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EX-5.1 - LEGAL OPINION - SOLAR WIND ENERGY TOWER, INC.cleanwind_ex501.htm
EXCEL - IDEA: XBRL DOCUMENT - SOLAR WIND ENERGY TOWER, INC.Financial_Report.xls
EX-23.1 - CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - SOLAR WIND ENERGY TOWER, INC.cleanwind_ex2301.htm

As filed with the Securities and Exchange Commission on December 21, 2012

 

Registration No. 333-__________

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

 

CLEAN WIND ENERGY TOWER, INC.

 

(Exact name of registrant as specified in its charter)

 

Nevada 4911 82-6008752
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)

 

1997 Annapolis Exchange Parkway, Suite 300,

Annapolis, Maryland 21401

(410) 972-4713

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

Ronald W. Pickett, President, Chief Executive Officer and Director

1997 Annapolis Exchange Parkway, Suite 300,

Annapolis, Maryland 21401

(410) 972-4713

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Please send a copy of all communications to:

 

Gregg E. Jaclin, Esq.

Anslow & Jaclin, LLP

195 Route 9 South, Suite 204

Manalapan, New Jersey 07726

Phone: (732) 409-1212

Fax: (732) 577-1188

 

Stephen M. Fleming, Esq.

Fleming PLLC

49 Front Street, Suite 206

Rockville Centre, New York 11570

Phone: (516) 833-5034

Fax: (516) 977-1209

 

 

Approximate date of commencement proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box: þ

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

  

If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. o

 

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

 

Large accelerated filer ¨ Accelerated filer ¨
Non-accelerated filer (Do not check if smaller reporting company) ¨ Smaller reporting company þ

 

 
 

 

 

CALCULATION OF REGISTRATION FEE

 

Title of Each Class Of
Securities to be Registered
  Amount to be
Registered
   Proposed
Maximum
Aggregate
Offering Price
per share
   Proposed
Maximum
Aggregate
Offering
Price
   Amount of
Registration
Fee
 
Common Stock, par value $.0001 per share     37,000,000(1)   $0.0125(2)     $462,500     $63.09*  

 

(1)  Represents (i) 37,000,000 shares of our common stock that Clean Wind Energy Tower, Inc. (“we” or “us” or “our” or the “Company”) is obligated to issue to Deer Valley Management, LLC. (“Deer Valley”) upon certain put notice by us pursuant to an investment agreement (the “Investment Agreement”) dated November 27, 2012 between Deer Valley and us. In accordance with Rule 416(a), the Registrant is also registering hereunder an indeterminate number of additional common stock that may be issued and resold resulting from stock splits, stock dividends or similar transactions. In the event that the adjustment provisions of the Investment Agreement require the registrant to issue more shares than are being registered in this registration statement, for reasons other than those stated in Rule 416 of the Securities Act, the registrant will file a new registration statement to register those additional shares.

 

(2)  Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457, based on the average of the closing price of our common stock quoted on the OTC Bulletin Board as of November 27, 2012.

  

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the of 1933 or until the registration statement shall become effective on such date as the commission, acting pursuant to said Section 8(a), may determine.

 

 
 

 

 

 The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

PRELIMINARY PROSPECTUS

 

Subject to completion, dated December 21, 2012

37,000,000 Shares of Common Stock

 

CLEAN WIND ENERGY TOWER, INC.

 

This prospectus relates to the resale of up to (i) 37,000,000 shares of common stock of Clean Wind Energy Tower, Inc. (“we” or the “Company”) issuable to Deer Valley Management, LLC (“Deer Valley”) pursuant to an investment agreement (the “Investment Agreement”) dated November 27, 2012 between Deer Valley and us. The Investment Agreement permits us to “put” up to $5,000,000 of shares of our common stock to Deer Valley over a period of up to thirty-six (36) months. We will not receive any proceeds from the resale of these shares of common stock. However, we will receive proceeds from the sale of securities upon our exercise of the right to “put” pursuant to the Investment Agreement. Deer Valley is deemed an underwriter for our common stock.

 

Our common stock is quoted on the OTC Bulletin Board under the symbol “CWET.” On November 27, 2012, the last reported sale price of our common stock on the OTC Bulletin Board was $0.0125 per share.

 

The selling stockholder may offer all or part of the shares for resale from time to time through public or private transactions, at either prevailing market prices or at privately negotiated prices. Deer Valley is paying all of the registration expenses incurred in connection with the registration of the shares except for accounting fees and expenses. We will not pay any of the selling commissions, brokerage fees and related expenses.

 

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 5 to read about factors you should consider before investing in shares of our common stock.

  

The Date of This Prospectus Is:  _____________, 2012

 

You should rely only on the information contained in this prospectus. We have not authorized any dealer, salesperson or other person to provide you with information concerning us, except for the information contained in this prospectus. The information contained in this prospectus is complete and accurate only as of the date on the front cover page of this prospectus, regardless when the time of delivery of this prospectus or the sale of any common stock. This prospectus is not an offer to sell, nor is it a solicitation of an offer to buy, our common stock in any jurisdiction in which the offer or sale is not permitted.

 

 
 

 

TABLE OF CONTENTS

 

  Page
Prospectus Summary 3
The Offering 4
Risk Factors 5
Special Note Regarding Forward-Looking Statements 14
Use of Proceeds 15
Determination of Offering Price 15
Dilution 15
Selling Shareholders 15
Plan of Distribution 17
Description of Securities to be Registered 18
Description of Business 19
Management’s Discussion and Analysis of Financial Condition and Results of Operations 27
Directors, Executive Officers, Promoters, and Control Persons 32
Executive Compensation 34
Compensation Discussion and Analysis 34
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 37
Experts 39
Legal Matters 39
Where You Can Find More Information 39
Index to Financial Statements F-1

 

 

1
 

 

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

  

This prospectus contains forward looking statements that involve risks and uncertainties, principally in the sections entitled “Description of Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All statements other than statements of historical fact contained in this prospectus, including statements regarding future events, our future financial performance, business strategy, and plans and objectives of management for future operations, are forward-looking statements. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” or “will” or the negative of these terms or other comparable terminology. Although we do not make forward looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks outlined under “Risk Factors” or elsewhere in this prospectus, which may cause our or our industry’s actual results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Moreover, we operate in a highly regulated, very competitive, and rapidly changing environment. New risks emerge from time to time and it is not possible for us to predict all risk factors, nor can we address the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ materially from those contained in any forward-looking statements.

 

We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short term and long term business operations, and financial needs. These forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from those reflected in the forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this prospectus, and in particular, the risks discussed below and under the heading “Risk Factors” and those discussed in other documents we file with the Securities and Exchange Commission. The following discussion should be read in conjunction with the consolidated financial statements and notes included herewith. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statement.

 

You should not place undue reliance on any forward-looking statement, each of which applies only as of the date of this prospectus. You should be aware that the occurrence of the events described in the section entitled “Risk Factors” and elsewhere in this prospectus could negatively affect our business, operating results, financial condition and stock price. Except as required by law, we undertake no obligation to update or revise publicly any of the forward-looking statements after the date of this prospectus to conform our statements to actual results or changed expectations.

 

2
 

 

PROSPECTUS SUMMARY

 

This summary highlights selected information contained elsewhere in this prospectus.  This summary does not contain all the information that you should consider before investing in the common stock.  You should carefully read the entire prospectus, including “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and related notes thereto contained elsewhere in this prospectus, before making an investment decision.

 

Unless the context requires otherwise, references to “the Company,” “we,” “us,” “our,” and “Clean Wind” refer to Clean Wind Energy Tower, Inc.

 

Business Overview

 

On December 29, 2010, Clean Wind Energy Tower, Inc., a Nevada corporation ("Clean Wind"), completed a reverse merger (the “Merger”) with Clean Wind Energy, Inc., a corporation formed under the laws of the State of Delaware on July 26, 2010 (“Clean Wind Energy”).  In connection with the Merger, we issued to the stockholders of Clean Wind Energy in exchange for their Clean Wind Energy Common Stock, the right to receive an aggregate of 300,000,000 shares of our Common Stock.  As a result of the reverse merger, Clean Wind Energy is now a wholly-owned subsidiary of Clean Wind.

 

For accounting purposes, Clean Wind Energy was the surviving entity. The transaction was accounted for as a recapitalization of Clean Wind Energy pursuant to which Clean Wind Energy was treated as the surviving and continuing entity although we are the legal acquirer rather than a reverse acquisition.  Accordingly, our historical financial statements are those of Clean Wind Energy immediately following the consummation of the reverse merger. Also, going forward the business operations of Clean Wind Energy became our principal business operations.

 

We plan to design, develop, and construct large downdraft towers that use benevolent, non-toxic natural elements to generate electricity and clean water economically (“Downdraft Towers”) by integrating and synthesizing numerous proven as well as emerging technologies. In addition to constructing Downdraft Towers in the United States and abroad, we intend to be prepared to establish partnerships at home and abroad to propagate these systems and meet increasing global demand for clean water and electricity

 

We were incorporated under the laws of the State of Idaho on January 22, 1962, as Superior Mines Company.  In 1964, our name was changed to Superior Silver Mines, Inc.  On December 27, 2010, we reincorporated as a Nevada corporation.  Prior to the Merger, we had been dormant for a number of years and had no known mineral reserves.  On January 21, 2011, we changed our name from Superior Silver Mines, Inc. to Clean Wind Energy Tower, Inc.  In addition, effective January 24, 2011, our quotation symbol was changed from SSVM to CWET.

   

Our executive offices are located at 1997 Annapolis Exchange Parkway, Suite 300, Annapolis, Maryland 21401.

 

Transaction with Deer Valley

 

Investment Agreement

 

On November 27, 2012, the Company entered into the Investment Agreement with Deer Valley. The Investment Agreement provides that the Company may, from time to time in its sole discretion when it determines appropriate in accordance with the terms and conditions of the Investment Agreement, during the Open Period (defined below), deliver a put notice (the “Put Notice”) to Deer Valley, which states the dollar amount of securities that the Company intends to sell to Deer Valley on a date specified in the Put Notice (the “Put”). The Company will be entitled to Put to Deer Valley (the “Put Amount”) the number of shares of common stock equal to a maximum of two hundred percent (200%) of the average daily volume (U.S. market only) of our common stock for the ten (10) trading days prior to the applicable Put Notice. The purchase price per share to be paid by Deer Valley for each Put Amount will be calculated at a 20% discount to the average of the three (3) lowest closing bid prices during the ten (10) trading days immediately prior to Deer Valley receipt of the Put Notice. The “Open Period” begins on the trading day after a registration statement is declared effective as to the common stock to be subject to the Put, and ends 36 months after such date, unless earlier terminated in accordance with the Investment Agreement.

 

The Company has the right, pursuant to the terms of the Investment Agreement to Put up to $5 million of common stock to Deer Valley, approximately 500,000,000 shares of common stock based upon the current market price (the closing bid price as of November 27, 2012), representing 183.36% of the outstanding common stock of the Company at the time the Company Put the maximum investment amount of $5 million of shares of common stock.

 

3
 

 

There are put restrictions applied on days between the date the Put Notice is delivered and the closing date with respect to that particular Put. During this time, the Company shall not be entitled to deliver another Put Notice. In addition, Deer Valley will not be obligated to purchase shares if Deer Valley’s total number of shares beneficially held at that time would exceed 4.99% of the number of shares of the Company’s common stock as determined in accordance with Rule 13d-1 of the Securities Exchange Act of 1934, as amended. In addition, the Company is not permitted to draw on the facility unless there is an effective Registration Statement (as further explained below) to cover the resale of the shares.

 

The Investment Agreement further provides that Deer Valley and the Company are each entitled to customary indemnification from the other for any losses or liabilities they may suffer as a result of any breach by the other of any provisions of the Investment Agreement or Registration Rights Agreement (as defined below).

 

Registration Rights Agreement

 

In connection with the Investment Agreement, the Company and Deer Valley entered into a registration rights agreement (“Registration Rights Agreement”). Under the Registration Rights Agreement, the Company will use its commercially reasonable efforts to file, within twenty-one (21) days of the date of the Investment Agreement, a Registration Statement on Form S-1 covering the resale of the common stock subject to the Investment Agreement. The Company has agreed to use all commercially reasonable efforts to have the Registration Statement declared effective by the SEC. Deer Valley has agreed to pay all legal costs and expenses associated with the Registration Rights Agreement.

 

Where You Can Find Us

 

Our principal executive office is located at 1997 Annapolis Exchange Parkway, Suite 300, Annapolis, Maryland 21401. Our telephone number at our executive office is (410) 972-4713.

 

THE OFFERING

 

Common stock offered by Selling Stockholder 37,000,000 shares of common stock.
   
Common stock outstanding before the offering 272,691,189 shares of common stock as of the date hereof.
   
Common stock outstanding after the offering 309,691,189 shares of common stock.
   
Use of proceeds We will not receive any proceeds from the sale of shares by the selling stockholder. However, we will receive proceeds from the sale of securities pursuant to the Investment Agreement. The proceeds received under the Investment Agreement will be used for general corporate and working capital purposes and acquisitions or assets, businesses or operations or for other purposes that the Board of Directors, in its good faith deem to be in the best interest of the Company.
   
OTCBB and OTCQB Trading Symbol CWET
   
Risk Factors The common stock offered hereby involves a high degree of risk and should not be purchased by investors who cannot afford the loss of their entire investment. See “Risk Factors”.

 

4
 

 

RISK FACTORS

 

An investment in our common stock involves a high degree of risk.  You should carefully consider the risks described below, together with all of the other information included in this prospectus, before making an investment decision with regard to our securities. The statements contained in or incorporated into this Prospectus that are not historic facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. If any of the following risks actually occurs, our business, financial condition or results of operations could suffer.  In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.

 

Our results of operations, financial condition and cash flows can be adversely affected by various risks. These risks include, but are not limited to, the principal factors listed below and the other matters set forth in this annual report on Form 10-K. You should carefully consider all of these risks before making an investment decision.

 

Risks Related to Our Business and the Industry in Which We Compete

 

Our independent auditors have expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.

 

The report of our independent auditors dated March 30, 2012 on our consolidated financial statements for the period from July 26, 2010 (date of inception) through December 31, 2011 included an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern. Our independent auditors’ doubts are based on our inability to generate sufficient cash flow to sustain our operations without securing additional financing, deficit accumulated during development stage, negative cash flows from operations and our limited cash balances and working capital deficit position. Our ability to continue as a going concern will be determined by our ability to obtain additional funding in the short term to enable us to realize the commercialization of our planned business operations.  Our consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

We are an early stage company.  We have not yet commenced with the construction of our Downdraft Towers or the production of electricity.

 

We have a limited operating history and has primarily engaged in operations relating to the development of its business plan.  As an early-stage entity, we are subject to many of the risks common to such enterprises, including the ability of our company to implement its business plan, market acceptance of its proposed business, under-capitalization, cash shortages, limitations with respect to personnel, financing and other resources, and uncertainty of our company’s ability to generate revenues.  There can be no assurance that our activities will be successful or result in any revenues or profit for our company, and the likelihood of our success must be considered in light of the stage in its development.  To date, we have generated no revenue and has generated losses.  We  believe we have engaged professionals and consultants experienced in the type of business contemplated by our company; however, there can be no assurance that the predictions, opinions, analyses, or conclusions of such professionals will prove to be accurate.  In addition, no assurance can be given that we will be able to consummate its business strategy and plans or that financial or other limitations may force us to modify, alter, significantly delay, or significantly impede the implementation of such plans or our ability to continue operations.  If we are unable to successfully implement our business strategy and plans, investors may lose their entire investment in our company.

 

Potential investors should also be aware of the difficulties normally encountered by new renewable energy companies. The likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays encountered in connection with the inception of the enterprise that we plan to undertake. These potential problems include, but are not limited to, unanticipated problems relating to construction, operation and distribution, and additional costs and expenses that may exceed current estimates.

 

Future financings will involve a dilution of the interests of our stockholders upon the issuance of additional shares of Common Stock or other securities.

 

We will need to engage in additional financings in the future.  There can be no assurances that such financings will ever be completed, but any such financings will involve a dilution of the interests of our stockholders upon the issuance of additional shares of Common Stock or other securities.  Attaining such additional financing may not be possible, or if additional capital may be otherwise available, the terms on which such capital may be available may not be commercially feasible or advantageous to existing shareholders.  We expect to issue shares of our Common Stock and/or other securities in exchange for additional financing.

 

5
 

 

We anticipate significant future capital needs and the availability of future capital is uncertain.

 

We have experienced negative cash flows from operations since our inception. We will be required to spend substantial funds to continue research and development. We will need to raise additional capital. Our capital requirements will depend on many factors, primarily relating to the problems, delays, expenses and complications frequently encountered by development stage companies; the progress of our research and development programs; the costs and timing of seeking regulatory approvals of our products under development; our ability to obtain such regulatory approvals; costs in filing, prosecuting, defending, and enforcing any patent claims and other intellectual property rights; the extent and terms of any collaborative research, manufacturing, marketing, or other arrangements; and changes in economic, regulatory, or competitive conditions or our planned business. To satisfy its capital requirements, we may seek to raise funds in the public or private capital markets. We may seek additional funding through corporate collaborations and other financing vehicles. There can be no assurance that any such funding will be available to us, or if available, that it will be available on acceptable terms. If adequate funds are not available, we may be required to curtail significantly one or more of its research or development programs or it may be required to obtain funds through arrangements with future collaborative partners or others that may require we relinquish rights to some or all of its technologies or products under development. If we are successful in obtaining additional financing, the terms of the financing may have the effect of diluting or adversely affecting the holdings or the rights of the holders of Common Stock.

 

We have a history of losses.

 

We expect to incur non-capitalized development costs and general and administrative expenses prior to the completion of construction and commencement of operation of our proposed projects. We cannot predict if we will ever achieve profitability and, if we do, we may not be able to sustain or increase our profitability. If we cannot achieve or maintain profitability, we may not be able to continue to absorb the resulting financial losses. If we continue to suffer financial losses, our business may be jeopardized and our shareholders may lose all of their investment in our shares.

 

Our strategies for development of the business might not be successful.

 

We are currently evaluating potential development strategies for its business. It may take several years, if ever, for our company to achieve cumulative positive cash flow. We could experience significant difficulties in executing its business plan, including: inability to successfully implement our business plan; changes in market conditions; inability to obtain necessary financing; delays in completion of our projects or their underlying technologies; inaccurate cost estimates; changes in government or political reform; or we may not benefit from the proposed projects as we expected. Our inability to develop and market our business successfully and to generate positive cash flows from these operations in a timely manner would have a material adverse effect on our ability to meet our working capital requirements.

 

We expect to rely upon strategic relationships in order to execute our business plan and we may not be able to consummate the strategic relationships necessary to execute its business plan.

 

Our  plans to enter into and rely on strategic relationships with other parties, in particular to acquire rights necessary to develop and build proposed projects and to develop and build such projects. These strategic relationships could include licensing agreements, partnerships, joint ventures, or even business combinations. We believe that these relationships will be particularly important to tour future growth and success due to the size and resources of our company and the resources necessary to complete our proposed projects. We may, however, not be able to successfully identify potential strategic relationships. Even if we do identify one or more potentially beneficial strategic relationships, it may not be able to consummate these relationships on favorable terms or at all, obtain the benefits it anticipates from such relationships or maintain such relationships. In addition, the dynamics of our relationships with possible strategic partners may require our company to incur expenses or undertake activities it would not otherwise be inclined to undertake in order to fulfill our obligations to these partners or maintain our relationships. To the extent we consummate strategic relationships, it may become reliant on the performance of independent third parties under such relationships. Moreover, certain potentially critical strategic relationships are only in the early stages of discussion and have not been officially agreed to and formalized. If strategic relationships are not identified, established or maintained, or are established or maintained on terms that become unfavorable, our company’s business prospects may be limited, which could have a negative impact on our ability to execute our business plan, diminish our ability to conduct our operations and/or materially and adversely affect our business and financial results. 

 

6
 

 

Project development or construction activities may not be successful and proposed projects may not receive required permits or construction may not proceed as planned.

 

The development and construction of our proposed projects will involve numerous risks. We may be required to spend significant sums for preliminary engineering, permitting, legal, and other expenses before we can determine whether a project is feasible, economically attractive or capable of being built. Success in developing a particular project is contingent upon, among other things: (i) negotiation of satisfactory engineering, procurement and construction agreements; (ii) receipt of required governmental permits and approvals, including the right to interconnect to the electric grid on economically acceptable terms; (iii) payment of interconnection and other deposits (some of which may be non-refundable); (iv) obtaining construction financing; and (v) timely implementation and satisfactory completion of construction.

 

Successful completion of a particular project may be adversely affected by numerous factors, including: (i) delays in obtaining required governmental permits and approvals with acceptable conditions; (ii) uncertainties relating to land costs for projects on land subject to Bureau of Land Management procedures; (iii) unforeseen engineering problems; (iv) construction delays and contractor performance shortfalls; (v) work stoppages; (vi) cost over-runs; (vii) equipment and materials supply; (viii) adverse weather conditions; and (ix) environmental and geological conditions.

 

The estimates and projections contained in this prospectus may not be realized.

 

Any estimates or projections in this prospectus have been prepared on the basis of assumptions and hypotheses, which we believe to be reasonable. However, no assurance can be given that the potential benefits described in this prospectus will prove to be available.  Such assumptions are highly speculative and, while based on management’s best estimates of projected sales levels, operational costs, consumer preferences, and our general economic and competitive conditions in the industry, there can be no assurance that we will operate profitably or remain solvent.  To date, we have not operated profitably and have a history of losses.  If our plans prove unsuccessful, investors could lose all or part of their investment.  There can be no assurance that we will be able to generate any revenue or profits.

 

Our business is subject to significant government regulation and, as a result, changes to such regulations may adversely affect our business.

 

Although independent and small power producers may generate electricity and engage in wholesale sales of energy without being subject to the full panoply of state and/or provincial and federal regulation to the same extent as a public utility company, our planned operations will nonetheless be subject to changes in government regulatory requirements, such as regulations related to the environment, zoning and permitting, financial incentives, taxation, competition, pricing, and FERC and state PUC regulations on competition. The operation of our proposed projects will be subject to regulation by various U.S. government agencies at the federal, state and municipal level. There is always the risk of change in government policies and laws, including but not limited to laws and regulations relating to income, capital, sales, corporate or local taxes, and the removal of tax incentives. Changes in these regulations could have a negative impact on our potential profitability. Laws and tax policies may change and such changes may be favorable or unfavorable to our company, which may result in the cancellation of proposed projects or reduce anticipated revenues and cash flow.

 

We may be unable to acquire or lease land and/or obtain the approvals, licenses and permits necessary to build and operate our proposed projects in a timely and cost effective manner, and regulatory agencies, local communities or labor unions may delay, prevent or increase the cost of construction and operation of our proposed projects.

 

In order to construct and operate our proposed projects, we need to acquire or lease land and obtain all necessary local, county, state and federal approvals, licenses and permits. We may be unable to acquire the land or lease interests needed, may not receive or retain the requisite approvals, permits and licenses or may encounter other problems which could delay or prevent us from successfully constructing and operating proposed projects.

 

Proposed projects may be located on or require access through public lands administered by federal and state agencies pursuant to competitive public leasing and right-of-way procedures and processes. The authorization for the use, construction and operation of our proposed projects and associated transmission facilities on federal, state and private lands will also require the assessment and evaluation of mineral rights, private rights-of-way and other easements; environmental, agricultural, cultural, recreational and aesthetic impacts; and the likely mitigation of adverse impacts to these and other resources and uses. The inability to obtain the required permits and, potentially, excessive delay in obtaining such permits due, for example, to litigation, could prevent us from successfully constructing and operating our proposed projects. Moreover, project approvals subject to project modifications and conditions, including mitigation requirements and costs, could affect the financial success of our proposed projects.

 

7
 

 

Our ability to manage our growth successfully is crucial to our future.

 

We are subject to a variety of risks associated with a growing business. Our ability to operate successfully in the future depends upon our ability to finance, develop, and construct future renewable energy projects, implement and improve the administration of financial and operating systems and controls, expand our technical capabilities and manage our relationships with landowners and contractors. Our failure to manage growth effectively could have a material adverse effect on our business or results of operations.

 

Notwithstanding the Recovery Act and other regulatory incentives, we may not be able to finance the development or the construction costs of building our planned projects.

 

We do not have sufficient funds from the cash flow of our operations to fully finance the development or the construction costs of building our proposed projects. Additional funds will be required to complete the development and construction of our proposed projects, to find and carry out the development of properties, and to pay the general and administrative costs of operating our business. Additional financing may not be available on acceptable terms, if at all. If we are unable to raise additional funds when needed, we may be required to delay development and construction of our proposed projects, reduce the scope of our proposed projects, and/or eliminate or sell some or all of our development projects, if any.

 

We may not be able to obtain access to the transmission lines necessary to deliver the power we plan to produce and sell.

 

We will depend on access to transmission facilities so that we may deliver power to purchasers. If existing transmission facilities do not have available transmission capacity, we would be required to pay for the upgrade of existing transmission facilities or to construct new ones. There can be no assurance that we will be able to secure access to transmission facilities at a reasonable cost, or at all. As a result, expected profitability on a proposed project may be lower than anticipated or, if we have no access to electricity transmission facilities, we may not be able to fulfill our obligations to deliver power or to construct the project or we may be required to pay liquidated damages.

 

Changes in interest rates and debt covenants and increases in turbine and generator prices and construction costs may result in our proposed projects not being economically feasible.

 

Increases in interest rates and changes in debt covenants may reduce the amounts that we can borrow, reduce the cash flow, if any, generated by our proposed projects, and increase the equity required to complete the construction of our proposed projects. The cost of wind turbines, generators and construction costs have increased significantly over the last four years. Further increases may increase the cost of our proposed projects to the point that such projects are not feasible given the prices utilities are willing to pay. There can be no assurance that we will be able to negotiate power purchase agreements with sufficiently profitable electricity prices in the future.

 

We may not be able to secure power purchase agreements.

 

We may not be able to secure power purchase agreements for our proposed projects. In the event that we do secure power purchase agreements, if we fail to construct our proposed projects in a timely manner, we may be in breach of our power purchase agreements and such agreements may be terminated.

 

The operation of our proposed projects may be subject to equipment failure.

 

After the construction of our proposed projects, the electricity produced may be lower than anticipated because of equipment malfunction. Unscheduled maintenance can result in lower electricity production for several months or possibly longer depending on the nature of the outage, and correspondingly, in lower revenues.

 

Changes in weather patterns may affect our ability to operate our proposed projects.

 

Meteorological data we collect during the development phase of a proposed project may differ from actual results achieved after the project is erected. While long-term precipitation patterns have not varied significantly, short-term patterns, either on a seasonal or on a year-to-year basis, may vary substantially. These variations may result in lower revenues and higher operating losses.

 

Environmental damage on our properties may cause us to incur significant financial expenses.

 

Environmental damage may result from the development and operation of our proposed projects. The construction of our proposed initial Downdraft Tower involves, among other things, land excavation and the installation of concrete foundations. Equipment can be a source of environmental concern, including noise pollution, damage to the soil as a result of oil spillage, and peril to certain migratory birds and animals that live, feed on, fly over, or cross the property. In addition, environmental regulators may impose restrictions on our operations, which would limit our ability to obtain the appropriate zoning or conditional use permits for our project. We may also be assessed significant financial penalties for any environmental damage caused on properties that are leased, and we may be unable to sell properties that are owned. Financial losses and liabilities that may result from environmental damage could affect our ability to continue to do business.

 

8
 

 

Larger developers have greater resources and expertise in developing and constructing renewable energy projects.

 

We face significant competition from large power project developers, including electric utilities and large independent power producers that have greater project development, construction, financial, human resources, marketing and management capabilities than our company. They have a track record of completing projects and may be able to acquire funding more easily to develop and construct projects. They have also established relationships with energy utilities, transmission companies, turbine suppliers, and plant contractors that may make our access to such parties more difficult.

 

Renewable energy must compete with traditional fossil fuel sources.

 

In addition to competition from other industry participants, we face competition from fossil fuel sources such as natural gas and coal, and other renewable energy sources such as solar, traditional wind, hydro and geothermal. The competition depends on the resources available within the specific markets. Although the cost to produce clean, reliable, renewable energy is becoming more competitive with traditional fossil fuel sources, it generally remains more expensive to produce, and the reliability of its supply is less consistent than traditional fossil fuel. However, deregulation, legislative mandates for renewable energy, and consumer preference for environmentally more benign energy sources are becoming important factors in increasing the development of alternative energy projects.

 

The wind energy industry in California is highly competitive since wind plays an integral role in the electricity portfolio in California.

