XOTC:CWET Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

 

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, 2012

 

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

 

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: 225,747,250 shares of Common Stock ($0.0001 par value) as of May 14, 2012.

 

1
 

 

 

Clean Wind Energy Tower, Inc.

(A Development Stage Company)

FORM 10-Q for the Quarter Ended March 31, 2012

 

Index

 

  Page
   
PART I. FINANCIAL INFORMATION 3
   
Item 1. Financial Statements (Unaudited) 3
   

Condensed Consolidated Balance Sheets:

March 31, 2012(unaudited)  and December 31, 2011

3
   

Condensed Consolidated Statements of Operations:

For the three months ended March 31, 2012 and 2011 and for the period from July 26, 2010 (date of inception) through March 31, 2012 (unaudited)

4
   

Condensed Consolidated Statement of Stockholders’ Deficit

For the three months ended March 31, 2012 (unaudited)

5
   

Condensed Consolidated Statements of Cash Flows:

For the three months ended March 31, 2012 and 2011 and for the period from July 26, 2010 (date of inception) through March 31, 2012 (unaudited)

6
   

Notes to Condensed Unaudited Consolidated Financial Statements:

March 31, 2012

7
   
Item 2. Management’s Discussion and Analysis 17
   
Item 3. Quantitative and Qualitative Disclosures About Material Risk 23
   
Item 4. Controls and Procedures 23
   
PART II. OTHER INFORMATION 24
   
Item 1. Legal Proceedings 24
   
Item 1A. Risk Factors 24
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 25
   
Item 3. Defaults Upon Senior Securities 25
   
Item 4. Mine Safety Disclosures 25
   
Item 5. Other Information 25
   
Item 6. Exhibits 26
   
Signatures 28

  

 

2
 

 

 

 

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

CLEAN WIND ENERGY TOWER, INC.

(a development stage company)

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

    March 31,    December 31, 
    2012    2011 
    (unaudited)      
ASSETS          
Current assets:          
Cash  $98,546   $52,332 
           
 Total current assets   98,546    52,332 
           
Property and equipment, net   10,124    11,244 
           
Other assets:          
Deposits   9,330    9,330 
           
Total assets  $118,000   $72,906 
           
LIABILITIES AND STOCKHOLDERS' DEFICIT          
Current liabilities:          
Accounts payable  $480,353   $478,355 
Accrued liabilities and expenses   556,235    627,650 
Advances from stockholders/officers   175,000    5,000 
Note payable   165,000    - 
Convertible notes payable, net of unamortized debt discount of $57,778   -    52,222 
Derivative liabilities   -    237,395 
   Total current liabilities   1,376,588    1,400,622 
           
Stockholders' deficit:          
Preferred stock, par value $0.0001 per share; 10,000,000 shares authorized; none issued and outstanding as of March 31, 2012 and December 31, 2011   -    - 
Common stock, par value $0.0001 per share; 500,000,000 shares authorized; 225,547,250 and 210,850,519 shares issued and outstanding as of March 31, 2012 and December 31, 2011, respectively   22,555    21,085 
Common stock to be issued   420,000    480,000 
Additional paid in capital   2,182,780    1,270,835 
Accumulated deficit during development stage   (3,883,923)   (3,099,636)
   Total stockholders' deficit   (1,258,588)   (1,327,716)
           
Total liabilities and stockholders' deficit  $118,000   $72,906 

 

 See the accompanying notes to the unaudited condensed consolidated financial statements

 

 

 

3
 

 

CLEAN WIND ENERGY TOWER, INC.

