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 December 31, 2011

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _________ to __________

 

Commission file number: 333-103647

 

3POWER ENERGY GROUP, INC.

(Exact name of registrant as specified in its charter)

 

Nevada	98-0393197
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

 

 

PO Box 50006

Sh. Rashid Building

Sh. Zayed Road

Dubai, United Arab Emirates

(Address of principal executive offices)

 

011 97 14 3210312

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the issuer: (1) 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨

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 S 

 

State the number of shares outstanding of each of the registrant’s classes of common equity, as of the latest practicable date:

113,036,248 shares of common stock with a par value of $ .0001 outstanding as of February 16, 2012.

 

 

3POWER ENERGY GROUP, INC.

 

FORM 10-Q

FOR THE QUARTER ENDED DECEMBER 31, 2011

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION		2
	ITEM 1 – FINANCIAL STATEMENTS	2
	ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	11
	ITEM 3 – Quantitative and Qualitative Disclosures About Market Risk	15
	ITEM 4 – CONTROLS AND PROCEDURES	15
PART II – OTHER INFORMATION		15
	ITEM 1 – LEGAL PROCEEDINGS	15
	ITEM 1A – RISK FACTORS	15
	ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	15
	ITEM 3 – DEFAULTS UPON SENIOR SECURITIES	15
	ITEM 4 – (REMOVED AND RESERVED)	15
	ITEM 5 – OTHER INFORMATION	15
	ITEM 6 – EXHIBITS	16
	SIGNATURES	17

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1 – FINANCIAL STATEMENTS (UNAUDITED)

 

3POWER ENERGY GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited) 

 

		December 31, 2011				March 31, 2011
ASSETS
Current assets:
Cash and cash equivalents		$	47,052			$	12,734
Accounts receivable net of allowance for doubtful accounts			445,770				478,080
Inventories			-				130,246
Accrued income			433,706				-
Work in progress			-				1,602
Due from related parties			59,036				835,231
Taxes receivable			33,140				535,852
Total current assets			1,018,704				1,993,745
Property and equipment, net			859				565
Other assets
Project development rights			3,332,100				-
Total other assets			3,332,100				-
Total assets		$	4,351,663			$	1,994,310
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	1,059,079			$	1,636,236
Accrued expenses and other current liabilities			1,410,917				1,421,453
Note payable - finance company			639,059				660,073
Note payable - shareholders			-				937,500
Accrued interest - related party			136,464				83,122
Due to related parties			104,192				250,600
Total current liabilities			3,349,711				4,988,984
Shareholders' Equity (deficiency):
Common stock			11,303				9,972
Additional paid-in capital			6,414,842				-
Accumulated other comprehensive (loss)			(54,784	)			(111,589	)
Accumulated deficit			(5,369,409	)			(2,893,057	)
Total shareholders' equity deficiency			1,001,952				(2,994,674	)
Total liabilities and shareholders equity		$	4,351,663			$	1,994,310

 

 See the accompanying notes to the unaudited condensed consolidated financial statement

 

 

3POWER ENERGY GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE (LOSS)

(Unaudited)

 

		Three Months Ended December 31,								Nine Months Ended December 31,
		2011				2010				2011				2010
Sales		$	-			$	-			$	491,092			$	3,551,651
Costs and Expenses
Project Development Cost			-				-				654,756				2,781,924
General and administrative expenses			817,312				141,550				2,279,045				537,733
Total operating expenses			817,312				141,550				2,933,801				3,319,657
Income(loss) from operations			(817,312	)			(141,550	)			(2,442,709	)			231,994
Interest expense			47,481				16,291				65,727				48,634
Net income (loss)		$	(864,793	)		$	(157,841	)		$	(2,508,436	)		$	183,360
Other comprehensive income (loss)
Foreign currency translation gain			-				-				56,805				15,472
Comprehensive loss			(864,793	)			(157,841	)			(2,451,631	)			198,832
Basic earning (Loss) per common share		$	(0.01	)		$	(0.00	)		$	(0.02	)		$	0.00
Weighted average common shares outstanding			113,036,248				40,114,900				113,036,248				40,114,900