 

We are investigating the feasibility of locating a Downdraft Tower in California.  Since wind plays an integral role in the electricity portfolio in California and wind energy requires a significant amount of land resource, the wind energy industry in California is highly competitive. Wind developers compete for leased and owned land with favorable wind characteristics, limited supply of turbines and contractors, and for purchasers and available transmission capacity. There is no guarantee that we will be able to acquire the significant land resources needed to develop projects in California.

 

Our ability to hire and retain qualified personnel and contractors will be an important factor in the success of our business. Our failure to hire and retain qualified personnel may result in our inability to manage and implement our plans for expansion and growth.

 

Competition for qualified personnel in the renewable energy industry is significant. To manage growth effectively, we must continue to implement and improve our management systems and to recruit and train new personnel. We may not be able to continue to attract and retain the qualified personnel necessary to carry on our business. If we are unable to retain or hire additional qualified personnel as required, we may not be able to adequately manage and implement our plans for expansion and growth.

 

The market in which we operate is rapidly evolving and we may not be able to maintain our profitability.

 

As a result of the emerging nature of the markets in which we plan to compete and the rapidly evolving nature of our industry, it is particularly difficult for us to forecast our revenues or earnings accurately. Our current and future expense levels are based largely on our investment plans and estimates of future revenues and are, to a large extent, fixed. We may not be able to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. Accordingly, any significant shortfall in revenues relative to our planned expenditures would have an immediate adverse effect on our business, results of operations and financial condition.

  

We depend on key personnel, the loss of which could have a material adverse effect on us.

 

Our performance depends substantially on the continued services and on the performance of our senior management and other key personnel. Our ability to retain and motivate these and other officers and employees is fundamental to our performance.  The unexpected loss of services of one or more of these individuals could have a material adverse effect on us. We are not protected by a material amount of key-person or similar life insurance covering our executive officers and other directors. We have entered into employment agreements with our executive officers, but the non-compete period with respect to certain executive officers could, in some circumstances in the event of their termination of employment with our company, end prior to the employment term set forth in their employment agreements.

 

Certain legal proceedings and regulatory matters could adversely impact our results of operations.

 

We may be subject from time to time to various claims involving alleged breach of contract claims, intellectual property and other related claims, and other litigations. Certain of these lawsuits and claims, if decided adversely to us or settled by us, could result in material liability to us or have a negative impact on our reputation or relations with its employees, customers, licensees or other third parties. In addition, regardless of the outcome of any litigation or regulatory proceedings, such proceedings could result in substantial costs and may require that we devote substantial time and resources to defend itself. Further, changes in governmental regulations in the U.S. could have an adverse impact on our results of operations.

 

9
 

 

Our results may be adversely affected by the impact that disruptions in the credit and financial markets have on our customers and the energy industry.

 

Beginning in late 2008 and continuing throughout 2009, energy and utility companies faced difficult conditions as a result of significant disruptions in the global economy, the repricing of credit risk and the deterioration of the financial markets. Continued volatility and further deterioration in the credit markets may reduce our access to financing. These events could negatively impact our operations and financial condition and our ability to raise the additional capital necessary to finance our operations.

 

The effects of the recent global economic crisis may impact our business, operating results, or financial condition.

 

The recent global economic crisis has caused disruptions and extreme volatility in global financial markets and increased rates of default and bankruptcy, and has impacted levels of spending. These macroeconomic developments could negatively affect our business, operating results, or financial condition in a number of ways. For example, potential clients may delay or decrease spending or may not pay.

 

Our insurance coverage may not be adequate.

 

If we were held liable for amounts exceeding the limits of its insurance coverage in place at any given time or for claims outside the scope of that coverage, our business, results of operations and financial conditions could be materially and adversely affected.

  

Our business is subject to extensive governmental regulation that could reduce our profitability, limit our growth, or increase competition.

 

Our planned businesses are subject to extensive federal, state and foreign governmental regulation and supervision, which could reduce our potential profitability or limit our potential growth by increasing the costs of regulatory compliance, limiting or restricting the products or services we plan to sell or the methods by which we plan to sell our products and services, or subjecting our businesses to the possibility of regulatory actions or proceedings.

 

In all jurisdictions the applicable laws and regulations are subject to amendment or interpretation by regulatory authorities. Generally, such authorities are vested with relatively broad discretion to grant, renew and revoke licenses and approvals and to implement regulations. Accordingly, we may be precluded or temporarily suspended from carrying on some or all of our planned activities or otherwise fined or penalized in a given jurisdiction. No assurances can be given that our business will be allowed to be, or continue to be, conducted in any given jurisdiction as we plan.

 

Competition resulting from these developments could cause the supply of, and demand for, our planned products and services to change, which could adversely affect our results of operations and financial condition.

 

Our planned operations will expose us to various international risks that could adversely affect our business.

 

We are seeking to reach agreements for the provision of key aspects of our business with foreign operators, specifically in Mexico. Accordingly, we may become subject to legal, economic and market risks associated with operating in foreign countries, including:

 

·the general economic and political conditions existing in those countries;

 

·devaluations and fluctuations in currency exchange rates;

 

·imposition of limitations on conversion of foreign currencies or remittance of dividends and other payments by foreign subsidiaries;

 

·imposition or increase of withholding and other taxes on remittances and other payments by subsidiaries;

 

·hyperinflation in certain foreign countries;

 

·imposition or increase of investment and other restrictions by foreign governments;

 

·longer payment cycles;

 

·greater difficulties in accounts receivable collection; and

 

·the requirement of complying with a wide variety of foreign laws.

 

10
 

 

Our ability to conduct business in foreign countries may be affected by legal, regulatory, political and economic risks.

 

Our ability to conduct business in foreign countries is subject to risks associated with international operations. These include:

 

·the burdens of complying with a variety of foreign laws and regulations;

 

·unexpected changes in regulatory requirements; and

 

·new tariffs or other barriers in some international markets.

   

We are also subject to general political and economic risks in connection with our international operations, including:

 

·political instability and terrorist attacks;

 

·changes in diplomatic and trade relationships; and

 

·general economic fluctuations in specific countries or markets.

 

We cannot predict whether quotas, duties, taxes, or other similar restrictions will be imposed by the U.S. or foreign countries upon our business in the future, or what effect any of these actions would have on our business, financial condition or results of operations. Changes in regulatory, geopolitical, social or economic policies and other factors may have a material adverse effect on our business in the future or may require us to significantly modify our current business practices.

 

The occurrence of natural or man-made disasters could adversely affect our financial condition and results of operations.

 

We are exposed to various risks arising out of natural disasters, including earthquakes, hurricanes, fires, floods and tornadoes, and pandemic health events such as H1N1 influenza, as well as man-made disasters, including acts of terrorism and military actions. The continued threat of terrorism and ongoing military actions may cause significant volatility in global financial markets, and a natural or man-made disaster could trigger an economic downturn in the areas directly or indirectly affected by the disaster. These consequences could, among other things, result in a decline in business and increased claims from those areas. Disasters also could disrupt public and private infrastructure, including communications and financial services, which could disrupt our normal business operations.

 

Our inability to successfully recover should we experience a disaster or other business continuity problem could cause material financial loss, loss of human capital, regulatory actions, reputational harm or legal liability.

 

Should we experience a local or regional disaster or other business continuity problem, such as an earthquake, hurricane, terrorist attack, pandemic, security breach, power loss, telecommunications failure or other natural or man-made disaster, our continued success will depend, in part, on the availability of our personnel, our office facilities, and the proper functioning of our computer, telecommunication and other related systems and operations.

 

Our operations are dependent upon our ability to protect our technology infrastructure against damage from business continuity events that could have a significant disruptive effect on our operations. We could potentially lose operation of our projects or experience material adverse interruptions to our operations or delivery of services to our clients in a disaster recovery scenario.

 

We plan to regularly assess and take steps to improve upon our existing business continuity plans and key management succession. However, a disaster on a significant scale or affecting certain of our key operating areas within or across regions, or our inability to successfully recover should we experience a disaster or other business continuity problem, could materially interrupt our business operations and cause material financial loss, loss of human capital, regulatory actions, reputational harm, damaged client relationships or legal liability.

 

Assertions by a third party that we infringed its intellectual property could result in costly and time-consuming litigation, expensive licenses or the inability to operate as planned.

 

The energy and technology industries are characterized by the existence of a large number of patents, copyrights, trademarks and trade secrets and by frequent litigation based on allegations of infringement or other violations of intellectual property rights. There is a possibility of intellectual property rights claims against us. Our technologies may not be able to withstand third-party claims or rights restricting their use. Companies, organizations or individuals, including our competitors, may hold or obtain patents or other proprietary rights that would prevent, limit or interfere with our ability to provide our services or develop new products or services, which could make it more difficult for us to operate our business. Any litigation or claims, whether or not valid, could be time-consuming, expensive to litigate or settle and could divert our managements’ attention and financial resources. If we determined to have infringed upon a third party’s intellectual property rights, we may be required to pay substantial damages, stop using technology found to be in violation of a third party’s rights or seek to obtain a license from the holder of the infringed intellectual property right, which license may not be available on reasonable terms, or at all, and may significantly increase our operating expenses or may require our company to restrict our business activities in one or more respects. We may also be required to develop alternative non-infringing technology that could require significant effort and expense or may not be feasible. In the event of a successful claim of infringement against us and our failure or inability to obtain a license to the infringed technology, our business and results of operations could be harmed.

 

11
 

 

Our business will be adversely affected if we are unable to protect its intellectual property rights from unauthorized use or infringement by third-parties.

 

We intend to rely on a combination of trademark, patent, trade secret and copyright law, license agreements and contractual restrictions, including confidentiality agreements, invention assignment agreements and non-disclosure agreements with employees, contractors and suppliers, to protect our proprietary rights, all of which provide only limited protection.  We believe our intellectual property rights are valuable, and any inability to protect them could reduce the value of our products, services and brand. Various events outside of our control pose a threat to our intellectual property rights as well as to our products and services. The efforts we have taken to protect its proprietary rights may not be sufficient or effective, may not be enforceable or may be capable of being effectively circumvented. Any significant impairment of our intellectual property rights could harm our business or our ability to compete. Also, protecting our intellectual property rights is costly and time consuming.  We also seeks to maintain certain intellectual property as trade secrets. The secrecy could be compromised by outside parties, or by our employees, which would cause our company to lose the competitive advantage resulting from these trade secrets. 

 

Risks Related to Our Securities

 

There is little current trading of our shares.  Our stock price is likely to be highly volatile.

 

Although prices for our shares of Common Stock are quoted on the OTCBB and OTCQB, there is little current trading and no assurance can be given that an active public trading market will develop or, if developed, that it will be sustained.  The OTCBB and OTCQB are generally regarded as less efficient and less prestigious trading markets than other national markets.  There is no assurance if or when our Common Stock will be quoted on another more prestigious exchange or market. The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:

 

·changes in the communications technology industry and markets;
·volume and timing of subscriptions from major customers;
·competitive pricing pressures;
·our ability to obtain working capital financing;
·technological innovations or new competitors in our market;
·additions or departures of key personnel;
·our ability to execute our business plan;
·operating results that fall below expectations;
·loss of any strategic relationship;
·industry or regulatory developments;
·economic and other external factors; and
·period-to-period fluctuations in our financial results.

  

In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock and for some time there will likely be a thin trading market for the stock, which causes trades of small blocks of stock to have a significant impact on the stock price.

 

Because our Common Stock is likely to be considered a “penny stock,” our trading will be subject to regulatory restrictions.  

 

Our Common Stock is currently, and in the near future will likely continue to be, considered a “penny stock.”  The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in “penny stocks.”  Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system).  The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the SEC, which specifies information about penny stocks and the nature and significance of risks of the penny stock market.  The broker-dealer also must provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer and any salesperson in the transaction, and monthly account statements indicating the market value of each penny stock held in the customer’s account.  In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction.  These disclosure and other requirements may adversely affect the trading activity in the secondary market for our Common Stock.

 

12
 

 

Deer Valley will pay less than the then-prevailing market price for our Common Stock.

 

The common stock to be issued to Deer Valley pursuant to the Investment Agreement will be purchased at a 20% discount to the average of the three lowest closing bid prices during the ten (10) trading days immediately prior to Deer Valley receipt of the Put Notice. Deer Valley has a financial incentive to sell our common stock immediately upon receiving the shares to realize the profit equal to the difference between the discounted price and the market price. If Deer Valley sells the shares, the price of our common stock could decrease. If our stock price decreases, Deer Valley may have a further incentive to sell the shares of our common stock that it holds. These sales may have a further impact on our stock price.

 

Your ownership interest may be diluted and the value of our common stock may decline by exercising the put right pursuant to the Investment Agreement.

 

Effective November 27, 2012, we entered into a $5,000,000 Investment Agreement with Deer Valley. Pursuant to the Investment Agreement, when we deem it necessary, we may raise capital through the private sale of our common stock to Deer Valley at a price equal to a 20% discount to the average of the three lowest closing bid prices during the ten (10) trading days immediately prior to Deer Valley receipt of the Put Notice. Because the Put Amount is lower than the prevailing market price of our common stock, to the extent that the put right is exercised, your ownership interest may be diluted.

 

We are registered an aggregate of 37,000,000 shares of common stock to be issued under the Investment Agreement. The sale of such shares could depress the market price of our common stock.

 

We are registering an aggregate of 37,000,000 Shares of common stock under the registration statement of which this prospectus forms a part for issuance pursuant to the Investment Agreement. Notwithstanding Deer Valley's ownership limitation, the 37,000,000 Shares represent approximately 13.57% of our shares of common stock outstanding immediately after our exercise of the put right under the Investment Agreement at the time the registration statement is filed. The sale of these Shares into the public market by Deer Valley could depress the market price of our common stock.

 

As of the date of this filing, at an assumed purchase price under the Investment Agreement of $0.01 (equal to 80% of the closing price of our common stock of $0.0125 on November 27, 2012), we are able to receive up to $370,000 in gross proceeds, assuming the sale of the entire 37,000,000 Shares being registered hereunder pursuant to the Investment Agreement. At an assumed purchase price of $0.01 under the Investment Agreement, we are required to register 463,000,000 additional shares to obtain the balance of $4,630,000 under the Investment Agreement. Due to the floating offering price, we are not able to determine the exact number of shares that we will issue under the Investment Agreement. We are currently authorized to issue 500,000,000 shares of our common stock. Deer Valley has agreed to refrain from holding an amount of shares which would result in Deer Valley owning more than 4.99% of the then-outstanding shares of our common stock at any one time.

 

We may not have access to the full amount available under the Investment Agreement.

 

Our ability to draw down funds and sell shares under the Investment Agreement requires that the registration statement continue to be effective. In addition, the registration statement of which this prospectus is a part registers 37,000,000 Shares issuable under the Investment Agreement, and our ability to access the Investment Agreement to sell any remaining shares issuable under the Investment Agreement is subject to our ability to prepare and file one or more additional registration statements registering the resale of these shares. These subsequent registration statements may be subject to review and comment by the staff of the SEC, and will require the consent of our independent registered public accounting firm. Therefore, the timing of effectiveness of these subsequent registration statements cannot be assured. The effectiveness of these subsequent registration statements is a condition precedent to our ability to sell the shares of common stock subject to these subsequent registration statements to Deer Valley under the Investment Agreement.

 

Certain restrictions on the extent of puts and the delivery of advance notices may have little, if any, effect on the adverse impact of our issuance of shares in connection with the investment agreement, and as such, deer valley may sell a large number of shares, resulting in substantial dilution to the value of shares held by existing shareholders.

 

Deer Valley has agreed, subject to certain exceptions listed in the Investment Agreement, to refrain from holding an amount of shares which would result in Deer Valley or its affiliates owning more than 4.99% of the then-outstanding shares of our common stock at any one time. These restrictions, however, do not prevent Deer Valley from selling shares of common stock received in connection with a put, and then receiving additional shares of common stock in connection with a subsequent put. In this way, Deer Valley could sell more than 4.99% of the outstanding common stock in a relatively short time frame while never holding more than 4.99% at one time.

 

13
 

 

Upon effectiveness of this prospectus, future sales of our Common Stock in the public market could result in significant volatility and depress the market price. 

 

Upon the effectiveness of this registration statement, most of the stock covered under the registration will be immediately available for trading.  Due to a limitation in the number of shares traded on a regular basis, there may be significant swings in the bid and ask prices of our stock or there may not be any significant volume of the stock available to trade.

 

We have not paid dividends in the past and do not expect to pay dividends for the foreseeable future, and any return on investment may be limited to potential future appreciation on the value of our Common Stock. 

 

We currently intend to retain any future earnings to support the development and expansion of our business and do not anticipate paying cash dividends in the foreseeable future.  Our payment of any future dividends will be at the discretion of our Board of Directors after taking into account various factors, including without limitation, our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at the time.  To the extent we do not pay dividends, our stock may be less valuable because a return on investment will only occur if and to the extent our stock price appreciates, which may never occur.  In addition, shareholders must rely on sales of their Common Stock after price appreciation as the only way to realize their investment, and if the price of our stock does not appreciate, then there will be no return on investment.  Shareholders seeking cash dividends should not purchase our Common Stock.

 

Our officers, directors and principal stockholders can exert significant influence over us and may make decisions that are not in the best interests of all stockholders.  

 

Our officers, directors and principal stockholders (greater than 5% stockholders) collectively own a majority of our outstanding Common Stock.  As a result of such ownership, these stockholders will be able to affect the outcome of, or exert significant influence over, all matters requiring stockholder approval, including the election and removal of directors and any change in control.  In particular, this concentration of ownership of our Common Stock could have the effect of delaying or preventing a change of control of us or otherwise discouraging or preventing a potential acquirer from attempting to obtain control of us.  This, in turn, could have a negative effect on the market price of our Common Stock.  It could also prevent our stockholders from realizing a premium over the market prices for their shares of Common Stock.  Moreover, the interests of this concentration of ownership may not always coincide with our interests or the interests of other stockholders, and accordingly, they could cause us to enter into transactions or agreements that we would not otherwise consider.

 

Anti-takeover provisions may limit the ability of another party to acquire us, which could cause our stock price to decline. 

 

Our Articles of Incorporation, as amended, our Bylaws and Nevada law contain provisions that could discourage, delay or prevent a third party from acquiring us, even if doing so may be beneficial to our stockholders.  In addition, these provisions could limit the price investors would be willing to pay in the future for shares of our Common Stock.

 

 

14
 

 

USE OF PROCEEDS

 

We will not receive any proceeds from the sale of shares by the selling stockholder. However, we will receive proceeds from the sale of securities pursuant to the Investment Agreement. The proceeds received from any “puts” tendered to Deer Valley under the Investment Agreement will be used for general corporate and working capital purposes and acquisitions or assets, businesses or operations or for other purposes that the Board of Directors, in its good faith deem to be in the best interest of the Company. See “Risk Factors — Risks Related to our Securities — We may use these proceeds in ways with which you may not agree.” 

 

DETERMINATION OF OFFERING PRICE

 

The selling security shareholder will offer common stock at the prevailing market prices or privately negotiated price.

 

The offering price of our common stock does not necessarily bear any relationship to our book value, assets, past operating results, financial condition or any other established criteria of value. The facts considered in determining the offering price were our financial condition and prospects, our limited operating history and the general condition of the securities market.

 

In addition, there is no assurance that our common stock will trade at market prices in excess of the offering price as prices for common stock in any public market will be determined in the marketplace and may be influenced by many factors, including the depth and liquidity.

  

DILUTION

 

The sale of our common stock to Deer Valley pursuant to the Investment will have a dilutive impact on our shareholders. As a result, our net loss per share could increase in future periods and the market price of our common stock could decline. In addition, the lower our stock price is at the time we exercise our right to “put”, the more shares of our common stock we will have to issue to Deer Valley pursuant to the Investment Agreement and our existing shareholders would experience greater dilution.

 

After giving effect to the sale in this offering of 37,000,000 shares of common stock at an assumed Put price of $0.0125 per share, the closing bid price as of November 27, 2012, our pro forma as adjusted net tangible book value as of November 27, 2012 would have been approximately $(1,915,701), or $(0.006) per share of common stock. This represents an immediate increase in pro forma as adjusted net tangible book value of $0.002 per share to our existing stockholders and an immediate dilution of $0.019 per share to our new shareholders.

 

75% of bid price:

 

After giving effect to the sale in this offering of 37,000,000 shares of common stock at an assumed Put price of $0.01 per share, the closing bid price as of November 27, 2012, our pro forma as adjusted net tangible book value as of November 27, 2012 would have been approximately $(2,031,326), or $(0.007) per share of common stock. This represents an immediate increase in pro forma as adjusted net tangible book value of $0.001 per share to our existing stockholders and an immediate dilution of $0.017 per share to our new shareholders.

 

50% of bid price:

 

After giving effect to the sale in this offering of 37,000,000 shares of common stock at an assumed Put price of $0.006 per share, the closing bid price as of November 27, 2012, our pro forma as adjusted net tangible book value as of November 31, 2012 would have been approximately $(2146,951), or $(0.0069) per share of common stock. This represents an immediate increase in pro forma as adjusted net tangible book value of $0.0011 per share to our existing stockholders and an immediate dilution of $0.0129 per share to our new shareholders.

  

SELLING SECURITY HOLDERS

 

37,000,000 shares of common stock that were issued or are issuable to selling shareholders pursuant to transactions exempt from registration under the Securities Act. All of the common stock offered by this prospectus are being offered by the selling shareholders for their own accounts.

 

15
 

 

On November 27, 2012, we entered into the Investment Agreement with Deer Valley. The Investment Agreement provides that the Company may, from time to time in its sole discretion as, and when it determines appropriate in accordance with the terms and conditions of the Investment Agreement, during the Open Period (defined below), deliver a put notice (the “Put Notice”) to Deer Valley which states the dollar amount of securities that the Company intends to sell to Deer Valley on a date specified in the Put Notice (the “Put”). The Company will be entitled to Put to Deer Valley (the “Put Amount”) the number of shares of common stock equal to a maximum of two hundred percent (200%) of the average daily volume (U.S. market only) of our common stock for the ten (10) trading days prior to the applicable Put Notice. The purchase price per share to be paid by Deer Valley for each Put Amount will be calculated at a twenty percent (20%) discount to the average of the three (3) lowest closing bid prices during the ten (10) trading days immediately prior to Deer Valley’s receipt of the Put Notice. The “Open Period” begins on the trading day after a registration statement is declared effective as to the common stock to be subject to the Put, and ends thirty-six (36) months after such date, unless earlier terminated in accordance with the Investment Agreement. The Company has the right, pursuant to the terms of the Investment Agreement to Put up to $5 million of common stock to Deer Valley.

 

In connection with the Investment Agreement, the Company and Deer Valley entered into a Registration Rights Agreement (“Registration Rights Agreement”). Under the Registration Rights Agreement, the Company will use its commercially reasonable efforts to file, within twenty-one (21) days of the date of the Investment Agreement, a Registration Statement on Form S-1 covering the resale of the common stock subject to the Investment Agreement. The Company has agreed to use all commercially reasonable efforts to have the Registration Statement declared effective by the SEC. Deer Valley has agreed to pay all legal costs and expenses associated with the Registration Rights Agreement.

 

The following table sets forth certain information regarding the selling shareholders and the shares offered by them in this prospectus. Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, securities that are currently convertible or exercisable into shares of our common stock, or convertible or exercisable into shares of our common stock within 60 days of the date hereof are deemed outstanding. Such shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of any other person. Except as indicated in the footnotes to the following table, each stockholder named in the table has sole voting and investment power with respect to the shares set forth opposite such stockholder’s name. Each selling shareholder’s percentage of ownership in the following table is based upon 272,691,189 shares of common stock outstanding as of November 27, 2012.

 

The selling shareholder has not held a position as an officer or director of the Company, nor has any material relationship of any kind with us or any of our affiliates.  All information with respect to share ownership has been furnished by the selling shareholders. The common stock being offered is being registered to permit secondary trading of the shares and the selling shareholders may offer all or part of the common stock owned for resale from time to time. In addition, the selling shareholder does not have any family relationships with our officers, directors or controlling shareholders. Furthermore, the selling shareholder is not a registered broker-dealer or an affiliate of a registered broker-dealer.

 

The term “selling shareholders” also includes any transferees, pledges, donees, or other successors in interest to the selling shareholders named in the table below. To our knowledge, subject to applicable community property laws, each person named in the table has sole voting and investment power with respect to the common stock set forth opposite such person’s name. We will file a supplement to this prospectus (or a post-effective amendment hereto, if necessary) to name successors to any named selling shareholder who is able to use this prospectus to resell the securities registered hereby.

 

                Shares of        
    Shares of     Maximum     Common        
    Common Stock     Number of     Stock        
    Beneficially     Shares of     Beneficially     Percent  
    Owned prior to     Common Stock     Owned after     Ownership  
Name   Offering     to be Offered     Offering     after Offering  
                                 
Deer Valley Management, LLC (1)     37,000,000       37,000,000       0       0 %

 

(1) Tim Doede has the voting and dispositive power over the shares owned by Deer Valley Management, LLC.

 

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PLAN OF DISTRIBUTION

 

The selling stockholder may, from time to time, sell any or all of its shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling stockholder may use any one or more of the following methods when selling shares:

 

·ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
·block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction
·purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
·an exchange distribution in accordance with the rules of the applicable exchange;
·privately negotiated transactions;
·short sales after this registration statement becomes effective;
·broker-dealers may agree with the selling stockholder to sell a specified number of such shares at a stipulated price per share;
·through the writing of options on the shares;
·a combination of any such methods of sale; and
·any other method permitted pursuant to applicable law.

 

The selling stockholder may also sell the shares directly to market makers acting as principals and/or broker-dealers acting as agents for themselves or their customers. Such broker-dealers may receive compensation in the form of discounts, concessions or commissions from the selling stockholder and/or the purchasers of shares for whom such broker-dealers may act as agents or to whom they sell as principal or both, which compensation as to a particular broker-dealer might be in excess of customary commissions. Market makers and block purchasers purchasing the shares will do so for their own account and at their own risk. It is possible that a selling stockholder will attempt to sell shares of common stock in block transactions to market makers or other purchasers at a price per share which may be below the then market price. The selling stockholder cannot assure that all or any of the shares offered in this prospectus will be issued to, or sold by, the selling stockholder. The selling stockholder and any brokers, dealers or agents, upon effecting the sale of any of the shares offered in this prospectus, are “underwriters” as that term is defined under the Securities Act, or the Exchange Act, or the rules and regulations under such acts. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act.

 

Discounts, concessions, commissions and similar selling expenses, if any, attributable to the sale of shares will be borne by the selling stockholder. The selling stockholder may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of the shares if liabilities are imposed on that person under the Securities Act.

 

Deer Valley has agreed to pay all fees and expenses incident to the registration of the shares of common stock. Deer Valley intends to sell/distribute the shares of common stock that they acquire from the Company in the open market.

 

The selling stockholder shall acquire the securities offered hereby in the ordinary course of business and has advised us that it has not entered into any agreements, understandings or arrangements with any underwriters or broker-dealers regarding the sale of its shares of common stock, nor is there an underwriter or coordinating broker acting in connection with a proposed sale of shares of common stock by any selling stockholder. If we are notified by any selling stockholder that any material arrangement has been entered into with a broker-dealer for the sale of shares of common stock, if required, we will file a supplement to this prospectus.

 

If the selling stockholder uses this Prospectus for any sale of the shares of common stock, it will be subject to the prospectus delivery requirements of the Securities Act.

 

Regulation M

 

The anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of our common stock and activities of the selling stockholder.

  

During such time as it may be engaged in a distribution of any of the shares we are registering by this registration statement, Deer Valley is required to comply with Regulation M. In general, Regulation M precludes any selling security holder, any affiliated purchasers and any broker-dealer or other person who participates in a distribution from bidding for or purchasing, or attempting to induce any person to bid for or purchase, any security which is the subject of the distribution until the entire distribution is complete. Regulation M defines a "distribution" as an offering of securities that is distinguished from ordinary trading activities by the magnitude of the offering and the presence of special selling efforts and selling methods. Regulation M also defines a "distribution participant" as an underwriter, prospective underwriter, broker, dealer, or other person who has agreed to participate or who is participating in a distribution.

 

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Regulation M under the Exchange Act prohibits, with certain exceptions, participants in a distribution from bidding for or purchasing, for an account in which the participant has a beneficial interest, any of the securities that are the subject of the distribution. Regulation M also governs bids and purchases made in order to stabilize the price of a security in connection with a distribution of the security. We have informed Deer Valley that the anti-manipulation provisions of Regulation M may apply to the sales of their shares offered by this prospectus, and we have also advised Deer Valley of the requirements for delivery of this prospectus in connection with any sales of the common stock offered by this prospectus.

