended September 30, 2011, to replace manufacturing equipment, compared to $195 thousand used in investing activities in the same period of 2010, to replace equipment.  Cash provided from financing activities was $500 thousand from bank barrowings against the Company’s long-term equipment term loan, compared to cash used from financing activities including net repayments of $650 thousand to pay off the Company’s existing credit lines in the same period of 2010.

The ratio of current assets to current liabilities was 1.95 at September 30, 2011, compared to 2.19 at December 31, 2010.  Quick liquidity (cash and receivables divided by current liabilities) was 1.15 at September 30, 2011, compared to 1.53 at December 31, 2010.  At September 30, 2011, the Company had working capital of $6.5 million compared to working capital of $6.5 million at December 31, 2010.  Average day’s sales outstanding on trade accounts receivable at September 30, 2011, was 38 days compared to average days sales outstanding of 45 days at December 31, 2010.

As discussed above, the Company on March 24, 2011 entered into a new line-of-credit with a bank with maximum borrowing capacity of $2,000,000.  The maturity date for the Company’s new line-of-credit is May 15, 2013.  The line-of-credit is secured by all receivables, inventory and equipment and, like the previous lines of credit, the new facility is not personally guaranteed by the Company’s majority stockholder or any shareholder.  Interest is the prime rate less three-fourth percent, which currently was 2.50% as of September 30, 2011.  Interest on the prior line-of-credit was the prime rate plus one-half percent.  The outstanding balances at September 30, 2011 and December 31, 2010 were zero, respectively.

 
17

 
 
Liquidity and Capital Resources Continued)

The Company’s 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 what the Company is currently engaged; and, 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; and operating cash flow to fixed charge ratio of not less than 1.25 to 1.00 tested at the end of each year.  At September 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 equipments and to add new state of the art metal manufacturing equipments to the Company’s QBF and Mexico segments.  The outstanding balance of the Company’s equipment term loan at September 30, 2011, was $500,000.

The Company’s management believes the current cash and cash flow from operations, including its line-of-credit and revolving equipment loan, will be sufficient to meet anticipated cash needs, including cash for working capital and capital expenditures in the foreseeable future.  However, the Company may require additional cash resources due to changing business conditions or to take advantage of other future developments, which may require the Company to seek additional cash by selling additional equity securities or debt securities.  The sale of convertible debt securities or additional equity securities could result in additional dilution to the company’s stockholders.  The incurrence of additional indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations and liquidity.

The Company’s ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties  including: investors’ perception of, and demand for, securities of alternative manufacturing media companies; conditions of the U.S. and other capital markets in which we may seek to raise funds; and future results of operations, financial condition and cash flow.  Therefore, the Company’s management cannot assure that financing will be available in amounts or on terms acceptable to the Company, if at all.  Any failure by the Company’s management to raise additional funds on terms favorable to the Company could have a material adverse effect on the Company’s liquidity and financial condition.

Off-Balance Sheet Arrangements.

As of September 30, 2011 and for the nine-months then, the Company had no off-balance sheet arrangements.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

The Company is a smaller reporting company, as defined by Rule 229.10(f)(1) and is not required to provide the information required by this Item.

Item 4.  Controls and Procedures.
 
Evaluation of Disclosure Controls and Procedures

Our management has evaluated, under the supervision and with the participation of our principal executive and principal financial officers, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”).  Based on that evaluation, our principal executive and financial officers concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.

 
18

 
 
Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings.

None

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

Recent Sales of Unregistered Securities

In March 2011, the Company issued 75,000 shares of common stock to compensate a consulting firm, at $0.45 per share for a total expense to Legal & Professional expense of $33,750, which is reflected in stockholders’ equity as an increase of common stock of $75 (par at $0.001 times shares issued of 75,000) and additional paid in capital of $33,675.

In April 2011, the Company issued 25,000 shares of common stock to compensate a consulting firm, at $0.38 per share for a total expense to legal and professional expense of $9,500, which is reflected in stockholders’ equity as an increase of common stock of $25 (par at $0.001 times shares issued of 25,000) and additional paid in capital of $9,475.  Further, the Company discontinued its program of offering common shares for legal services.

