ITEM 1. BUSINESS.
General Development of Business
Organizational History
Business Development
:
We (
the Company
) were incorporated on August 19, 2008, in the State of Nevada, under the name BCO Hydrocarbon, Ltd., for the purpose of acquiring, exploring, and if warranted and feasible, developing natural resource assets. The Company began its business operations by executing a Farm-in Agreement providing the Company with the right to a 50.0% working interest in two Petroleum and Natural Gas Crown leases in Alberta, Canada. On July 25, 2010 the Company acquired all of the shares of Sauer Energy, Inc., a California corporation, and has since changed its business to that of Sauer Energy, Inc. On September 17, 2010 our majority shareholder and sole director approved a name change which was officially effected on October 15, 2010, when we became Sauer Energy, Inc., (
SEI
) a Nevada corporation.
Prior Operations:
4
The Company operated in the oil and gas industry and maintained a right to operate and a right to explore on two Crown Petroleum and Natural Gas Leases in the Province of Alberta through. The leases were for 640 gross acres or 320 net acres. The Company planned to appoint, Unitech as the operator, but Unitech advised the Company that the commodity price of gas was too low to consider undertaking any exploration activities. Based on that advice, the Company determined not to undertake any exploration activities on the leases until such time as the price of gas improved. We were required under the terms
of our farm-in agreement to expend a total of $25,000 prior to January 10, 2010, however, based on the advice from our proposed operator, we were able to negotiate an extension of that commitment until gas prices should improve sufficiently to make exploration development activities advisable.
After July 25, 2010, we were able to dispose of our interests in these Crown Petroleum Natural Gas Leases without further liability to us. Due to the limited prospects of its proposed oil and gas activities, the Company sought other acquisition activities and these efforts led to the acquisition of Sauer Energy, Inc. on July 25, 2010.
Acquisition of Sauer Energy, Inc. and Related Matters
On July 25, 2010, the Company, Malcolm Albery, its president and sole director (
MA
) and Dieter Sauer, Jr. (
DS
) completed a closing (the
Closing
) under an Agreement and Plan of Reorganization, dated as of June 23, 2010 (the
Agreement
). The Agreement, provided: (a) for the purchase by DS of all of the 39,812,500 shares of the Company owned by MA for $55,200.00; (b) the contribution by DS of all of the shares of Sauer Energy, Inc., a California corporation to the Company; (c) the assignment of certain patent rights related to wind turbine technology held by DS to the Company; and (d) the election of DS to the Company
s board of directors. In connection with the Closing, Mr. Sauer was elected President and CEO of the Company and two former shareholders of the Company agreed to (i) indemnify the Company against any claims resulting from breaches of representations and warranties by the Company in the Agreement; (ii) to acquire and cause to be returned for cancellation an aggregate of 68,067,500 shares of the Company
s common Stock, including all of the shares owned by former officer and director Daniel Brooks and; (3) assume all of the Company
s obligations in connection with certain oil and gas leases in Canada.
Due to his acquisition of 39,812,500 shares in connection with the Closing and the return for cancellation of 68,067,500 shares, upon the consummation of the closing under the Agreement, Dieter Sauer, Jr. owned approximately 51.6% of the Company
s issued and outstanding shares.
When acquired by BCO in 2010, Sauer Energy, Inc., a California corporation, whose business is described more fully below, was a California corporation formed in 2008 engaged in the design, research and development of vertical axis wind turbine (VAWT) systems. Sauer Energy, Inc., a California corporation, has been wound down and dissolved as of August, 2012. The surviving entity is Sauer Energy, Inc., (
SEI
), a Nevada corporation.
Management believes that SEI
s innovative design and utility makes it highly efficient and cost effective to own and operate. The initial product for release will be the WindCutter, which was designed using the Darrieus principle. These turbines have five aerodynamic airfoils, a proprietary axial-flux permanent
5
magnet generator (PMG) and are pole mounted. Our concept was engineered for durability and simplicity of on-sight assembly and installation.