  

DESCRIPTION OF SECURITIES TO BE REGISTERED

 

Our authorized share capital consists of 500,000,000 shares of common stock, $0.0001 par value per share, of which 272,691,189 shares of common stock is issued and outstanding as of this filing and 10,000,000 shares of preferred stock, $0.0001 par value per share, of which none are issued and outstanding as of this filing. We are a Nevada corporation and our affairs are governed by our Articles of Incorporation and By-law. The following are summaries of material provisions of our Articles of Incorporation and By-law insofar as they relate to the material terms of our ordinary shares. Complete copies of our Articles of Incorporation and By-law are filed as exhibits to our public filings.

 

Common Stock

 

All outstanding shares of common stock are of the same class and have equal rights and attributes. The holders of Common Stock are entitled to one vote per share on all matters submitted to a vote of stockholders of the Company. All stockholders are entitled to share equally in dividends, if any, as may be declared from time to time by the Board of Directors out of funds legally available. In the event of liquidation, the holders of Common Stock are entitled to share ratably in all assets remaining after payment of all liabilities. The stockholders do not have cumulative or preemptive rights.

 

Dividend Rights

 

Holders of the common stock may receive dividends when, as and if declared by our board of directors out of the assets legally available for that purpose and subject to the preferential dividend rights of any other classes or series of stock of our Company.

 

Voting Rights

 

Holders of the Common Stock are entitled to one vote per share in all matters as to which holders of Common Stock are entitled to vote. Holders of not less than a majority of the outstanding shares of Common Stock entitled to vote at any meeting of stockholders constitute a quorum unless otherwise required by law.

 

Election of Directors

 

Directors hold office until the next annual meeting of stockholders and are eligible for reelection at such meeting. Directors are elected by a plurality of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. There is no cumulative voting for directors.

 

Liquidation

 

In the event of any liquidation, dissolution or winding up of the Company, holders of the common stock have the right to receive ratably and equally all of the assets remaining after payment of liabilities and liquidation preferences of any preferred stock then outstanding.

 

Redemption

 

The common stock is not redeemable or convertible.

 

Preemptive Rights

 

Holders of the common stock do not have preemptive rights.

 

Other Provisions

 

This section is a summary and may not describe every aspect of the Common Stock that may be important to you. We urge you to read applicable Nevada law, our articles of incorporation and bylaws, as amended, because they, and not this description, define your rights as a holder the common stock. See “Where You Can Find More Information” for information on how to obtain copies of these documents.

 

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DESCRIPTION OF BUSINESS

 

Corporate History

 

On December 29, 2010, Clean Wind Energy Tower, Inc., a Nevada corporation (the “Company” or "Clean Wind"), completed a reverse merger (the “Merger”) with Clean Wind Energy, Inc., a corporation formed under the laws of the State of Delaware on July 26, 2010 (“Clean Wind Energy”).  In connection with the Merger, the Company issued to the stockholders of Clean Wind Energy in exchange for their Clean Wind Energy Common Stock, the right to receive an aggregate of 300,000,000 shares of the Company’s Common Stock.  As a result of the reverse merger, Clean Wind Energy is now a wholly-owned subsidiary of the Company.

 

For accounting purposes, Clean Wind Energy was the surviving entity. The transaction was accounted for as a recapitalization of Clean Wind Energy pursuant to which Clean Wind Energy was treated as the surviving and continuing entity although the Company is the legal acquirer rather than a reverse acquisition.  Accordingly, the Company’s historical financial statements are those of Clean Wind Energy immediately following the consummation of the reverse merger. Also, going forward the business operations of Clean Wind Energy will become the Company’s principal business operations.

 

The Company was incorporated under the laws of the State of Idaho on January 22, 1962, as Superior Mines Company.  In 1964, the Company’s name was changed to Superior Silver Mines, Inc.  On December 27, 2010, the Company reincorporated as a Nevada corporation.  Prior to the Merger, the Company had been dormant for a number of years and had no known mineral reserves.  On January 21, 2011, the Company changed its name from Superior Silver Mines, Inc. to Clean Wind Energy Tower, Inc.  In addition, effective January 24, 2011, the Company’s quotation symbol on the Over-the-Counter Bulletin Board was changed from SSVM.OB to CWET.OB

   

The Company’s executive offices are located at 1997 Annapolis Exchange Parkway, Suite 300, Annapolis, Maryland 21401.  

 

Overview

 

Our Company’s core objective and focus is to become a leading provider of clean efficient green energy to the world communities at a reasonable cost without the destructive residuals of fossil fuel, while continuing to generate innovative technological solutions for today and tomorrow’s electrical power needs.

 

Clean Wind has assembled a team of experienced business professionals, engineering and scientific consultants with access to the breakthrough energy research upon which this technology is founded and the proven ability to bring the idea to market. Clean Wind has filed several patents that the Company believes will further enhance this potentially revolutionary technology. Clean Wind Energy, Inc. is based in Annapolis MD, and is traded on the OTCBB and OTCQB under the symbol ‘CWET’.

 

Clean Wind has designed and is preparing to develop, and construct large “Downdraft Towers” that use benevolent, non-toxic natural elements to generate electricity and clean water economically by integrating and synthesizing numerous proven as well as emerging technologies. In addition to constructing Downdraft Towers in the United States and abroad, the Company intends to establish partnerships at home and abroad to propagate these systems and meet increasing global demand for clean water and electricity.

 

A Bold New Energy Solution

 

For the past decade the United States and many other nations have continuously increased efforts to develop clean, sustainable energy systems that:

 

·Use efficient, cost-effective and non-polluting renewable resources.
·Avoid the adverse effects of fossil and nuclear fuels.
·Operate 24/7 and outperform solar collectors and wind turbines that produce energy only when the sun shines or the wind blows.  Their capacity factor is generally below 30%.

 

Clean Wind is developing Downdraft Towers that use the sun’s power and water, to create wind energy which is used to economically generate electricity and clean water by integrating and synthesizing a number of proven as well as emerging technologies.

 

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Technology

 

The Principle

 

Innovative Renewable Energy Technology

 

The Downdraft Tower is a hollow cylinder with a water spray system at the top. Pumps deliver water to the top of the Downdraft Tower to spray a fine mist across the entire opening. The water evaporates and cools the hot dry air at the top. The cooled air is denser and heavier than the outside warmer air and falls through the cylinder at speeds up to and in excess of 50 mph, driving the turbines located at the base of the structure. The turbines power generators to produce electricity.

  

In geographic areas where atmospheric conditions are conducive, the exterior of the Downdraft Tower may be constructed with vertical “wind vanes” that capture the prevailing wind and channel it to produce supplemental electrical power. This dual renewable energy resource enhances the capability and productivity of the Clean Wind system. 

  

Physical Principles

 

Evaporating water to create or diminish energy (for cooling) is a well-understood physical principle.  Evaporative coolers are used not just throughout the United States Southwest region (hot & arid), but widely in the power industry to cool gas, coal and nuclear power plants.

 

Similarly, cooling towers adorn the roofs of countless buildings in large cities, providing affordable energy.  Airline pilots are very familiar with downdrafts and diligently avoid downdrafts associated with thunderstorms, especially when near the ground, where downdrafts can force a 200 ton airplane dangerously downward.

 

Clean Wind’s Energy Tower uses the same fundamental physical principle of evaporative cooling which creates a downdraft. Cool, moist, dense air always falls through hot dry air.  What most people are unaware of is that the wind speed in an energy tower can exceed 50mph.

 

In summary, it is clear that Clean Wind’s Energy Tower creates and harnesses the downdraft, using widely applied and well-understood physical principles, to produce abundant electricity.

 

 

Intellectual Property

 

The Company has filed numerous patent applications with the U.S. Patent Office to protect its intellectual property.  At this time the Company has retained the following patent as well as the patent applications that we feel are instrumental to the core development of our project:

  

A modified mobile base for large tower cranes incorporating a multi - Wheeled air ride suspension system for even load distribution on 20 or more wheels, with the ability to keep the tower plumb in all working conditions.

  

Improved Wind Energy Power Transmission System - To more effectively transmit energy via a new multi-stage variable hydraulic drive system that operates efficiently through a very broad range of wind and turbine speeds.

  

Energy Tower Having External Wind Capturing Capacity - To supplement the available energy of an energy tower by capturing existing winds aloft (800 to 4,000 ft).

 

Patent Allowance Notification

 

On February 14, 2012 the Company announced the Notice of Allowance of its patent application titled Efficient Energy Conversion Devices & Methods (U.S. Pat. App. No. 13/091,124) by the United States Patent and Trademark Office. The patent covers specific aspects of deploying multiple turbines in a wind tunnel coupled to a novel hydraulic system capable of maintaining high efficiency hydraulic to electric conversion under a wide variance of wind speeds. The ultimate goal is to maximize the capture and utilization of all available wind energy in any given wind tunnel, as well as providing a consistency of power output during any deviations in wind speed. The Company considers this patent to be a “Core Patent” providing a significant barrier to entry for any potential competitor.

 

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Site Requirements

 

Clean Wind’s planned Downdraft Tower requires very specific site conditions.  The location must provide appropriate climate and atmospheric conditions. The site must have access to reliable water sources, either fresh or salt water, in which case desalinization may be required.  The foundation for the Downdraft Tower should most appropriately be bedrock.  Additionally, the site should have access to rail service and other logistical ease of access.  The Company is investigating the feasibility of locating a Downdraft Tower in Arizona.

 

Considerations

 

The Downdraft Tower works best in hot, dry climates, near sea level, and near a reliable water source.  Prime production periods are daytime during spring, summer and fall, which closely aligns with electricity demand patterns. 

 

The External Wind Capture keeps working 24/7 including cold winter months and at night whenever a wind is blowing  -  from the surface up to 4,000 feet - where much stronger winds blow far more constantly (at least twice as often as on the surface and at much higher speeds).

 

There are a number of appropriate sites around the globe that are hot, dry, and near water adequate to support numerous Energy Towers that efficiently turn the sun’s energy into electricity.

 

The Distinct Advantage

 

Clean Wind enjoys one major advantage over all other wind energy producers: a constant, high speed downdraft that blows for more than half the year.  While ordinary wind turbine farms struggle with 20% to 30% capacity factors and wind speeds that are often useless or marginal (too low or too high), Clean Wind’s Energy Tower can continuously channel 50 mph winds (or higher) into a controlled environment where the vast majority the wind’s energy can be captured to generate electricity. 

 

Power industry experts know that when computing wind power, the velocity is cubed (not squared).  Thus a 50 mph wind in a Clean Wind turbine will produce more than 15 times as much power as a 20 mph wind striking a conventional turbine.

 

Development

 

The master development plan for a site requires a series of steps:

 

·explore, select, and qualify site for foundation integrity;

 

·negotiate and execute land lease (site) and rights of way (water pipeline, transmission line, highway and railway access);

 

·survey and identify any artifacts and cultural resources that may be impacted by site exploration, project construction or operation;

 

·acquire water rights;

 

·determine and design access to and availability of electrical grid, roads, rail transportation, sewer, water, and power for construction and operation;

 

·create project site plan for offices, storage buildings for construction equipment, etc.;

 

·coordinate and provide, to the extent possible, resource carry-over (i.e., buildings and facilities) to the locale after construction;

 

·determine the type and number of jobs created during study, construction and operational phases;

 

·determine the cost of the project (currently estimated at $4.5 billion); and

 

·determine electricity produced (currently estimated at $900 million annually).

 

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Downdraft Tower Will Produce Abundant, Inexpensive electricity

 

The Company has successfully managed to downsize the Tower-reducing capital costs and improving projected financial performance.  The Company recently announced the completion of weather data models that confirm that the first tower height can be lowered from 3,000 feet down to 2,250 feet. This development was made possible by utilizing our recently announced software which can calculate and predict energy production by our Downdraft Towers given local weather data. By feeding the weather data for southwestern Arizona / northern Mexico into the program, the Tower’s height and diameter can be adjusted along with the amount of water added as fuel to create a desired amount of energy. The outcome dictates the optimum size of the Towers height and width.

 

Under the most recent design specifications the first San Luis Tower has a projected output capacity, on an hourly basis, of up to 850 megawatt hours, gross. Using a 60% capacity factor the Tower’s potential hourly yield would be 510 megawatt hours from which, approximately 20% will be used to power its operations, yielding approximately 408 megawatt hours available for sale to the power grid. Currently, in California avoided costs are running approximately $0.11 per kilowatt hour. As an independent power producer of clean renewable energy, the Company will not be selling power directly to consumers but rather to the grid.

 

Transition to Development Stage Company

   

In September 2011 the Company closed their internally staffed engineering office in Warrenton, Virginia and began transitioning to a Development Team to oversee and coordinate the efforts of industry consultants and advisors to develop and construct their first Downdraft Energy Tower. The Company has needed to seek numerous consultants with outside expertise beyond the disciplines of their in-house engineering staff. Management believes that as the Company commences the transition from a “Research and Development Stage” company to the actual development of our first project, the best course of action is to seek the advice of well recognized world class industry participants to work with our Company to bring our Downdraft Renewable Energy Tower to market.

 

Partners

 

The Company has created a strategic relationship with Kroll Cranes a world class crane manufacturer for the tower construction requirements.  Clean Wind is also in discussions with several world class companies for its hydraulic systems needs and for its generator needs.

 

Customers

 

Energy produced by the Downdraft Tower could provide low cost electricity to the power grid. Clean Wind plans to ultimately build and operate wind energy plants and sell the electricity either through contracts with utilities, which is the traditional method for independent power plants, or directly into the open market or electricity commodities market like a merchant plant similar to many natural gas fired power plants. The Company may also sell the power plants themselves to large customers or utilities and/or operate such plants for customers or utilities.

 

The sale of electricity to power brokers is more profitable than selling directly to the electricity commodities market. If the cost of the marketing infrastructure of selling green energy at a $0.02 per kWh premium is justified as opposed to the wholesale contracting of electricity at a lower price, then Clean Wind plans to market the electricity to green energy brokers. The green power is energy from clean energy production sources like wind energy in which consumers are willing to pay a premium in order to promote clean energy. If Clean Wind chooses to work through power brokers, it believes the potential exists to sell the environmental correct “green” power at a premium price being higher than conventional fuel sources. Power brokers usually receive a premium of $0.015 per kWh above the wholesale price paid on the open market. However, the market is new and subject to uncertainty including price fluctuations.

 

Markets

 

Wind energy experienced a 39% annual growth for the past five years according to the American Wind Energy Association, the industry’s trade organization based in Washington, D.C.  Recent national surveys show that approximately 40-70% of the population surveyed indicate a willingness to pay a premium for renewable energy. Although 10% of the respondents say they will participate in such a program, actual participation is estimated at 1%. Currently, more than a dozen utilities have green marketing programs. Public Service Company of Colorado, Central and South West Services Corporation of Texas, and Fort Collins Light and Power Company are leading the effort in wind related green electricity marketing.

 

The Company is investigating the feasibility of locating a Downdraft Tower in Arizona on the California grid.  California has three major regulated investor-owned utilities and many municipal utilities, all of which are required by state law to have renewable sources of generation in their resource portfolios, whether generated or purchased. Arizona utilities have similar requirements. Due to federal regulations requiring that transmission owners provide service on the same terms to all generators requesting service, known as “open access”, independent power producers (which the Company would be under its business model), are able to develop wind energy projects in areas where such resources are most prevalent and sell power to anyone interconnected with the transmission grid in California. California’s transmission grid is operated by a regional transmission organization (“RTO”), the California Independent System Operator (“CAISO”). Other states belong to other RTOs.

 

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Competition

 

The Downdraft Tower project requires a large land base and specific conditions. Given these constraints and the increasing focus on renewable energy to offset the environmental problems caused by fossil fuels, the renewable energy industry is highly competitive.

 

In the markets where the Company plans to conduct its business, it will compete with many energy producers including electric utilities and large independent power producers. There is also competition from fossil fuel sources such as natural gas and coal, and other renewable energy sources such as solar, traditional wind, hydro and geothermal. The competition depends on the resources available within the specific markets. Although the cost to produce clean, reliable, renewable energy is becoming more competitive with traditional fossil fuel sources, it generally remains more expensive to produce, and the reliability of its supply is less consistent than traditional fossil fuel. Deregulation and consumer preference are becoming important factors in increasing the development of alternative energy projects. The Company believes that governments and consumers recognize the importance of renewable energy resources in the energy mix, and are facilitating the implementation of wind and other renewable technologies through renewable portfolio standards and revenue and tax incentives.

 

Arizona and California are primarily served by large utilities, such as Southern California Edison Company, Pacific Gas & Electric Company, San Diego Gas & Electric Company, Arizona Public Service Company (“Arizona Public Service”) and UNS. All of these companies have non-regulated subsidiaries or sister companies that develop generating facilities. In addition, utilities from other states and countries have established large wind energy generating companies, such as Florida Power & Light Company, enXco, Inc. and PPM Energy, Inc. (now part of a large Spanish renewable company, Iberdrola Renovables, S.A.).

 

According to the Electric Power Research Institute, the past ten years have seen traditional energy costs increase while wind energy costs have declined.  The advances in technology, larger-scale and more efficient manufacturing processes, and increased experience in wind turbine operations has contributed substantially to this trend. This cost decline is paralleled with a several hundred fold increase in installed wind energy capacity. As a result, maintenance costs have fallen significantly. Wind energy sources comprise less than 1% of the current electricity generating industry.

 

A new assessment released by the National Renewable Energy Laboratory in 2010 shows that U.S. wind resources are even larger than previously estimated and potential capacity of the land-based wind resource is more than 10,000 GW, far exceeding the 300 GW required to meet 20% of the nation’s electrical demand with wind in 2030. This figure does not factor the potential of Downdraft Towers. The estimated levelized cost of new generation resources by the Energy Information Administration shows the cost of wind energy is competitive to other conventional means of energy generation. The cumulative capacity-weighted average price of wind power, including the production tax credit, was about 4.4 cents per kilowatt hour in 2009; a price that competes with fossil fuel-generated electricity.

 

23
 

 

   

Environmental

   

Various parties in the United States and other nations are pursuing clean energy solutions that use efficient and cost- effective renewable resources to serve society while avoiding the adverse effects associated with fossil and nuclear fuels, and also the obvious limitations of solar collectors that work only when the sun shines or wind turbines that work only when the wind blows.

 

The Downdraft Tower has the capability of being operated with virtually no carbon footprint, fuel consumption, or waste production. The technology has the potential to generate clean, cost effective and efficient electrical power without the damaging effects caused by using fossil or nuclear fuels, and other conventional power sources. The Company also believes that increasing emphasis on green technologies and governmental incentives in the energy industry should have a positive long-term effect on the Company’s planned business and the wind energy industry in general

 

Numerous federal and state environmental laws can affect the development of renewable energy, such as the California Environmental Quality Act. These laws require that certain studies be conducted to ensure that there are no significant adverse impacts on wildlife, humans and the environment generally. The significant impacts of wind energy projects are on visibility, noise, birds, wildlife habitat and soil erosion. Changes in environmental laws can pose significant expenses on renewable energy development.

   

International treaties and protocols, such as the Kyoto Protocol, have significantly impacted the development and implementation of renewable energy technologies. Certain countries and regions also have established emission trading programs. Under emission trading programs, utilities and factories are permitted to produce a certain level of emissions. If such an entity produces fewer emissions than its allotment, the entity may sell its excess allotment to parties exceeding their emissions allotments. To date, these mechanisms are at an early stage of development within the U.S. Credit trading provides the potential for creating additional income for renewable energy producers, rationalizing of electricity prices for utilities and reducing the overall retail price for green power.

 

The Company believes that increasing emphasis on green technologies and governmental incentives in the energy industry should have a positive long-term effect on the Company’s planned business and the wind energy industry in general.

 

24
 

 

Industry Analysis

 

According to the American Wind Energy Association (“AWEA”), wind energy was the world’s fastest growing energy source during most of the 1990s, expanding at annual rates ranging from 25% to 35%. The AWEA estimates the global industry growth rate has averaged 32% over the five years from 2004 through 2008, with a growth rate of 39% in 2009. The U.S. wind industry broke all previous records by installing over 10,000 MW of new wind capacity in 2009.  Current installed capacity worldwide at the end of 2009 was 35,086 MW, compared to 25,076 MW at the end of 2008. The major contributing growth factor is the federal stimulus package passed in 2009 that extended a tax credit and provided other investment incentives for alternative energy sources. The U.S. Energy Information Administration attributes 1.9% of total electric generation in the nation to wind power.

 

Not factoring the Company’s planned Downdraft Tower product, World Energy Council expects new wind capacity worldwide to continue to grow. The continued evolution of this technology is evident with the existence of varying wind turbine designs. However, there is division in the wind industry between those who want to capitalize on the emerging respect the business community has for established, mature wind technology, and those who seek new technologies designed to bring about significant cost reductions. Clean Wind chooses to seek new horizons beyond current perception and knowledge by developing new technologies that it believes will be capable of significantly reducing wind energy costs.

 

As wind energy technology gains wider acceptance, competition may increase as large, well-capitalized companies enter the business. Although one or more may be successful, the Company believes that its technological expertise and early entry will provide a degree of competitive protection.

 

Licensing and Regulation

 

In the U.S., many state governments have amended their utility regulations and significantly changed certain competition and marketing rules with respect to generation, transmission and distribution of electric energy. Among other things, deregulation allows consumers to purchase electricity from a source of their choice, and requires utilities to purchase electricity from independent power producers and to offer transmission to independent power producers at reasonable prices.

 

In California, deregulation legislation, such as the Assembly Bill 1890 and the Renewable Energy Program, were implemented in the mid-1990s to encourage the development of renewable power generation projects through various incentives. In addition, Assembly Bill 995 and Senate Bill 1038 were passed to further facilitate the development of renewable resources. In November 2008, the governor of the State of California signed Executive Order S-14-08 requiring that California utilities reach a 33% renewable energy goal by 2020, exceeding the previous legislative mandate that electric utilities supply 20% of their total retail power sales from renewable resources by 2010. In September 2009, the Governor signed Executive Order S-21-09, requiring the Air Resources Board under the California Environmental Protection Agency to adopt a regulation by July 1, 2010 requiring California’s load-serving entities to meet the 33% renewable energy goal through the creation and use of renewable energy sources to ensure reduction of greenhouse gas emissions.

 

In Arizona, access to the electricity market has been established through Arizona’s Retail Electric Competition Rules, which, in the Company’s opinion, provide a favorable environment for renewable energy generators. Electricity producers are subject to the Federal Public Utilities Regulatory Policies Act (“PURPA”) and state regulations. In addition, power producers must also meet standards set by the Arizona Corporations Commission (the “ACC”).

  

The Federal Energy Policy Act of 2005 provided further benefits to independent power producers by requiring transmission companies to provide access to third parties at a reasonable price. On October 3, 2008, the President of the United States signed the Emergency Economic Stabilization Act of 2008 into law. This legislation contains a number of tax incentives designed to encourage both individuals and businesses to make investments in renewable energy, including an eight-year extension of the business solar investment tax credit (“ITC”). The ITC is a 30% tax credit on solar property effective through December 31, 2016. The American Recovery and Reinvestment Act of 2009 further extended the U.S.$0.021/kWh Production Tax Credit (“PTC”) through December 31, 2012, and provide an option to elect a 30% ITC or an equivalent cash grant from the U.S. Department of Energy.

 

Employees

 

As of September 30, 2012, the Company had a total of 3 full time employees.

 

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Legal Proceedings

 

Clean Wind Energy, Inc. v. John Hanback, et al

 

As of November 4, 2011, we were the plaintiff  in the matter captioned Clean Wind Energy, Inc. vs. John Hanback, et al, in the Federal District Court  of Alexandria, Virginia. On January 12, 2012, the Company and its subsidiary, Clean Wind Energy, Inc. (collectively “CWE”), entered into a Settlement and Release Agreement (the “Agreement”) with John W. Hanback (“Hanback”), Christopher W. Johnson (“Johnson”) and Itzhak Tepper (“Tepper”) (Hanback, Johnson and Tepper, the “Former Employees”), pursuant to which the Former Employees agreed to a mutual release and also agreed to the following:

   

·CWE and the Former Employees will jointly file a Stipulation of Dismissal dismissing the lawsuit filed by CWE against the Former Employees in the United States District Court for the Eastern District of Virginia, Alexandria Division, Civil Action No. 1:11cv1206 LMB/TRJ.
·In consideration of $174,000 from an unaffiliated third party in February 2012, the Former Employees transferred the shares of common stock owned by them to an unaffiliated third party.
·Hanback tendered to CWE assignments of certain patent applications in consideration of the Hanback Payment.
·Hanback, Johnson and Tepper agreed to a 15 month non-competition period whereby they will not directly or indirectly attempt to procure a site for a large-scale tower using non-toxic natural elements to generate electricity.
·Hanback, Johnson and Tepper agreed to a 15 month no-contact period, whereby they may not have any professional dealings with certain parties.

      

The Company has properly accounted for this settlement as accounts payable and accrued expenses in its December 31, 2011 consolidated financial statements.

   

Porter LeVay & Rose, Inc.

 

As of February 23, 2012, we were served with a Complaint in the matter of Porter, LeVay & Rose, Inc. filed in the Supreme Court of the State of New York, stipulating that Clean Wind Energy Tower, Inc. has yet to pay for certain services rendered on behalf of Porter LeVay & Rose for Financial Public Relations services. On March 21, 2012, Clean Wind Energy Tower, Inc., executed a Stipulation Settling Action Agreement and agreed to pay a total of $39,219.30 in equal payments of $9,804.82, the first to be paid prior to March 30,2012 and monthly thereafter until paid in full. The first payment was made on March 27, 2012.  The Company has accounted for this $39,219.30 as accounts payable and accrued expenses in its December 31, 2011 consolidated financial statements. As of September 30, 2012, the Company has settled all outstanding obligations.

   

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not party to any such legal proceedings that we believe will have, individually or in the aggregate, a material adverse affect on our business, financial condition or operating results.

 

 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

 

Our Common Stock is quoted on the OTC Bulletin Board and OTCQB under the symbol CWET.  Historical high and low bid information for our Common Stock is not available to our company.  The following table sets forth the high and low bid price of our stock for the first quarter of 2010 through September 30, 2012. These prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions.

 

Quarterly period  Low   High 
           
Fiscal year ended December 31, 2010:          
First Quarter  $0.05   $0.20 
Second Quarter  $0.03   $0.06 
Third Quarter  $0.03   $0.06 
Fourth Quarter  $0.03   $0.20 
Fiscal year ended December 31, 2011:            
First Quarter   $ 0.16     $ 0.27  
Second Quarter   $ 0.26     $ 0.32  
Third Quarter   $ 0.12     $ 0.27  
Fourth Quarter   $ 0.10     $ 0.18  
                 
Fiscal year ended December 31, 2012:                
First Quarter   $ 0.03     $ 0.21  
Second Quarter   $ 0.02     $ 0.05  
Third Quarter   $ 0.01     $ 0.08  

 

26
 

 

Record Holders

 

As of November 27, 2012, there were 1,386 registered holders of record of our Common Stock.

 

Dividends

 

We have not paid any cash dividends to date, and has no intention of paying any cash dividends on the Common Stock in the foreseeable future.  The declaration and payment of dividends is subject to the discretion of our Board of Directors and to certain limitations imposed under Nevada law.  The timing, amount and form of dividends, if any, will depend upon, among other things, our results of operations, financial condition, cash requirements, and other factors deemed relevant by the Board of Directors.  We intend to retain any future earnings for use in its business.  We have never paid dividends on our Common Stock.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

We do not maintain any equity compensation plans.

 

 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

 

This section includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions.

 

Overview

 

Clean Wind Energy Tower, Inc. (the “Company”(formerly known as Superior Silver Mines, Inc.) was incorporated in the State of Idaho on January 22, 1962 as Superior Mines Company and then changed its name to Superior Silver Mines, Inc.  The Company reincorporated as a Nevada corporation on December 27, 2010.  The Company has been dormant for a number of years, and has no known mineral reserves.

 

On December 29, 2010, pursuant to an Agreement and Plan of Merger, dated December 29, 2010 (the “Merger Agreement”), the Company consummated a reverse merger (the “Merger”) with Clean Wind Energy, Inc., a corporation formed under the laws of the State of Delaware on July 26, 2010 (“Clean Wind Energy”).  In connection with the Merger, the Company issued to the stockholders of Clean Wind Energy in exchange for their Clean Wind Energy Common Stock, the right to receive an aggregate of 300,000,000 shares of the Company’s Common Stock.  The Merger was accounted for as a “reverse merger”, since the stockholders of Clean Wind Energy owned a majority of the Company’s common stock immediately following the transaction and their management has assumed operational, management and governance control.