 

 See the accompanying notes to the unaudited condensed consolidated financial statement

 

 

3POWER ENERGY GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		Nine Months Ended December 31,
		2011				2010
Cash flow from operating activities:
Net (loss) income		$	(2,508,436	)		$	183,360
Adjustments to reconcile net loss (income) to net cash (used in) provided by operating activities:
Accrued fees to related party			104,167				104,167
Common stock issued for services			880,000				-
Accrued interest to related party			5,861				11,742
Depreciation and amortization			286				267
Changes in operating assets and liabilities:
Decrease in accounts receivable - trade			32,310				992,796
Decrease in inventories			130,246				212,865
(Increase) in accrued income			(433,706	)			-
Decrease in work in progress			1,602				-
(Increase) decrease in tax receivable			502,712				-
(Decrease) in accounts payable			(577,157	)			(287,574	)
(Decrease) in accrued interest			53,342				-
(Decrease) in accrued expenses and other current liabilities			(10,536	)			(9,610	)
Cash (used in) provided by operating activities			(526,513	)			1,208,013
Cash flow from investing activities:
Additions to property and equipment			(273	)			(41	)
Cash used in investing activities			(273	)			(41	)
Cash flow from financing activities:
Proceed from (advances to) related parties and other, net			525,620				(2,178,057	)
Cash provided by (used in) financing activities			525,620				(2,178,057	)
Effect of exchange rate changes on cash and cash equivalents			35,484				-
Net increase (decrease)  in cash and cash equivalents			34,318				(970,085	)
Cash and cash equivalents at beginning of period			12,734				970,227
Cash and cash equivalents at end of period		$	47,052			$	142
Non cash information for investing and financing activities
Fair value of common shares issued for acquisition of project development rights		$	3,332,100			$	-

 

See the accompanying notes to the unaudited condensed consolidated financial statement

 

 

3POWER ENERGY GROUP INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011

(Unaudited)

 

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company as of December 31, 2011 and the results of operations and cash flows for the periods presented. The results of operations for the nine months ended December 31, 2011 are not necessarily indicative of the operating results for the full fiscal year or any future period.

 

1.

BUSINESS DESCRIPTION

 

Basis of Consolidation

 

The unaudited condensed consolidated financial statements include the accounts of 3Power Energy Group, Inc.  and its subsidiaries, all of which are wholly owned.  All intercompany balances and transactions have been eliminated in consolidation.

 

Organization and Business Description

 

3Power Energy Group Inc. (the “Company”) was incorporated in the State of Nevada on December 18, 2002.  On March 30, 2011, the Company changed its name from Prime Sun Power Inc. to 3Power Energy Group Inc. and increased its authorized share capital to 300,000,000 shares.  The Company plans to pursue a business model producing renewable generated electrical power and other alternative energies.

 

Going Concern

 

As shown in the accompanying unaudited condensed consolidated financial statements, the Company has incurred a net loss from operations of approximately $ 2,500,000_for the nine months ended  December 31, 2011 and has an accumulated deficit of approximately $5,400,000 at December 31, 2011.  The ability of the Company to continue as a going concern is dependent upon, among other things, its successful execution of its plan of operations and ability to raise additional financing or capital.  There is no guarantee that the Company will be able to raise additional financing or capital or sell any of services or products at a profit.  These factors, among others, raise substantial doubt regarding the Company’s ability to continue as a going concern.  The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis of Preparation

 

On May 13, 2011 the Company entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Seawind Energy Limited and its subsidiaries (“Seawind Energy”), pursuant to which the Company acquired 100% of the issued and outstanding common stock of Seawind Energy, in exchange for the issuance of 40,000,000 restricted shares of the Company’s common stock .  The acquisition was accounted for as a reverse merger and, accordingly, the Company is the legal survivor and Seawind Energy is the accounting survivor.

