Attached files
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EXCEL - IDEA: XBRL DOCUMENT - SOLAR WIND ENERGY TOWER, INC. | Financial_Report.xls |
EX-31.1 - CERTIFICATION - SOLAR WIND ENERGY TOWER, INC. | swet_10q-ex3101.htm |
EX-32.1 - CERTIFICATION - SOLAR WIND ENERGY TOWER, INC. | swet_10q-ex3201.htm |
EX-31.2 - CERTIFICATION - SOLAR WIND ENERGY TOWER, INC. | swet_10q-ex3102.htm |
EX-32.2 - CERTIFICATION - SOLAR WIND ENERGY TOWER, INC. | swet_10q-ex3202.htm |
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2014
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from __________ to __________.
Commission file number 000-53035
SOLAR WIND ENERGY TOWER INC.
(f/k/a Clean Wind Energy Tower, Inc.)
(Exact name of Issuer as specified in its charter)
Nevada | 82-6008752 |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
1997 Annapolis Exchange Pkwy., Suite 300, Annapolis, MD | 21401 |
(Address of Principal Executive Offices) | (Zip Code) |
(410) 972 - 4713
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No 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. (Check one):
Large accelerated filer o | Accelerated filer o | |
Non-accelerated filer o | Smaller reporting company x | |
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes o No x
Indicate the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 503,426,537 shares of Common Stock ($0.0001 par value) as of May 5, 2014.
Solar Wind Energy Tower, Inc.
(A Development Stage Company)
FORM 10-Q for the Quarter Ended March 31, 2014
Index
Page | |
PART I. FINANCIAL INFORMATION | 3 |
Item 1. Financial Statements (Unaudited) | 3 |
Condensed Consolidated Balance Sheets: March 31, 2014 (unaudited) and December 31, 2013 |
3 |
Condensed Consolidated Statements of Operations: For the three months ended March 31, 2014 and 2013 and for the period from July 26, 2010 (date of inception) through March 31, 2014 (unaudited) |
4 |
Condensed Consolidated Statement of Stockholders’ Deficit For the three months ended March 31, 2014 (unaudited) |
5 |
Condensed Consolidated Statements of Cash Flows: For the three months ended March 31, 2014 and 2013 and for the period from July 26, 2010 (date of inception) through March 31, 2014 (unaudited) |
6 |
Notes to Condensed Consolidated Financial Statements: March 31, 2014 (Unaudited) |
7 |
Item 2. Management’s Discussion and Analysis | 19 |
Item 3. Quantitative and Qualitative Disclosures About Material Risk | 24 |
Item 4. Controls and Procedures | 24 |
PART II. OTHER INFORMATION | 26 |
Item 1. Legal Proceedings | 26 |
Item 1A. Risk Factors | 26 |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 26 |
Item 3. Defaults Upon Senior Securities | 26 |
Item 4. Mine Safety Disclosures | 26 |
Item 5. Other Information. | 26 |
Item 6. Exhibits | 27 |
Signatures | 28 |
2 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
SOLAR WIND ENERGY TOWER, INC.
(a development stage company)
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, | December 31, | |||||||
2014 | 2013 | |||||||
(unaudited) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash | $ | 7,849 | $ | 61,758 | ||||
Total current assets | 7,849 | 61,758 | ||||||
Property and equipment, net | 1,295 | 2,284 | ||||||
Other assets: | ||||||||
Deposits | 1,559 | 2,300 | ||||||
Total assets | $ | 10,703 | $ | 66,342 | ||||
LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 148,146 | $ | 171,245 | ||||
Accrued liabilities and expenses | 813,585 | 737,964 | ||||||
Advances from stockholders/officers | 170,000 | 170,000 | ||||||
Notes payable | 358,770 | 358,770 | ||||||
Convertible notes payable, net of unamortized debt discount of $344,002 and $353,129, respectively | 300,314 | 278,266 | ||||||
Convertible notes payable, related party, net of unamortized debt discount of $98,734 and $131,047, respectively | 181,266 | 148,953 | ||||||
Derivative liabilities | 516,610 | 689,093 | ||||||
Total current liabilities | 2,488,691 | 2,554,291 | ||||||
Long term debt: | ||||||||
Convertible notes payable, net of unamortized debt discount of $103,315 | – | 24,456 | ||||||
Total liabilities | 2,488,691 | 2,578,747 | ||||||
Stockholders' deficit: | ||||||||
Preferred stock, par value $0.0001 per share; 10,000,000 shares authorized; none issued and outstanding as of March 31, 2014 and December 31, 2013 | – | – | ||||||
Common stock, par value $0.0001 per share; 500,000,000 shares authorized; 464,660,896 and 370,728,168 shares issued and outstanding as of March 31, 2014 and December 31, 2013, respectively | 46,466 | 37,073 | ||||||
Common stock to be issued | 420,000 | 420,000 | ||||||
Additional paid in capital | 6,622,019 | 5,896,890 | ||||||
Accumulated deficit during development stage | (9,566,473 | ) | (8,866,368 | ) | ||||
Total stockholders' deficit | (2,477,988 | ) | (2,512,405 | ) | ||||
Total liabilities and stockholders' deficit | $ | 10,703 | $ | 66,342 |
See the accompanying notes to the unaudited condensed consolidated financial statements
3 |
SOLAR WIND ENERGY TOWER, INC.