 

For accounting purposes, Clean Wind Energy was the surviving entity. The transaction was accounted for as a recapitalization of Clean Wind Energy pursuant to which Clean Wind 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 Clean Wind Energy immediately following the consummation of the reverse merger.

 

The Company plans to design, develop, and construct large downdraft towers that use benevolent, non-toxic natural elements to generate electricity and clean water economically (“Downdraft Towers”) by integrating and synthesizing numerous proven as well as emerging technologies. In addition to constructing Downdraft Towers in the United States and abroad, the Company intends to be prepared to establish partnerships at home and abroad to propagate these systems and meet increasing global demand for clean water and electricity

 

On January 21, 2011, the Company changed its name to Clean Wind Energy Tower, Inc.  In addition, effective January 24, 2011, the Company’s quotation symbol on the Over-the-Counter Bulletin Board was changed from “SSVM” to” CWET”.

 

Until the consummation of the Merger, the Company’s purpose was to seek, investigate and, if such investigation warranted, acquire an interest in business opportunities presented to it by persons or firms who, or which, desire to seek the perceived advantages of a publicly registered corporation.  Because the Company had no operations and only nominal assets until the Merger, it was considered a shell company under rules promulgated by the U.S. Securities and Exchange Commission.

 

27
 

 

RESULTS OF OPERATIONS

  

Three months ended September 30, 2012 as compared to three months ended September 30, 2011

 

Revenue

 

The Company has not generated revenue since inception.

 

Operating Expenses

   

Research and development

 

During the three months ended September 30, 2012, research and development costs were $90,880 compared to $138,152 for the same period last year. The Company's expenditures for research and development is dependent on available resources and future expenditures are expected to increase with additional financing.

 

Selling, general and administrative

 

During the three months ended September 30, 2012, selling, general and administrative expenses were $638,981 as compared to $397,817 for the same period last year, a 61% increase. The primary increase is due to non cash stock based compensation issued for services of $453,413 for the three months ended September 30, 2012 as compared to $26,757 for the three months ended September 30, 2011.

 

Depreciation

 

Depreciation expense for the three months ended September 30, 2012 was $1,120 as compared to $813 for the same period last year. The increase of $307 is due to additional equipment acquired in the latter part of 2011.

 

Other income (expense)

 

Interest expense

 

Interest expense for the three months ended September 30, 2012 was $123,460 compared to $48,043 for the same period last year. In the current period, we incurred $66,039 non cash debt discount amortization and $37,331 in non cash interest expense on issued convertible debt.

 

Loss on change in fair value of derivative liabilities

 

During 2011 and 2012, we issued convertible promissory notes with an embedded derivative, all requiring us to fair value the derivatives each reporting period and mark to market as a non cash adjustment to our current period operations.  This resulted in a net loss of $450,330 and $23,191 for the three months ended September 30, 2012 and 2011, respectively.  

 

Loss on settlement of debt

 

During the three months ended September 30, 2012, we issued 22,500,000 shares of our common stock in settlement of $150,000 of outstanding debt. In connection with the issuance, we incurred $829,530 as non cash loss for the three months ended September 30, 2012 as compared to nil for the same period last year.

 

Nine months ended September 30, 2012 as compared to nine months ended September 30, 2011

 

Revenue

 

The Company has not generated revenue since inception.

 

Operating Expenses

   

Research and development

 

During the nine months ended September 30, 2012, research and development costs were $138,152 compared to $353,376 for the same period last year. The Company's expenditures for research and development is dependent on available resources and future expenditures are expected to increase with additional financing.

 

28
 

 

Selling, general and administrative

 

During the nine months ended September 30, 2012, selling, general and administrative expenses were $1,584,377 as compared to $1,071,111 for the same period last year, a 48% increase. The primary increase is due to non cash stock based compensation issued for services of $937,639 for the nine months ended September 30, 2012 as compared to $53,351 for the nine months ended September 30, 2011.

 

Depreciation

 

Depreciation expense for the nine months ended September 30, 2012 was $3,360 as compared to $1,077 for the same period last year. The increase of $2,283 is due to additional equipment acquired in the latter part of 2011.

 

Other income (expense)

 

Interest expense

 

Interest expense for the nine months ended September 30, 2012 was $542,497 compared to $48,043 for the same period last year. In the current period, we incurred $153,951 non cash debt discount amortization, $49,500 financing cost amortization and $109,115 in non cash interest expense on issued convertible debt. In addition, we accrued default interest on our note payable of $171,688.

 

Loss on change in fair value of derivative liabilities

 

During 2011 and 2012, we issued convertible promissory notes with an embedded derivative, all requiring us to fair value the derivatives each reporting period and mark to market as a non cash adjustment to our current period operations.  This resulted in a net loss of $387,185 for the nine months ended September 30, 2012 as compared to a loss of $23,191 for the same period last year.  

 

Loss on settlement of debt

 

During the nine months ended September 30, 2012, we issued 22,500,000 shares of our common stock in settlement of $150,000 of outstanding debt. In connection with the issuance, we incurred $829,530 as non cash loss for the three months ended September 30, 2012 as compared to nil for the same period last year.

 

Comparison of the year ended December 31, 2011 to the year ended December 31, 2010

 

Revenue

 

The Company has not generated revenue since inception.

 

Operating Expenses

   

Research and Development

 

During the year ended December 31, 2011, we incurred $362,850 as compared to $73,559 for the period from July 26, 2010 (date of inception) through December 31, 2010; an increase of $289,291, or 393%.  The Company anticipates continued increase in research and development as products are developed.

 

Selling and Administrative

 

During the year ended December 31, 2011, we incurred $1,713,895 as compared to $764,598 for the period from July 26, 2010 (date of inception) through December 31, 2010; an increase of $949,297, or 124%.  The Company added additional staff and costs associated to our increase Company development activities.

 

Depreciation

 

During the year ended December 31, 2011, we purchased office and other equipment.  Depreciation for the year ended December 31, 2011 was $2,197 as compared to $0 for the period from July 26, 2010 (date of inception) through December 31, 2010.

 

29
 

 

Other Income/Expense

 

Interest expense

 

For year ended December 31, 2011, we incurred $182,929 as interest expense relating to our issued convertible notes payable.  In connection with the issuance, we incurred noncash charge to interest of $127,787 due to the excess of fair value of the conversion feature over the note proceeds.  In addition, we amortized a debt discount associated with the notes of $52,222.

 

Loss on modification of debt

 

In conjunction with the issuance of our October 2011 convertible note, we agreed to modify the conversion terms of our preexisting note issued in July 2011 from a 48% to a 69% discount formula.  As such, we incurred a noncash charge to operations of $88,849 as debt modification.

 

Gain on change in fair value of derivative liabilities

 

Each reporting period, we are required to adjust to fair value the conversion features of our convertible notes.  For the year ended December 31, 2011, we reported a gain on change in fair value of $89,241.

 

Net Loss

 

As a result of the activities described above, we incurred a net loss of $2,261,479 for the year ended December 31, 2011 as compared to a net loss of $838,157 for the period from July 26, 2010 (date of inception) through December 31, 2010.

 

Liquidity and Capital Resources

 

We have financed our operations since inception primarily through private offerings of our equity securities and issuance of convertible notes.

 

Working Capital

 

Our working capital deficit increased by $1,040,095 during the nine months ended September 30, 2012 from a working capital deficit (current liabilities in excess of current assets) of $1,348,290 at December 31, 2011 to a working capital deficit of $2,388,385 at September 30, 2012. The increase in working capital deficit for the nine months ended September 30, 2012 is due to a combination of reasons, of which the significant factors include:

 

·Cash had a net decrease from working capital by $47,832 for the nine months ended September 30, 2012. The most significant uses and proceeds of cash were:

 

  o Approximately $764,000 of cash consumed in operating activities;
     
  o A repayment of $110,000 for convertible notes payable; 
     
  o Proceeds of $85,000 from issuance of Private Placement Memorandum Subscription for the Company’s Common stock;
     
  o Proceeds  of $301,500 from issuance of note payable
     
  o Proceeds of $210,000 from issuance of Secured Convertible Promissory Notes;
     
  o Proceeds from exercise of warrants of $230,000

 

Total current assets of $4,500 and $52,332 as of September 30, 2012 and December 31, 2011, respectively, cash represented all.

 

Proceeds from the issuance of common stock

 

During the nine months ended September 30, 2012, the Company received $85,000 from the issuance of Private Placement Memorandum Subscriptions for the sale of its common stock.

 

30
 

 

Proceeds from issuance of note payable

 

During the nine months ended September 30, 2012, the Company received net proceeds of $301,500 from issuance of note payable, net of cash discount of $33,500.

 

Proceeds from the issuance of convertible promissory note

 

During the nine months ended September 30, 2012, the Company received a net amount of $210,000 from the issuance of Convertible Promissory Note, net of cash discount of $16,000.

 

Cashflow analysis

 

Cash used in operations was $764,332 during the period ended September 30, 2012. During the nine month period ended September 30, 2012, our primary capital needs were for operating expenses, including funds to support our business strategy, which primarily includes working capital necessary to fund operations and reducing our account payables.

 

We did not utilize cash for investing activities.

  

Cash provided from financing activities was $85,000 from private placement subscription of the Company common stock during the nine month period ended September 30, 2012. In addition, the Company received a total net proceeds of $511,500 (net of $49,500 discount) from the issuance of Notes Payable and Convertible Notes Payable and $230,000 from the exercise of warrants. Also, during the nine months ended September 30, 2012 the Company repaid $110,000 of previously issued convertible notes.

 

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has reported a net loss from operations of $3,485,101 for the nine month period ended September 30, 2012, accumulated deficit of $6,584,737 and total current liabilities in excess of current assets of $2,388,385 as of September 30, 2012.

  

The Company is in a development stage and does not have any revenues from operations and will be dependent on funds raise to satisfy its ongoing capital requirements for at least the next 12 months. The Company will require additional financing in order to execute its operating plan and continue as a going concern. The Company cannot predict whether this additional financing will be in the form of equity or debt, or be in another form. The Company may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all. In any of these events, the Company may be unable to implement its current plans for expansion or respond to competitive pressures, any of these circumstances would have a material adverse effect on its business, prospects, financial condition and results of operations.

 

Management expects that global economic conditions will continue to present a challenging operating environment through 2012. To the extent permitted by working capital resources, management intends to continue making targeted investments in strategic operating and growth initiatives. Working capital management will continue to be a high priority for 2012.

 

While we have been able to manage our working capital needs with the current credit facilities, additional financing is required in order to meet our current and projected cash flow requirements from operations. We cannot predict whether this new financing will be in the form of equity or debt. We may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all. Additional investments are being sought, but we cannot guarantee that we will be able to obtain such investments.

 

Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and the downturn in the U.S. stock and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. 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 financing is not available or is not available on acceptable terms, we will have to curtail our operations.

 

Inflation

 

We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could adversely affect our business, financial condition and results of operations.

  

Off-Balance sheet Arrangements

 

We do not maintain off-balance sheet arrangements nor do we participate in any non-exchange traded contracts requiring fair value accounting treatment.

 

31
 

 

MANAGEMENT

 

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

 

The following table sets forth the names of the Company’s directors, executive officers, and key employees, and their positions with the Company, as of November 27, 2012:

 

Name Age Position(s) Term of Office (Directors)
Ronald W. Pickett* 65 President, Chief Executive Officer and Chairman Annual meeting
Stephen Sadle* 67 Chief Operating Officer and Director Annual Meeting
Robert P. Crabb* 65 Secretary, Chief Marketing Officer and Director Annual meeting
Ownkar Persaud*(1) 55 Former Chief Financial Officer N/A
H. James Magnuson 59 Director Annual meeting
Arthur P. Dammarell 68 Director Annual meeting

____________________

 *   Appointed pursuant to the terms of the Merger Agreement.
(1)   In May 2012, Ownkar Persaud ceased communicating with the Company resulting in his effective resignation as Chief Financial Officer of the Company.

 

None of the events listed in Item 401(f) of Regulation S-K has occurred during the past ten years and that is material to the evaluation of the ability or integrity of any of the Company’s directors, director nominees or executive officers.

   

The following is a brief account of the business experience during the past five years (and, in some instances, for prior years) of each director and executive officer.

 


  

Ronald W. Pickett, President and Chief Executive Officer, Chairman

 

Mr. Pickett joined our Company on December 29, 2010 in connection with the Merger. Mr. Pickett brings over 40 years of construction, development and innovative technology skills and expertise to the team. He has founded numerous companies from startup and including three from inception through the public ownership process. Mr. Pickett also has an understanding of government, legislative, and permitting practices. Since December, 2007, Mr. Pickett has been an independent real estate development consultant. Until March, 2008, Mr. Pickett was a director of, and until December, 2007, Mr. Pickett was President and CEO of, Telkonet, Inc. (“Telkonet”) (OTCBB: TKOI.OB), a company that develops, manufactures and sells energy efficiency and smart grid networking technology. Until January, 2009, Mr. Pickett was President and a director of Microwave Systems Technology Inc. (“Microwave Systems”), a company that provided Internet/phone/video/wifi services in the New York City area. Until February, 2010, Mr. Pickett was Vice Chairman of Geeks on Call Holdings, Inc. (“Geeks on Call”) (PINK: GOCH.PK), a company that provided quick-response, on-site computer solutions and remote/telephone technical support. We took into account his prior experience in operating public and private enterprises in the development and construction of alternative energy projects and believe Mr. Pickett’s past experience in these fields gives him the qualifications and skill to serve as a director.

 

Stephen Sadle, Chief Operating Officer

 

Mr. Sadle joined our Company on December 29, 2010 in connection with the Merger. Mr. Sadle is an entrepreneur with over 40 years of diversified experience in management, contracting and heavy infrastructure development, interfacing with both the government and private sectors. He is experienced in Web-based vertical extranet applications and has developed operating extranets in the construction and transportation industries. Mr. Sadle served as co-founder, Chief Operating Officer and Director of Telkonet. He was also founder and president of a successful local construction company and was awarded the Small Businessman of the Year Award for the Washington Metropolitan Area. Since July, 2007, Mr. Sadle has been an independent real estate consultant. From 2000 until July, 2007, Mr. Sadle was Senior Vice President and a director of Telkonet. We took into account his prior work with infrastructure construction and development and believe Mr. Sadle’s past experience in these fields gives him the qualifications and skill to serve as a Chief Operating Officer.

 

Robert P. Crabb, Secretary and Chief Marketing Officer, Director

 

Mr. Crabb joined our Company on December 29, 2010 in connection with the Merger. Mr. Crabb has over 40 years of public and private sector experience including 15 years in the insurance industry including, sales and sales management with MetLife and independent property and casualty brokerage. His entrepreneurial expertise includes marketing consulting, corporate management and commercial/residential real estate development. He has served in a corporate governance capacity as secretary to a number of start-up companies. Since September, 2007, Mr. Crabb has been an independent real estate development consultant. Until September, 2007, Mr. Crabb was Secretary of Telkonet, until February, 2009, Mr. Crabb was Secretary of Microwave Systems, and until October, 2009, Mr. Crabb was Secretary of Geeks on Call. We believe Mr. Crabb’s past experience in corporate compliance gives him the qualifications and skill to serve as a director.

 

32
 

 

Ownkar Persaud, Chief Financial Officer

 

Mr. Persaud resigned as Chief Financial Officer of the Company in May 2012. Prior to his resignation, he joined our Company on December 29, 2010 in connection with the Merger. Mr. Persaud is a Chartered Accountant with extensive public and private company experience. He has served as the Vice President of Finance and Principal Accounting Officer for MSTI Holdings, Inc. (PINK: MSHI.PK), a publicly traded cable, telephone and Internet service provider, in which capacity he managed our financial operations. He was also the Assistant Controller and SOX Compliance Officer for Telkonet, a publicly traded energy management solutions provider. Mr. Persaud served as Assistant Controller at SOTAS Inc., a provider of telecommunication network management services. Since May 2010, Mr. Persaud has been an independent consultant to public companies on SEC reporting and compliance matters. Until June, 2009, Mr. Persaud was the Vice President of Finance of Microwave Satellite. We believe Mr. Persaud’s past experience in corporate finance and compliance gives him the qualifications and skill to serve as a Chief Financial Officer.

 

H. James Magnuson, Director

 

Mr. Magnuson has served as a member of our Board of Directors since 2007. Mr. Magnuson resigned as our Vice President effective December 29, 2010 pursuant to the terms of the Merger Agreement. Since 1979, Mr. Magnuson has been an attorney engaged in the private practice of law in Coeur d’Alene, Idaho, and received his BS degree from the University of Idaho and his Juris Doctorate from Boston College. We believe Mr. Magnuson’s background in providing legal services gives him the qualifications and skill to serve as a director.

 

Arthur P. Dammarell, Director

 

Mr. Dammarell has served as a member of our Board of Directors since 2006. From 2000 through March 2006, Mr. Dammarell was the principal financial officer, treasurer and a director of Nova Oil, Inc. (now Nova Biosource Fuels, Inc.). He received his BA degree in Urban and Regional Planning from Eastern Washington University. We took into account his prior work in both public and private organizations providing consulting on development project financing and believe Mr. Dammarell’s past experience in these fields gives him the qualifications and skill to serve as a director.

 

Section 16(a) Beneficial Ownership Reporting

 

Based solely upon a review of the copies of the forms furnished to our company and written representations from officers and directors of our company that no other reports were required, during the year ended December 31, 2010, all filing requirements under Section 16(a) of the Exchange Act applicable to its officers, directors and greater than 10% beneficial owners were complied with on a timely basis.

 

Code of Ethics

 

We adopted a Code of Conduct and Ethics that applies to all directors, officers and employees of our company, including its principal executive officer, principal financial officer and principal accounting officer. A copy of the Code of Conduct and Ethics was filed on May 16, 2011, when the Company filed its 10-Q for the period ended March 31, 2011.

 

We do not have a separately-designated standing audit committee or a committee performing similar functions.  Because we do not have an audit committee, the company has not yet determined whether any of its directors qualifies as an audit committee financial expert. Currently, our Board of Directors review the Company’s 10-K and financial statements.

 

33
 

 

Executive Compensation

 

The following table and related footnotes show the compensation paid during the fiscal years ended December 31, 2011 and 2010, to all individuals serving as the Company’s principal executive officer or acting in a similar capacity during the last completed fiscal year.  No other executive officers received compensation in excess of $100,000 for such fiscal years.

 

Summary Compensation Table

 

Name and principal position   Year     Salary
($)
    Bonus ($)     Stock Awards
($)
    Option awards
($)
    Nonequity incentive plan compensation
($)
    Nonqualified deferred compensation earnings
($)
    All other compensation
($)
    Total
($)
 
Ronald W. Pickett, President,   2011     $ 200,000 (5)   $ 0     $ 0 (3)   $ 0     $ 0     $ 0     $ 0     $ 200,000  
Chief Executive Officer and Chairman (1)   2010       34,614 (2) (6)     0       0       0       0       0       0       34,614  
                                                                         
Stephen Sadle   2011     $ 175,000 (6)     0       0       0       0       0       0     $ 175,000  
Chief Operating Officer   2010     $ 30,287 (6)     0       0       0       0       0       0     $ 30,287  
                                                                         
Thomas S. Smith,   2011     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0  
Director, Former President (4)   2010     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0  

____________________

  (1) Appointed as President, Chief Executive Officer and Chairman effective December 29, 2010 pursuant to the terms of the Merger Agreement.

 

  (2) This amount represents accrued salary for Mr. Pickett for his services as an executive officer of Clean Wind for the period from July 26, 2010 (date of inception) through December 31, 2010.

  

  (3) On September 22, 2010, Clean Wind Energy issued Mr. Pickett 20,000 shares of its common stock in exchange for cash and services rendered from Clean Wind Energy’s inception through September 22, 2010 at a price equal to $.001 per share (the par value of the shares).  Based upon the status of Clean Wind Energy as of September 22, 2010, such as its lack of assets, activities, commitments for funding and operations, the Company believes the fair value of Clean Wind Energy’s common stock was its par value at such time.  In addition, the Company believes there is no material value that can be attributed to the ministerial services rendered by Clean Wind Energy’s founders prior to the issuance of such shares.  Accordingly, the Company believes Clean Wind Energy did not pay any material equity-based compensation to officers and employees for services during the period from July 26, 2010 (date of inception) through December 31, 2010.

 

  (4) Resigned as President effective December 29, 2010 pursuant to the terms of the Merger Agreement.

 

  (5) Included in the amount is $100,236 and $34,614 of accrued salaries for Mr. Pickett as of December 31, 2011 and 2010, respectively.

    

  (6) Included in the amount is $71,976.50 and $30,287 of accrued salaries for Mr. Sadle as of December 31, 2011 and 2010, respectively.

  

 

34
 

 

Director Compensation Table

 

The following table and related footnotes show the compensation paid during the fiscal year ended December 31, 2011 to the Company’s directors for their service as directors. 

 

Name  

Fees earned

or paid in cash

($)

   

Stock awards

($)

   

Option awards

($)

   

Non-equity

incentive plan

compensation

($)

   

Nonqualified deferred

compensation earnings

($)

   

All other

compensation

($)

   

Total

($)

 
Robert P. Crabb (1)   $ 10,386 (2)   $ 0 (3)   $ 0     $ 0     $ 0     $ 0     $ 10,386  
H. James Magnuson   $ 0     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0  
Arthur P. Dammarell   $ 0     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0  

____________________
  (1) Appointed as director effective December 29, 2010 pursuant to the terms of the Merger Agreement.

 

  (2) Clean Wind has accrued salary for Mr. Crabb for his services as an executive officer of Clean Wind for the period of inception through December 31, 2010 in the amount of $10,386.

 

  (3) On September 22, 2010, Clean Wind Energy issued Mr. Crabb 4,000 shares of its common stock in exchange for cash and services rendered from Clean Wind Energy’s inception through September 22, 2010 at a price equal to $.001 per share (the par value of the shares).  Based upon the status of Clean Wind Energy as of September 22, 2010, such as its lack of assets, activities, commitments for funding and operations, the Company believes the fair value of Clean Wind Energy’s common stock was its par value at such time.  In addition, the Company believes there is no material value that can be attributed to the ministerial services rendered by Clean Wind Energy’s founders prior to the issuance of such shares.  Accordingly, the Company believes Clean Wind Energy did not pay any material equity-based compensation to officers and employees for services during the period from inception through December 31, 2010.

 

Outstanding Equity Awards at Fiscal Year-End

 

No officer or director has outstanding unexercised options, stock that has not vested, or equity incentive plan awards.  The Company maintains no employee benefits plans.

 

Employment Contracts and Termination of Employment and Change-In-Control Arrangements

 

On December 29, 2010, pursuant to the Merger, Clean Wind Energy became our wholly-owned subsidiary.  Clean Wind Energy has employment agreements with its executive officers.  Each of the employment agreements was entered into on September 22, 2010 and amended on November 22, 2010.

 

Name   Position(s)   Term   Salary   Bonus   Severance
Ronald W. Pickett   President, Chief Executive Officer   3 years; renewable for 1 year on mutual consent   $200,000   Board Discretionary   Twelve (12) months salary and benefits for termination without cause.
Stephen Sadle   Chief Operating Officer   3 years; renewable for 1 year on mutual consent   $175,000   Board Discretionary   Twelve (12) months salary and benefits for termination without cause.
Robert P. Crabb   Secretary, Chief Marketing Officer   3 years; renewable for 1 year on mutual consent   $60,000   Board Discretionary   Twelve (12) months salary and benefits for termination without cause.

 

35
 


CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

Transactions with Related Persons

 

Except as set forth below, since January 1, 2012, there has not been, nor is there currently proposed, any transaction or series of similar transactions to which the Company was or will be a party in which the amount involved exceeds the lesser of $120,000 or one percent of the average of the Company’s total assets at year end for the last two completed fiscal years; and in which any director, executive officer, other stockholders of more than 5% of the Company’s Common Stock or any member of their immediate family had or will have a direct or indirect material interest.

 

The Company issued a Secured Convertible Promissory Note on February 29, 2012. In connection with the issuance, a shareholder pledged 10,000,000 shares of the Company's common stock. On March 8, 2012, upon notice of default, the escrow agent transferred the pledged common shares to the note holder. The fair value of the common shares pledged was recorded as a related party obligation as of March 31, 2012 with a corresponding reduction in the carrying value of the Note Payable.

 

Indemnification Agreements

 

On March 30, 2011, the Company entered into Indemnification Agreements with directors Thomas Smith, H. James Magnuson and Arthur P. Dammarell, and executives Ronald Pickett, President and Chief Executive Officer and Ownkar Persaud, Chief Financial Officer.

 

The Indemnification Agreements provide that the Company will indemnify the Company's officers and directors, to the fullest extent permitted by law, relating to, resulting from or arising out of any threatened, pending or completed action, suit or proceeding, or any inquiry or investigation by reason of the fact that such officer or director (i) is or was a director, officer, employee or agent of the Company or (ii) is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. In addition, the Indemnification Agreements provide that the Company will make an advance payment of expenses to any officer or director who has entered into an Indemnification Agreement, in order to cover a claim relating to any fact or occurrence arising from or relating to events or occurrences specified in this paragraph, subject to receipt of an undertaking by or on behalf of such officer or director to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Company as authorized under this Agreement.

 

Director Independence

 

We believe that director Arthur P. Dammarell is “independent” as that term is defined in Rule 303A.02 of the NYSE Listed Company Manual.  For such director there were no transactions, relationships or arrangements not disclosed in Item 13 above, that were considered by the Board of Directors under the applicable independence definitions in determining that the director is independent.

 

36
 

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth certain information as of November 27, 2012 with respect to the holdings of: (1) each person known to us to be the beneficial owner of more than 5% of our common stock; (2) each of our directors, nominees for director and named executive officers; and (3) all directors and executive officers as a group. To the best of our knowledge, each of the persons named in the table below as beneficially owning the shares set forth therein has sole voting power and sole investment power with respect to such shares, unless otherwise indicated.

 

Name of Beneficial Owner and Address (1) Amount and Nature of Beneficial Ownership
of Common Stock

Percent of

Common Stock (2)

5% Shareholders    
Ronald W. Pickett 65,735,000 (3)   24.1%
Stephen Sadle 56,650,000 (3)   20.77%

Directors and

Executive Officers

       
Ronald W. Pickett 65,735,000 (3)    24.1%
Stephen Sadle 56,650,000 (3)   20.77%
Robert P. Crabb 10,850,000 (3)   3.98%
Ownkar Persaud 10,000,000 (4)   3.67%
H. James Magnuson 1,811,114 (5)   *
Arthur P. Dammarell 525,000     *
All directors and officers as a group (6 people) 145,571,114     53.38%
         

____________________

* Less than 1%

(1) Unless otherwise noted, the address of each beneficial owner is c/o Clean Wind Energy Tower, Inc., 1997 Annapolis Exchange Parkway, Suite 300, Annapolis, Maryland 21401 and the nature of beneficial ownership is direct.
(2) Based on 272,691,189 shares of common stock issued and outstanding as of November 27, 2012.  Shares of common stock subject to options or warrants currently exercisable or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage of the person holding such options or warrants, but are not deemed outstanding for purposes of computing the percentage of any other person.
(3) Includes certain shares noted in the executive employment agreement which states that during the first twelve months, after 90 days of employment if there is voluntarily termination by the executive, 90% of the shares will be forfeited to the Company. If the executive dies during the first twelvemonths, the shares distributed to the beneficiary will be 50% of the shares plus 1/24th of the remaining 50% for each month he was employed during the period of the 13th to the 24th month of the agreement. If termination is due to disability, the shares distributed will be 25% of the shares plus for each month of employment an additional amount of shares prorated at 1/36th of the remaining 75%, any undistributed shares will be forfeited to the Company.
(4) A stop transfer has been placed on these shares of common stock.
(5) Includes 1,368,891 shares held in trust for the benefit of Mr. Magnuson’s relatives. As trustee, Mr. Magnuson has the power to vote such shares, but disclaims any beneficial ownership in the shares.

 

37
 

 

DESCRIPTION OF SECURITIES

 

The total number of shares of capital stock we are authorized to issue is 510,000,000 shares, of which (a) 500,000,000 are Common Stock, par value $0.0001 per share, and (b) 10,000,000 are Preferred Stock, stated value $0.0001 per share. As of November 27, 2012, 272,691,189 shares of Common Stock and no shares of Preferred Stock were issued and outstanding.

 

Preferred Stock

 

The authorized but unissued shares of Preferred Stock may be divided into and issued in designated series from time to time by one or more resolutions adopted by the Board of Directors.  The Board of Directors, in its sole discretion, has the power to determine the relative powers, preferences, and rights of each series of Preferred Stock.