 

 

For accounting purposes, Seawind Energy was the surviving entity. The transaction was accounted for as a recapitalization of Sawind Energy pursuant to which Seawind Energy was treated as the surviving and continuing entity although the Company is the legal acquirer rather than a reverse acquisition.  The Company did not recognize goodwill or any intangible assets in connection with this transaction.  Accordingly, the Company’s historical financial statements are those of Seawind Energy immediately following the consummation of the reverse merger. The Seawind Companies have become wholly owned subsidiaries of the Company.  

 

2.

SIGNIFICANT ACCOUNTING POLICIES

 

Use of estimates

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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.  The actual results experienced by the Company may differ materially from the Company’s estimates.  To the extent there are material differences between the estimates and the actual results, future results of operations will be affected and the effect could be material.

 

Cash and Cash equivalents

 

The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents.

 

The Company maintains cash balances at various financial institutions.  Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250,000.  The Company’s accounts at these institutions may, at times, exceed the federally insured limits.  The Company has not experienced any losses in such accounts.

 

Property and equipment and depreciation policy

 

Depreciation is based on the estimated useful lives of the related assets and is computed using the straight-line method.  Equipment is recorded at cost and depreciation is provided over the useful lives of five years.

 

Income taxes

 

The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year; and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.

 

ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions for any of the reporting periods presented.

 

 

Impairment of long-lived assets

 

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable.  To determine if impairment exists, the Company compares the estimated future undiscounted cash flows from the related long-lived assets to the net carrying amount of such assets.  Once it has been determined that impairment exists, the carrying value of the assets is adjusted to the fair value.  Factors considered in the determination of the fair value.  Factors considered in the determination of the fair value include current operating results, trends and the present value of estimated expected future cash flows.

 

Revenue Recognition

 

We follow the guidance of the Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB”) 104 for revenue recognition and Accounting Standards Codification (“ASC”) Topic 605, “Revenue Recognition”.  Revenues from long term contracts are recognized on the percentage of completion method.

 

Work  In Progress

 

Work in progress represents costs and estimated earnings in excess of billings. These are the amount under customer contracts that were earned and billable but not invoices at December 31, 2011 and March 31, 2011.

 

Project Development Rights

 

The Company has entered into an option agreement with Power Andina Limited (“PAL”), to acquire a 9MW wind energy project in Chile consisting of six turbine locations (the “PAL2 Project”).   PAL has already obtained and/or is in the process of finalizing the necessary agreements, permits, wind measurement data, and all other requisites necessary for the Project. PAL shall then provide support services to the Company throughout the construction stage in all matters related to permits and consents.  Upon exercise of the option by the Company under the PAL agreement, the PAL2 Project and all ancillary rights, agreements, permits, data and other requisites for the construction and connection to the electrical grid shall be vested in the Company by transferring the PAL2 Project to a new Company wholly-owned subsidiary, 3Power Energia S.A., a Chilean registered company.

 

Accounts Receivable and Allowance for Doubtful Accounts Receivable

 

We have a policy of reserving for uncollectible accounts based on our best estimate of the amount of probable credit losses in our existing accounts receivable. We extend credit to our customers based on an evaluation of their financial condition and other factors. We generally do not require collateral or other security to support accounts receivable. We perform ongoing credit evaluations of our customers and maintain an allowance for potential bad debts if required.

 

We determine whether an allowance for doubtful accounts is required by evaluating specific accounts where information indicates the customers may have an inability to meet financial obligations. In these cases, we use assumptions and judgment, based on the best available facts and circumstances, to record a specific allowance for those customers against amounts due to reduce the receivable to the amount expected to be collected. These specific allowances are re-evaluated and adjusted as additional information is received. The amounts calculated are analyzed to determine the total amount of the allowance. We may also record a general allowance as necessary.

 

Direct write-offs are taken in the period when we have exhausted our efforts to collect overdue and unpaid receivables or otherwise evaluate other circumstances that indicate that we should abandon such efforts.