The certification process was completed with ATA Engineering, Inc. (ATA). The WindCutter was designed to International Electrotechnical Commission Small Wind Turbine International Standards (IEC). Proving reliability of the turbine by analysis and testing, it was subjected to a variety of normal operational as well as abnormal event conditions. It has passed the rigorous testing, as expected. We chose to enter the certification process because it would give us the edge over competitors and ensure the performance and quality that our customers deserve. We are in the process of domestic and global marketing efforts and in the process of bringing in sales to fulfillment.
Growing energy demand, limited availability of non-renewable fossil fuels, heightened climate change concerns and volatile oil and gas prices have all contributed to the increased demand for renewable energy by individuals, businesses, government and non-government organizations worldwide.
Sauer Energy is a renewable energy company engaged in the design and manufacture of small wind turbines that generate clean energy to power residential and commercial customers. We promote energy independence through the use of wind power, an abundant, never ending, renewable, emissions-free energy source that can be captured in small and large scale applications.
We are also focused on the development of products and technologies and promote transparency and accountability.
Sauer Energy developed a multi-faceted growth strategy that takes advantage of the company
s relationships with experts in engineering, manufacturing, distribution, marketing and branding. These resources have vast experience in the wind energy sector and they make themselves available to us as independent contractors on an as-needed basis. The key focus factors for the future:
·
To become a revenue and profit based operation
·
Expansion and development of product portfolio
·
A two-tiered sales approach with intensive marketing strategy to targeted customer base.
·
Maintaining a cost-effective approach with each vertical market
·
Expansion from domestic to global markets
·
For SENY stock to move to higher trading platform, e.g. NASDAQ, AMEX, etc.
Proof of Concept
To validate the performance of the WindCutter, Sauer Energy had ATA Engineering, Inc., conduct extensive certification testing and analysis as evidence of its outstanding design, strength, performance and safety. The data gathered has validated the efficiency and viability of the design.
Extruded aluminum blades provide outstanding rigidity as well as better weight distribution and uniformity throughout the blades. The aluminum is anodized for weather resistance and added durability. The aluminum extrusion process has tighter tolerances, better consistency of weight distribution, balance and is extremely cost-effective. It is less expensive in the long run because it has a longer life than composites and also because of its compatibility with the support structure. The WindCutter has achieved maximized performance utility with its proprietary, direct-drive, axial-flux (PMG) that was expressly designed to work in tandem with it.
6
Our design is based on the Darrieus Gyromill or H-rotor, because our airfoils are asymmetrical and they are straight. Five long, vertical blades are attached to the rotor with a horizontal support system. The airfoil blades use the principle of lift to rotate the shaft, much like the wings on an airplane. This motion spreads the torque evenly over the entire revolution. This type of airfoil has very high efficiency in its conversion of wind to energy, due to its ability to manage turbulent winds at rooftop heights and above, giving it a superior advantage. The lift principle differs from the drag principle because it causes the blades to move at a rate much faster than actual wind speed, known as tip speed ratio.
We have a total of three different prototype designs: WindCutter, WindCharger and WindRider. The WindCharger and WindRider are going through different stages of development.
In the past twenty years, turbine designs have changed radically. Management believes that the WindCutter is bird friendly because SEI VAWTs are much smaller, have a much slower rotation, less space between the blades and birds can easily navigate around them.
Business Model
Sauer Energy
s business model is straight-forward as it had substantially planned the major part of the manufacturing functions to be done within its corporate headquarters. The control factor on cost and labor will be to the Company
s advantage. The Company
s vendor manufacturers are ISO 9000 and/or ISO 9001 Certified. SEI will maintain quality control, assembly, testing, shipping and handling as orders flow in.
Corporate Expansion
We are in a production facility, which is significantly larger than the one we occupied initially. In anticipation of the machines we will need for production and the inventory we will have to house, management feels the present building can meet our growing needs.
We are organizing the implementation of marketing campaigns for impending sales. We have received communications from all over the world expressing the enormous need that exists and the desire to purchase our wind turbines.
The WindCutter turbine is our first product release. Management believes that the demand for it will rise sharply because there is not another VAWT in its class that has achieved the certification analysis accreditation yet.