(a development stage company)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

   For the three months ended
March 31,
  For the period From July 26, 2010
(date of inception) through
   2012  2011  March 31, 2012
REVENUE:  $-   $-   $- 
                
OPERATING EXPENSES:               
Research and development   15,083    111,148    451,492 
Selling, general and administrative   493,270    369,535    2,971,763 
Depreciation   1,120    66    3,317 
 Total operating expenses   509,473    480,749    3,426,572 
                
Loss from operations   (509,473)   (480,749)   (3,426,572)
                
Other income (expense):               
Interest expense   (302,722)   -    (485,651)
Loss on modification of debt   -    -    (88,849)
Gain on change in fair value of derivative liabilities   27,908    -    117,149 
                
Loss before provision for income taxes   (784,287)   (480,749)   (3,883,923)
                
Provision for income taxes (benefit)   -    -    - 
                
NET LOSS  $(784,287)  $(480,749)  $(3,883,923)
                
Net loss per common share, basic and fully diluted  $(0.00)  $(0.01)     
                
Weighted average number of common shares outstanding, basic and fully diluted   221,553,845    44,344,088      

 

 See the accompanying notes to the unaudited condensed consolidated financial statements

 

 

 

4
 

 

 

CLEAN WIND ENERGY TOWER, INC.

(a development stage company)

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

FOR THE THREE MONTHS ENDED MARCH 31, 2012

(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, 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   -    -    10,400,000    1,040    -    -    (1,040)   -      
Shares issued for consulting services rendered at $0.24 per share   -    -    285,175    29    -    -    69,138    -    69,167 
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 
Beneficial conversion feature reclassified to equity upon repayment of convertible notes   -    -    -    -    -    -    209,487    -    209,487 
Stock based compensation   -    -    -    -    -    -    225,294    -    225,294 
Net loss   -    -    -    -    -    -    -    (784,287)   (784,287)
Balance, March 31, 2012   -   $-    225,547,250   $22,555    6,000,000   $420,000   $2,182,780   $(3,883,923)  $(1,258,588)

 

See the accompanying notes to the unaudited condensed consolidated financial statements 

 

5
 

 

CLEAN WIND ENERGY TOWER, INC.

(a development stage company)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

       

 

   For the three months ended March 31,  For the period From July 26, 2010 (date of inception) through
   2012  2011  March 31, 2012
CASH FLOWS FROM OPERATING ACTIVITIES:               
Net loss  $(784,287)  $(480,749)  $(3,883,923)
Adjustments to reconcile net loss to net cash used in operating activities:               
Depreciation   1,120    66    3,317 
Amortization of debt discounts   57,778    -    110,000 
Amortization of financing costs   41,000    -    41,000 
Non cash interest   -    -    127,787 
Stock based compensation   297,928    20,000    871,387 
Loss on debt modification   -    -    88,849 
Gain from change in fair value of derivative liabilities   (27,908)   -    (117,149)
Changes in operating assets and liabilities:               
Prepaid expenses   -    17,197    - 
Advances from stockholders/officers   -    (25,000)   5,000 
Accounts payable and accrued expenses   (38,417)   204,330    1,038,188 
 Net cash used in operating activates   (452,786)   (264,156)   (1,715,544)
                
CASH FLOWS FROM INVESTING ACTIVITIES:               
Net cash acquired from reverse merger   -    -    223,586 
Purchase of property and equipment   -    (2,375)   (13,441)
Payment of long term deposit   -    -    (9,330)
 Net cash (used in) provided by investing activities   -    (2,375)   200,815 
                
CASH FLOWS FROM FINANCING ACTIVITIES:               
Proceeds from issuance of subsidiary's common stock   -    -    75 
Proceeds from sale of common stock   85,000    120,000    1,089,200 
Proceeds from exercise of warrants   230,000    -    230,000 
Proceeds from issuance of note payable   294,000    -    294,000 
Proceeds from issuance of convertible notes payable   -    -    110,000 
Repayments of convertible notes payable   (110,000)   -    (110,000)
 Net cash provided by financing activities   499,000    120,000    1,613,275 
                
Net increase (decrease) in cash   46,214    (146,531)   98,546 
Cash, beginning of period   52,332    195,184    - 
                
Cash, end of period  $98,546   $48,653   $98,546 
                
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 

 

See the accompanying notes to the unaudited condensed consolidated financial statements

 

 

6
 

 

CLEAN WIND ENERGY TOWER, INC.

(a development stage company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 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), 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 three months ended March 31, 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.