 

Inventories

 

Inventories are stated at the lower of cost, determined using the weighted average cost method, and net realizable value. Net realizable value is the estimated selling price, in the ordinary course of business, less estimated costs to complete and dispose of the product.

 

 

Stock based compensation

 

We recognize compensation expense for stock-based compensation in accordance with ASC Topic 718, “Compensation: Stock Compensation”. For employee stock-based awards, we calculate the fair value of the award on the date of grant using the Black-Scholes method for stock options and the quoted price of our common stock for unrestricted shares; the expense is recognized over the service period for awards expected to vest. For non-employee stock-based awards, we calculate the fair value of the award on the date of grant in the same manner as employee awards, however, the awards are revalued at the end of each reporting period and the pro rata compensation expense is adjusted accordingly until such time the nonemployee award is fully vested, at which time the total compensation recognized to date equals the fair value of the stock-based award as calculated on the measurement date, which is the date at which the award recipient’s performance is complete. The estimation of stock-based awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from original estimates, such amounts are recorded as a cumulative adjustment in the period estimates are revised. We consider many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience.

 

Fair value measurements

 

The Company adopted the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.

 

The estimated fair value of certain financial instruments, including cash and cash equivalents, accounts and notes payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.  The carrying amounts of our short and long term credit obligations approximate fair value because the effective yields on these obligations, which include contractual interest rates taken together with other features such as concurrent issuances of warrants and/or embedded conversion options, are comparable to rates of returns for instruments of similar credit risk.

 

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:

 

Level 1 — quoted prices in active markets for identical assets or liabilities

 

Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable

 

Level 3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions)

 

Concentration of Credit Risk

 

Financial instruments that potentially expose us to concentrations of credit risk consist principally of cash and cash equivalents. We maintain our cash accounts at high quality financial institutions with balances, at times, in excess of federally insured limits. As of December 31, 2011, we had no balances in excess of federally insured limits. Management believes that the financial institutions that hold our deposits are financially sound and therefore pose minimal credit risk.

 

Comprehensive Income

 

Comprehensive income is defined as the change in equity of a company during a period from transactions and other events and circumstances excluding transactions resulting from investments from owners and distributions to owners. For the Company, comprehensive income for the periods presented includes net income, and foreign currency translation adjustments.

 

 

Loss per share

 

Loss per share is computed using the weighted average number of shares outstanding during the period. Diluted loss per share is equivalent to basic loss per share.

 

Property and Equipment

 

Property and equipment consists of office equipment and is stated at cost less accumulated depreciation. Depreciation is provided for on a straight-line basis over the useful lives of the assets, generally 3 to 5 years. Expenditures for additions and improvements are capitalized; repairs and maintenance are expensed as incurred.

 

Foreign Currency Translation and Transactions

 

The accompanying unaudited condensed consolidated financial statements are presented in U.S. dollars (“USD”). The functional currency of the Company’s subsidiaries is British pounds (“GBP”). The financial statements of subsidiaries are translated into USD in accordance with the Codification ASC 830, “Foreign Currency Matters”.  All assets and liabilities were translated at the current exchange rate, at respective balance sheet dates, shareholders’ equity is translated at the historical rates and income statement items are translated at the average exchange rate for the reporting periods.  The resulting translation adjustments are reported as other comprehensive income and accumulated other comprehensive income in shareholders’ equity in accordance with the Codification ASC 220, “Comprehensive Income”.

 

Transaction gains and losses that arise from exchange rate fluctuations from transactions denominated in a currency other than the functional currency are translated into GBP at the rate on the date of the transaction and included in the results of operations as incurred.  There were no material transaction gains or losses in the periods presented.

 

The exchange rates used to translate amounts in GBP into USD for the purposes of preparing the unaudited condensed consolidated financial statements were as follows:

 

		December 31,				December 31,
			2011				2010
Period-end GBP : USD exchange rate		$	1.5625			$	1.5468
Average Quarterly GBP : USD exchange rate		$	1.6114			$	1.5814

 

Contingencies

 

Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed.