(a development stage company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the period | ||||||||||||
From July 26, 2010 | ||||||||||||
(date of inception) | ||||||||||||
Three months ended March 31, | through | |||||||||||
2014 | 2013 | March 31, 2014 | ||||||||||
OPERATING EXPENSES: | ||||||||||||
Research and development | $ | 9,033 | $ | 13,893 | $ | 657,662 | ||||||
Selling, general and administrative | 425,558 | 395,129 | 6,718,375 | |||||||||
Depreciation | 988 | 1,120 | 12,145 | |||||||||
Total operating expenses | 435,579 | 410,142 | 7,388,182 | |||||||||
Loss from operations | (435,579 | ) | (410,142 | ) | (7,388,182 | ) | ||||||
Other income (expense): | ||||||||||||
Interest expense | (305,934 | ) | (255,800 | ) | (2,389,851 | ) | ||||||
Loss on modification of debt | – | – | (88,849 | ) | ||||||||
Loss on settlement of debt | – | – | (787,515 | ) | ||||||||
Gain (loss) on change in fair value of derivative liabilities | 41,408 | (1,110,140 | ) | 1,087,924 | ||||||||
Loss before provision for income taxes | (700,105 | ) | (1,776,082 | ) | (9,566,473 | ) | ||||||
Provision for income taxes (benefit) | – | – | – | |||||||||
NET LOSS | $ | (700,105 | ) | $ | (1,776,082 | ) | $ | (9,566,473 | ) | |||
Net loss per common share, basic and diluted | $ | (0.00 | ) | $ | (0.01 | ) | ||||||
Weighted average number of common shares outstanding, basic and diluted | 408,690,396 | 286,690,839 |
See the accompanying notes to the unaudited condensed consolidated financial statements
4 |
SOLAR WIND ENERGY TOWER, INC.
(a development stage company)
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
THREE MONTHS ENDED MARCH 31, 2014
(unaudited)
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, January 1, 2014 | – | $ | – | 370,728,168 | $ | 37,073 | 6,000,000 | $ | 420,000 | $ | 5,896,890 | $ | (8,866,368 | ) | $ | (2,512,405 | ) | |||||||||||||||||||
Shares issued in settlement of debt | – | – | 86,807,728 | 8,681 | – | – | 525,880 | – | 534,561 | |||||||||||||||||||||||||||
Sale of common stock | – | – | 7,125,000 | 712 | – | – | 24,288 | – | 25,000 | |||||||||||||||||||||||||||
Reclassify fair value of warrants from equity to liability | – | – | – | – | – | – | (13,202 | ) | – | (13,202 | ) | |||||||||||||||||||||||||
Stock based compensation | – | – | – | – | – | – | 188,163 | – | 188,163 | |||||||||||||||||||||||||||
Net loss | – | – | – | – | – | – | – | (700,105 | ) | (700,105 | ) | |||||||||||||||||||||||||
Balance, March 31, 2014 | – | $ | – | 464,660,896 | $ | 46,466 | 6,000,000 | $ | 420,000 | $ | 6,622,019 | $ | (9,566,473 | ) | $ | (2,477,988 | ) |
See the accompanying notes to the unaudited condensed consolidated financial statements
5 |
SOLAR 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 three months ended March 31, | through | |||||||||||
2014 | 2013 | March 31, 2014 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
Net loss | $ | (700,105 | ) | $ | (1,776,082 | ) | $ | (9,566,473 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
Depreciation | 988 | 1,120 | 12,145 | |||||||||
Amortization of debt discounts | 272,057 | 136,560 | 1,396,464 | |||||||||
Amortization of financing costs | 5,000 | 7,500 | 98,323 | |||||||||
Non cash interest | 14,433 | 94,805 | 695,077 | |||||||||
Stock based compensation | 188,163 | 115,824 | 2,561,432 | |||||||||
Fair value of warrants issued in connection with notes payable | – | – | 43,568 | |||||||||
Loss on settlement of debt | – | – | 787,515 | |||||||||
Loss on debt modification | – | – | 88,849 | |||||||||
Gain (loss) from change in fair value of derivative liabilities | (41,408 | ) | 1,110,141 | (1,087,924 | ) | |||||||
Changes in operating assets and liabilities: | ||||||||||||
Advances from stockholders/officers | – | (15,000 | ) | – | ||||||||
Accounts payable and accrued expenses | 56,963 | 72,740 | 1,615,606 | |||||||||
Net cash used in operating activates | (203,909 | ) | (252,392 | ) | (3,355,418 | ) | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Net cash acquired from reverse merger | – | – | 223,586 | |||||||||
Purchase of property and equipment | – | – | (13,441 | ) | ||||||||
Payment of long term deposit | – | – | (9,330 | ) | ||||||||
Net cash provided by investing activities | – | – | 200,815 | |||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Proceeds from issuance of subsidiary's common stock | – | – | 75 | |||||||||
Proceeds from sale of common stock | 25,000 | – | 1,179,700 | |||||||||
Proceeds from exercise of warrants | – | – | 230,000 | |||||||||
Proceeds from issuance of note payable | – | – | 376,500 | |||||||||
Proceeds from issuance of convertible notes payable | 125,000 | 264,000 | 1,493,177 | |||||||||
Repayments of convertible notes payable | – | – | (117,000 | ) | ||||||||
Net cash provided by financing activities | 150,000 | 264,000 | 3,162,452 | |||||||||
Net (decrease) increase in cash | (53,909 | ) | 11,608 | 7,849 | ||||||||
Cash, beginning of period | 61,758 | 13,761 | – | |||||||||
Cash, end of period | $ | 7,849 | $ | 25,369 | $ | 7,849 | ||||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||||||
Interest paid | $ | – | $ | – | $ | 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 Solar Wind Energy's stockholders acquired in connection with the merger upon resignation | $ | – | $ | – | $ | 12,060 | ||||||
Notes payable issued in settlement of accounts payable | $ | – | $ | – | $ | 268,270 | ||||||
Convertible notes payable issued in settlement of accrued officer salaries | $ | – | $ | – | $ | 280,000 | ||||||
Common stock issued in settlement of debt | $ | 534,561 | $ | 178,865 | $ | 2,648,771 |
See the accompanying notes to the unaudited condensed consolidated financial statements
6 |
SOLAR WIND ENERGY TOWER, INC.