 

Common Stock

 

Our Common Stock is quoted on the Financial Industry Regulatory Authority’s Over the Counter Bulletin Board (“OTCBB”) and the OTCQB under the symbol “CWET”.

 

Voting Rights

 

All of the shares of Common Stock have equal voting rights and power without restriction in preference. Each stockholder, on each matter submitted to a vote at a meeting of stockholders, has one vote for each share registered in the stockholder’s name on the books of our company.  A quorum at any annual or special meeting of stockholders consists of stockholders representing, either in person or by proxy, a majority of the outstanding shares of our company, entitled to vote at such meeting.  The votes of a majority in interest of those present at any properly called meeting or adjourned meeting of stockholders at which a quorum is presented, is sufficient to transact business.

 

Dividend rights

 

The Board of Directors may, from time to time, declare and we may pay dividends on its outstanding shares of Common Stock in cash, property, or its own shares, except when we are insolvent or when the payment thereof would render us insolvent or when the declaration or payment thereof would be contrary to any restrictions contained in the Company’s governing documents or applicable law. We have never paid, and have no plans to pay, any dividends on its shares of Common Stock. 

 

Preemptive Rights

 

The stockholders of our company do not have a preemptive right to acquire our unissued shares.

 

Right to Amend Bylaws

 

The Bylaws of our company may be altered, amended or repealed by the affirmative vote of a majority of the voting stock issued and outstanding at any regular or special meeting of the stockholders.  The Board of Directors has the power to make, alter, amend and repeal the Bylaws of our company.  However, any such Bylaws, or any alteration, amendment or repeal of the Bylaws, may be changed or repealed by the holders of a majority of the stock entitled to vote at any stockholders’ meeting.

 

Anti-Takeover Provisions

 

As a Nevada corporation, we are subject to the Nevada Control Share Acquisition Statute (Nevada Revised Statutes Sections 78.378 to 78.3793).  This statute could have the effect of delaying or preventing a change in control of our company under certain circumstances.

 

Other

 

As a Nevada corporation, shares of our Common Stock are subject to all applicable provisions of Nevada law.

 

38
 

 

Resale of Restricted Securities under Rule 144

 

Rule 144 provides an exemption from registration under the Securities Act for sales by holders of “restricted securities” (i.e., securities acquired directly or indirectly from the issuer or an affiliate of the issuer in a transaction or chain of transactions not involving a public offering) and for sales of “control securities” (i.e., securities held by affiliates, regardless of how they acquired them).  The rule contains five general conditions, as summarized below:

 

·Current public information. There must be adequate current public information available about the issuer. Reporting companies must have been subject to public reporting requirements for at least 90 days immediately before the Rule 144 sale and must have filed all required reports (other than Forms 8-K) during the 12 months (or shorter period that the company was subject to public reporting) before the sale. For non-reporting companies (including companies that have been subject to the public reporting requirements for less than 90 days), certain other specified public information must be available.
·Holding period. If the issuer is, and has been for a period of at least 90 days immediately before the sale, subject to public reporting requirements, a minimum of six months must elapse between the later of the date of the acquisition of the securities from the issuer, or from an affiliate of the issuer, and any resale of such securities in reliance on Rule 144.
·Volume limitations. In any three-month period, resales may not exceed a sales volume limitation equal to the greater of (i) the average weekly trading volume for the preceding four calendar weeks, or (ii) one percent of the outstanding securities of the class.
·Manner-of-sale requirements. Resales must be made in unsolicited “brokers’ transactions” or transactions directly with a “market maker” and must comply with other specified requirements.
·Filing of Form 144. The seller must file a Form 144 if the amount of securities being sold in any three-month period exceeds 5,000 shares or $50,000 in aggregate sales price.
·Non-affiliates.  If the issuer is, and has been for a period of at least 90 days immediately before the sale, subject to public reporting requirements, any person who is not an affiliate of the issuer at the time of the sale, and has not been an affiliate during the preceding three months, must only comply with the current public information and holding period requirements. However the current public information requirement does not apply to restricted securities sold for the account of a person who is not an affiliate of the issuer at the time of the sale and has not been an affiliate during the preceding three months, provided a period of one year has elapsed since the later of the date the securities were acquired from the issuer or from an affiliate of the issuer.

 

Shares Received in Former Shell Company

 

Under Rule 144, as amended in February 2008, persons receiving shares in a company that is or at any time was a shell company (as defined in the Exchange Act) will not be entitled to sell the shares received pursuant to Rule 144 until such time as information about the former shell company that is equivalent to the information required under Form 10 of the Exchange Act has been on file with the SEC for a period of one year.  

   

CHANGE OF INDEPENDENT REGISTERED ACCOUNTING FIRM

 

There have been no changes in or disagreements with accountants on accounting or financial disclosure matters.

 

EXPERTS

 

RBSM LLP (“RBSM”), our independent registered public accounting firm, has audited our financial statements included in this prospectus and registration statement to the extent and for the periods set forth in their audit report. RBSM has presented their report with respect to our audited financial statements. The report of RBSM is included in reliance upon their authority as experts in accounting and auditing.

  

LEGAL MATTERS

 

Anslow & Jaclin, LLP located at 195 Route 9 South, Suite 204, Manalapan, NJ 07726 will pass on the validity of the common stock being offered pursuant to this registration statement.

 

HOW TO GET MORE INFORMATION

 

We file annual, quarter and periodic reports, proxy statements and other information with the Securities and Exchange Commission using the Commission’s EDGAR system. You may inspect these documents and copy information from them at the Commission’s offices at public reference room at 100 F Street, NE, Washington, D.C. 20549. You may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. The Commission maintains a web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The address of such site is http//www.sec.gov.

 

We have filed a registration statement with the Commission relating to the offering of the shares. The registration statement contains information which is not included in this prospectus. You may inspect or copy the registration statement at the Commission’s public reference facilities or its website.

 

You should rely only on the information contained in this prospectus. We have not authorized any person to provide you with any information that is different.

 

39
 

 

CLEAN WIND ENERGY TOWER, INC.

(a development stage company)

 

Index to Financial Statements

 

  Page
   
   
   

Condensed Consolidated Balance Sheets:

September 30, 2012 (unaudited) and December 31, 2011

F-2
   

Condensed Consolidated Statements of Operations:

For the three and nine months ended September 30, 2012 and 2011 and for the period from July 26, 2010 (date of inception) through September 30, 2012 (unaudited)

F-3
   

Condensed Consolidated Statement of Stockholders’ Deficit

For the nine months ended September 30, 2012 (unaudited)

F-4
   

Condensed Consolidated Statements of Cash Flows:

For the nine months ended September 30, 2012 and 2011 and for the period from July 26, 2010 (date of inception) through September 30, 2012 (unaudited)

F-5
   

Notes to Condensed Consolidated Financial Statements:

September 30, 2012 (Unaudited)

F-6
   
Report of Independent Registered Public Accounting Firm F-16
   
Consolidated Balance Sheets as of December 31, 2011 and 2010 F-17
   
Consolidated Statements of Operations for the year ended December 31, 2011, for the period from July 26, 2010 (date of inception) through December 31, 2010 and for the period from July 26, 2010 (date of inception) through December 31, 2011 F-18
   
Consolidated Statements of Changes in Stockholders’ Deficit for the period from July 26, 2010 (date of inception) through December 31, 2011 F-19
   
Consolidated Statements of Cash Flows for the year ended December 31, 2011, for the period from July 26, 2010 (date of inception) through December 31, 2010 and for the period from July 26, 2010 (date of inception) through December 31, 2011 F-21
   
Notes to Consolidated Financial Statements F-22

  

F-1
 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

CLEAN WIND ENERGY TOWER, INC.

(a development stage company)

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

    September 30,    December 31, 
    2012    2011 
    (unaudited)      
ASSETS          
Current assets:          
Cash  $4,500   $52,332 
           
Total current assets   4,500    52,332 
           
Property and equipment, net   7,884    11,244 
           
Other assets:          
Deposits   2,300    9,330 
           
Total assets  $14,684   $72,906 
           
LIABILITIES AND STOCKHOLDERS' DEFICIT          
Current liabilities:          
Accounts payable  $245,794   $478,355 
Accrued liabilities and expenses   697,440    627,650 
Advances from stockholders/officers   170,000    5,000 
Note payable   433,270     
Convertible notes payable, net of unamortized debt discount of $132,327 and $57,778, respectively   93,673    52,222 
Derivative liabilities   752,708    237,395 
Total current liabilities   2,392,885    1,400,622 
           
Stockholders' deficit:          
Preferred stock, par value $0.0001 per share; 10,000,000 shares authorized; none issued and outstanding as of September 30, 2012 and December 31, 2011        
Common stock, par value $0.0001 per share; 500,000,000 shares authorized; 265,394,584 and 210,850,519 shares issued and outstanding as of September 30, 2012 and December 31, 2011, respectively   26,539    21,085 
Common stock to be issued   420,000    480,000 
Additional paid in capital   3,759,997    1,270,835 
Accumulated deficit during development stage   (6,584,737)   (3,099,636)
Total stockholders' deficit   (2,378,201)   (1,327,716)
           
Total liabilities and stockholders' deficit  $14,684   $72,906 
           

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

 

F-2
 

 

CLEAN WIND ENERGY TOWER, INC.

(a development stage company)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

                     
                   For the period 
                   From July 26, 2010 
                   (date of inception) 
   For the three months ended   For the nine months ended   through 
   September 30,   September 30,   September 30, 
   2012   2011   2012   2011   2012 
REVENUE:  $   $   $   $   $ 
                          
OPERATING EXPENSES:                         
Research and development   90,880    109,976    138,152    353,376    574,561 
Selling, general and administrative   638,981    397,817    1,584,377    1,071,111    4,062,870 
Depreciation   1,120    813    3,360    1,077    5,557 
Total operating expenses   730,981    508,606    1,725,889    1,425,564    4,642,988 
                          
Loss from operations   (730,981)   (508,606)   (1,725,889)   (1,425,564)   (4,642,988)
                          
Other income (expense):                         
Interest expense   (123,460)   (48,043)   (542,497)   (48,043)   (725,426)
Loss on modification of debt                   (88,849)
Loss on settlement of debt   (829,530)       (829,530)       (829,530)
Loss on change in fair value of derivative liabilities   (450,330)   (23,191)   (387,185)   (23,191)   (297,944)
                          
Loss before provision for income taxes   (2,134,301)   (579,840)   (3,485,101)   (1,496,798)   (6,584,737)
                          
Provision for income taxes (benefit)                    
                          
NET LOSS  $(2,134,301)  $(579,840)  $(3,485,101)  $(1,496,798)  $(6,584,737)
                          
Net loss per common share, basic and fully diluted  $(0.01)  $(0.00)  $(0.02)  $(0.01)     
                          
Weighted average number of common shares outstanding, basic and fully diluted   255,221,874    339,017,691    235,323,859    237,157,904      
                          

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

 

 

F-3
 

 

 

 

CLEAN WIND ENERGY TOWER, INC.

(a development stage company)

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012

(unaudited)

 

 

               Additional   Deficit
Accumulated
During
     
   Preferred stock   Common Stock   Common to be Issued   Paid In   Development     
  Shares   Amount   Shares   Amount   Shares   Amount   Capital   Stage   Total 
Balance, December 31, 2011      $    210,850,519   $21,085    6,600,000   $480,000   $1,270,835   $(3,099,636)  $(1,327,716)
Shares issued in connection with PPM Subscription at $0.10 per share           600,000    60    (600,000)   (60,000)   59,940         
Shares issued for accrued expenses at $0.13 per share           261,556    26            34,441        34,467 
Shares issued for future services           21,500,000    2,150            (2,150)         
Shares issued for consulting services rendered           6,532,509    653            257,254        257,907 
Sale of common stock at $0.10 per share           850,000    85            84,915         85,000 
Shares issued in connection with the exercise of warrants at $0.10 per share           2,300,000    230            229,770        230,000 
Shares issued in settlement of debt           22,500,000    2,250            970,250        972,500 
Beneficial conversion feature reclassified to equity upon repayment of convertible notes                           209,487        209,487 
Stock based compensation                           645,255        645,255 
Net loss                               (3,485,101)   (3,485,101)
Balance, September 30, 2012      $    265,394,584   $26,539    6,000,000   $420,000   $3,759,997   $(6,584,737)  $(2,378,201)
                                              

 

See the accompanying notes to the unaudited condensed consolidated financial statements

F-4
 

CLEAN WIND ENERGY TOWER, INC.

(a development stage company)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

             
           For the period 
           From July 26, 2010 
           (date of inception) 
   For the nine months ended September 30,   through 
   2012   2011   September 30, 2012 
CASH FLOWS FROM OPERATING ACTIVITIES:               
Net loss  $(3,485,101)  $(1,496,798)  $(6,584,737)
Adjustments to reconcile net loss to net cash used in operating activities:               
Depreciation   3,360    1,077    5,557 
Amortization of debt discounts   153,951    47,306    206,173 
Amortization of financing costs   49,500        49,500 
Non cash interest   109,115        236,902 
Stock based compensation   937,629    53,351    1,511,088 
Loss on settlement of debt   829,530        829,530 
Loss on debt modification           88,849 
Loss from change in fair value of derivative liabilities   387,185    23,191    297,944 
Changes in operating assets and liabilities:               
Prepaid expenses       9,716     
Advances from stockholders/officers   (5,000)   (42,000)    
Accounts payable and accrued expenses   255,499    290,508    1,332,104 
 Net cash used in operating activates   (764,332)   (1,113,649)   (2,027,090)
                
CASH FLOWS FROM INVESTING ACTIVITIES:               
Net cash acquired from reverse merger           223,586 
Purchase of property and equipment       (13,441)   (13,441)
Payment of long term deposit           (9,330)
Net cash (used in) provided by investing activities       (13,441)   200,815 
                
CASH FLOWS FROM FINANCING ACTIVITIES:               
Proceeds from issuance of subsidiary's common stock           75 
Proceeds from sale of common stock   85,000    859,000    1,089,200 
Proceeds from exercise of warrants   230,000        230,000 
Proceeds from issuance of notes payable   301,500        301,500 
Proceeds from issuance of convertible notes payable   210,000    77,500    320,000 
Repayments of convertible notes payable   (110,000)       (110,000)
Net cash provided by financing activities   716,500    936,500    1,830,775 
                
Net increase (decrease) in cash   (47,832)   (190,590)   4,500 
Cash, beginning of period   52,332    195,184     
                
Cash, end of period  $4,500   $4,594   $4,500 
                
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION          
                
Interest paid  $98,778   $   $98,778 
Income taxes paid  $   $   $ 
                
Non cash investing and financing activities:               
Accrued warrants to be issued referring brokers in connection with PPM subscription at $0.10 per share  $   $   $29,400 
Shares forfeited and cancelled by some Clean Wind Energy's stockholders acquired in connection with the merger upon resignation  $   $   $12,060 
Notes payable issued in settlement of accounts payable  $268,270   $   $268,270 

 

                         

See the accompanying notes to the unaudited condensed consolidated financial statements

 

F-5
 

 

CLEAN WIND ENERGY TOWER, INC.

(a development stage company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012

(unaudited)

 

NOTE 1 – SUMMARY OF ACCOUNTING POLICIES

 

A summary of the significant accounting policies applied in the preparation of the accompanying unaudited condensed consolidated financial statements follows.

 

Business and Basis of Presentation

 

Clean Wind Energy Tower, Inc. (the “Company,” “we,” “our,” “us”), formerly known as Superior Silver Mines, Inc., was incorporated in the State of Idaho on January 22, 1962 as Superior Mines Company and then changed its name to Superior Silver Mines, Inc.  The Company reincorporated as a Nevada corporation on December 27, 2010.  The Company has been dormant for a number of years, and has no known mineral reserves.

 

On December 29, 2010, pursuant to an Agreement and Plan of Merger, dated December 29, 2010 (the “Merger Agreement”), the Company consummated a reverse merger (the “Merger”) with Clean Wind Energy, Inc., a corporation formed under the laws of the State of Delaware on July 26, 2010 (“Clean Wind Energy”).  In connection with the Merger, the Company issued to the stockholders of Clean Wind Energy in exchange for their Clean Wind Energy Common Stock, the right to receive an aggregate of 300,000,000 shares of the Company’s Common Stock.  The Merger was accounted for as a “reverse merger”, since the stockholders of Clean Wind Energy owned a majority of the Company’s common stock immediately following the transaction and their management has assumed operational, management and governance control.

 

For accounting purposes, Clean Wind Energy was the surviving entity. The transaction was accounted for as a recapitalization of Clean Wind Energy pursuant to which Clean Wind 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 Clean Wind Energy immediately following the consummation of the reverse merger.

 

The Company plans to design, develop, and construct large downdraft towers that use benevolent, non-toxic natural elements to generate electricity and clean water economically (“Downdraft Towers”) by integrating and synthesizing numerous proven as well as emerging technologies. In addition to constructing Downdraft Towers in the United States and abroad, the Company intends to be prepared to establish partnerships at home and abroad to propagate these systems and meet increasing global demand for clean water and electricity

 

On January 21, 2011, the Company changed its name to Clean Wind Energy Tower, Inc.  In addition, effective January 24, 2011, the Company’s quotation symbol on the Over-the-Counter Bulletin Board was changed from “SSVM” to “CWET”.

 

Interim Financial Statements

 

The following (a) condensed consolidated balance sheet as of December 31, 2011, which has been derived from audited financial statements, and (b) the unaudited condensed consolidated interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2012 are not necessarily indicative of results that may be expected for the year ending December 31, 2012. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2011 included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on April 2, 2012.

 

Going Concern

 

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. However, the Company has reported net losses of $2,134,301 and $3,485,101 for the three and nine month periods ended September 30, 2012, respectively, accumulated deficit of $6,584,737 and total current liabilities in excess of current assets of $2,388,385 as of September 30, 2012.

 

The Company is in a development stage and does not have any revenues from operations and will be dependent on funds raise to satisfy its ongoing capital requirements for at least the next 12 months. The Company will require additional financing in order to execute its operating plan and continue as a going concern. The Company cannot predict whether this additional financing will be in the form of equity or debt, or be in another form. The Company may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all. In any of these events, the Company may be unable to implement its current plans for expansion or respond to competitive pressures, any of these circumstances would have a material adverse effect on its business, prospects, financial condition and results of operations.

F-6
 

CLEAN WIND ENERGY TOWER, INC.

(a development stage company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012

(unaudited)

 

 

The unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability of assets and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern. 

 

Fair Value of Financial Instruments

  

Our short-term financial instruments, including cash, other assets and accounts payable and accrued expenses consist primarily of instruments without extended maturities, the fair value of which, based on management’s estimates, reasonably approximate their book value. The fair value of our notes and advances payable is based on management estimates and reasonably approximates their book value based on their current maturity.

 

Long-Lived Assets

 

We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with ASC 360-10 (formerly Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets). Recoverability is measured by comparison of the carrying amount to the future net cash flows which the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the projected discounted future cash flows arising from the asset using a discount rate determined by management to be commensurate with the risk inherent to our current business model.

         

Net Loss per Common Share

 

The Company computes net loss per share under Accounting Standards Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”). Basic net income (loss) per common share is computed by dividing net loss by the weighted average number of shares of common stock. Diluted net loss per share is computed using the weighted average number of common and common stock equivalent shares outstanding during the period. There is no effect on diluted loss per share since the common stock equivalents are anti-dilutive. Dilutive common stock equivalents consist of shares issuable upon conversion of convertible notes and the exercise of the Company's stock options, warrants and convertible debt. Common stock equivalents excluded from the loss per share for the three and nine months ended September 30, 2012 were 14,788,360 shares, and for the three and nine months ended September 30, 2011 were 1,203,202 shares.

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

 

Revenue Recognition

 

The Company has generated no revenues to date. It is the Company’s policy that revenue from product sales or services will be recognized in accordance with ASC 605 “Revenue Recognition”. Four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company will defer any revenue for which the product was not delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.

 

Stock Based Compensation

 

The Company account for its stock based awards in accordance with Accounting Standards Codification subtopic 718-10, Compensation (“ASC 718-10”), which requires a fair value measurement and recognition of compensation expense for all share-based payment awards made to our employees and directors, including restricted stock awards. We estimate the fair value of stock using the stock price on date of the approval of the award. The fair value is then expensed over the requisite service periods of the awards, which is generally the performance period and the related amount recognized in our consolidated statements of operations. 

F-7
 

CLEAN WIND ENERGY TOWER, INC.

(a development stage company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012

(unaudited)

 

 

Stock-based compensation expense in connection with stock granted to consultants in exchange for services rendered for the three months ended September 30, 2012 and 2011 was $456,880 and $93,108, respectively, for the nine months ended September 30, 2012 and 2011 was $937,629 and $53,351, respectively and $1,511,088 from July 26, 2010 (date of inception) through September 30, 2012.

 

Income Taxes

   

The Company utilizes ASC 740 “Income Taxes” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Temporary differences between taxable income reported for financial reporting purposes and income tax purposes primarily relate to the recognition of debt costs and stock based compensation expense. The adoption of ASC 740-10 did not have a material impact on the Company's results of operations or financial condition.

 

Research and development

 

In accordance with ASC 730, “Research and Development”, the Company expenses all research and development costs as incurred. The Company had incurred $90,880 and $138,152 for the three and nine months ended September 30, 2012, respectively; $109,976 and $353,376 for the three and nine months ended September 30, 2011, respectively; and $574,561 research and development costs from July 26, 2010 (date of inception) through September 30, 2012. The company expects the research and development costs to increase in the future as it continues to invest in the infrastructure that is critical to achieve our business goals and objectives.

 

Property, plant and equipment

 

Property, plant and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets. Gains and losses from the retirement or disposition of property and equipment are included in operations in the period incurred. Maintenance and repairs are expensed as incurred.

 

Cash and cash equivalents

 

For purposes of the statement of cash flows, cash and cash equivalents includes demand deposits, saving accounts and money market accounts. The Company considers all highly liquid debt instruments with maturities of three months or less when purchased to be cash and cash equivalents.

 

Derivative financial instruments

 

Accounting Standards Codification subtopic 815-40, Derivatives and Hedging, Contracts in Entity’s own Equity (“ASC 815-40”) became effective for the Company on October 1, 2009. The Company’s convertible debt has reset provisions to the exercise price if the Company issues equity or a right to receive equity, at a price less than the exercise prices.

 

Development stage entity

   

The Company is considered to be a development stage entity, as defined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 915. For the period from July 26, 2010 (date of inception) through September 30, 2012, the Company has not generated any revenues to date, has no significant assets and has incurred losses since inception from developing its business and planned operations. Consequently, its operations are subject to all the risks inherent in the establishment of a new business enterprise.

 

Reclassification

 

Certain reclassifications have been made to conform with the prior period’s data to the current presentation. These reclassifications had no effect on reported net loss.

 

Recently Issued Accounting Pronouncements

 

There are various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to have a material impact on the Company's consolidated financial position, results of operations or cash flows.

F-8
 

 

CLEAN WIND ENERGY TOWER, INC.

(a development stage company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012

(unaudited)

 

  

NOTE 2 – ACCRUED LIABILITIES AND EXPENSES

 

Accrued liabilities and expenses as of September 30, 2012 and December 31, 2011 consist of the following:

 

   September 30,
2012
   December 31,
2011
 
Accrued payroll  $463,615   $472,221 
Accrued payroll taxes payable   18,330    18,330 
Accrued stock purchase warrants   29,400    29,400 
Accrued interest and other   186,095    107,699 
Total  $697,440   $627,650 

 

NOTE 3 – ADVANCES FROM SHAREHOLDERS/OFFICERS

 

Advances from shareholders are comprised of the following:

 

   September 30,
2012
   December 31,
2011
 
Cash advances  $   $5,000 
Fair value of common stock pledged as collateral by shareholder (see below)   170,000     
Total  $170,000   $5,000 

 

As described below, the Company issued a Secured Convertible Promissory Note on February 29, 2012. In connection with the issuance, a shareholder pledged 10,000,000 shares of the Company's common stock. On March 8, 2012, upon notice of default, the escrow agent transferred the pledged common shares to the note holder. The fair value of the common shares pledged was recorded as a related party obligation as of March 31, 2012 with a corresponding reduction in the carrying value of the Note Payable (see Note 4).

 

NOTE 4 – NOTE PAYABLE

 

On February 29, 2012, the Company entered into a Note Purchase Agreement and a Pledge and Security Agreement with Hanover Holdings I, LLC ("Hanover"), providing for the sale of an Original Issue Discount Secured Convertible Promissory Note in the principal amount of $335,000 (the "Note"). The financing closed on March 2, 2012. The Note contained an original issue discount of 10% representing $33,500.

 

The Note bears interest at the rate of 15% per annum. Subject to the prepayment provisions in the Note, the principal plus interest amount of the Note is to be repaid subject to an amortization schedule which provides that the Company pay (i) $47,562.50 thirty days from the date of the Note, (ii) $62,562.50 sixty days from the date of the Note, (iii) $112,562.50 ninety days from the date of the Note and (iv) $162,562.50 one hundred twenty days from the date of the Note. The Company may prepay the Note in full at the Company’s sole option and discretion by providing to Hanover three prior trading days’ written notice, in full. The Company is required to pay off all principal, interest and any other amounts owing prior to any such prepayment. In order to facilitate the closing of this financing, a shareholder pledged 10,000,000 shares to Hanover.

 

On March 8, 2012, the Company received a notice of default, sighting Section 5(a) (ii) requiring the Company's common stock trading price not to fall below the volume-weighted average price of $0.08 per share for any given trading day. As such, the escrow agent transferred the 10,000,000 shares of the Company's common stock to the note holder. Should the proceeds arising from the sale of the Company's common stock not satisfy the total due under the agreement, the note holder has further recourse including the right to convert balances owed under the Note into restricted shares of common stock, at Hanover’s option, at a conversion price equal to 45% of the lowest trading price for the common stock at any time during the prior 10 trading days immediately preceding the date of the notice of such conversion. As of the date of filing, no official demands for payment have been made by Hanover and the Company believes the transferred 10,000,000 shares of the Company's common stock are sufficient to satisfy the outstanding obligation.

 

The original issue discount of $33,500 was charged as interest during the nine months ended September 30, 2012.

 

On June 20, 2012, the Company issued three promissory notes payable in aggregate of $268,270 in settlement of outstanding accounts payable. The notes mature earlier of (1) one year from the date of issuance, (2) completion of any major financing event or events in which the Company receives aggregate proceeds of $2,000,000 or more, or (3) any liquidation or reorganization, merger or recapitalization of the Company, bear a interest rate of 8% per annum due at maturity, and are unsecured.

 

F-9
 

 

CLEAN WIND ENERGY TOWER, INC.

(a development stage company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012

(unaudited)

 

 

NOTE 5 – CONVERTIBLE NOTES PAYABLE

   

On July 27, 2011, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc. ("Asher"), for the sale of an 8% convertible note in the principal amount of $45,000 (the "August 8, 2011 Note"). The financing closed on August 8, 2011. The total net proceeds the Company received from this Offering on August 8, 2011 was $42,500.

 

The August 8, 2011 Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on April 30, 2012. The August 8, 2011 Note is convertible into common stock, at Asher’s option, at a 42% discount (subsequently modified to 69% discount) to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the August 8, 2011 Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 135% if prepaid during the period commencing on the closing date through 90 days thereafter, (ii) 135% if prepaid 91 days following the closing through 120 days following the closing, (iii) 140% if prepaid 121 days following the closing through 151 days following the closing and (iv) 150% if prepaid 151 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the August 8, 2011 Note, the Company has no right of prepayment. In connection to the debt modification, the Company recorded a loss on debt modification of $88,849.

 

During the nine months ended September 30, 2012, the Company paid off the above described August 8, 2011 Note in full by cash.

 

On August 31, 2011, the Company entered into a Securities Purchase Agreement with Asher, for the sale of an 8% convertible note in the principal amount of $32,500 (the "August 31, 2011 Note"). The financing closed on August 31, 2011. The total net proceeds the Company received from this Offering was $30,000.

  

The August 31, 2011 Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on April 30, 2012. The August 31, 2011 Note is convertible into common stock, at Asher’s option, at a 52% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the August 31, 2011 Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 135% if prepaid during the period commencing on the closing date through 90 days thereafter, (ii) 140% if prepaid 91 days following the closing through 120 days following the closing, (iii) 145% if prepaid 121 days following the closing through 150 days following the closing and (iv) 150% if prepaid 151 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the August 31, 2011Note, the Company has no right of prepayment.

 

During the nine months ended September 30, 2012, the Company paid off the above described August 31, 2011 Note in full by cash.

   

On October 6, 2011, the Company entered into a Securities Purchase Agreement with Asher, for the sale of an 8% convertible note in the principal amount of $32,500 (the "October 2011 Note"). The total net proceeds the Company received from this Offering was $30,000.