 

 

Recently Issued Accounting Standards

 

In May 2011, the FASB issued ASU 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS” (“ASU 2011-04”). The amendments in ASU 2011-04 result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs. Consequently, ASU 2011-04 changes the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. For many of the requirements, the FASB does not intend for the amendments in ASU 2011-04 to result in a change in the application of the requirements in Topic 820. ASU 2011-04 is effective prospectively for interim and annual reporting periods beginning after December 15, 2011. This ASU will become effective for the company beginning in the quarter ended January 31, 2012 and we do not expect an impact on our consolidated financial statements

 

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. The guidance in ASU 2011-05 applies to both annual and interim financial statements and eliminates the option for reporting entities to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. This ASU also requires consecutive presentation of the statement of net income and other comprehensive income. Finally, this ASU requires an entity to present reclassification adjustments on the face of the financial statements from other comprehensive income to net income. The amendments in this ASU should be applied retrospectively and are effective for fiscal year, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s financial position or results of operations.

 

In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures: Improving Disclosures about Fair Value Measurements. ASU 2010-06 amends ASC 820 to require a number of additional disclosures regarding (1) the different classes of assets and liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the activity in Level 3 fair value measurements, and (4) the transfers between Levels 1, 2, and 3. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of 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. The adoption of ASU 2010-06 did not have a material impact on its consolidated financial statements.

 

Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material impact on the Company’s unaudited condensed consolidated financial statements.

 

3.

NOTE PAYABLE – FINANCE COMPANY

 

On March 2, 2010, the Company entered into a Financing Agreement (the “Financing Agreement”) with CRG Finance AG (“CRG Finance”).  Pursuant to the Financing Agreement, CRG Finance loaned the Company a total of 470,000 Euros ($639,059 as of September 30, 2011).  In further consideration for the making of this loan, the Company shall transfer 20% of the Company’s rights to its net profits to be made in the sale of PSP Italian S.r.l. to GPR (the “Net Profit Rights”).

 

CRG Finance has agreed that upon receipt of its Net Profit Rights, CRG Finance will reinvest at least 50% of such Net Profit Rights into either new projects of the Company or shares of the Company, at a purchase price to be mutually agreed upon.  The Company has issued a senior promissory note to CRG Finance in the amount of 470,000 Euros ($639,059 as of December 31, 2011).  The principal of the note, along with interest at an annual rate of seven and one half percent, is due within thirty days of demand.  CRG has made a demand for payment of the Note which has not been paid by the Company.

 

 

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following Management's Discussion and Analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto. The Management's Discussion and Analysis contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like, and/or future-tense or conditional constructions (“may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this Report on Form 10-Q. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors. We do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Report on Form 10-Q.

 

The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and related notes and other financial data included elsewhere in this report.

 

Overview

 

We were incorporated in the State of Nevada on December 18, 2002, as ATM Financial Corp.  On April 1, 2008, we changed our name from “ATM Financial Corp.” to “Prime Sun Power Inc.”  On April 15, 2008, we changed our stock symbol from “AFIC” to “PSPW.” On March 30, 2011, we changed our name to 3Power Energy Group Inc.

 

Reverse Merger

 

On May 13, 2011 the Company entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Seawind Energy Limited and its subsidiaries (“Seawind Energy”), pursuant to which the Company acquired 100% of the issued and outstanding common stock of Seawind Energy, in exchange for the issuance of 40,000,000 restricted shares of the Company’s common stock .  The acquisition was accounted for as a reverse merger and, accordingly, the Company is the legal survivor and Seawind Energy is the accounting survivor.

  

For accounting purposes, Seawind Energy was the surviving entity. The transaction was accounted for as a recapitalization of Sawind Energy pursuant to which Seawind Energy was treated as the surviving and continuing entity although the Company is the legal acquirer rather than a reverse acquisition.  The Company did not recognize goodwill or any intangible assets in connection with this transaction.  Accordingly, the Company’s historical financial statements are those of Seawind Energy immediately following the consummation of the reverse merger.