(a development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2014
(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
Solar 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, Solar Wind Energy Tower Inc., a Nevada corporation (the “Company” or "Solar Wind"), completed a reverse merger (the “Merger”) with Solar Wind Energy, Inc., a corporation formed under the laws of the State of Delaware on July 26, 2010 (“Solar Wind - Subsidiary”). In connection with the Merger, the Company issued to the stockholders of Solar Wind - Subsidiary in exchange for their Solar Wind - Subsidiary 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, Solar Wind - Subsidiary is now a wholly-owned subsidiary of the Company.
For accounting purposes, Solar Wind - Subsidiary was the surviving entity. The transaction was accounted for as a recapitalization of Solar Wind - Subsidiary pursuant to which Solar Wind - Subsidiary 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 Solar Wind - Subsidiary immediately following the consummation of the reverse merger. Also, going forward the business operations of Solar Wind - Subsidiary will become the Company’s principal business operations.
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. and on March 11, 2013, changed its name to Solar Wind Energy Tower Inc. along with its wholly-owned subsidiary, a corporation formed under the laws of the State of Delaware, which changed its name from Clean Wind Energy, Inc. to Solar Wind Energy, 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 and on March 11, 2013, in conjunction with our name change, the Company’s quotation symbol on the Over-the-Counter Bulletin Board was changed from CWET.OB to SWET.OB.
Interim Financial Statements
The following (a) condensed consolidated balance sheet as of December 31, 2013, 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.
7 |
SOLAR WIND ENERGY TOWER, INC.
(a development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2014
(unaudited)
Operating results for the three months ended March 31, 2014 are not necessarily indicative of results that may be expected for the year ending December 31, 2014. 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, 2013 included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 28, 2014.
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 $700,105 and $1,776,082 for the three month periods ended March 31, 2014 and 2013, respectively, accumulated deficit of $9,566,473 and total current liabilities in excess of current assets of $2,480,842 as of March 31, 2014.
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.
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.
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 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 for the three months ended March 31, 2014 and 2013. Dilutive common stock equivalents consist of shares issuable upon conversion of convertible notes and exercise of warrants. Fully diluted shares for the three ended March 31, 2014 and 2013 were 605,240,364 and 352,069,509, respectively.
8 |
SOLAR WIND ENERGY TOWER, INC.
(a development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2014
(unaudited)
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 $9,033 and $13,893 for the three months ended March 31, 2014 and 2013, respectively and $657,662 research and development costs from July 26, 2010 (date of inception) through March 31, 2014. 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.
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 three months ended March 31, 2014 and 2013 was $188,163 and $115,824, respectively, and $2,561,432 from July 26, 2010 (date of inception) through March 31, 2014.
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. In addition, the Company has the possibility of exceeding their common shares authorized when considering the number of possible shares that may be issuable to satisfy settlement provisions of convertible notes after consideration of all existing instruments that could be settled in shares.
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 March 31, 2014, 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.
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.
9 |
SOLAR WIND ENERGY TOWER, INC.
(a development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2014
(unaudited)
NOTE 2 – ACCRUED LIABILITIES AND EXPENSES
Accrued liabilities and expenses as of March 31, 2014 and December 31, 2013 consist of the following:
March 31, 2014 | December 31, 2013 | |||||||
Accrued payroll | $ | 537,138 | $ | 505,118 | ||||
Accrued stock purchase warrants | 29,400 | 29,400 | ||||||
Accrued lawsuit (Note 10 below) | 122,985 | 122,985 | ||||||
Accrued interest and other | 124,062 | 80,461 | ||||||
Total | $ | 813,585 | $ | 737,964 |
NOTE 3 – ADVANCES FROM SHAREHOLDERS/OFFICERS
Advances from shareholders are comprised of the fair value of common stock pledged as collateral by shareholder (see Note 10 below).
NOTE 4 – NOTE PAYABLE
On June 20, 2012, the Company issued three promissory notes payable in the 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 an interest rate of 8% per annum due at maturity and are unsecured. The notes are currently in default.
On June 6, 2013, the Company issued a secured promissory note payable with a face amount of $97,500 with an original interest discount (“OID”) of $22,500. The note was originally due in full on October 3, 2013, subsequently extended to November 15, 2013, and is secured by a Company issued note to the Company’s CEO for $150,000 (See note 6). The Company is obligated to file by July 5, 2013 a registration statement on Form S-1 registering an equity line of credit to the benefit of the note holder and to become effective by September 18, 2013. The Company filed Form S-1 on June 24, 2013 and on October 16, 2013 became effective. Effective November 16, 2013, the promissory note was in default, the promissory note became due and payable with interest rate at 22% per annum thereafter for any unpaid balance.
NOTE 5 – CONVERTIBLE NOTES PAYABLE
Convertible notes payable are comprised of the following:
March 31, 2014 | December 31, 2013 | |||||||
Convertible promissory notes, due December 31, 2014, net of unamortized debt discount of $89,864 and $119,274, respectively | $ | 149,136 | 119,726 | |||||
Convertible note payable, due January 24, 2015, net of unamortized debt discount and OID of $17,712 | – | 10,059 | ||||||
Convertible note payable, due December 19, 2013 | – | 32,500 |
10 |
SOLAR WIND ENERGY TOWER, INC.