 

The October 2011 Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on July 5, 2012. The October 2011 Note is convertible into common stock, at Asher’s option, at a 69% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the October 2011 Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 135% if prepaid during the period commencing on the closing date through 90 days thereafter, (ii) 140% if prepaid 91 days following the closing through 120 days following the closing, (iii) 145% if prepaid 121 days following the closing through 150 days following the closing and (iv) 150% if prepaid 151 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the October 2011 Note, the Company has no right of prepayment.

 

Asher has agreed to restrict its ability to convert the October 2011 Notes and receive shares of common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock.

  

During the nine months ended September 30, 2012, the Company paid off the above described October 2011 Note in full by cash.

 

On April 10, 2012, the Company entered into a Securities Purchase Agreement with Asher, for the sale of an 8% convertible note in the principal amount of $68,500 (the "April 2012 Note"). The financing closed on April 18, 2012. The total net proceeds the Company received from this Offering was $65,000.

 

F-10
 

 

CLEAN WIND ENERGY TOWER, INC.

(a development stage company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012

(unaudited)

 

 

The April 2012 Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on January 12, 2013. The April 2012 Note is convertible into common stock, at Asher’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the April 2012 Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 120% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 125% if prepaid 31 days following the closing through 60 days following the closing, (iii) 130% if prepaid 61 days following the closing through 90 days following the closing and (iv) 135% if prepaid 91 days following the closing through 120 days following the closing. (v) 140% if prepaid 121 days following the closing through 150 days following the closing, (vi) 150% if prepaid 121 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the April 2012 Note, the Company has no right of prepayment.

 

On May 3, 2012, the Company entered into a Securities Purchase Agreement with Asher, for the sale of an 8% convertible note in the principal amount of $42,500 (the "May 2012 Note"). The financing closed on May 15, 2012. The total net proceeds the Company received from this Offering was $40,000.

  

The May 2012 Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on February 7, 2013. The May 2012 Note is convertible into common stock, at Asher’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the May 2012 Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 120% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 125% if prepaid 31 days following the closing through 60 days following the closing, (iii) 130% if prepaid 61 days following the closing through 90 days following the closing and (iv) 135% if prepaid 91 days following the closing through 120 days following the closing. (v) 140% if prepaid 121 days following the closing through 150 days following the closing, (vi) 150% if prepaid 121 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the May 2012 Note, the Company has no right of prepayment.

 

On June 19, 2012, the Company entered into a Securities Purchase Agreement with Asher, for the sale of an 8% convertible note in the principal amount of $32,500 (the "June 2012 Note"). The financing closed on June 27, 2012. The total net proceeds the Company received from this Offering was $25,000.

 

The June 2012 Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on March 21, 2013. The Note is convertible into common stock, at Asher’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the June 2012 Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 120% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 125% if prepaid 31 days following the closing through 60 days following the closing, (iii) 130% if prepaid 61 days following the closing through 90 days following the closing and (iv) 135% if prepaid 91 days following the closing through 120 days following the closing. (v) 140% if prepaid 121 days following the closing through 150 days following the closing, (vi) 150% if prepaid 121 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the June 2012 Note, the Company has no right of prepayment.

 

On July 25, 2012, the Company issued a Convertible Promissory Note to JMJ Financial (“JMJ”) providing JMJ with the ability to invest up to $275,000 which contains a 10% original issue discount (the “JMJ Note”). The transaction closed on July 25, 2012. JMJ provided $50,000 to the Company on the Effective Date.

 

The maturity date is one year from the effective date of each payment by JMJ to the Company (the “Maturity Date”). The conversion price (the “Conversion Price”) for each portion of consideration paid by JMJ to the Company is lesser of: (1) the closing price of the Company’s stock on the day the portion of consideration is paid to the Company, or (2) 70% of the lowest trade price in the 25 trading days previous to the conversion.

 

The JMJ Note bears interest at 0% for the first 60 days and a one-time interest charge of 10% will be applied to the Principal Sum thereafter.

 

At any time after the Effective Date, the Company will have the option, upon 20 days business notice to JMJ, to prepay the entire remaining outstanding principal amount of the Note in cash, provided that (i) the Company will pay JMJ 150% of the principal amount outstanding in repayment, (ii) such amount must be paid in cash on the next business day following the 20 day business day notice period, and (iii) JMJ may still convert the Note pursuant to the terms herein during the 20 day business period until such repayment amount has been received in full.

 

On August 3, 2012, the Company entered into a Securities Purchase Agreement with Asher, for the sale of an 8% convertible note in the principal amount of $32,500 (the "August 2012 Note"). The financing closed on May 15, 2012. The total net proceeds the Company received from this Offering was $30,000.

 

F-11
 

 

CLEAN WIND ENERGY TOWER, INC.

(a development stage company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012

(unaudited)

 

 

The August 2012 Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on February 7, 2013. The August 2012 Note is convertible into common stock, at Asher’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the August 2012 Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 120% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 125% if prepaid 31 days following the closing through 60 days following the closing, (iii) 130% if prepaid 61 days following the closing through 90 days following the closing and (iv) 135% if prepaid 91 days following the closing through 120 days following the closing. (v) 140% if prepaid 121 days following the closing through 150 days following the closing, (vi) 150% if prepaid 151 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the August 2012 Note, the Company has no right of prepayment.

 

The Company has identified the embedded derivatives related to the above described Notes. These embedded derivatives included certain conversion features and reset provision. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of Asher Notes and to fair value as of each subsequent reporting date. 

 

As of March 9, 2012, the Company paid all outstanding (2011) Asher notes (aggregate of $77,500). At the dates of note payoffs, the Company marked to market the fair value of the debt derivatives and determined a fair value of $209,487. The Company recorded a gain from change in fair value of debt derivatives of $27,908. The fair value of the embedded derivatives of $209,487 were transferred to equity at the date of note(s) liquidation.

 

The fair value of the embedded derivatives was determined using Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 192.54 to 192.77%, (3) weighted average risk-free interest rate of 0.08 to 0.06%, (4) expected life of 0.23 to 0.32 year, and (5) estimated fair value of the Company’s common stock of $0.181 to $0.313 per share.

 

At the inception of the 2012 Notes, the Company determined the aggregate fair value of $337,616 of embedded derivatives. The fair value of the embedded derivatives was determined using the Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 196.08% to 219.80%, (3) weighted average risk-free interest rate of 0.16 % to 0.19%, (4) expected life of 0.75 to 1.00 years, and (5) estimated fair value of the Company’s common stock of $0.032 to $0.043 per share.

 

The determined fair value of the debt derivatives of $337,616 was charged as a debt discount up to the net proceeds of the note with the remainder $(109,116) charged to current period operations as non cash interest expense.

 

At September 30, 2012, the Company marked to market the fair value of the debt derivatives and determined a fair value of $752,708. The Company recorded a loss from change in fair value of debt derivatives of $450,330 and $387,185 for the three and nine month periods ended September 30, 2012, respectively. The fair value of the embedded derivatives was determined using Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 218.27%, (3) weighted average risk-free interest rate of 0.14% to 0.17%, (4) expected life of 0.29 to 0.78 year, and (5) estimated fair value of the Company’s common stock of $0.03 per share.

 

The charge of the amortization of debt discount and costs for the three and nine months ended September 30, 2012 was $66,039 and $153,951, respectively, which was accounted for as interest expense. Also, the Company has accrued interest expense of $6,283 as of September 30, 2012.

 

NOTE 6 – DERIVATIVE LIABILITIES

 

During 2011 and 2012, the Company issued an aggregate of $110,000 and $226,000 Convertible Promissory Notes that mature from April 30, 2012 to July 11, 2013, respectively. The Notes bear various interest rates and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rates of 30% to 69% discount to the market price of the lowest three trading prices of the Company’s common shares during the ten-day period ending one trading day prior to the date of the conversion.

   

The Company has identified the embedded derivatives related to the convertible notes. These embedded derivatives included certain conversion features and reset provision. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of Asher Notes and to fair value as of each subsequent reporting date.

 

At the inception of the notes, the Company determined the aggregate fair value of $575,403 of embedded derivatives. The fair value of the embedded derivatives was determined using the Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 196.08% to 221.52%, (3) weighted average risk-free interest rate of 0.05 to 0.20%, (4) expected life of 0.67 to 1.00 year, and (5) estimated fair value of the Company’s common stock of $0.034 to $0.20 per share.

F-12
 

 

CLEAN WIND ENERGY TOWER, INC.

(a development stage company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012

(unaudited)

 

 

The determined fair value of the debt derivatives of $575,403 at inception date was charged as a debt discount up to the net proceeds of the note with the remainder $(127,787) and $(153,951) charged to the operations during 2011 and 2012 as non-cash interest expense, respectively.

 

At December 31, 2011, the Company marked to market the fair value of the debt derivatives and determined a fair value of $237,395. The Company recorded a gain from change in fair value of debt derivatives of $89,241. The fair value of the embedded derivatives was determined using Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 185.84%, (3) weighted average risk-free interest rate of 0.02 to 0.06%, (4) expected life of 0.33 to 0.51 year, and (5) estimated fair value of the Company’s common stock of $0.18 per share.

 

As of March 9, 2012, the Company paid all outstanding (2011) Asher notes. At the dates of note payoffs, the Company marked to market the fair value of the debt derivatives and determined a fair value of $209,487. The Company recorded a gain from change in fair value of debt derivatives of $27,908. The fair value of the embedded derivatives of $209,487 were transferred to equity at the date of note(s) liquidation.

 

The fair value of the embedded derivatives was determined using Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 192.54 to 192.77%, (3) weighted average risk-free interest rate of 0.08 to 0.06%, (4) expected life of 0.23 to 0.32 year, and (5) estimated fair value of the Company’s common stock of $0.181 to $0.313 per share.

 

At the inception of the 2012 notes, the Company determined the aggregate fair value of $337,616 of embedded derivatives. The fair value of the embedded derivatives was determined using the Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 196.08% to 219.80%, (3) weighted average risk-free interest rate of 0.18 % to 0.20%, (4) expected life of 0.75 to 1.00 years, and (5) estimated fair value of the Company’s common stock of $0.032 to $0.043 per share.

 

The determined fair value of the debt derivatives of $337,616 was charged as a debt discount up to the net proceeds of the note with the remainder $(109,115) charged to current period operations as non cash interest expense.

 

At September 30, 2012, the Company marked to market the fair value of the debt derivatives and determined a fair value of $752,708. The Company recorded a loss from change in fair value of debt derivatives of $450,330 and $387,185 for the three and nine month periods ended September 30, 2012, respectively. The fair value of the embedded derivatives was determined using Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 218.27%, (3) weighted average risk-free interest rate of 0.10% to 17%, (4) expected life of 0.29 to 0.78 year, and (5) estimated fair value of the Company’s common stock of $0.0625 per share.

 

NOTE 7 – STOCKHOLDERS' EQUITY

 

Preferred stock

 

The Company has authorized 10,000,000 shares of preferred stock, with a par value of $0.0001 per share. As of September 30, 2012 and December 31, 2011, the Company did not have any preferred stock issued and outstanding.

 

Common stock

 

The Company has authorized 500,000,000 shares of common stock, with a par value of $0.0001 per share. As of September 30, 2012 and December 31, 2011, the Company has 265,394,584 and 210,850,519, respectively, shares of common stock issued and outstanding.

 

During the nine months ended September 30, 2012, the Company issued an aggregate of 261,556 shares of common stock for accrued expenses of $34,467.

 

During the nine months ended September 30, 2012, the Company issued an aggregate of 21,500,000 shares of common stock for future services of $1,745,690. The Company accretes the fair value of the shares issued as stock based compensation during the requisite service period to operations. During the nine months ended September 30, 2012, the Company recorded $645,255 as stock based compensation.

 

During the nine months ended September 30, 2012, the Company issued an aggregate of 6,532,509 shares of common stock for services rendered of $257,907.

F-13
 

 

CLEAN WIND ENERGY TOWER, INC.

(a development stage company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012

(unaudited)

 

 

During the nine months ended September 30, 2012, the Company issued an aggregate of 22,500,000 shares of common stock in settlement of $150,000 previous incurred payables. In connection with the issuance, the Company recorded a loss on settlement of debt of $829,530.

 

During the nine months ended September 30, 2012, the Company issued an aggregate of 600,000 shares of common stock for common stock subscriptions for $60,000 proceeds, which received in 2011 and 2,300,000 shares of common stock for in connection with a warrant agreement entered into on January 12, 2012 for $230,000.

 

During the nine months ended September 30, 2012, the Company issued 850,000 of common stock for net proceeds of $85,000. 

 

Warrants

 

On January 12, 2012, the Company entered into a Warrant Agreement with Paradigm Concepts, Inc. (the "Warrant Holder"), pursuant to which the Company issued to Warrant Holder one certificate (the “Warrant Certificate”) providing the Warrant Holder with the right to purchase, at any time until the earliest occurrence of either (a) after the underlying common stock issuable in the exercise of the warrants being declared registered and effective by the SEC on a registration statement filed by the Company, or, (b) 5:30 P.M. Pacific Daylight Savings Time on July 12, 2012. The Warrant Certificate is exercisable up to $1,000,000 worth of restricted shares of common stock of the Company (the “Warrant Shares”) valued at exercise price calculated by taking the daily closing bid price of the Company’s common stock as reported on the OTCBB, on the date of the exercise of the warrants, and discounting that closing bid price by 20%; provided, however, the exercise price may in no event be lower than $0.10 per share nor greater than $0.40 per share. The Warrant is non-cancelable by the Company and non-callable.

 

Subsequent to the financial statements, the Company extended the expiration of the Warrant Agreement to December 31, 2012.

  

NOTE 8 – CONTINGENCIES

 

Litigation

 

Clean Wind Energy, Inc. v. John Hanback, et al

  

On January 12, 2012, the Company and its subsidiary, Clean Wind Energy, Inc. (collectively “CWE”), entered into a Settlement and Release Agreement (the “Agreement”) with John W. Hanback (“Hanback”), Christopher W. Johnson (“Johnson”) and Itzhak Tepper (“Tepper”) (Hanback, Johnson and Tepper, the “Former Employees”), pursuant to which the Former Employees agreed to a mutual release and also agreed to the following:

 

  · CWE and the Former Employees will jointly file a Stipulation of Dismissal dismissing the lawsuit filed by CWE against the Former Employees in the United States District Court for the Eastern District of Virginia, Alexandria Division, Civil Action No. 1:11cv1206 LMB/TRJ.
     
  · In consideration of $174,000 from an unaffiliated third party in February 2012, the Former Employees transferred the shares of common stock owned by them to an unaffiliated third party.

 

  · Hanback tendered to CWE assignments of certain patent applications in consideration of the Hanback Payment.

 

  · Hanback, Johnson and Tepper agreed to a 15 month non-competition period whereby they will not directly or indirectly attempt to procure a site for a large-scale tower using non-toxic natural elements to generate electricity.
   
  · Hanback, Johnson and Tepper agreed to a 15 month no-contact period, whereby they may not have any professional dealings with certain parties.

 

Porter LeVay & Rose, Inc.

 

On February 23, 2012, we were served with a Complaint in the matter of Porter, LeVay & Rose, Inc. filed in the Supreme Court of the State of New York, stipulating that Clean Wind Energy Tower, Inc. has yet to pay for certain services rendered on behalf of Porter LeVay & Rose for Financial Public Relations services. On March 21, 2012, Clean Wind Energy Tower, Inc., executed a Stipulation Settling Action Agreement and agreed to pay a total of $39,219 in equal payments of $9,805, the first to be paid prior to March 30, 2012 and monthly thereafter until paid in full. The first payment was made on March 27, 2012. The Company has accounted for unpaid balance of $9,805 as accounts payable and accrued expenses in its condensed consolidated balances sheets as of December 31, 2011. During the three months ended September 30, 2012, the Company settled all outstanding obligations.

F-14
 

 

CLEAN WIND ENERGY TOWER, INC.

(a development stage company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012

(unaudited)

 

 

The Company is subject to legal proceedings and claims from time to time which arise in the ordinary course of its business. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters should not have a material adverse effect on its consolidated financial position, results of operations or liquidity. 

 

NOTE 9 – FAIR VALUE MEASUREMENTS

 

ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:

 

  Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
     
  Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; or
     
  Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and are unobservable.

 

Items recorded or measured at fair value on a recurring basis in the accompanying unaudited condensed consolidated financial statements consisted of the following items as of September 30, 2012:

 

    Level 1     Level 2     Level 3     Total  
Long-term investments   $ -     -     -     -  
Total   $   -     $ -     $ -     $ -  
                                 
Derivative liabilities   -     -     752,708     752,708  
Total   $ -     $ -     $ 752,708     $ 752,708  

 

The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities (derivative liability) for the nine months ended September 30, 2012.

 

Nine months ended September 30, 2012: 

 

    Derivative Liability  
Balance, December 31, 2011   $ 237,395  
         
Transfers in (out) at mark-market value on date of payoff     (209,487 )
         
Transfers in upon initial fair value of derivative liability     337,615  
         
Loss from change in fair value of derivative liability     387,185  
         
Balance, September 30, 2012   $ 752,708  
         
Total loss for the period included in earnings relating to the liabilities held at September 30, 2012   $ (387,185 )

 

Level 3 Liabilities were comprised of our bifurcated convertible debt features on our convertible notes.

   

NOTE 10 – SUBSEQUENT EVENTS

 

Subsequent issuances of common stock

 

During the month of October 2012, the Company issued 1,118,667 shares of common stock for services rendered.

 

F-15
 

 


Report of Independent Registered Public Accounting Firm

 

 

To the Board of Directors and Shareholders

Clean Wind Energy Tower, Inc.

 

 

We have audited the accompanying consolidated balance sheets of Clean Wind Energy Tower, Inc. (the “Company”), a development stage company as of December 31, 2011 and 2010, and the related consolidated statements of operations, changes in stockholders’ deficit and cash flows for each of the two years ended December 31, 2011 and for the period from July 26, 2010 (date of inception) through December 31, 2011. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to the above present fairly, in all material respects, the financial position of Clean Wind Energy Tower, Inc. as of December 31, 2011 and 2010, and the consolidated results of operations, and cash flows for each of the two years in the period ended December 31, 2011 and for the period from July 26, 2010 (date of inception) through December 31, 2011 in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 3 to the accompanying consolidated financial statements, the Company is a development stage company and is incapable of generating sufficient cash flow to sustain its operations without securing additional financing, which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to this matter are described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

   

 

 

  /s/ RBSM LLP

 

 

New York, New York

March 30, 2012

 

F-16
 

CLEAN WIND ENERGY TOWER, INC.

(a development stage company)

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2011 AND 2010

      

    2011     2010  
ASSETS            
Current assets:            
Cash and cash equivalents   $ 52,332     $ 195,184  
Prepaid expenses     -       29,697  
Total current assets     52,332       224,881  
                 
Property and equipment, net     11,244       -  
                 
Other assets:                
Deposits     9,330       9,330  
                 
Total assets   $ 72,906     $ 234,211  
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT                
Current liabilities:                
Accounts payable   $ 478,355     $ 191,581  
Accrued liabilities and expenses     627,650       183,126  
Advances from stockholders/officers     5,000       47,000  
Convertible notes payable, net of unamortized debt discount of $57,778     52,222       -  
Derivative liabilities     237,395       -  
Total current liabilities     1,400,622       421,707  
                 
Commitments and contingencies     -       -  
                 
Stockholders' deficit:                
Preferred stock, par value $0.0001 per share; 10,000,000 shares authorized; none issued and outstanding as of December 31, 2011 and 2010     -       -  
Common stock, par value $0.0001 per share; 500,000,000 shares authorized; 210,850,519 and 20,955,199 shares issued and outstanding as of December 31, 2011 and 2010, respectively     21,085       2,096  
Common stock to be issued     480,000       457,000  
Additional paid in capital     1,270,835       191,565  
Accumulated deficit during development stage     (3,099,636 )     (838,157 )
Total stockholders' deficit     (1,327,716 )     (187,496 )
                 
Total liabilities and stockholders' deficit   $ 72,906     $ 234,211  

 

   

See the accompanying notes to the consolidated financial statements

 

F-17
 

    

CLEAN WIND ENERGY TOWER, INC.

(a development stage company)

CONSOLIDATED STATEMENTS OF OPERATIONS

     

   

For the

year ended

December 31, 2011

   

For the period

From July 26, 2010

(date of inception)

through

December 31, 2010

   

For the period

From July 26, 2010

(date of inception)

through

December 31, 2011

 
REVENUE:   $ -     $ -     $ -  
                         
OPERATING EXPENSES:                        
Research and development     362,850       73,559       436,409  
Selling, general and administrative     1,713,895       764,598       2,478,493  
Depreciation     2,197       -       2,197  
Total operating expenses     2,078,942       838,157       2,917,099  
                         
Loss from operations     (2,078,942 )     (838,157 )     (2,917,099 )
                         
Other income (expense):                        
Interest expense     (182,929 )     -       (182,929 )
Loss on modification of debt     (88,849 )     -       (88,849 )
Gain on change in fair value of derivative liabilities     89,241       -       89,241  
                         
Loss before provision for income taxes     (2,261,479 )     (838,157 )     (3,099,636 )
                         
Provision for income taxes (benefit)     -       -       -  
                         
NET LOSS   $ (2,261,479 )   $ (838,157 )   $ (3,099,636 )
                         
Net loss per common share, basic and fully diluted   $ (0.01 )   $ (0.04 )        
                         
Weighted average number of common shares outstanding, basic and fully diluted     226,844,313       20,955,199          

  

See the accompanying notes to the consolidated financial statements

  

F-18
 

CLEAN WIND ENERGY TOWER, INC.

(a development stage company)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

For the Period From July 26, 2010 (date of inception) Through December 31, 2011

 

    Preferred stock     Common stock     Common to be Issued    

Additional

Paid In

   

Deficit

Accumulated

During

Development

       
    Shares     Amount     Shares     Amount     Shares     Amount     Capital     Stage     Total  
Balance, date of inception (July 26, 2010) adjusted for recapitalization     -     $ -       20,955,199     $ 2,096       -     $ -     $ 191,565     $ -     $ 193,661  
Recapitalization and direct costs resulting in reverse merger:                                                                        
Shares to be issued to Clean Wind Energy's stockholders     -       -       -       -       300,000,000       30,000       -       -       30,000  
Shares to be issued for consulting services rendered in connection with reverse merger     -       -       -       -       6,100,000       427,000       -       -       427,000  
Net loss     -       -       -       -       -       -       -       (838,157 )     (838,157 )
Balance, December 31, 2010     -       -       20,955,199       2,096       306,100,000       457,000       191,565       (838,157 )     (187,496 )
Recapitalization and direct costs resulting in reverse merger:                                                                        
Shares issued to Clean Wind Energy's stockholders     -       -       300,000,000       30,000       (300,000,000 )     (30,000 )     -       -       -  
Shares issued for consulting services rendered in connection with reverse merger     -       -       100,000       10       (100,000 )     (7,000 )     6,990       -       -  
Shares issued for consulting services rendered at $0.20 per share     -       -       100,000       10       -       -       19,990       -       20,000  
Shares to be issued in connection with PPM Subscription at $0.10 per share     -       -       -       -       1,200,000       120,000       -       -       120,000  
Shares issued in connection with PPM Subscription at $0.10 per share     -       -       1,200,000       120       (1,200,000 )     (120,000 )     119,880       -       -  
Shares issued in connection with PPM Subscription at $0.10 per share     -       -       7,290,000       729       -       -       728,271       -       729,000  
Accrued warrants to be issued referring brokers in connection with PPM Subscription at $0.10 per share     -       -       -       -       -       -       (29,400 )     -       (29,400 )
Subtotal     -     $ -       329,645,199     $ 32,965       6,000,000     $ 420,000     $ 1,037,296     $ (838,157 )   $ 652,104  

 

   

See the accompanying notes to the consolidated financial statements

 

F-19
 

CLEAN WIND ENERGY TOWER, INC.

(a development stage company)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

For the Period From July 26, 2010 (date of inception) Through December 31, 2011

 

    Preferred stock     Common stock     Common to be Issued    

Additional

Paid In

   

Deficit

Accumulated

During

Development

       
    Shares     Amount     Shares     Amount     Shares     Amount     Capital     Stage     Total  
Balance forward     -     $ -       329,645,199     $ 32,965       6,000,000     $ 420,000     $ 1,037,296     $ (838,157 )   $ 652,104  
Shares issued for consulting services rendered at $0.27 per share     -       -       24,422       2       -       -       6,591       -       6,593  
Broker's finders fees paid in connection with PPM Subscription     -       -       -       -       -       -       (9,800 )     -       (9,800 )
Shares issued for consulting services rendered at $0.20 per share     -       -       13,787       1       -       -       2,756       -       2,757  
Shares to be issued in connection with PPM Subscription at $0.10 per share     -       -       1,050,000       105       600,000       60,000       104,895       -       165,000  
Shares issued for consulting services rendered at $0.12 per share     -       -       150,000       15       -       -       17,985       -       18,000  
Shares issued for consulting services rendered at $0.12 per share     -       -       50,000       5       -       -       5,995       -       6,000  
Shares forfeited and cancelled by some Clean Wind Energy's stockholders acquired in connection with the merger upon resignation     -       -       (120,600,000 )     (12,060 )     -       -       12,060       -       -  
Shares issued for consulting services rendered at $0.18 per share     -       -       517,111       52       -       -       93,057       -       93,109  
Net loss     -       -       -       -       -       -       -       (2,261,479 )     (2,261,479 )
Balance, December 31, 2011     -     $ -       210,850,519     $ 21,085       6,600,000     $ 480,000     $ 1,270,835     $ (3,099,636 )   $ (1,327,716 )

    

See the accompanying notes to the consolidated financial statements

  

F-20
 

 

CLEAN WIND ENERGY TOWER, INC.

(a development stage company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

   

   

For the

year ended

December 31, 2011

   

For the period

From July 26, 2010

(date of inception)

through

December 31, 2010

   

For the period

From July 26, 2010

(date of inception)

through

December 31, 2011

 
CASH FLOWS FROM OPERATING ACTIVITIES:                  
Net loss   $ (2,261,479 )   $ (838,157 )   $ (3,099,636 )
Adjustments to reconcile net loss to net cash used in operating activities:                        
Depreciation     2,197       -       2,197  
Amortization of debt discounts     52,222       -       52,222  
Non cash interest     127,787       -       127,787  
Common stock issued for services rendered     146,459       427,000       573,459  
Loss on debt modification     88,849       -       88,849  
Gain from change in fair value of derivative liabilities     (89,241 )     -       (89,241 )
Changes in operating assets and liabilities:                        
Prepaid expenses     29,697       (29,697 )     -  
Advances from stockholders/officers     (42,000 )     47,000       5,000  
Accounts payable and accrued expenses     701,898       374,707       1,076,605  
Net cash used in operating activates     (1,243,611 )     (19,147 )     (1,262,758 )
                         
CASH FLOWS FROM INVESTING ACTIVITIES:                        
Net cash acquired from reverse merger     -       223,586       223,586  
Purchase of property and equipment     (13,441 )     -       (13,441 )
Payment of long term deposit     -       (9,330 )     (9,330 )
Net cash (used in) provided by investing activities     (13,441 )     214,256       200,815  
                         
CASH FLOWS FROM FINANCING ACTIVITIES:                        
Proceeds from issuance of subsidiary's common stock     -       75       75  
Proceeds from shares issued in connection with PPM Subscription     1,004,200       -       1,004,200  
Proceeds from issuance of convertible notes payable     110,000       -       110,000  
Net cash provided by financing activities     1,114,200       75       1,114,275  
                         
Net (decrease) increase in cash and cash equivalents     (142,852 )     195,184       52,332  
Cash and cash equivalents, beginning of period     195,184       -       -  
                         
Cash and cash equivalents, end of period   $ 52,332     $ 195,184     $ 52,332  
                         
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                  
                         
Interest paid   $ -     $ -     $ -  
Income taxes paid   $ -     $ -     $ -  
                         
Non cash investing and financing activities:                        
Accrued warrants to be issued referring brokers in connection with PPM subscription at $0.10 per share   $ 29,400     $ -     $ 29,400  
Shares forfeited and cancelled by some Clean Wind Energy's stockholders acquired in connection with the merger upon resignation   $ 12,060     $ -     $ 12,060  

  

See the accompanying notes to the consolidated financial statements

 

F-21
 

  

CLEAN WIND ENERGY, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND 2010

 

NOTE 1 – NATURE OF OPERATIONS

 

Clean Wind Energy Tower, Inc. (the “Company”, “we”, “us”, “our”) (formerly known as Superior Silver Mines, Inc.) was incorporated in the State of Idaho on January 22, 1962 as Superior Mines Company and then changed its name to Superior Silver Mines, Inc. The Company reincorporated as a Nevada corporation on December 27, 2010. The Company has been dormant for a number of years, and has no known mineral reserves.