 

Critical Accounting Policies

 

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. In consultation with our Board of Directors, we have identified several accounting principles that we believe are key to the understanding of our financial statements. These important accounting policies require management’s most difficult, subjective judgments.

 

Revenue Recognition

 

We follow the guidance of the Securities and Exchange Commission’s Staff Accounting Bulletin (“SAB”) 104 for revenue recognition and Accounting Standards Codification (“ASC”) Topic 605, “Revenue Recognition.”  Revenues from long term contracts are recognized on the percentage of completion method.

 

Accounts Receivable and Allowance for Doubtful Accounts Receivable

 

We have a policy of reserving for uncollectible accounts based on our best estimate of the amount of probable credit losses in our existing accounts receivable. We extend credit to our customers based on an evaluation of their financial condition and other factors. We generally do not require collateral or other security to support accounts receivable. We perform ongoing credit evaluations of our customers and maintain an allowance for potential bad debts if required.

 

 

We determine whether an allowance for doubtful accounts is required by evaluating specific accounts where information indicates the customers may have an inability to meet financial obligations. In these cases, we use assumptions and judgment, based on the best available facts and circumstances, to record a specific allowance for those customers against amounts due to reduce the receivable to the amount expected to be collected. These specific allowances are re-evaluated and adjusted as additional information is received. The amounts calculated are analyzed to determine the total amount of the allowance. We may also record a general allowance as necessary.

 

Direct write-offs are taken in the period when we have exhausted our efforts to collect overdue and unpaid receivables or otherwise evaluate other circumstances that indicate that we should abandon such efforts.

 

Inventories

 

Inventories are stated at the lower of cost, determined using the weighted average cost method, and net realizable value. Net realizable value is the estimated selling price, in the ordinary course of business, less estimated costs to complete and dispose of the product.

 

Foreign Currency Translation and Transactions

 

The accompanying unaudited condensed consolidated financial statements are presented in U.S. dollars (“USD”). The functional currency of our subsidiaries is British pounds (“GBP”). The financial statements of subsidiaries are translated into USD in accordance with the Codification ASC 830, “Foreign Currency Matters”.  All assets and liabilities were translated at the current exchange rate, at respective balance sheet dates, shareholders’ equity is translated at the historical rates and income statement items are translated at the average exchange rate for the reporting periods.  The resulting translation adjustments are reported as other comprehensive income and accumulated other comprehensive income in shareholders’ equity in accordance with the Codification ASC 220, “Comprehensive Income.”

 

Transaction gains and losses that arise from exchange rate fluctuations from transactions denominated in a currency other than the functional currency are translated into GBP at the rate on the date of the transaction and included in the results of operations as incurred.  There were no material transaction gains or losses in the periods presented.

 

Accounting for Stock-Based Compensation

 

We account for stock, stock options and warrants using the fair value method promulgated by Accounting Standards Codification subtopic 480-10, Distinguishing Liabilities from Equity (“ASC 480-10”) which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services. Therefore, our results include non-cash compensation expense as a result of the issuance of stock, stock options and warrants and we expect to record additional non-cash compensation expense in the future.

 

We follow Accounting Standards Codification subtopic 718-10, Compensation (“ASC 718-10”) which requires that all share-based payments to both employees and non employees be recognized in the income statement based on their fair values.

 

Our Business

 

We were formed on December 18, 2002 as a Nevada “C” Corporation as ATM Financial Corp.  On November 10, 2006, our President and Chief Executive officer resigned to pursue other interests. We suspended all prior business plans as of that date. During the first quarter of the year ended December 31, 2008, we began considering a new business model involving solar power and other renewable energies.  On April 1, 2008, we changed our name from “ATM Financial Corp.” to “Prime Sun Power Inc.”  On April 15, 2008, we changed our stock symbol from “AFIC” to “PSPW.” On March 30, 2011, we changed our name to 3Power Energy Group Inc.