(a development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2014
(unaudited)
March 31, 2014 | December 31, 2013 | |||||||
Convertible note payable, due July 1, 2014, net of unamortized debt discount and OID of $12,478 | $ | – | $ | 15,492 | ||||
Convertible note payable, due April 15, 2014, net of unamortized debt discount of $12,231 | – | 20,269 | ||||||
Convertible note payable, due May 15, 2014, net of unamortized debt discount of $13,500 | – | 14,000 | ||||||
Convertible note payable, due January 24, 2015, net of unamortized debt discount of $6,897 and $36,977, respectively | 5,236 | 13,023 | ||||||
Convertible note payable, due August 21, 2014, net of unamortized debt discount and OID of $19,925 | – | 11,287 | ||||||
Convertible promissory notes, due June 18, 2014, net of unamortized debt discount of $19,973 | – | 12,527 | ||||||
Convertible promissory note, due July 14, 2014, net with unamortized debt discount and OID of $11,075 and $20,569, respectively | 27,425 | 17,931 | ||||||
Convertible promissory note, due August 16, 2014, net of unamortized debt discount and OID of $14,556 and $24,049, respectively | 23,944 | 14,451 | ||||||
Convertible promissory note, due October 22, 2014, net of unamortized debt discount and OID of $17,530 and $25,226, respectively | 13,683 | 5,986 | ||||||
Convertible promissory note, due November 1, 2014, net of unamortized debt discount and OID of $33,048 and $47,226, respectively | 24,452 | 10,274 | ||||||
Convertible promissory note, due September 10, 2014, net of unamortized debt discount of $24,919 and $38,678, respectively | 17,581 | 3,822 | ||||||
Convertible promissory note, due January 24, 2015, net of unamortized debt discount of $37,375 and $48,625, respectively | 12,625 | 1,375 | ||||||
Convertible promissory note, due October 10, 2014, net of unamortized debt discount of $22,809 | 9,691 | – | ||||||
Convertible promissory note, due November 14, 2014, net of unamortized debt discount of $22,800 | 4,700 | – | ||||||
Convertible promissory note, due February 20, 2015, net of unamortized debt discount and OID of $22,291 | 2,679 | – | ||||||
Convertible promissory note, due January 24, 2015, net of unamortized debt discount of $40,838 | 9,162 | – | ||||||
Total | 300,314 | 302,722 | ||||||
Less short term portion | (300,314 | ) | (278,266 | ) | ||||
Long term portion | $ | – | $ | 24,456 |
Asher notes:
On January 8, 2014, 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 January 8, 2014. 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 October 10, 2014. 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.
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SOLAR WIND ENERGY TOWER, INC.
(a development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2014
(unaudited)
On February 12, 2014, 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 $27,500 (the "Note"). The financing closed on February 12, 2014. The total net proceeds the Company received from this Offering was $25,000.
The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on November 14, 2014. 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 Notes 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 Note, the Company has no right of prepayment.
JMJ Financial
On July 11, 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. During the three months ended March 31, 2014, the Company received tranches of net proceeds in the amounts of $20,000. As of March 31, 2014 and December 31, 2013, the aggregate principal amount outstanding under the July 11, 2012 issued convertible promissory note was $56,183 and $90,395, respectively.
The maturity dates are 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 Notes bear 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.
Typenex Co-Investment, LLC
On May 13, 2013, the Company issued a Convertible Promissory Note to Typenex Co-Investment, LLC (“Typenex”) providing Typenex with the ability to invest up to $555,000 which contains a 10% original issue discount (the “Typenex Note”). The transaction closed on May 13, 2013. All issued tranches are due 20 months from the date of issuance.
On February 26, 2014, the Company issued a $50,000 Convertible Promissory Note (the “Note”) to Typenex Co-Investment LLC under the May 13, 2013 described transaction. The total proceeds the Company received from this offering was $50,000.
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SOLAR WIND ENERGY TOWER, INC.
(a development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2014
(unaudited)
The Note is convertible into common stock, at holder’s option, at the lower of i) 35% discount to the average of the two lowest closing bid prices of the common stock during the 20 trading day period prior to conversion or 40% if average of the two lowest bid prices are less than $0.01 or ii) $0.04.
The Company has identified the embedded derivatives related to the above described Notes. These embedded derivatives included certain conversion features and reset provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the Notes and to fair value as of each subsequent reporting date.
At the inception of the 2014 Notes, the Company determined the aggregate fair value of $139,765 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 157.33% to 166.83%, (3) weighted average risk-free interest rate of 0.11 % to 0.23%, (4) expected life of 0.75 to 1.00 years, and (5) estimated fair value of the Company’s common stock of $0.0047 to $0.0075 per share.
The determined fair value of the debt derivatives of $139,764 was charged as a debt discount up to the net proceeds of the note with the remainder of $14,433 charged to current period operations as non-cash interest expense.
At March 31, 2014, the Company marked to market the fair value of the debt derivatives and determined a fair value of $486,777. The Company recorded a gain from change in fair value of debt derivatives of $4,340 for the three months ended March 31, 2014. 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 159.11%, (3) weighted average risk-free interest rate of 0.05% to 0.13%, (4) expected life of 0.22 to 0.89 years, and (5) estimated fair value of the Company’s common stock of $0.0048 per share.
The charge of the amortization of debt discounts and costs for the three months ended March 31, 2014 and 2013 was $229,708 and $104,247, respectively, which was accounted for as interest expense. Also, the Company has accrued interest expense of $27,963 as of March 31, 2014.
During the three months ended March 31, 2014, the Company issued an aggregate of 86,807,728 shares of its common stock in settlement of the convertible note payable and related interest.
NOTE 6 – CONVERTIBLE NOTES PAYABLE, RELATED PARTY
During 2012, the Company issued an aggregate of $280,000 convertible promissory notes to officers and key employees in settlement of accrued salaries.
The convertible promissory notes bear interest at the rate of 8% per annum. All interest and principal must be repaid on December 31, 2014. The convertible promissory notes are convertible into common stock, at the holders’ option at $0.015 per common share.