Equity Compensation Plan Information

In March 2011, the Company issued 20,000 shares of common stock to its Board of Directors for their services on the Board at $0.45 per share recording an expense of $9,000 which is reflected in stockholders’ equity as an increase of common stock of $20 (par at $0.001 times shared issued of 20,000), and additional paid in capital of $8,980.  Each Director received 5,000 shares of common stock for an aggregate of 20,000 shares of common stock issued.

In June 2011, the Company issued 21,667 shares of common stock to its Board of Directors for their services on the Board at $1.79 per share booking an expense of $38,784 which is reflected in stockholders’ equity as an increase of common stock of $2.17 (par at $0.001 times shared issued of 21,667), and additional paid in capital of $38,782.  Each of the original Directors received 5,000 shares of common stock and a new director received 1,667 shares of common stock, for an aggregate of 21,667 shares of common stock issued.

In September 2011, the Company issued 25,000 shares of common stock to its Board of Directors for their services on the Board at $0.88 per share booking an expense of $22,000 which is reflected in stockholders’ equity as an increase of common stock of $25 (par at $0.001 times shared issued of 25,000), and additional paid in capital of $21,975.  Each director received 5,000 shares of common stock for an aggregate of 25,000 shares of common stock issued.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The Company did not purchase any of its shares of common stock or other securities during the nine-month period ended September 30, 2011.

Item 3.  Defaults Upon Senior Securities.

None

Item 4. [REMOVED AND RESERVED]
 
 
19

 

Item 5.  Other Information.

In April 2010, Company began the process of registering in the Republic of South Africa, to open a branch sales office.  The branch office will be responsible for identifying and pursuing new customer opportunities to further our OEM services and to introduce our current manufactured products into the Republic of South Africa.  In March 2011, our registration was approved, but as of September 30, 2011, no sales have been generated.

In February 2011, the Company entered into a joint venture establishing a new company in Mexico under which the Company will hold an 85% controlling interest in the joint venture.  The Mexico Company will provide manufacturing services to the Freightliner Corporation to support its Mexico operations.  In addition, the program will offer manufacturing services to other truck and automobile manufacturers to further the growth of Powin Corporation.

In May 2011, the Company entered into a strategic cooperation joint venture agreement with Shandong RealForce Enterprises Co., Ltd., Jining City, Shandong Province, China, to establish a joint venture company, RealForce-Powin Joint Venture Company, whereby Powin Corporation will hold a 49% controlling interest in the joint venture.  The joint venture will produce, market and sell lithium-ion batteries, storage batteries, energy storage power plants, solar cells and related energy products.  The joint venture agreement calls for Shandong RealForce Enterprises Co., Ltd., to produce the products in China with the joint venture company, RealForce-Powin Joint Venture Company, providing marketing, selling and distribution services throughout the United States, Canada and Mexico

In June 2011, at the Shareholders’ meeting, the Shareholders ratified the POWIN 2011 employee stock option plan (“the Plan”), whereby of the Company’s 600,000,000 common shares authorized, 30,000,000 common shares have been dedicated to the Plan.  Following the meeting in June, the Company issued stock options to thirty-nine employees totaling 1,170,000 stock options issued, with 184,000 stock options fully vested.  No additional stock option were issued in the three-month period ended September 30, 2011.  At September 30, 2011, no stock options have been exercised.

The Company will value the stock option awards estimated on the date of grant using the Black-Scholes option-price model.  The expected term of the awards granted represents the period of time the awards are expected to be outstanding.  As the Company has only been a public company since March 31, 2010 and the Company’s stock has only traded since September 2010, expected volatility is based on historical volatility, for a period consistent with the expected option term of peer publicly-traded companies.  The risk-free interest rate is based on U.S. Treasury bond rates with maturities equal to the expected term of the option on the grant date.  With respect to employees being grated stock options, the Company’s turnover rate is zero; therefore, the Company has no data to use as a base to estimate the probability of forfeiture.

The fair value of options granted during the three and nine-month period ended September 30, 2011, were determined using the following weighted average assumptions.