7
 

 

CLEAN WIND ENERGY TOWER, INC.

(a development stage company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012

(unaudited)

 

Going Concern

 

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. However, the Company has reported a net loss from operations of $784,287 for the three month period ended March 31, 2012, accumulated deficit of $3,883,923 and total current liabilities in excess of current assets of $1,278,042 as of March 31, 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.

 

The 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 and warrants. Fully diluted shares as of March 31, 2012 and 2011 were 221,553,845 and 44,344,088, respectively.

8
 

CLEAN WIND ENERGY TOWER, INC.

(a development stage company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012

(unaudited)

 

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 three months ended March 31, 2012 and 2011 was $297,928 and $20,000, 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.

 

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 $15,083, $111,148 and $451,492 research and development costs for the three months ended March 31, 2012, 2011 and from July 26, 2010 (date of inception) through March 31, 2012, 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.

9
 

 

CLEAN WIND ENERGY TOWER, INC.

(a development stage company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012

(unaudited)

 

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 March 31, 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 a have a material impact on the Company's consolidated financial position, results of operations or cash flows.

  

NOTE 2 – ACCRUED LIABILITIES AND EXPENSES

 

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

 

   March 31,
2012
  December 31,
2011
Accrued payroll  $331,696   $472,221 
Accrued payroll taxes payable   18,330    18,330 
Accrued stock purchase warrants   29,400    29,400 
Accrued interest and other   176,809    107,699 
Total  $556,235   $627,650 

 

10
 

 

CLEAN WIND ENERGY TOWER, INC.

(a development stage company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012

(unaudited)

 

NOTE 3 – ADVANCES FROM SHAREHOLDERS/OFFICERS

 

Advances from shareholders are comprised of the following:

 

   March 31,
2012
  December 31,
2011
Cash advances  $5,000   $5,000 
Fair value of common stock pledged as collateral by shareholder (see below)   170,000    - 
Total  $175,000   $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 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 additional demands for payment have been made by Hanover.

 

The original issue discount of $33,500 was charged as interest during the three months ended March 31, 2012.

 

11
 

 

CLEAN WIND ENERGY TOWER, INC.

(a development stage company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 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 "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.

  

During the three months ended March 31, 2012, the Company paid above described Notes in full.

12
 

CLEAN WIND ENERGY TOWER, INC.

(a development stage company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012

(unaudited)

 

 

NOTE 6 – 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 at inception date was charged as a debt discount up to the net proceeds of the note with the remainder $(127,787) charged to the operations during 2011 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.

 

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 was transferred to equity at the date of note 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.

  

The charge of the amortization of debt discount and costs for the three months ended March 31, 2012 was $57,778, which was accounted for as interest expense.

 

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 March 31, 2012 and December 31, 2011, the Company did not have any preferred stock issued and outstanding.

 

 

13
 

 

CLEAN WIND ENERGY TOWER, INC.

(a development stage company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012

(unaudited)

 

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, 2012 and December 31, 2011, the Company has 225,547,250 and 210,850,519, respectively, shares of common stock issued and outstanding.

 

During the month of January 2012, the Company issued an aggregate of 161,556 shares of common stock for services rendered of $41,467, and 1,050,000 common shares for common stock subscriptions for $105,000.

 

In addition, during the month of January 2012, the Company issued 9,000,000 shares for future services of $2,474,100. 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, 2012, the Company recorded $191,878 as stock based compensation.

 

During the month ended February 2012, the Company issued an aggregate of 259,630 shares of common stock for services rendered of $40,590, 400,000 shares of common stock for common stock subscriptions of $40,000 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 month of March 2012, the Company issued an aggregate of 125,545 shares of common stock for services rendered of $21,576.

 

In addition during the month of March 2012, the Company issued 1,400,000 shares of common stock for future services of $254,800. 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, 2012, the Company recorded $33,417 as stock based compensation.

 

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.

 

14
 

CLEAN WIND ENERGY TOWER, INC.

(a development stage company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012

(unaudited)

 

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 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 March 31, 2012 and 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 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.