Due to the nature of the notes described in Note 5 above, the Company has identified the embedded derivatives related to the above described Notes. These embedded derivatives included certain conversion features and the uncertainty of sufficient authorized shares to meet possible conversion demands. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the notes and to fair value as of each subsequent reporting date.
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 200.41% to 200.80%, (3) weighted average risk-free interest rate of 0.25%, (4) expected life of 2.0 years, and (5) estimated fair value of the Company’s common stock of $0.0165 to $0.0167 per share.
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SOLAR WIND ENERGY TOWER, INC.
(a development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2014
(unaudited)
The determined fair value of the debt derivatives of $262,285 was charged as a debt discount up to the net proceeds of the note.
At March 31, 2014, the Company marked to market the fair value of the debt derivatives and determined a fair value of $21,599. The Company recorded a gain from change in fair value of debt derivatives of $32,100 for the three months ended March 31, 2014. 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 159.11%, (3) weighted average risk-free interest rate of 0.13%, (4) expected life of 0.75 years, and (5) estimated fair value of the Company’s common stock of $0.0048 per share.
The charge of the amortization of debt discounts and costs for the three ended March 31, 2014 and 2013 was $32,313 and $32,313, respectively, which was accounted for as interest expense. Also, the Company has accrued interest expense of $27,956 as of March 31, 2014.
NOTE 7 – DERIVATIVE LIABILITIES
As described in Notes 5 and 6 above, the Company issued convertible notes that contain 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 and to fair value as of each subsequent reporting date. Refer to Notes 5 and 6 for assumptions used to determine fair values.
During the three months ended March 31, 2014, the Company has the possibility of exceeding their common shares authorized when considering the number of possible shares that may be issuable to satisfy settlement provisions of convertible notes after consideration of all existing instruments that could be settled in shares. The accounting treatment of derivative financial instruments required that the Company reclassify the derivative from equity to a liability at their fair values as of the date possible issuable shares exceeded the authorized level and at fair value as of each subsequent balance sheet date. Any change in fair value was recorded as non-operating, non-cash income or expense at each reporting date. If the fair value of the derivatives was higher at the subsequent balance sheet date, the Company recorded a non-operating, non-cash charge. If the fair value of the derivatives was lower at the subsequent balance sheet date, the Company recorded non-operating, non-cash income.
The Company determined the previously issued warrants required reclassification from equity as of January 2014. Accordingly, the Company reclassified the determined fair value of $13,202 from additional paid in capital to derivative liabilities.
The fair value of the derivative in January 2014 was determined using the Black Sholes Option Pricing model with the following assumptions: dividend yield: 0%; volatility: 157.27%; risk free rate: 1.75%; and expected life: 4.37 years.
At March 31, 2014, the Company marked to market the fair value of the warrant derivative and determined a fair value of $8,234. The Company recorded a gain from change in fair value of derivative of $4,968 for the three months ended March 31, 2014. 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 159.11%, (3) weighted average risk-free interest rate of 1.73%, (4) expected life of 4.12 years, and (5) estimated fair value of the Company’s common stock of $0.0048 per share.
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SOLAR WIND ENERGY TOWER, INC.
(a development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2014
(unaudited)
NOTE 8 – 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 March 31, 2014 and December 31, 2013, 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 March 31, 2014 and December 31, 2013, the Company has 464,660,896 and 370,728,168, respectively, shares of common stock issued and outstanding.
In 2013 and 2012, the Company issued an aggregate of 15,000,000 and 21,500,000 shares of common stock for future services of $328,500 and $1,305,000, respectively. The Company accretes the fair value of the shares issued as stock based compensation during the requisite service period to operations. During the three months ended March 31, 2014 and 2013, the Company recorded $188,163 and $115,824, respectively, as stock based compensation.
NOTE 9 – WARRANTS
Warrants
The following table summarizes the changes in warrants outstanding and related prices for the shares of the Company’s common stock at March 31, 2014:
Exercise Price | Number Outstanding |
Warrants Outstanding Weighted Average Remaining Contractual Life (years) |
Weighted Average Exercise price |
Number Exercisable |
Warrants Exercisable Weighted Average Exercise Price |
|||||||||||||||||
$ | 0.10 | 2,187,101 | 4.12 | $ | 0.10 | 2,187,101 | $ | 0.10 |
Transactions involving the Company’s warrant issuance are summarized as follows:
Number of Shares | Weighted Average Price Per Share | |||||||
Outstanding at December 31, 2012 | 2,187,101 | $ | 0.10 | |||||
Granted | – | – | ||||||
Exercised | – | – | ||||||
Canceled or expired | – | – | ||||||
Outstanding at December 31, 2013 | 2,187,101 | 0.10 | ||||||
Granted | – | – | ||||||
Exercised | – | – | ||||||
Canceled or expired | – | – | ||||||
Outstanding at March 31, 2014 | 2,187,101 | $ | 0.10 |
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SOLAR WIND ENERGY TOWER, INC.
(a development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2014
(unaudited)
NOTE 10 – CONTINGENCIES
Litigation
Hanover Holdings I, LLC vs Solar Wind Energy Tower Inc.(f/k/a Clean Wind Energy Tower, Inc.)
On December 27, 2012, we were served with a Complaint in the matter of Hanover Holdings I, LLC filed with the Supreme Court of the State of New York, stipulating that Solar Wind Energy Tower Inc. (f/k/a Clean Wind Energy Tower, Inc.) has yet to pay the remaining outstanding balance, related interest and penalties, as described in a convertible promissory note issued by Solar Wind Energy Tower Inc. (f/k/a Clean Wind Energy Tower, Inc.) to the benefit of Hanover Holdings I, LLC on February 29, 2012 and has failed to honor a notice of conversion issued by Hanover Holdings I, LLC on or about September 7, 2012. Total claim amount is for $122,985. The Company does not believe any additional payments are due to Hanover Holdings I, LLC and will vigorously defend its position. However, the ultimate outcome cannot be determined at this time.