 

Our principle business is to sell electricity generated by solar, wind, hydro, biomass and other renewable energy resources and to develop, build and operate power plants based on these technologies.  The core approach of our business is to deliver energy in markets where there is an inherent energy gap between supply and demand or where there exists long term, stable, government backed financial support for the development of renewable energy.  Our strategic plan is to develop power plants and sell electricity in mature and emerging international energy markets at secure rates with the highest profit margins.

 

 

We have only one project, a 19.5 mega watt (“MW”) Chilean wind farm project, and the commercialization of this project is in its infancy. Our intended markets may not utilize our producible products, and it may not be commercially successful. We intend to develop additional projects but none have proven to be commercially viable or successful.

 

We are still an early stage business with a history of losses, and only recently began generating sales. Our shares of common stock are traded on the OTC Bulletin Board (“OTCQB”). Our fiscal year end is March 31. Our principal executive office is located at P.O. Box 50006, Sh. Rashid Building, Sh. Zayed Road, Dubai, United Arab Emirates and our telephone number is 011 97 14 3210312.

 

Results of Operations

 

You should read the selected financial data set forth below along with our discussion and our financial statements and the related notes. We have derived the financial data from our unaudited condensed consolidated financial statements. We believe the financial data shown in the table below include all adjustments consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of such information. Operating results for the period are not necessarily indicative of the results that may be expected in the future.

 

Results for the Three Months Ended December 31, 2011 Compared to the Three Months Ended December 31, 2010

 

Revenues

 

We did not generate revenues from operations during the three months ended December 31, 2011 and 2010.

 

Operating Expenses

 

Operating expenses increased by $706,951 to $864,792 for the three months ended December 31, 2011, as compared to $157,841 for the three months ended December 31, 2010. The increase is a result of general and administrative costs incurred in connection with the reorganization of the Company.

 

Results for the Nine Months Ended December 31, 2011 Compared to the Nine Months Ended December 31, 2010

 

Revenues

 

We had revenues from operations in the amount of $491,092 for the nine months ended December 31, 2011 as compared to revenues of $3,551,651 for the nine months ended December 31, 2010, a decrease of $3,060,559. The decline in revenues was due to the completion of previously contracted projects and lack of new contracts being originated during nine months ended December 31, 2011.

 

Operating Expenses

 

Operating expenses decrease by $368,763 to $2,999,528 for the nine months ended December 31, 2011, as compared to $3,368,291 for the nine months ended December 31, 2010. The decrease is due to reduced operating activities during the nine months ended December 31, 2011.

 

Research and Development Activities and Costs

 

We have not incurred any costs to date relative to research and development activities. We intend to assess prospective research and development undertakings during the foreseeable future and allocate a budget accordingly.

 

Liquidity and Capital Resources

 

As of December 31, 2011, we have funded our operations primarily through loans from related parties.

 

  

Net cash used in operating activities was $526,513 during the nine months ended December 31, 2011.During the period ended December 31, 2011, our primary capital needs were for operating expenses, including funds to support our business strategy, which primarily includes working capital necessary to fund operations.

 

We utilized cash for investing activities from continuing operations of $273 to purchase equipment.

 

Cash provided from financing activities was $525,620 from loans from related parties to finance our activities during the period ended December 31, 2011.

  

Our activities to date have consumed substantial amounts of cash.  We will need to raise additional capital to implement our new business plan and continue operations for any length of time.  We are seeking alternative sources of financing, through private placement of securities and loans from our shareholders in order for us to maintain our operations.  We cannot guarantee that we will be successful in raising additional cash resources for our operations.  

   

Our future capital requirements will depend on a number of factors, including our ability to grow our revenues and manage our business. Our growth will depend upon our ability to raise additional capital, possibly through the issuance of long-term or short-term indebtedness or the issuance of our equity securities in private or public transactions. If we are successful in raising equity capital, because of the number and variability of factors that will determine our use of the capital, our ultimate use of the proceeds may vary substantially from our current plans.  Global financial market conditions will be relevant to our ability to raise funds and make sales in the particular markets in which we will be active. While we believe that the opportunity exists to proceed in spite of these factors, major market disruptions, recent adverse changes in global market conditions, and the regulatory climate may affect our business.