 

15
 

CLEAN WIND ENERGY TOWER, INC.

(a development stage company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2012

(unaudited)

 

As of March 31, 2012, the Company did not have items recorded or measured at fair value on a recurring basis in the accompanying consolidated financial statements.

 

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, 2012.

 

Three months ended March 31, 2012:      
    derivative liability  
Balance, December 31, 2011   $ 237,395  
         
Transfers in (out) at mark-market value on date of payoff       (209,487 )
         
Gain from change in fair value at payoff date     (27,908 )
         
Balance, March 31, 2012   $ -  
         
Total gain for the period included in earnings relating to the liabilities held at March 31, 2012   $ 27,908  

 

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

  

NOTE 10 – SUBSEQUENT EVENTS

 

Financing

 

On April 3, 2012, the Company entered into a Securities Purchase Agreement for the sale of an 8% convertible note in the principal amount of $68,500 (the "Note").  The financing closed on April 18, 2012.

 

The Note bears interest at the rate of 8% per annum.  All interest and principal must be repaid on January 9, 2013.  The Note is convertible into common stock, at note holder'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) 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.   

 

On May 4, 2012, the Company issued an aggregate of 200,000 of the Company's common stock for services rendered valued at $15,000.

 

 

16
 

 

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, 2012, 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, 2011 filed on April 2, 2012.

 

Business

 

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.

 

 

17
 

 

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. 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.

 

18
 

 

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, 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.

 

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. The Company did not have any revenue during the period ended March 31, 2012.

    

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.

 

Basic and diluted net loss per share

 

We utilize ASC 260, “Earnings Per Share” for calculating the basic and diluted loss per share. In accordance with ASC 260, the basic and diluted loss per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding. Diluted net loss per share is computed similar to basic net loss per share except that the denominator is adjusted for the potential dilution that could occur if stock options, warrants, and other convertible securities were exercised or converted into common stock. Potentially dilutive securities were not included in the calculation of the diluted net loss per share as their effect would be anti-dilutive.

19
 

 

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 difference between taxable income reported for financial reporting purposes primarily relate to the recognition of debt costs and stock based compensation expenses. The adoption of ASC 740 “Income Taxes” did not have a material impact on the Company’s results of operations or financial condition

 

New Accounting Pronouncements

 

For information regarding recent accounting pronouncements and their effect on the Company, see “New Accounting Pronouncements” in Note B of the Notes to Unaudited Condensed Consolidated Financial Statements contained herein.

 

RESULTS OF OPERATIONS

 

Revenue

 

The Company has not generated revenue since inception.

 

Operating Expenses

   

Research and development

 

During the three months ended March 31, 2012, research and development costs were $15,083 compared to $111,148 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, 2012, selling, general and administrative expenses were $493,270 as compared to $369,535 for the same period last year, a 33% increase. The primary increase is due to non cash stock based compensation issued for services of $297,928 for the three months ended March 31, 2012 as compared to $20,000 for the three months ended March 31, 2011.

 

Depreciation

 

Depreciation expense for the three months ended March 31, 2012 was $1,120 as compared to $66 for the same period last year. The increase of $1,054 is due to additional equipment acquired in the latter part of 2011.

 

Other income (expense)

 

Interest expense

 

Interest expense for the three months ended March 31, 2012 was $302,722 compared to $-0- for the same period last year. In the current period, we incurred $57,778 non cash debt discount amortization and $41,000 in financing costs along with interest costs in settlement of our previously issued convertible debt. In addition, we accrued default interest on our note payable of $146,563.

20
 

 

Gain on change in fair value of derivative liabilities

 

During 2011, 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 gain of $27,908 for the three months ended March 31, 2012.  As of March 31, 2012, we have paid off convertible promissory notes, accordingly the we do not have a derivative liability as of March 31, 2012.

 

Liquidity and Capital Resources

 

We have financed our operations since inception primarily through private offerings of our equity securities.