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 effect on our business, financial condition or operating results.
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 unaudited condensed consolidated financial statements consisted of the following items as of March 31, 2014:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Long-term investments | $ | – | $ | – | $ | – | $ | – | ||||||||
Total | $ | – | $ | – | $ | – | $ | – | ||||||||
Derivative liabilities | $ | – | $ | – | $ | 516,610 | $ | 516,610 | ||||||||
Total | $ | – | $ | – | $ | 516,610 | $ | 516,610 |
16 |
SOLAR WIND ENERGY TOWER, INC.
(a development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2014
(unaudited)
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 three months ended March 31, 2014.
Three months ended March 31, 2014:
Derivative Liabilities | ||||
Balance, December 31, 2013 | $ | 689,093 | ||
Transfers in (out) at mark-market value on date of payoff or conversion | (284,042 | ) | ||
Transfers in upon reclassification from equity | 13,202 | |||
Transfers in upon initial fair value of derivative liabilities | 139,765 | |||
Gain from change in fair value of derivative liabilities | (41,408 | ) | ||
Balance, March 31, 2014 | $ | 516,610 | ||
Total gain for the three month period included in earnings relating to the liabilities held at March 31, 2014 | $ | 41,408 |
Level 3 Liabilities were comprised of our bifurcated convertible debt features on our convertible notes and warrant liabilities.
NOTE 12 – SUBSEQUENT EVENTS
Subsequent issuances of common stock
In April 2014, the Company issued an aggregate of 11,147,321 shares of common stock in settlement of $31,213 outstanding notes payable.
In May 2014, the Company issued an aggregate of 27,618,320 shares of common stock in settlement of $77,500 outstanding notes payable.
Amendment to Articles of Incorporation
On April 2, 2014, the Company’s majority stockholders approved to amend the Articles of Incorporation to increase the number of authorized shares of common stock from 500,000,000 to 900,000,000 shares.
Notes payable, related party
On April 18, 2014, the Company issued an aggregate of $385,000 promissory notes to officers and key employees in settlement of accrued salaries. The promissory notes bear interest at the rate of 2% per annum. All interest and principal must be repaid on April 18, 2016. In connection with the issuance of the notes, the Company issued an aggregate of 59,413,581 warrants to purchase the Company’s common stock at $0.00648 per share for two years.
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SOLAR WIND ENERGY TOWER, INC.
(a development stage company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2014
(unaudited)
Director Compensation
On April 4, 2014, in recognition of past services by the two (2) Directors, the Company approved for issuance of an aggregate of 2,495,010 and 5,787,037 warrants to purchase the Company’s common stock at $0.02 and $0.0086 per share for two years.
Development and Protected Rights Agreement
On April 11, 2014, the Company executed an option agreement (the “Option Agreement’) to purchase a site consisting of approximately 640 acres of land within the City of San Luis, Arizona, which was recorded in Yuma County, Arizona (the “Property”), for the development of an alternate energy project. Pursuant to the terms of the Option Agreements, the Company shall have exclusive and irrevocable option to acquire the Property through December 14, 2014 for the purchase price of $46,500 per acre, which may be extended for periods of 6 months, but no later than June 30, 2017. The extension fee shall be $250,000 for each 6 month extension and shall be non-refundable and shall not be credited towards the purchase price for the Property. The closing of the transaction is subject to satisfaction of due diligence by the Company, as well as obtaining certain permits from the government, including Heavy Industrial Zoning of Property from the City of San Luis, Arizona, a Development Agreement with the City of San Luis, Arizona to obtain development rights, municipal services and other necessary entitlements for the project.
On April 23, 2014, the City Council of San Luis, Arizona, approved the Development and Protected Development Rights Agreement (the “Development Agreement”) for the development of a solar wind energy tower to generate electricity in the City of San Luis, AZ. on the site under the Option Agreement.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the accompanying financial statements and related notes thereto for the quarter ended March 31, 2014, as well as the Company’s consolidated financial statements and related notes thereto and management’s discussion and analysis of financial condition and results of operations in the Company’s Form 10-K for the year ended December 31, 2013 filed on March 28, 2014.
Solar 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, Solar Wind Energy Tower Inc., a Nevada corporation (the “Company” or "Solar Wind"), completed a reverse merger (the “Merger”) with Solar Wind Energy, Inc., a corporation formed under the laws of the State of Delaware on July 26, 2010 (“Solar Wind - Subsidiary”). In connection with the Merger, the Company issued to the stockholders of Solar Wind - Subsidiary in exchange for their Solar Wind - Subsidiary 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, Solar Wind - Subsidiary is now a wholly-owned subsidiary of the Company.
For accounting purposes, Solar Wind - Subsidiary was the surviving entity. The transaction was accounted for as a recapitalization of Solar Wind - Subsidiary pursuant to which Solar Wind - Subsidiary 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 Solar Wind - Subsidiary immediately following the consummation of the reverse merger. Also, going forward the business operations of Solar Wind - Subsidiary will become the Company’s principal business operations.
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. and on March 11, 2013, changed its name to Solar Wind Energy Tower Inc. along with its wholly-owned subsidiary, a corporation formed under the laws of the State of Delaware, which changed its name from Clean Wind Energy, Inc. to Solar Wind Energy, 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 and on March 11, 2013, in conjunction with our name change, the Company’s quotation symbol on the Over-the-Counter Bulletin Board was changed from CWET.OB to SWET.OB.