 

On December 29, 2010, pursuant to an Agreement and Plan of Merger, dated December 29, 2010 (the “Merger Agreement”), the Company consummated a reverse merger (the “Merger”) with Clean Wind Energy, Inc., a corporation formed under the laws of the State of Delaware on July 26, 2010 (“Clean Wind Energy”). In connection with the Merger, the Company issued to the stockholders of Clean Wind Energy in exchange for their Clean Wind Energy Common Stock, the right to receive an aggregate of 300,000,000 shares of the Company’s Common Stock. The Merger was accounted for as a “reverse merger”, since the stockholders of Clean Wind Energy owned a majority of the Company’s common stock immediately following the transaction and their management has assumed operational, management and governance control.

  

For accounting purposes, Clean Wind Energy was the surviving entity. The transaction was accounted for as a recapitalization of Clean Wind Energy pursuant to which Clean Wind 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 Clean Wind Energy immediately following the consummation of the reverse merger.

  

On January 21, 2011, the Company changed its name to Clean Wind Energy Tower, Inc. In addition, effective January 24, 2011, the Company’s quotation symbol on the Over-the-Counter Bulletin Board was changed from SSVM.OB to CWET.OB.

  

Until the consummation of the Merger, the Company’s purpose was to seek, investigate and, if such investigation warranted, acquire an interest in business opportunities presented to it by persons or firms who, or which, desire to seek the perceived advantages of a publicly registered corporation. Because the Company had no operations and only nominal assets until the Merger, it was considered a shell company under rules promulgated by the U.S. Securities and Exchange Commission.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Fair Value of Financial Instruments

  

Our short-term financial instruments, including cash, other assets and accounts payable and accrued expenses consist primarily of instruments without extended maturities, the fair value of which, based on management’s estimates, reasonably approximate their book value. The fair value of our notes and advances payable is based on management estimates and reasonably approximates their book value based on their current maturity.

    

Long-Lived Assets

 

We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with ASC 360-10 (formerly Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets). Recoverability is measured by comparison of the carrying amount to the future net cash flows which the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the projected discounted future cash flows arising from the asset using a discount rate determined by management to be commensurate with the risk inherent to our current business model.

   

F-22
 

   

CLEAN WIND ENERGY, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND 2010

       

Net Loss per Common Share

 

The Company computes net loss per share under Accounting Standards Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”). Basic net income (loss) per common share is computed by dividing net loss by the weighted average number of shares of common stock. Diluted net loss per share is computed using the weighted average number of common and common stock equivalent shares outstanding during the period. There is no effect on diluted loss per share since the common stock equivalents are anti-dilutive. Dilutive common stock equivalents consist of shares issuable upon conversion of convertible notes and the exercise of the Company's stock options and warrants. Fully diluted shares as of December 31, 2011 and 2010 were 228,671,064 and 20,955,199, respectively.

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

 

Revenue Recognition

 

The Company has generated no revenues to date. It is the Company’s policy that revenue from product sales or services will be recognized in accordance with ASC 605 “Revenue Recognition”. Four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company will defer any revenue for which the product was not delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.

 

Stock Based Compensation

 

The Company account for its stock based awards in accordance with Accounting Standards Codification subtopic 718-10, Compensation (“ASC 718-10”), which requires a fair value measurement and recognition of compensation expense for all share-based payment awards made to our employees and directors, including restricted stock awards. We estimate the fair value of stock using the stock price on date of the approval of the award. The fair value is then expensed over the requisite service periods of the awards, which is generally the performance period and the related amount recognized in our consolidated statements of operations.

 

Stock-based compensation expense in connection with stock granted to consultants in exchange for services rendered for the years ended December 31, 2011 and 2010 was $146,459 and $427,000, respectively.

 

Income Taxes

   

The Company utilizes ASC 740 “Income Taxes” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Temporary differences between taxable income reported for financial reporting purposes and income tax purposes primarily relate to the recognition of debt costs and stock based compensation expense. The adoption of ASC 740-10 did not have a material impact on the Company's results of operations or financial condition.

  

F-23
 

  

CLEAN WIND ENERGY, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND 2010   

     

Research and development

 

In accordance with ASC 730, “Research and Development”, the Company expenses all research and development costs as incurred. The Company had incurred $362,850, $73,559 and $436,409 research and development costs for the year ended December 31, 2011, for the period from July 26, 2010 (date of inception) through December 31, 2010 and from July 26, 2010 (date of inception) through December 31, 2011, respectively. The company expects the research and development costs to increase in the future as it continues to invest in the infrastructure that is critical to achieve our business goals and objectives.

 

Property, plant and equipment

 

Property, plant and equipment are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets. Gains and losses from the retirement or disposition of property and equipment are included in operations in the period incurred. Maintenance and repairs are expensed as incurred.

 

Cash and cash equivalents

 

For purposes of the statement of cash flows, cash and cash equivalents includes demand deposits, saving accounts and money market accounts. The Company considers all highly liquid debt instruments with maturities of three months or less when purchased to be cash and cash equivalents.

 

Derivative financial instruments

 

Accounting Standards Codification subtopic 815-40, Derivatives and Hedging, Contracts in Entity’s own Equity (“ASC 815-40”) became effective for the Company on October 1, 2009. The Company’s convertible debt has reset provisions to the exercise price if the Company issues equity or a right to receive equity, at a price less than the exercise prices.

 

Development stage entity

   

The Company is considered to be a development stage entity, as defined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 915. For the period from July 26, 2010 (date of inception) through December 31, 2011, the Company has not generated any revenues to date, has no significant assets and has incurred losses since inception from developing its business and planned operations. Consequently, its operations are subject to all the risks inherent in the establishment of a new business enterprise.

 

Reclassification

 

Certain reclassifications have been made to conform with the prior period’s data to the current presentation. These reclassifications had no effect on reported net loss.

 

Recently Issued Accounting Pronouncements

 

There are various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's consolidated financial position, results of operations or cash flows.

  

F-24
 

 

CLEAN WIND ENERGY, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND 2010

   

NOTE 3 – GOING CONCERN MATTERS

 

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has reported a net loss of $(2,261,479) for the year ended December 31, 2011, accumulated deficit of $(3,099,636) and total current liabilities in excess of current assets of $(1,348,290) as of December 31, 2011.

   

The Company’s ability to continue existence is dependent upon commencing its planned operations, management’s ability to develop and achieve profitable operations and/or upon obtaining additional financing to carry out its planned business. The Company intends to fund its business development, acquisition endeavors and operations through equity and debt financing arrangements. During the year ended In December 31, 2011, certain shareholders of the Company have committed to meeting operating expenses. However, there can be no assurance that these arrangements will be sufficient to fund its ongoing capital expenditures, working capital, and other cash requirements. The outcome of these matters cannot be predicted at this time. There can be no assurance that any additional financings will be available to the Company on satisfactory terms and conditions, if at all. In the event we are unable to continue as a going concern, we may elect or be required to seek protection from our creditors by filing a voluntary petition in bankruptcy or may be subject to an involuntary petition in bankruptcy. To date, management has not considered this alternative, nor does management view it as a likely occurrence.

 

The accompanying financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.

 

NOTE 4 – ACCRUED LIABILITIES AND EXPENSES

 

Accrued liabilities and expenses as of December 31, 2011 and 2010 consist of the following:

 

    2011     2010  
Accrued payroll   $ 472,221     $ 166,154  
Accrued payroll taxes payable     18,330       -  
Accrued stock purchase warrants     29,400       -  
Accrued other     107,699       16,972  
Total   $ 627,650     $ 183,126  

 

NOTE 5 – ADVANCES FROM SHAREHOLDERS/OFFICERS

 

For the year ended December 31, 2011, Ronald W. Pickett, a director and executive officer of the Company had a total of $5,000 of advances and reimbursable expenses owed to him by Clean Wind Energy. The advances are reported in the “advances from stockholders/officers” and the reimbursable expense in the “Accounts payable” categories on the Consolidated Balance Sheets. These amounts are interest free advances. The details are as follow:

   

    Advances    

Reimbursable

Expenses

 
Advances and Reimbursable Expenses at December 31, 2010   $ 47,000     $ 24,333  
Year ended December 31, 2011, expenses             16,509  
Year ended December 31, 2011, repayment     (42,000 )     (40,842 )
Total outstanding at December 31, 2011   $ 5,000     $ -  

     

During the periods of November and December, 2010, Mr. Sadle had reimbursable expenses of approximately $15,000 which was paid in full during the year ended December 31, 2011.

   

F-25
 

  

CLEAN WIND ENERGY, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND 2010

   

NOTE 6 – CONVERTIBLE NOTES PAYABLE

   

On July 27, 2011, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc. ("Asher"), for the sale of an 8% convertible note in the principal amount of $45,000 (the "Note"). The financing closed on August 8, 2011. The total net proceeds the Company received from this Offering on August 8, 2011 was $42,500.

 

The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on April 30, 2012. The Note is convertible into common stock, at Asher’s option, at a 42% discount (subsequently modified to 69% discount) to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In 2the event the Company prepays the Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 135% if prepaid during the period commencing on the closing date through 90 days thereafter, (ii) 135% if prepaid 91 days following the closing through 120 days following the closing, (iii) 140% if prepaid 121 days following the closing through 151 days following the closing and (iv) 150% if prepaid 151 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the Note, the Company has no right of prepayment. In connection to the debt modification, the Company recorded a loss on debt modification of $88,849.

  

On August 31, 2011, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc. ("Asher"), for the sale of an 8% convertible note in the principal amount of $32,500 (the "Note"). The financing closed on August 31, 2011. The total net proceeds the Company received from this Offering was $30,000.

  

The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on April 30, 2012. The Note is convertible into common stock, at Asher’s option, at a 52% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 135% if prepaid during the period commencing on the closing date through 90 days thereafter, (ii) 140% if prepaid 91 days following the closing through 120 days following the closing, (iii) 145% if prepaid 121 days following the closing through 150 days following the closing and (iv) 150% if prepaid 151 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the Note, the Company has no right of prepayment.

   

On October 6, 2011, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc. ("Asher"), for the sale of an 8% convertible note in the principal amount of $32,500 (the "Note"). The total net proceeds the Company received from this Offering was $30,000.

 

The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on July 5, 2012. The Note is convertible into common stock, at Asher’s option, at a 69% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 135% if prepaid during the period commencing on the closing date through 90 days thereafter, (ii) 140% if prepaid 91 days following the closing through 120 days following the closing, (iii) 145% if prepaid 121 days following the closing through 150 days following the closing and (iv) 150% if prepaid 151 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the Note, the Company has no right of prepayment.

 

Asher has agreed to restrict its ability to convert the Notes and receive shares of common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock.

  

F-26
 

 

 

CLEAN WIND ENERGY, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND 2010

  

The Company claims an exemption from the registration requirements of the Securities Act of 1933, as amended (the "Act") for the private placement of these securities pursuant to Section 4(2) of the Act and/or Regulation D promulgated there under since, among other things, the transaction did not involve a public offering, Asher is an accredited investor, Asher had access to information about the Company and their investment, Asher took the securities for investment and not resale, and the Company took appropriate measures to restrict the transfer of the securities.

   

NOTE 7 – DERIVATIVE LIABILITIES

 

During 2011, the Company issued an aggregate of $110,000 Convertible Promissory Notes to Asher Enterprises, Inc. (“Asher Notes”) that mature from April 30, 2012 to July 5, 2012. The Asher Notes bear interest at a rate of 8% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rates of 42% to 69% discount to the market price of the lowest three trading prices of the Company’s common shares during the ten-day period ending one trading day prior to the date of the conversion.

   

The Company has identified the embedded derivatives related to the Asher Notes. These embedded derivatives included certain conversion features and reset provision. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of Asher Notes and to fair value as of each subsequent reporting date. At the inception of the Asher Notes, the Company determined the aggregate fair value of $237,787 on the embedded derivatives. The fair value of the embedded derivatives was determined using the Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 215.72% to 221.52%, (3) weighted average risk-free interest rate of 0.05 to 0.09%, (4) expected life of 0.67 to 0.75 year, and (5) estimated fair value of the Company’s common stock of $0.17 to $0.20 per share.

 

The determined fair value of the debt derivatives of $237,787 was charged as a debt discount up to the net proceeds of the note with the remainder $(127,787) charged to current period operations as non cash interest expense.

 

At December 31, 2011, the Company marked to market the fair value of the debt derivatives and determined a fair value of $237,395. The Company recorded a gain from change in fair value of debt derivatives of $89,241. The fair value of the embedded derivatives was determined using Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 185.84%, (3) weighted average risk-free interest rate of 0.02 to 0.06%, (4) expected life of 0.33 to 0.51 year, and (5) estimated fair value of the Company’s common stock of $0.18 per share.

  

The charge of the amortization of debt discount and costs for the year ended December 31, 2011 was $52,222, which was accounted for as interest expense. Also, the Company has accrued interest expense of $2,919 for the year ended December 31, 2011.

 

NOTE 8 – CAPITAL STOCK

 

The Company has authorized 10,000,000 shares of preferred stock, with a par value of $0.0001 per share. As of December 31, 2011, the Company did not have any preferred stock issued and outstanding. The Company has authorized 500,000,000 shares of common stock, with a par value of $0.0001 per share. As of December 31, 2011 and 2010, the Company has 210,850,519 and 20,955,199, respectively, shares of common stock issued and outstanding.

 

During the year ended December 31, 2011, the Company issued 955,320 shares of Common Stock to consultants for services performed and rendered; 855,320 shares were expense in the year ended December 31, 2011 and 100,000 shares were accrued for in fiscal year 2010. These shares were valued at $153,459, which approximated the fair value of the shares when they were issued; the expense recognized in the year ended December 31, 2011 is $146,459 and $7,000 of expenses were recognized in fiscal year 2010.

 

F-27
 

  

CLEAN WIND ENERGY, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND 2010

 

During the year ended December 31, 2011, the Company issued 9,540,000 shares of Common Stock to private placement investors at $0.10 per share for aggregate gross proceeds of $954,000. In connection with the private placement subscription the Company has also agreed to issue to the referring brokers, five-year warrants to purchase an aggregate of 98,000 shares of common stock at an exercise price of $0.10 per share. The Company valued the warrants using the Black-Scholes pricing model and the following assumptions: contractual terms of 5 years, an average risk free interest rate of 2.00%, a dividend yield of 0%, and volatility of 247%. The amount of $29,400 attributed to the value of the warrants to be issued and has been accrued for as of December 31, 2011, which is charged to additional paid-in capital.

 

Also, during the year ended December 31, 2011, the Company received $60,000 from an investors in connection with the private placement subscription. The equivalent 600,000 shares of Common Stock at $0.10 were not yet issued at the end of the year ended December 31, 2011.

 

During the year ended December 31, 2011, the Company issued 300,000,000 shares of common stock to the shareholders of its Subsidiary, Clean Wind Energy pursuant to the Merger on December 29, 2010, in exchange for their Clean Wind Energy Common Stock. These issuances of shares were made in reliance upon an exemption from registration under Section 4 (2) of the Securities Act, and Regulation D promulgated thereunder.

 

On September 20, 2011, the Company received notice from an attorney representing John W. Hanback (Chief Technology Officer), Itzhak Tepper (PE Chief Structural Engineer) and one additional employee located at the Company’s research facility (collectively, the “Former Employees”) whereby the Former Employees have claimed that they have been constructively discharged from their employment and have terminated their employment agreements. The Company considers the notice from the Former Employees as a resignation by such Former Employees and has notified the Former Employees that such resignation has been accepted. As a result of such resignation, the Company has cancelled all stock certificates issued at the time of Merger which represents an aggregate of 120,600,000 shares of common stock held by the Former Employees that would have been earned out on the first anniversary of their employment agreements.

 

On December 29, 2010, the Company agreed to issue to Source Capital 6,000,000 shares for providing financial advisory services to Clean Wind Energy in connection with the Merger and for on-going financial services. These shares have not been issued as of December 31, 2011 and the shares to be issued were made in reliance upon an exemption from registration under Section 4 (2) of the Securities Act, and Regulation D promulgated thereunder.

 

NOTE 9 – COMMITMENTS AND CONTINGENCIES

 

Office Leases Obligations

 

The Company leases approximately 100 square feet of office space at 1997 Annapolis Exchange Parkway, Suite 300, Annapolis, Maryland 21401 pursuant to a lease that expires October 31, 2011 and leases approximately 8,435 square feet of commercial space in Warrenton, Virginia pursuant to a lease that expires November 30, 2013. The Company is in the process of renewing the lease for the office space in Annapolis, Maryland.

 

The Company maintains one unpatented lode mining claim, #IMC39643, claim name-Abbatoir, which is leased to U.S. Silver Corporation.

Commitments for minimum rentals under non cancelable leases at December 31, 2011 are as follows:

 

2012     81,890  
2013     105,366  
Total   $ 187,256  

  

F-28
 

  

CLEAN WIND ENERGY, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND 2010

  

Rental expenses charged to operations for the year ended December 31, 2011 was $112,851.

 

Employment and Consulting Agreements

 

The Company has employment agreements with certain of its key employees which include non-disclosure and confidentiality provisions for protection of the Company’s proprietary information.

 

The Company has consulting agreements with outside contractors to provide marketing and financial advisory services. The Agreements are generally for a term of 12 months from inception and renewable automatically from year to year unless either the Company or Consultant terminates such engagement by written notice.

 

On December 29, 2010, pursuant to the Merger, Clean Wind Energy became a wholly-owned subsidiary of the Company. Clean Wind Energy has employment agreements with its executive officers. Each of the employment agreements was entered into on September 22, 2010 and amended on November 22, 2010.

 

Name

 

 

Position(s)

 

 

Term

 

 

Salary

 

 

Bonus

 

Severance

 

Ronald W. Pickett

 

  President, Chief Executive Officer   3 years; renewable for 1 year on mutual consent  

$

 

200,000  

Board Discretionary

 

Twelve (12) months salary and benefits for termination without cause.

Stephen Sadle

 

  Chief Operating Officer   3 years; renewable for 1 year on mutual consent  

$

 

175,000

 

 

Board Discretionary

 

Twelve (12) months salary and benefits for termination without cause.

Robert P. Crabb

 

  Secretary, Chief Marketing Officer   3 years; renewable for 1 year on mutual consent  

$

 

60,000

 

 

Board Discretionary

 

Twelve (12) months salary and benefits for termination without cause.

Ownkar Persaud (1)

 

  Chief Financial Officer   3 years; renewable for 1 year on mutual consent  

$

 

60,000  

Board Discretionary

 

Three (3) months salary and benefits for termination due to a change of control

   

  (1) Mr. Ownkar Persaud mutually agreed to reduce his original annual salary of $100,000 to $60,000 effective on January 1, 2011.

    

The foregoing descriptions of the employment agreements do not purport to be complete and are qualified in their entirety by reference to such employment agreements which are included as exhibits to this Form 10-K, were filed with the SEC on Form 8-K on December 30, 2010.

 

In connection with the private placement subscription the Company has also agreed to issue to the referring brokers, five-year warrants to purchase an aggregate of 98,000 shares of common stock at an exercise price of $0.10 per share. The Company valued the warrants using the Black-Scholes pricing model and the following assumptions: contractual terms of 5 years, an average risk free interest rate of 2.00%, a dividend yield of 0%, and volatility of 247%. The amount of $29,400 attributed to the value of the warrants to be issued and has been accrued for as of December 31, 2011, which is charged to additional paid-in capital.

  

F-29
 

 

CLEAN WIND ENERGY, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND 2010

   

Litigation

 

Clean Wind Energy, Inc. v. John Hanback, et al

  

As of November 4, 2011, we were the plaintiff  in the matter captioned Clean Wind Energy, Inc. vs. John Hanback, et al, in the Federal District Court  of Alexandria, Virginia.

 

On January 12, 2012, the Company and its subsidiary, Clean Wind Energy, Inc. (collectively “CWE”), entered into a Settlement and Release Agreement (the “Agreement”) with John W. Hanback (“Hanback”), Christopher W. Johnson (“Johnson”) and Itzhak Tepper (“Tepper”) (Hanback, Johnson and Tepper, the “Former Employees”), pursuant to which the Former Employees agreed to a mutual release and also agreed to the following:

 

  · CWE and the Former Employees will jointly file a Stipulation of Dismissal dismissing the lawsuit filed by CWE against the Former Employees in the United States District Court for the Eastern District of Virginia, Alexandria Division, Civil Action No. 1:11cv1206 LMB/TRJ.
  · In consideration of $174,000 from an unaffiliated third party in February 2012, the Former Employees transferred the shares of common stock owned by them to an unaffiliated third party.
  · Hanback tendered to CWE assignments of certain patent applications in consideration of the Hanback Payment.
 

·

Hanback, Johnson and Tepper agreed to a 15 month non-competition period whereby they will not directly or indirectly attempt to procure a site for a large-scale tower using non-toxic natural elements to generate electricity.
  · Hanback, Johnson and Tepper agreed to a 15 month no-contact period, whereby they may not have any professional dealings with certain parties.

  

The Company has properly accounted for this settlement as accounts payable and accrued expenses in its December 31, 2011 consolidated financial statements.

 

Porter LeVay & Rose, Inc.

 

On February 23, 2012, we were served with a Complaint in the matter of Porter, LeVay & Rose, Inc. filed in the Supreme Court of the State of New York, stipulating that Clean Wind Energy Tower, Inc. has yet to pay for certain services renedered on behalf of Porter LeVay & Rose for Financial Public Relations services. On March 21, 2012, Clean Wind Energy Tower, Inc., executed a Stipulation Settling Action Agreement and agreed to pay a total of $39,219 in equal payments of $9,805, the first to be paid prior to March 30, 2012 and monthly thereafter until paid in full. The first payment was made on March 27, 2012. The Company has accounted for this $39,219 as accounts payable and accrued expenses in its December 31, 2011 consolidated financial statements.

  

The Company is subject to legal proceedings and claims from time to time which arise in the ordinary course of its business. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters should not have a material adverse effect on its consolidated financial position, results of operations or liquidity.

 

NOTE 10 – INCOME TAXES

 

The Company utilizes ASC 740 “Income Taxes”, which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the consolidated financial statement or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between consolidated financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

 

For the period from July 26, 2010 (date of inception) through December 31, 2011, the Company had available for U.S federal income tax purposes net operating loss carryovers of approximately $2,347,000, which expiring through the year of 2031. The net operating loss carryovers may be subject to limitations under Internal Revenue Code due to significant changes in the Company’s ownership. The Company has provided a full valuation allowance against the full amount of the net operating loss benefit, since, in the opinion of management, based upon the earnings history of the Company it is more likely than not that the benefits will not be realized.

 

The income tax provision (benefit) for the years ended December 31, 2011 and 2010 consists of the following:

 

    2011     2010  
Federal:            
Current   $ -     $ -  
Deferred     821,450       293,000  
      821,450       293,000  
State and local:                
Current     -       -  
Deferred     127,000       69,000  
      127,000       69,000  
                 
Change in valuation allowance     (948,450 )     (362,000 )
                 
Income tax provision (benefit)   $ -     $ -  

   

F-30
 

 

CLEAN WIND ENERGY, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND 2010

   

The provision for income taxes differ from the amount of income tax determined by applying the applicable U.S statutory rate to losses before income tax expense for the period from July 26, 2010 (date of inception) through December 31, 2010 and through December 31, 2011 as follows:

   

   

December 31,

2011 and 2010

 
Statutory federal income tax rate     (35.0 %)
Statutory state and local income tax rate (8.25%), net of federal benefit     (5.4 %)
Change in valuation allowance     40.4 %
Effective tax rate     0.00 %

     

Deferred income taxes result from temporary differences in the recognition of income and expenses for financial reporting purposes and for tax purposes. The tax effect of these temporary differences representing deferred tax asset and liabilities result principally from the following:

  

      December 31,  
      2011       2010  
Deferred tax assets (liabilities):                
Stock based compensation to be issued for services rendered   $ 231,500     $ 184,000  
Net operating loss carry forward     716,950       178,000  
Less: valuation allowance     (948,450 )     (362,000 )
Net deferred tax asset   $ -     $ -  

  

The Company has not yet filed its tax returns for the period from July 26, 2010 (date of inception) through December 31, 2011.

 

The provisions of ASC 740 require companies to recognize in their financial statements the impact of a tax position if that position is more likely than not to be sustained upon audit, based upon the technical merits of the position. ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken on a tax return. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure.

 

Management does not believe that the Company has any material uncertain tax positions requiring recognition or measurement in accordance with the provisions of ASC 740. Accordingly, the adoption of these provisions of ASC 740 did not have a material effect on the Company’s consolidated financial statements. The Company’s policy is to record interest and penalties on uncertain tax positions, if any, as income tax expense.

 

All tax years for the Company remain subject to future examinations by the applicable taxing authorities.

  

F-31
 

 

CLEAN WIND ENERGY, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND 2010

  

NOTE 11 – FAIR VALUE MEASUREMENTS

 

ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:

 

  Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
     
  Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; or
     
  Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and are unobservable.

 

Items recorded or measured at fair value on a recurring basis in the accompanying consolidated financial statements consisted of the following items as of December 31, 2011:

   

    Level 1     Level 2     Level 3     Total  
Long-term investments             -       -       -  
Total   $       $ -     $ -     $ -  
                                 
Derivative liabilities     -       -       237,395       237,395  
Total   $ -     $ -     $ 237,395     $ 237,395  

 

The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities (derivative liability) for the year ended December 31, 2011.

 

Year ended December 31, 2011:      
    derivative liability  
Balance, December 31, 2010   $ -  
         
         
Initial fair value of embedded derivative in connection with convertible notes     237,787  
Adjustment for debt modification     88,849  
Mark-to-market at December 31, 2011:     (89,241 )
         
Balance, December 31, 2011   $ 237,395  
         
Total gain for the period included in earnings relating to the liabilities held at December 31, 2011   $ 89,241  

 

Level 3 Liabilities are comprised of our bifurcated convertible debt features on our convertible notes.

  

F-32
 

  

CLEAN WIND ENERGY, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND 2010

      

NOTE 12 – SUBSEQUENT EVENTS

 

Warrant Agreement

 

On January 12, 2012 the Company entered into a Warrant Agreement providing the holder the right to purchase, at any time, up to July 12, 2012 and up to $1,000,000 worth of the Company's common stock valued at an exercise price calculated by taking the daily closing bid price of the Company's common stock reported on the OTCBB, at the date of exercise and discounting that closing bid price by 20%, provided, however, the exercise price shall in no event be lower than $0.10 per share nor greater than $0.40 per share. The Warrant Agreement is non cancelable by the Company and is non callable.

 

Financing

 

On February 29, 2012, the Company entered into a Note Purchase Agreement pursuant to which the Company issued a secured convertible note in the amount of $335,000 due on June 23, 2012 with fixed interest of $12,563 per month beginning thirty days from issuance along with defined principal payments. The Note is secured by certain assets of the Company

 

Subsequent issuances

 

On January 12, 2012,the Company entered into a Warrant Agreement with Paradigm Concepts, Inc. (the "Warrant Holder"), pursuant to which the Company issued to Warrant Holder one certificate (the “Warrant Certificate”) providing the Warrant Holder with the right to purchase, at any time until the earliest occurrence of either (a) after the underlying common stock issuable in the exercise of the warrants being declared registered and effective by the SEC on a registration statement filed by the Company, or, (b) 5:30 P.M. Pacific Daylight Savings Time on July 12, 2012. The Warrant Certificate is exercisable up to $1,000,000 worth of restricted shares of common stock of the Company (the “Warrant Shares”) valued at exercise price calculated by taking the daily closing bid price of the Company’s common stock as reported on the OTCBB, on the date of the exercise of the warrants, and discounting that closing bid price by 20%; provided, however, the exercise price may in no event be lower than $0.10 per share nor greater than $0.40 per share. The Warrant is non-cancelable by the Company and non-callable.

  

The Company claims an exemption from the registration requirements of the Securities Act of 1933, as amended (the "Act") for the private placement of these securities pursuant to Section 4(2) of the Act and/or Regulation D promulgated there under since, among other things, the transaction did not involve a public offering, Paradigm is an accredited investor, had access to information about the Company and their investment, Paradigm took the securities for investment and not resale, and the Company took appropriate measures to restrict the transfer of the securities.