   
Three-months
September 30,
2011
   
Six-months
September 30,
2011
 
Dividend yield
    0       0  
Expected volatility
    86.8%       86.8%  
Risk-free interest rate
    1.6%       1.6%  
Term in years
    6.9       6.9  

 
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Item 5.  Other Information. (Continued)

Stock option activity for the three and six month periods ended September 30, 2011, were as follows.

   
Shares of stock
under option
   
Weighted
average exercise
price
 
Options outstanding at December 31, 2010
    0     $ 0  
  Options granted
    1,170,000       1.02  
  Options exercised
    0       0  
  Options forfeited or expired
    (60,000 )     1.02  
Options outstanding at September 30, 2011
    1,110,000     $ 1.02  
Vested and expected to vest in the future as of September 30, 2011
    1,110,000     $ 1.02  

 
 
For the three and nine month periods ended September 30, 2011, compensation expense recognized related to stock option as a result of the fair value method was $5,396 and is reflect in Operating expense.

In June 2011, the Company entered into a 10-year lease and moved to a new facility located at 20550 SW 115th Ave., Tualatin, OR 97062, which will accommodate the needs of the Company’s corporate offices and provide office and warehousing space to five of its other wholly-owned affiliates, with a related party Powin Pacific Properties, LLC, a company owned by Joseph Lu, the CEO and President of Powin Corporation.  Further, the company ended its month-to-month lease on the facilities that housed its corporate offices located in Tigard Oregon, ended the month-to-month leases on two other warehousing facilities leased from Tri-County Industrial Park, in Tualatin Oregon, which accommodated the companies Powin DC affiliate and, ended the month-to-month leases with Powin Pacific Properties, LLC, on two warehouses and one office located at 14325 N.E. Air Port Way, Portland, Oregon which accommodated the company's Maco Furniture affiliate.

In July 2011, Quality Bending & Fabrication (QBF), entered into a two year $7 million dollar program with LiteSolar to provide parts and components for their carport structures and, received its first Purchase Order from LiteSolar for $56 thousand dollars.  In September 2011, QBF received a second Purchase Order for $150,000, and in October 2011, QBF received a third Purchase Order from LiteSolar for $500,000, bringing the total to $706,000 in additional work to QBF.  LiteSolar, a major installer of carport structures that incorporate solar and energy storage in commercial and multi-family settings.  These orders to QBF will allow LiteSolar to install its carport structures in Oregon, Hawaii, California and Louisiana.  LiteSolar provides “Green Energy” that cuts electric costs up to 15 percent at commercial sites using photovoltaic energy systems and allows apartment owners to upgrade parking lot lighting with less expensive solar energy.

In the three-month period ended September 30, 2011, Powin Energy (“PE”) became very aggressive with establishing itself in the renewable energy market that had immediate impact on its sales program, as well as positioning the program to take advantage of immediate opportunities.  The most notable accomplishments during the quarter were:

 
·
Finalized agreement with Affiliated Distributors (press release August 8, 2011), which gave PE immediate access to several hundred electrical distributors with over 1500 branch operations in the US and Canada.  A direct marketing campaign has begun and PE expects to see the beginning of revenue generation with distributors in the company's fourth quarter 2011.

 
·
PE received its first purchase order for $380,000 from its first customer, LiteSolar (press release September 21, 2011), which gives the PE program a very positive start and, PE was instrumental in acquiring purchase orders for its sister company QBF discussed above.  PE expects and in cooperation with QBF is planning and scheduling commitments for additional purchase orders to be issued to QBF in support of LiteSolar's projections over the next two years should be in excess of $2 million.  Further, PE and LiteSolar are formulating plans for PE to provide lithium storage batteries with an estimated value of $2 million over the next two years to support the LiteSolar commitments.
 
 
21

 
 
Item 5.  Other Information. (Continued)

 
·
PE began product development for a highly anticipated energy storage solution line of products.  The energy storage space is an emerging trend in the renewable energy business and PE expects to be at the forefront in product development.  Launch date for initial product offering is expected to be in the early fourth quarter of 2011, and will introduce prototypes at the Emergency Management Association annual trade show in November 2011.