 

Working Capital

 

Our working capital deficit decreased by $70,248 during the three months ended March 31, 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 $1,278,042 at March 31, 2012. The decrease in working capital deficit for the three months ended March 31, 2012 is due to a combination of reasons, of which the significant factors include:

 

  Cash had a net increase from working capital by $46,214 for the three months ended March 31, 2012. The most significant uses and proceeds of cash were:

 

  o

Approximately $452,786 of cash consumed in operating activities;

 

  o

A repayment of $110,000 repayment of convertible notes payable;

 

  o Proceeds of $85,000 from issuance of Private Placement Memorandum Subscription for the Company’s Common stock;
     
  o Proceeds of $294,000 from issuance of Secured Convertible Promissory Note;
     
  o Proceeds from exercise of warrants of $230,000

 

Total current assets of $98,546 and $52,332 as of March 31, 2012 and December 31, 2011, respectively, cash represented all.

 

Proceeds from the issuance of common stock

 

During the three months ended March 31, 2012, the Company received $85,000 from the issuance of Private Placement Memorandum Subscriptions for the sale of its common stock.

 

Proceeds from the issuance of convertible promissory note

 

During the three months ended March 31, 2012, the Company received a net amount of $294,000 from the issuance of Convertible Promissory Note.

 

Cashflow analysis

 

Cash used in operations was $452,786 during the period ended March 31, 2012. During the period ended March 31, 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 trade payables.

 

We did not utilize cash for investing activities.

21
 

 

Cash provided from financing activities was $85,000 from private placement subscription of the Company common stock during the period ended March 31, 2012. In addition, the Company received a net amount of $294,000 from the issuance of Convertible Promissory note and $230,000 from the exercise of warrants. Also, during the three months ended March 31, 2012, the Company repaid $110,000 of previously issued convertible notes.

 

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 from operations of $784,287 for the three month period ended March 31, 2012, accumulated deficit of $3,883,923 and total current liabilities in excess of current assets of $1,278,042 as of March 31, 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.

22
 

 

Number of Employees

 

As of March 31, 2012, 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.  Quantitative 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, 2012, the Company performed an evaluation, under the supervision and with the participation of management, including the Chief 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 ineffective as of the end of the period covered by this report.

 

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.

 

 

 

23
 

 

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, 2012, 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.

  

PART II. OTHER INFORMATION

  

Item 1. Legal Proceedings.

 

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, 2012, the Company has incurred cumulative losses of $3,883,923 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.

 

24
 

 

In their report dated April 2, 2012, our independent auditors stated that our financial statements for the year ended December 31, 2011 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.

 

During the month of January 2012, the Company issued an aggregate of 161,556 shares of common stock for services rendered of $41,467 and 1,050,000 common shares for common stock subscriptions for $105,000.

 

In addition during the month of January 2012, the Company issued 9,000,000 shares for future services of $2,474,100. 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, 2012, the Company recorded $191,878 as stock based compensation.

 

During the month ended February 2012, the Company issued an aggregate of 259,630 shares of common stock for services rendered of $40,590, 400,000 shares of common stock for common stock subscriptions for $40,000 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 month of March 2012, the Company issued an aggregate of 125,545 shares of common stock for services rendered of $21,576.

 

In addition during the month of March 2012, the Company issued 1,400,000 shares of common stock for future services of $254,800. 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, 2012, the Company recorded $33,417 as stock based compensation.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information.

 

None

 

 

25
 

 

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
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  
32.1   Certification of Ronald W. Pickett 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  

 

 

26
 

_______________

  (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, 2011filed with the Securities and Exchange Commission on April 12, 2011 and incorporated herein by reference.

    

 

 

 

27
 

 

 

 

 

 

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

 
       
Date: May 15, 2012 By: /s/ Ronald Pickett  
    Ronald Pickett  
    Chief Executive Officer (Principal Executive Officer) and Principal Accounting and Financial Officer  
       

 

 

 

28

 

XOTC:CWET Quarterly Report 10-Q Filling

XOTC:CWET Stock - Get Quarterly Report SEC Filing of XOTC:CWET stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

XOTC:CWET Quarterly Report 10-Q Filing - 3/31/2012
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