 

On January 12, 2012, the Company and its subsidiary, Clean Wind Energy, Inc. (collectively “CWE”), entered into a Settlement and Release Agreement (the “Agreement”) with John W. Hanback (“Hanback”), Christopher W. Johnson (“Johnson”) and Itzhak Tepper (“Tepper”) (Hanback, Johnson and Tepper, the “Former Employees”), pursuant to which the Former Employees agreed to a mutual release and also agreed to the following:

    

 

·

 

CWE and the Former Employees will jointly file a Stipulation of Dismissal dismissing the lawsuit filed by CWE against the Former Employees in the United States District Court for the Eastern District of Virginia, Alexandria Division, Civil Action No. 1:11cv1206 LMB/TRJ.
  · In consideration of $174,000 from an unaffiliated third party in February 2012, the Former Employees transferred the shares of common stock owned by them to an unaffiliated third party.
  · Hanback tendered to CWE assignments of certain patent applications in consideration of the Hanback Payment.
  · Hanback, Johnson and Tepper agreed to a 15 month non-competition period whereby they will not directly or indirectly attempt to procure a site for a large-scale tower using non-toxic natural elements to generate electricity.
  · Hanback, Johnson and Tepper agreed to a 15 month no-contact period, whereby they may not have any professional dealings with certain parties.

       

F-33
 

  

CLEAN WIND ENERGY, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND 2010

 

NOTE 12 – SUBSEQUENT EVENTS, continued

 

Subsequent issuances, continued

   

On February 7, 2012, the Company paid off the convertible promissory note in the amount of $45,000 dated July 27, 2011 held by Asher Enterprises Inc. The total amount paid is $69,304.92 which represents principal, interest and penalty for early payment before maturity.

 

On February 22, 2012, the Company paid off the convertible promissory note in the amount of $32,500 dated August 23, 2011 held by Asher Enterprises Inc. The total amount paid is $49,918.22 which represents principal, interest and penalty for early payment before maturity.


On February 29, 2012, the Company entered into a Note Purchase Agreement and a Pledge and Security Agreement with Hanover Holdings I, LLC ("Hanover"), providing for the sale of an Original Issue Discount Secured Convertible Promissory Note in the principal amount of $335,000 (the "Note"). The financing closed on March 2, 2012. The Note contained an original issue discount of 10% representing $33,500. In the event of default, Hanover may convert balances owed under the Note into restricted shares of common stock, at Hanover’s option, at a conversion price equal to 45% of the lowest trading price for the common stock at any time during the prior 10 trading days immediately preceding the date of the notice of such conversion.

 

The Note bears interest at the rate of 15% per annum. Subject to the prepayment provisions in the Note, the principal plus interest amount of the Note is to be repaid subject to an amortization schedule which provides that the Company pay (i) $47,562.50 thirty days from the date of the Note, (ii) $62,562.50 sixty days from the date of the Note, (iii) $112,562.50 ninety days from the date of the Note and (iv) $162,562.50 one hundred twenty days from the date of the Note. The Company may prepay the Note in full at the Company’s sole option and discretion by providing to Hanover three prior trading days’ written notice, in full. The Company is required to pay off all principal, interest and any other amounts owing prior to any such prepayment. In order to facilitate the closing of this financing, a shareholder pledged 10,000,000 shares to Hanover.

 

The Company claims an exemption from the registration requirements of the Securities Act of 1933, as amended (the "Act") for the private placement of these securities pursuant to Section 4(2) of the Act and/or Regulation D promulgated there under since, among other things, the transaction did not involve a public offering, Hanover is an accredited investor, Hanover had access to information about the Company and their investment, Hanover took the securities for investment and not resale, and the Company took appropriate measures to restrict the transfer of the securities.

 

On March 9, 2012, the Company paid off the convertible promissory note in the amount of $32,500 dated October 3, 2011 held by Asher Enterprises Inc. The total amount paid is $49,157.82 which represents principal, interest and penalty for early payment before maturity.

  

F-34
 

   

CLEAN WIND ENERGY, INC.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2011 AND 2010

  

NOTE 12 – SUBSEQUENT EVENTS, continued

 

Subsequent issuances, continued

 

On February 29, 2012, the Company entered into a Note Purchase Agreement and a Pledge and Security Agreement with Hanover Holdings I, LLC ("Hanover"), providing for the sale of an Original Issue Discount Secured Convertible Promissory Note in the principal amount of $335,000 (the "Note"). The financing closed on March 2, 2012. The Note contained an original issue discount of 10% representing $33,500. In the event of default, Hanover may convert balances owed under the Note into restricted shares of common stock, at Hanover’s option, at a conversion price equal to 45% of the lowest trading price for the common stock at any time during the prior 10 trading days immediately preceding the date of the notice of such conversion. In order to facilitate the closing of this financing, a shareholder pledged 10,000,000 shares to Hanover (the “Pledged Shares”). On March 8, 2012, the Company received a notice of default from Hanover as a result of the Company’s common stock volume weighted average price falling below $0.08 per share. Hanover has requested that the escrow agent transfer the Pledged Shares to Hanover. Further, Hanover has demanded the repayment of $481,562.50 as a result of the claimed default.

 

During the month of January 2012, the Company issued an aggregate of 9,161,556 shares of common stock for services rendered of $1,329,118 and 1,450,000 common shares for common stock subscriptions for $145,000.

 

During the month ended February 2012, the Company issued an aggregate of 259,630 shares of common stock for services rendered of $26,283, 400,000 common shares for common stock subscriptions for $40,000 and 2,300,000 common shares for in connection with a warrant agreement entered into on January 12, 2012 for $230,000.

 

During the month of March 2012, the Company issued an aggregate of 1,525,545 shares of common stock for services rendered of $66,058.

 

Subsequent Settlements

 

 

Clean Wind Energy, Inc. v. John Hanback, et al

  

On January 12, 2012, the Company and its subsidiary, Clean Wind Energy, Inc. (collectively “CWE”), entered into a Settlement and Release Agreement (the “Agreement”) with John W. Hanback (“Hanback”), Christopher W. Johnson (“Johnson”) and Itzhak Tepper (“Tepper”) (Hanback, Johnson and Tepper, the “Former Employees”), pursuant to which the Former Employees agreed to a mutual release.  See Note 9 for detail.

  

Porter LeVay & Rose, Inc.

  

On March 21, 2012, Clean Wind Energy Tower, Inc., executed a Stipulation Settling Action Agreement with Porter LeVay & Rose, Inc., see Note 9 for detail.

  

 

F-35
 

 

37,000,000 Shares of Common Stock

 

CLEAN WIND ENERGY TOWER, INC.

 

PROSPECTUS

 

 

INFORMATION NOT REQUIRED IN PROSPECTUS

 

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

 

The Company is paying all expenses of the offering. No portion of these expenses will be borne by the Selling Security Holders. The Selling Security Holders, however, will pay any other expenses incurred in selling their Common Stock, including any brokerage commissions or costs of sale.  Following is an itemized statement of all expenses in connection with the issuance and distribution of the securities to be registered:

 

Type   Amount *  
SEC Registration Fee   $ 73.18  
Legal Fees and Expenses(1)   $ 10,000  
Accounting Fees and Expenses    $ 5,000
Miscellaneous Expenses   $ 0  
Total   $    

 

*All amounts are estimates, other than the SEC’s registration fee, which has been paid.

(1) Pursuant to the Registration Rights Agreement, Deer Valley is paying for all legal expenses in connection with this Registration Statement.

 

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

 

Articles of Incorporation

 

The Company’s Articles of Incorporation do not address the indemnification or insurance of controlling persons, directors or officers against liability in their capacity as such.

 

Bylaws

 

The Company’s Bylaws provide as follows with respect to the indemnification and insurance of controlling persons, directors or officers against liability in their capacity as such.

 

The Company must indemnify any person made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (“Proceeding”) by reason of the fact that he is or was a director, against judgments, penalties, fines, settlements and reasonable expenses (including attorney’s fees) (“Expenses”) actually incurred by him in connection with such Proceeding if:(a) he conducted himself in good faith, and: (i) in the case of conduct in his own official capacity with the Company, he reasonably believed his conduct to be in the Company’s best interests, or (ii) in all other cases, he reasonably believes his conduct to be at least not opposed to the Company’s best interests; and (b) in the case of any criminal Proceeding, he had no reasonable cause to believe his conduct was unlawful.

 

The Company must indemnify any person made a party to any Proceeding by or in the right of the Company, by reason of the fact that he is or was a director, against reasonable expenses actually incurred by him in connection with such proceeding if he conducted himself in good faith, and: (a) in the case of conduct in his official capacity with the Company, he reasonably believed his conduct to be in its best interests; or (b) in all other cases, he reasonably believed his conduct to be at least not opposed to its best interests; provided that no such indemnification may be made in respect of any proceeding in which such person shall have been adjudged to be liable to the Company.

 

A director will not be indemnified in respect to any Proceeding charging improper personal benefit to him, whether or not involving action in his official capacity, in which he shall have been adjudged to be liable on the basis that personal benefit was improperly received by him.  No indemnity will indemnify any director from or on account of acts or omissions of such director finally adjudged to be intentional misconduct or a knowing violation of law, or from or on account of conduct of such director finally adjudged to be in violation of, from or on account of any transaction with respect to which it was finally adjudged that such director personally received a benefit in money, property, or services to which the director was not legally entitled.

 

No indemnification will be made by unless authorized in the specific case after a determination that indemnification of the director is permissible in the circumstances because he has met the applicable standard of conduct.

 

 
 

 

Reasonable expenses incurred by a director who is party to a proceeding may be paid or reimbursed by the Company in advance of the final disposition of such Proceeding in certain cases.

 

The Company has the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the Company or is or was serving at the request of the Company as an officer, employee or agent of another corporation, partnership, joint venture, trust, other enterprise, or employee benefit plan against any liability asserted against him and incurred by him in any such capacity or arising out of his status as such, whether or not the Company would have the power to indemnify him against such liability under the provisions of the Bylaws.

 

Nevada Law

 

Nevada law provides as follows with respect to the indemnification and insurance of controlling persons, directors or officers against liability in their capacity as such.

 

Indemnification.  Pursuant to NRS 78.7502 (Discretionary and mandatory indemnification of officers, directors, employees and agents: General provisions), a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with the action, suit or proceeding if the person: (a) is not liable pursuant to Nevada Revised Statutes 79.138 (breach of good faith); or (b) acted in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the conduct was unlawful.  The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, does not, of itself, create a presumption that the person is liable pursuant to Nevada Revised Statutes 79.138 or did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation, or that, with respect to any criminal action or proceeding, he or she had reasonable cause to believe that the conduct was unlawful.

 

A corporation may also indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including amounts paid in settlement and attorneys’ fees actually and reasonably incurred by the person in connection with the defense or settlement of the action or suit if the person: (a) is not liable pursuant to Nevada Revised Statutes 79.138; or (b) acted in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation. Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.

  

To the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to above, or in defense of any claim, issue or matter therein, the corporation must indemnify him or her against expenses, including attorneys’ fees, actually and reasonably incurred by him or her in connection with the defense.

 

Insurance.  Pursuant to NRS 78.752 (Insurance and other financial arrangements against liability of directors, officers, employees and agents), a corporation may purchase and maintain insurance or make other financial arrangements on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise for any liability asserted against the person and liability and expenses incurred by the person in his or her capacity as a director, officer, employee or agent, or arising out of his or her status as such, whether or not the corporation has the authority to indemnify such a person against such liability and expenses.  No such financial arrangement may provide protection for a person adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable for intentional misconduct, fraud or a knowing violation of law, except with respect to the advancement of expenses or indemnification ordered by a court.

 

The SEC’s Position on Indemnification for Securities Act Liabilities

 

Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to the Company’s directors, officers or controlling persons, the Company has been advised that in the opinion of the Commission this indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is, therefore, unenforceable.

 

 
 

ITEM 15.  RECENT SALES OF UNREGISTERED SECURITIES.

 

Issuance of Shares of Common Stock

 

On October 15, 2009, the Company issued 300,000 shares of common stock to six shareholders for a purchase price of $3,000 or $0.01 per share.

 

On December 29, 2010, the Company consummated the Merger, pursuant to which the Company issued to the stockholders of Clean Wind Energy in exchange for their Clean Wind Energy Common Stock, the right to receive an aggregate of 300,000,000 shares of the Company’s Common Stock. In September 2011, the Company subsequently cancelled 120,600,000 shares of common stock issued in connection with the Merger. In addition, the Company agreed to issue to Source Capital Group, Inc., the financial advisor in connection with the Merger, an additional 6,000,000 shares of the Company’s Common Stock in conjunction with the merger and certain other financial services. As of the date hereof, the 6,000,000 shares have not been issued to Source Capital Group Inc..

 

On December 29, 2010, the Company issued 100,000 shares of Common Stock to former director Terrence J. Dunne in connection with services provided to the Company.

 

During the three months ended March 31, 2011, the Company issued 200,000 shares of common stock to consultants for services performed and services accrued in fiscal year 2010.

 

On May 24, 2011, the Company sold an aggregate of 8,490,000 shares of common stock of the Company for an aggregate purchase price of $849,000 to accredited investors.

 

In June 2011, the Company issued 250,000 shares to an investor for a purchase price of $.10.

 

From June 2011 to September 2011, the Company issued 213,787 shares of common stock to various parties for services provided to the Company.

 

During the fourth quarter of 2011, the Company issued 1,050,000 shares of common stock to several investors for a purchase price of $.10.

 

During the fourth quarter of 2011, the Company issued 517,111 shares of common stock to several service providers for services rendered.

 

During the first quarter of 2012, the Company issued 1,450,000 shares of common stock to several investors for a purchase price of $.10 and 2,300,000 shares of common stock upon exercise of common stock purchase warrants.

 

During the first quarter of 2012, the Company issued 10,946,731 shares of common stock to several service providers for services rendered.

 

In July and August 2012, the Company issued an aggregate of 23,250,000 shares to five shareholders in consideration of the conversion of debt.

 

From May 2012 through November 2012, the Company issued 4,335,620 shares to various service providers for services

 

From October 2012 through December 2012, the Company issued 11,603,408 shares of common stock to Asher Enterprises Inc. in consideration of the conversion of outstanding debt.

 

36
 

 

Issuances of Convertible Notes

 

On July 27, 2011, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc. ("Asher"), for the sale of an 8% convertible note in the principal amount of $45,000 (the "Note"). The financing closed on August 8, 2011. The total net proceeds the Company received from this Offering on August 8, 2011 was $42,500.

 

The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on April 30, 2012. The Note is convertible into common stock, at Asher’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 135% if prepaid during the period commencing on the closing date through 90 days thereafter, (ii) 135% if prepaid 91 days following the closing through 120 days following the closing, (iii) 140% if prepaid 121 days following the closing through 151 days following the closing and (iv) 150% if prepaid 151 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the Note, the Company has no right of prepayment.

 

On August 31, 2011, the Company entered into a Securities Purchase Agreement with Asher for the sale of an 8% convertible note in the principal amount of $32,500 (the "August 2011 Note"). The financing closed on August 31, 2011. The total net proceeds the Company received from this Offering was $30,000.

 

The August 2011 Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on April 30, 2012. The Note is convertible into common stock, at Asher’s option, at a 52% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the August 2011 Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 135% if prepaid during the period commencing on the closing date through 90 days thereafter, (ii) 140% if prepaid 91 days following the closing through 120 days following the closing, (iii) 145% if prepaid 121 days following the closing through 150 days following the closing and (iv) 150% if prepaid 151 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the Note, the Company has no right of prepayment.

 

The October 2011 Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on July 5, 2012. The October 2011 Note is convertible into common stock, at Asher’s option, at a 69% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the October 2011 Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 135% if prepaid during the period commencing on the closing date through 90 days thereafter, (ii) 140% if prepaid 91 days following the closing through 120 days following the closing, (iii) 145% if prepaid 121 days following the closing through 150 days following the closing and (iv) 150% if prepaid 151 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the October 2011 Note, the Company has no right of prepayment.

 

Asher has agreed to restrict its ability to convert the October 2011 Notes and receive shares of common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock.

 

On April 10, 2012, the Company entered into a Securities Purchase Agreement with Asher, for the sale of an 8% convertible note in the principal amount of $68,500 (the "April 2012 Note"). The financing closed on April 18, 2012. The total net proceeds the Company received from this Offering was $65,000.

 

The April 2012 Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on January 12, 2013. The April 2012 Note is convertible into common stock, at Asher’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the April 2012 Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 120% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 125% if prepaid 31 days following the closing through 60 days following the closing, (iii) 130% if prepaid 61 days following the closing through 90 days following the closing and (iv) 135% if prepaid 91 days following the closing through 120 days following the closing. (v) 140% if prepaid 121 days following the closing through 150 days following the closing, (vi) 150% if prepaid 121 days following the closing through 180 days following the closing.. After the expiration of 180 days following the date of the April 2012 Note, the Company has no right of prepayment.

On May 3, 2012, the Company entered into a Securities Purchase Agreement with Asher, for the sale of an 8% convertible note in the principal amount of $42,500 (the "May 2012 Note"). The financing closed on May 15, 2012. The total net proceeds the Company received from this Offering was $40,000.

37
 

  

The May 2012 Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on February 7, 2013. The May 2012 Note is convertible into common stock, at Asher’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the May 2012 Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 120% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 125% if prepaid 31 days following the closing through 60 days following the closing, (iii) 130% if prepaid 61 days following the closing through 90 days following the closing and (iv) 135% if prepaid 91 days following the closing through 120 days following the closing. (v) 140% if prepaid 121 days following the closing through 150 days following the closing, (vi) 150% if prepaid 121 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the May 2012 Note, the Company has no right of prepayment.

On June 19, 2012, the Company entered into a Securities Purchase Agreement with Asher, for the sale of an 8% convertible note in the principal amount of $32,500 (the "June 2012 Note"). The financing closed on June 27, 2012. The total net proceeds the Company received from this Offering was $25,000.

 

The June 2012 Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on March 21, 2013. The Note is convertible into common stock, at Asher’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the June 2012 Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 120% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 125% if prepaid 31 days following the closing through 60 days following the closing, (iii) 130% if prepaid 61 days following the closing through 90 days following the closing and (iv) 135% if prepaid 91 days following the closing through 120 days following the closing. (v) 140% if prepaid 121 days following the closing through 150 days following the closing, (vi) 150% if prepaid 121 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the June 2012 Note, the Company has no right of prepayment.

On July 25, 2012, the Company issued a Convertible Promissory Note to JMJ Financial (“JMJ”) providing JMJ with the ability to invest up to $275,000 which contains a 10% original issue discount (the “JMJ Note”). The transaction closed on July 25, 2012. JMJ provided $50,000 to the Company on the Effective Date.

 

The maturity date is one year from the effective date of each payment by JMJ to the Company (the “Maturity Date”). The conversion price (the “Conversion Price”) for each portion of consideration paid by JMJ to the Company is lesser of: (1) the closing price of the Company’s stock on the day the portion of consideration is paid to the Company, or (2) 70% of the lowest trade price in the 25 trading days previous to the conversion.

 

The JMJ Note bears interest at 0% for the first 60 days and a one-time interest charge of 10% will be applied to the Principal Sum thereafter.

 

At any time after the Effective Date, the Company will have the option, upon 20 days business notice to JMJ, to prepay the entire remaining outstanding principal amount of the Note in cash, provided that (i) the Company will pay JMJ 150% of the principal amount outstanding in repayment, (ii) such amount must be paid in cash on the next business day following the 20 day business day notice period, and (iii) JMJ may still convert the Note pursuant to the terms herein during the 20 day business period until such repayment amount has been received in full.

 

38
 

 

On August 3, 2012, the Company entered into a Securities Purchase Agreement with Asher, for the sale of an 8% convertible note in the principal amount of $32,500 (the "August 2012 Note"). The financing closed on May 15, 2012. The total net proceeds the Company received from this Offering was $30,000.

 

The August 2012 Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on February 7, 2013. The August 2012 Note is convertible into common stock, at Asher’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. In the event the Company prepays the August 2012 Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 120% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 125% if prepaid 31 days following the closing through 60 days following the closing, (iii) 130% if prepaid 61 days following the closing through 90 days following the closing and (iv) 135% if prepaid 91 days following the closing through 120 days following the closing. (v) 140% if prepaid 121 days following the closing through 150 days following the closing, (vi) 150% if prepaid 151 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the August 2012 Note, the Company has no right of prepayment.

 

On November 9, 2012, the Company entered into a Securities Purchase Agreement with Asher for the sale of an 8% convertible note in the principal amount of $32,500 (the "November 2012 Note").  The financing closed on November 21, 2012.

 

The November 2012 Note bears interest at the rate of 8% per annum.  All interest and principal must be repaid on August 13, 2013.  The Note is convertible into common stock, at Asher’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion.  In the event the Company prepays the November 2012 Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 120% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 125% if prepaid 31 days following the closing through 60 days following the closing and (iii) 130% if prepaid 61 days following the closing through 90 days following the closing and (iv) 135% if prepaid 91 days following the closing through 120 days following the closing and (v) 140% if prepaid 121 days following the closing through 150 days following the closing and (vi) 150% if prepaid 151 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the Note, the Company has no right of prepayment.   

 

Asher has agreed to restrict its ability to convert the November 2012 Note and receive shares of common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock.   The total net proceeds the Company received from this Offering was $32,500, less attorneys fees. As of the date of the November 2012 Note, the Company is obligated on the November 2012 Note issued to Asher in connection with the offering. The November 2012 Note is a debt obligation arising other than in the ordinary course of business, which constitutes a direct financial obligation of the Company. 

 

On December 17, 2012, the Company entered into a Securities Purchase Agreement with Asher for the sale of an 8% convertible note in the principal amount of $32,500 (the "December 2012 Note").  The financing closed on December 17, 2012.

 

The December 2012 Note bears interest at the rate of 8% per annum.  All interest and principal must be repaid on September 2013.  The December 2012 Note is convertible into common stock, at Asher’s option, at a 42% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion.  In the event the Company prepays the December 2012 Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 120% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 125% if prepaid 31 days following the closing through 60 days following the closing and (iii) 130% if prepaid 61 days following the closing through 90 days following the closing and (iv) 135% if prepaid 91 days following the closing through 120 days following the closing and (v) 140% if prepaid 121 days following the closing through 150 days following the closing and (vi) 150% if prepaid 151 days following the closing through 180 days following the closing. After the expiration of 180 days following the date of the December 2012 Note, the Company has no right of prepayment.   

 

Asher has agreed to restrict its ability to convert the December 2012 Note and receive shares of common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock.   The total net proceeds the Company received from this Offering was $32,500, less attorneys fees. As of the date of the December 2012 Note, the Company is obligated on the December 2012 Note issued to Asher in connection with the offering. The December 2012 Note is a debt obligation arising other than in the ordinary course of business, which constitutes a direct financial obligation of the Company. 

 

The securities were offered and sold to the investors in a private placement transaction made in reliance upon exemptions from registration pursuant to Section 4(2) under the Securities Act of 1933 (the “Securities Act”) and/or Rule 506 promulgated under the Securities Act. The investors are accredited investors as defined in Rule 501 of Regulation D promulgated under the Securities Act.

 

 
 

 

ITEM 16. EXHIBITS

 

EXHIBIT INDEX

 

Exhibit   Description
     
2.1   Agreement and Plan of Merger, dated as of December 29, 2010, by and among Superior Silver Mines, Inc., Superior Silver Mines Acquisition Corp., and Clean Wind Energy, Inc. (1)
2.2   Plan of Domestication of Superior Silver Mines, Inc., dated December 21, 2010 (1)
2.3   Nevada Articles of Domestication of Superior Silver Mines, Inc., dated December 27, 2010 (1)
2.4   Idaho Statement of Domestication of Superior Silver Mines, Inc., dated December 22, 2010 (1)
2.5   Articles of Merger by and between Clean Wind Energy Tower, Inc. and Superior Silver Mines, Inc. (2)
3.1   Articles of Incorporation of Clean Wind Energy Tower, Inc. (1)
3.2   Amended Bylaws of Clean Wind Energy Tower, Inc. (3)
4.1   Form of Common Stock Certificate (4)
5.1   Opinion of Anslow & Jaclin, LLP
10.1   Letter Agreement between Clean Wind Energy, Inc. and Source Capital Group, Inc., dated November 22, 2010 (1)
10.2   Deed of Lease, dated December 1, 2010, by and between CKP One, LLC and Clean Wind Energy, Inc. (1)
10.3   Lease Agreement, dated October 20, 2010, and effective November 1, 2010, by and between Office Suites PLUS at Annapolis and Clean Wind Energy, Inc. (1)
10.4   Director and Executive Employment Agreement, dated September 22, 2010, by and between Clean Wind Energy, Inc. and Ronald Pickett, and Amendment dated November 22, 2010 (1)
10.5   Director and Executive Employment Agreement, dated September 22, 2010, by and between Clean Wind Energy, Inc. and Stephen Sadle, and Amendment dated November 22, 2010 (1)
10.6   Director and Executive Employment Agreement, dated September 22, 2010, by and between Clean Wind Energy, Inc. and Robert Crabb, and Amendment dated November 22, 2010 (1)
10.7   Executive Employment Agreement, dated September 22, 2010, by and between Clean Wind Energy, Inc. and John W. Hanback, and Amendment dated November 22, 2010 (1)
10.8   Executive Employment Agreement, dated September 22, 2010, by and between Clean Wind Energy, Inc. and Itzhak Tepper, PE, and Amendment dated November 22, 2010 (1)
10.9   Executive Employment Agreement, dated September 22, 2010, by and between Clean Wind Energy, Inc. and Ownkar Persaud, and Amendment dated November 22, 2010 (1)
10.10   Form of Director and Officer Indemnification Agreement (4)
10.11   Registration Rights Agreement with Deer Valley Management, LLC, dated November 27, 2012 (6)
10.12   Investment Agreement with Deer Valley Management, LLC, dated November 27, 2012 (6)
14.1   Code of Business Conduct and Ethics(5)       
21.1   Subsidiaries of the Registrant (4)
23.1   Consent of RBSM LLP
23.2   Consent of Anslow & Jaclin, LLP (included in Exhibit 5.1)
101.INS   XBRL Instance Document
101.SCH   XBRL Schema Document
101.CAL   XBRL Calculation Linkbase Document
101.LAB   XBRL Label Linkbase Document
101.PRE   XBRL Presentation Linkbase Document
101.DEF   XBRL Definition Linkbase Document

____________________

  (1) Filed with the registrant's Form 8-K filed with the Securities and Exchange Commission on December 30, 2010 and incorporated herein by reference.
  (2) Filed with the registrant's Form 8-K filed with the Securities and Exchange Commission on January 21, 2011 and incorporated herein by reference.
  (3) Filed with the registrant's Form 8-K filed with the Securities and Exchange Commission on December 28, 2010 and incorporated herein by reference.
  (4) Filed with the registrant's Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission on April 12, 2011 and incorporated herein by reference.
  (5) Filed with the registrant's Form 10-Q for the quarter ended May 16, 2011 filed with the Securities and Exchange Commission on April 12, 2011 and incorporated herein by reference.
  (6) Filed with the registrant’s Form 8-K filed with the Securities and Exchange Commission on November 30, 2012 and incorporated herein by reference.

 

 
 

 

ITEM 17. UNDERTAKINGS.

 

The undersigned Company hereby undertakes:

 

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement to:

 

(i) Include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended (the “Securities Act”);

 

(ii) Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of the securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) under the Securities Act if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement, and

 

(iii) Include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

 

(2) That, for determining liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering thereof.

 

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

 

(4) That, for the purpose of determining liability under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

 

(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

 

(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

 

(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

 

(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

 

(5) That, for the purpose of determining liability under the Securities Act to any purchaser: Each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

 

In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

 

 
 

  

SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Amendment to this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Annapolis, State of Maryland on this 21st  day of December, 2012.

 

       
    CLEAN WIND ENERGY TOWER, INC.  
       
       
Dated: December 21, 2012 By: /s/ Ronald W. Pickett  
    Ronald W. Pickett, Chief Executive Officer, President  

 

Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities and on the dates indicated.   The persons whose signature appears below constitutes and appoints Ronald W. Pickett his true and lawful attorney-in-fact, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities to sign any and all amendments (including post-effective amendments) to this registration statement and to sign a registration statement pursuant to Section 462(b) of the Securities Act of 1933, and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

         

Dated: December 21, 2012 By: /s/ Ronald W. Pickett  
    Name: Ronald W. Pickett  
    President, Chief Executive Officer (PEO), Director  

 

Dated: December 21, 2012 By: /s/ Robert P. Crabb  
    Name: Robert P. Crabb  
    Director  

 

Dated: December 21, 2012 By: /s/ H. James Magnuson  
    Name: H. James Magnuson  
    Director  

 

Dated: December 21, 2012 By: /s/ Arthur P. Dammarell  
    Name: Arthur P. Dammarell  
    Director