Forward Looking Statements
This report may contain “forward-looking statements,” which represent the Company’s expectations or beliefs, including, but not limited to, statements concerning industry performance and the Company’s results, operations, performance, financial condition, plans, growth and strategies, which include, without limitation, statements preceded or followed by or that include the words “may,” “will,” “expect,” “anticipate,” “intend,” “could,” “estimate,” or “continue” or the negative or other variations thereof or comparable terminology. Any statements contained in this report or the information incorporated by reference that are not statements of historical fact may be deemed to be forward-looking statements.
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These statements by their nature involve substantial risks and uncertainties, some of which are beyond the Company’s control, and actual results may differ materially depending on a variety of important factors, including those risk factors discussed under “Trends, Risks and Uncertainties”, many of which are also beyond the Company’s control. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this report. The Company does not undertake any obligation to update or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events, except to the extent such updates and/or revisions are required by applicable law.
Critical Accounting Policies and Estimates
Financial Reporting Release No. 60, published by the SEC, recommends that all companies include a discussion of critical accounting policies used in the preparation of their financial statements. While all these significant accounting policies impact our consolidated financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our consolidated financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates.
We believe that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause a material effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report.
General
The Company’s Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles, which require management to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, net revenue, if any, and expenses, and the disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Senior management has discussed the development, selection and disclosure of these estimates with the Board of Directors. Management believes that the accounting estimates employed and the resulting balances are reasonable; however, actual results may differ from these estimates under different assumptions or conditions. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably possible could materially impact the consolidated financial statements. Management believes the following critical accounting policies reflect the significant estimates and assumptions used in the preparation of the Consolidated Financial Statements.
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 March 31, 2014, 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.
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.
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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. The Company did not have any revenue during the period ended March 31, 2014.
Fair Value of Financial Instruments
The Company adopted the provisions under FASB for Fair Value Measurements, which define fair value for accounting purposes, establishes a framework for measuring fair value and expands disclosure requirements regarding fair value measurements. The Company’s adoption of these provisions did not have a material impact on its consolidated financial statements. Fair value is defined as an exit price, which is the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date. The degree of judgment utilized in measuring the fair value of assets and liabilities generally correlates to the level of pricing observability. Financial assets and liabilities with readily available, actively quoted prices or for which fair value can be measured from actively quoted prices in active markets generally have more pricing observability and require less judgment in measuring fair value. Conversely, financial assets and liabilities that are rarely traded or not quoted have less price observability and are generally measured at fair value using valuation models that require more judgment. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency of the asset, liability or market and the nature of the asset or liability. The Company has categorized its financial assets and liabilities measured at fair value into a three-level hierarchy in accordance with these provisions.
In January 2010 the FASB issued Update No. 2010-05 “Compensation—Stock Compensation—Escrowed Share Arrangements and Presumption of Compensation” (“2010-05”). 2010-05 re-asserts that the Staff of the Securities Exchange Commission (the “SEC Staff”) has stated the presumption that for certain shareholders escrowed share represent a compensatory arrangement. 2010-05 further clarifies the criteria required to be met to establish a position different from the SEC Staff’s position. The Company does not believe this pronouncement to have any material impact on its financial position, results of operations or cash flows.
Accounting for Derivatives
In 2012 and 2013, we issued convertible notes payable that contained certain conversion features which we identified as embedded derivatives. In addition, the Company has the possibility of exceeding their common shares authorized when considering the number of possible shares that may be issuable to satisfy settlement provisions of convertible notes after consideration of all existing instruments that could be settled in shares. Therefore, in accordance with ASC 815-40, we reclassified the fair value of the conversion feature from equity to a liability at the date of issuance. Subsequent to the initial issuance date, we are required to adjust to fair value the derivative as an adjustment to current period operations.
New 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.
RESULTS OF OPERATIONS
Three months ended March 31, 2014 as compared to three months ended March 31, 2013
Revenue
The Company has not generated revenue since inception.
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Operating Expenses
Research and development
During the three months ended March 31, 2014, research and development costs were $9,033 compared to $13,893 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 March 31, 2014, selling, general and administrative expenses were $425,558 as compared to $395,129 for the same period last year, a 8% increase. The primary increase is due to increase professional and consulting fees incurred in the current period as compared to same period last year.
Depreciation
Depreciation expense for the three months ended March 31, 2014 was $988 as compared to $1,120 for the same period last year due to the aging of our equipment.
Other income (expense)
Interest expense
Interest expense for the three months ended March 31, 2014 was $305,934 compared to $255,800 for the same period last year. In the current period, we incurred $272,057 non-cash debt discount and OID amortization and $14,433 in non-cash interest expense on issued convertible debt as compared to $136,560 and $94,805, respectively for the same period last year.
Gain (loss) on change in fair value of derivative liabilities
During 2012 and 2013, 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 gain of $41,408 and a loss of $1,110,141 on change in fair value of derivative liabilities for the three months ended March 31, 2014 and 2013, respectively.
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 decreased by $11,691 during the three months ended March 31, 2014 from a working capital deficit (current liabilities in excess of current assets) of $2,492,533 at December 31, 2013 to a working capital deficit of $2,480,842 at March 31, 2014. The decrease in working capital deficit for the three months ended March 31, 2014 is due to a combination of reasons, of which the significant factors include:
· | Cash had a net decrease from working capital by $53,909 for the three months ended March 31, 2014. The most significant uses and proceeds of cash were: |
o | Approximately $204,000 of cash consumed in operating activities; | |
o | Proceeds of $125,000 from issuance of convertible notes payable | |
o | Proceeds of $25,000 from the sale of our common stock |
Total current assets of $7,849 and $61,758 as of March 31, 2014 and December 31, 2013, respectively, cash represented all.
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Proceeds from the issuance of convertible promissory notes
During the three months ended March 31, 2014, the Company received a net amount of $125,000 from the issuance of Convertible Promissory Notes.