 
·
PE received its initial inventory stock of fluorescent lighting and battery products in August 2011.  As the result, the first two battery distributors took advantage of promotional pricing and launched sales campaigns on their respective websites.  Although moderate sales activity, there was a significant reduction in initial inventory and the sale has introduced the battery product line to new and future users.

 
·
PE’s lighting product line is receiving attention from the distributor community because of product quality and competitive pricing.  In the three-month period ended September 30, 2011, PE quoted over $1 million in lighting opportunities and is expecting positive results in the fourth quarter of 2011.

 
·
In the three-month period ended September 30, 2011, PE began building relationships with solar installers and expects its network of solar installers to grow in the fourth quarter 2011 and, additional solar stock inventory is scheduled to arrive in the first quarter of 2012, which will provide the foundation for revenue growth in solar in early 2012.

 
·
PE is developing strategic business relationships with other committed renewable energy providers, which will allow PE to expand product offering and enter international markets through existing sales networks.

As discussed above under Results of Operations, the Company's OEM segment’s sales and marketing program, which was initiated in 2010, is starting to show positive movement in acquiring new customers for the OEM segment.  New customer sales for the three-month period ended September 30, 2011, was approximately $381 thousand in activity from three new customers.  Another new customer, which has requested not to be named, is showing strong interest and has issued the Company current purchase orders for deliveries in the first quarter of 2012 totaling approximately $135 thousand.

The Company's Channel Partner Program (CPP) signed three new clients into its program in the three-month period ended September 30, 2011, to receive sales and marketing, and logistical services for three-month period in support of the client to sell their products into the People's Republic of China.  CPP will;
 
·
Promote and sell the client’s products through a chain of China bank’s e-commerce platforms, which have access to approximately 87.5 million credit card members,
 
·
Promote and sell the client’s products through major banks in China utilizing their monthly billing systems, flyers and monthly bank statement mailings,
 
·
Promote and sell the client’s products utilizing the China bank’s online website promotional systems,
 
·
Provide basic translation services to translate the client’s products from English to Chinese,
 
·
Provide Customer service activities for client’s products and services through phone and e-mails,
 
·
Provide return and recall services for client,
 
·
Provide shipping and handling services from the CPP warehouse in China to China customer,
 
·
Provide information website for client’s products to China customers and to promote client’s products,
 
·
Provide cash collection services for client’s products sold in the three-month period for the client and arrange payment for the sale of product to client,
 
·
Provide a sales and marketing analysis on the sale of client’s products to client at in a project.

The CPP program requires the client to provide their inventory products and to make all arrangements for shipping product to China; however, CPP will assist in any logistical issues.  At September 30, 2011, no client had shipped any product to China but product inventory is expected to ship in the fourth quarter of 2011.

 
22

 
 
Shareholder Recommended Director Nominees

At the present time, the Company does not have a defined policy or procedure for shareholders to submit recommendations or nominations for directors. We do not currently have any specific or minimum criteria for the selection of nominees to the Board of Directors and the Board does not have any specific process or procedure for evaluating such nominees. The Board of Directors assesses all candidates, whether submitted by management or shareholders and make recommendations for election or appointment.


Item 6.  Exhibits.
 
31.1
Certification of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
31.2
Certification of the Chief Executive Officer and Principal Executive Officer Pursuant to 13a-14 and 15d-14 of the Securities Exchange Act of 1934.
   
32.1
Certification of the Chief Financial Officer and Principal Financial Officer Pursuant to 13a-14 and 15d-14 of the Securities Exchange Act of 1934.
   
101.INS*
XBRL Instance Document
   
101.SCH*
XBRL Taxonomy Extension Schema Document
   
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document
   
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document
   
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document
 
 
* Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Act of 1934 and otherwise are not subject to liability.
 
 
23

 
 
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this quarterly report to be signed on its behalf by the undersigned hereunto duly authorized.
 
November 14, 2011    
       
 
By
/s/ Joseph Lu  
   
Joseph Lu
 
   
Chief Executive Officer
 
   
(Principal Executive Officer)
 
 
 
 
     
       
 
By
 /s/ Ronald Horne  
   
Ronald Horne
 
   
Chief Financial Officer
 
   
(Principal Financial Officer)
 
 
 
 
 
 
 
24