 

Further, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. If additional capital is not available or is not available on acceptable terms, we will have to fully curtail our operations.

 

We will require no less than $2,000,000 in additional funding in order to conduct proposed operations for the next year.  Should we fail to raise such funds, we will not be able to commence construction of the solar power plants. In order to commence construction on all of our currently contemplated projects, we would be required to raise 15,000,000 Euros (approximately $19,220,000) to acquire definitive licenses to own and operate solar parks, and then organize construction bridge loans to pay for the construction of the solar parks.

 

We have incurred operating losses in the last two years, and that we are dependent upon the management’s ability to develop profitable operations. These factors among others may raise substantial doubt about our ability to continue as a going concern which may make it more difficult to obtain future financing.

 

Off Balance Sheet Arrangements

 

As of December 31, 2011, we did not have any off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. 

 

Inflation

 

We believe that inflation has not had, and is not expected to have, a material effect on our operations.

 

Climate Change

 

We believe that neither climate change, nor governmental regulations related to climate change, have had, or are expected to have, any material effect on our operations.

 

 

ITEM 3 – Quantitative and Qualitative Disclosures About Market Risk

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

 

ITEM 4 – CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

As of the end of the period covered by this Report, an evaluation was carried out under the supervision and with the participation of our management, including our Acting Chief Executive Officer and Acting Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934 (the “Exchange Act”). In carrying out that evaluation, management identified a material weakness (as defined in Public Company Accounting Oversight Board Standard No. 2) in our disclosure controls and procedures regarding a lack of adequate personnel and adequate segregation of duties.  Based on their evaluation of our disclosure controls and procedures as of December 31, 2011, our Acting Chief Executive Officer and Acting Chief Financial Officer have concluded that, as of that date, our disclosure controls and procedures were not effective for the purposes described above.

 

The material weakness identified by Management consisted of inadequate staffing and supervision within our bookkeeping and accounting operations. Our bookkeeping and accounting functions are overseen by a single individual who serves as our consultant, which prevents us from segregating duties within our disclosure control system. The inadequate segregation of duties is a weakness because it could lead to the untimely identification and resolution of accounting and disclosure matters or could lead to a failure to perform timely and effective reviews. Accordingly, based on their evaluation of our disclosure controls and procedures as of December 31, 2011, our acting Chief Executive Officer and Chief Financial Officer have concluded that, as of that date, our disclosure controls and procedures were not effective for the purposes described above. We intend to take steps to remediate such procedures as soon as reasonably possible

 

Changes in Internal Control over Financial Reporting

 

There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the quarter ended December 31, 2011 that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

 

PART II – OTHER INFORMATION

 

ITEM 1 – LEGAL PROCEEDINGS

 

To the best knowledge of management, there are no litigation matters pending or threatened against us, nor are we aware of any governmental authority contemplating any legal proceeding against us.

 

ITEM 1A – RISK FACTORS

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 (the “Exchange Act”) and are not required to provide the information under this item.

 

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

There have been no events which are required to be reported under this item.

 

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

 

There have been no events which are required to be reported under this item.

 

ITEM 4 – (REMOVED AND RESERVED)

  

ITEM 5 – OTHER INFORMATION

 

There have been no events which are required to be reported under this item.

 

 

ITEM 6 – EXHIBITS

 

Exhibits:

 

Exhibit No.		Description
31.1		Certification of Chief Executive Officer Pursuant to the Securities Exchange Act of 1934, Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer Pursuant to the Securities Exchange Act of 1934, Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

3POWER ENERGY GROUP, INC.

 

/s/ Umamaheswaran Balasubramaniam
Umamaheswaran Balasubramaniam
Chief Executive Officer
(Principal Executive Officer)

/s/ Shariff Rehman
Shariff Rehman
Principal Financial Officer and
Chief Accounting Officer

 

Date:  February 21, 2012