Proceeds from the sale of our common stock
During the three months ended March 31, 2014, the Company received a net amount of $25,000 from the sale of the Company’s common stock.
Cash flow analysis
Cash used in operations was $203,909 during the three month period ended March 31, 2014. During the three month period ended March 31, 2014, 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 a total net proceeds of $150,000 from the issuance of sale of our common stock and Convertible Promissory 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 $700,105 for the three month period ended March 31, 2014, accumulated deficit of $9,566,473 and total current liabilities in excess of current assets of $2,480,842 as of March 31, 2014.
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 2014. 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 2014.
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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.
Number of Employees
As of March 31, 2014, the Company had 3 full time employees.
Disclosure of Contractual Obligations
The Company does not have any significant contractual obligations which could negatively impact our results of operations and financial condition.
Item 3. Quantative and Qualitative Disclosures About Material Risk.
As a smaller reporting company, we are not required to include disclosure under this item.
Item 4. Controls and Procedures.
As of March 31, 2014, the Company performed an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Accounting Officer), of the effectiveness of the design and operation of its disclosure controls and procedures as defined in Rules 13a - 15(e) or 15d - 15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation and due to the lack of segregation of duties and failure to implement accounting controls, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report
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The reason for the ineffectiveness of our disclosure controls and procedures was the result of having a limited number of employees and not having proper segregation of duties based on the cost benefit of hiring additional employees solely to address the segregation of duties issue. We compensate for the lack of segregation of duties by employing close involvement of management in day-to-day operations.
Limitations on Effectiveness of Controls and Procedures
Our management, including our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), does not expect that our disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.
The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Remediation of Material Weaknesses in Internal Control over Financial Reporting
As a small business, without a viable business and revenues, the Company does not have the resources to install a dedicated staff with deep expertise in all facets of SEC disclosure and GAAP compliance. As is the case with many small businesses, the Company will continue to work with its external consultants and attorneys as it relates to new accounting principles and changes to SEC disclosure requirements. The Company has found that this approach worked well in the past and believes it to be the most cost effective solution available for the foreseeable future.
The Company will conduct a review of existing sign-off and review procedures as well as document control protocols for critical accounting spreadsheets. The Company will also increase management's review of key financial documents and records.
As a small business, the Company does not have the resources to fund sufficient staff to ensure a complete segregation of responsibilities within the accounting function. However, Company management does review, and will increase the review of, financial statements on a monthly basis. These actions, in addition to the improvements identified above, will minimize any risk of a potential material misstatement occurring.
Changes in Internal Controls
During the fiscal quarter ended March 31, 2014, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Hanover Holdings I, LLC vs Solar Wind Energy Tower Inc.(f/k/a Clean Wind Energy Tower, Inc.)
On December 27, 2012, we were served with a Complaint in the matter of Hanover Holdings I, LLC filed with the Supreme Court of the State of New York, stipulating that Solar Wind Energy Tower Inc. (f/k/a Clean Wind Energy Tower, Inc.) has yet to pay the remaining outstanding balance, related interest and penalties, as described in a convertible promissory note issued by Solar Wind Energy Tower Inc. (f/k/a Clean Wind Energy Tower, Inc.) to the benefit of Hanover Holdings I, LLC. on February 29, 2012 and has failed to honor a notice of conversion issued by Hanover Holdings I, LLC on or about September 7, 2012. Total claim amount is for $122,985. The Company does not believe any additional payments are due to Hanover Holdings I, LLC and will vigorously defend its position. However, the ultimate outcome cannot be determined at this time.
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 financial position, results of operations or liquidity.
Item 1A. Risk Factors.
The Company’s 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 quarterly report on Form 10-Q. You should carefully consider all of these risks.
The Company has a history of operating losses and an accumulated deficit and expects to continue to incur losses for the foreseeable future.
Since inception through March 31, 2014, the Company has incurred cumulative losses of $9,566,473 and has never generated enough funds through operations to support its business. The Company has a limited operating history and has primarily engaged in operations relating to the development of its business plan. Additional capital may be required in order to provide working capital requirements for the next twelve months.
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.
In their report dated March 28, 2014, our independent auditors stated that our financial statements for the year ended December 31, 2013 were prepared assuming that we would continue as a going concern, and that they have substantial doubt about our ability to continue as a going concern. Our auditors’ doubts are based on our net losses and deficits in cash flows. We continue to experience net operating losses since the Company is still in a development stage. Our ability to continue as a going concern is subject to our ability to generate a profit and/or obtain necessary funding from outside sources, including by the sale of our securities, or obtaining loans from financial institutions, where possible. Our continued net operating losses and our auditors’ doubts increase the difficulty of our meeting such goals. If we are not successful in raising sufficient additional capital, we may not be able to continue as a going concern and our stockholders may lose their entire investment.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information.
None.
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Item 6. Exhibits.
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) | ||
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) | ||
14.1 | Code of Business Conduct and Ethics (5) | ||
21.1 | Subsidiaries of the Registrant (4) | ||
31.1 | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Ronald W. Pickett (President/Chief Executive Officer) | ||
31.2 | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Ronald W. Pickett (Chief Financial Officer) | ||
32.1 | Certification of Ronald W. Pickett (President/Chief Executive Officer) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
32.2 | Certification of Ronald W. Pickett (Chief Financial Officer) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||
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* |
___
* | Pursuant to Rule 406T of Regulation S-T, these interactive data files are not deemed filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act or Section 18 of the Securities Exchange Act and otherwise not subject to liability. |
(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-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission on April 2, 2012 and incorporated herein by reference. |
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Clean Wind Energy Tower, Inc. Registrant |
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Date: May 15, 2014 | By: | /s/ Ronald Pickett | |
Ronald Pickett | |||
Chief Executive Officer (Principal Executive Officer) and Principal Accounting and Financial Officer |
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