On May 11, 2012, we purchased 100% of the assets of Helix Wind Corporation (
Helix
). This acquisition was made with SENY common shares. There was no liability, obligation or debt incurred in the process. Through the purchase, we enhanced our intellectual property portfolio list with all of Helix
s intellectual property, including issued patents and patents pending, both domestically and internationally. It is our intention to produce the WindRider turbines, the re-engineered Helix turbines, in-house. We believe that our business plan will be strengthened and this union will create long term synergy as one company. They are expected to produce an additional stream of income for SEI. With sales in 17 countries, we have reason to believe Helix
s popularity will not wane. To date, we have received inquiries totaling over $21M for our products, but not all of these inquiries can be expected to result in actual sales.
7
With regard to the WindCharger, although we had previously agreed to outsource the manufacturing process to VEC Technologies, LLC (
VEC
) in Pennsylvania, we discovered that the Pennsylvania VEC plant was shut down, thus negating all plans to outsource the manufacturing process to VEC. Accordingly, we have decided to wait until the WindRider is being distributed and installed before we begin the manufacturing process, marketing and distributing the WindCharger.
Intellectual Property
SEI currently holds what it believes is sufficient intellectual property to protect its proposed operations. SEI regards its patents, proprietary technologies, intellectual property, trademarks, domains and copyrights as essential components to its success and branding.
SEI has been issued a design patent, a utility patent, No 7,798,766, granted September 21, 2010, a design patent, No D638,358, granted May 24, 2011, and a utility patent, No 8,779,616, granted on July 15, 2014, for a vertical axis wind turbine that is designed to be reliable, efficient and inexpensive through the process of which was started before the acquisition. In addition, SEI is in process for several patents pending, domestically and internationally, and trademarks at the present time.
Resulting from the HelixWind asset purchase, SEI, acquired a utility patent, No 7,984,110, granted May 24, 2011, a utility plus a utility patent, No 8,084,881, granted December 27, 2011, and a utility patent, No 8,779,616, granted on July 15, 2014, for a vertical axis wind turbine that is designed to be pole mounted, and SEI is continuing the patent process on behalf of the Helix design for several domestic and international patents.
Current Operations and Development Plan
Despite having no revenues since inception, Sauer Energy has differentiated itself from other entities in small wind because of the following:
a.
Rather than incurring the cost of full-time employees, we have forged relationships with like-minded and devoted independent contractors who are experts in the small wind sector and are available to help us on a consulting basis;
b.
Ownership of technology many others buy foreign-made units for resale;
c.
The technology itself is set apart by high-efficiency design features;
d.
Our engineering consultants have a deep technical understanding of small wind technologies and applications due to years as experts in the small wind sector;
e.
High quality outsourced manufacturing that is done by companies that are ISO 9000 compliant;
f.
Strong distribution network now being assembled;
g.
Commitment to customers and shareholders;
h.
Unwavering focus on business fundamentals.
Our intended market
Sauer Energy aims to deliver simple, reliable and cost-effective solutions for residential and commercial customers, particularly for locations with very low or very high wind speeds. Applications range from industrial to residential. Placement, aesthetics, adaptability and portability will dictate which units are appropriate and most efficient for use in different situations. SEI will continue to develop and expand its pipeline with new research and development and collaborative efforts.
8
Current Plans
The main focus for SEI is generating revenues. SEI plans to become a self-sustaining entity. The availability of funding from revenues is expected to enable SEI to develop its other products for release.
The launching of its WindCutter has begun. We have received many inquiries for the WindCutter both domestically and internationally for residential and commercial applications. Energy independence is becoming an integral ingredient being woven into the global future. Our sales and marketing campaign is being implemented at this time. The branding and advertising campaign is also being developed.
We still have the WindCharger and WindRider in our future. We must first ensure the availability of both WindCharger and WindRider turbines. With regard to the WindCharger, due to the closing of VEC Technologies, Inc., we are moving ahead with the WindCutter until such time as another manufacturer has been located and vetted. Potential orders were received via website. SEI plans to work diligently toward testing, verifying, enhancing the performance of and developing the expertise to produce these units domestically.
There are also future plans for the creation of other energy solution products. Sauer Energy is addressing some small wind solutions for very specific applications and is already involved in testing for redundant backup power for both on-grid and off-grid applications for cell phone towers.
Residential
Some of our small VAWT Systems are being designed to be customized to fit almost any building. We foresee our systems being used in residences as back-up power for black outs, to reduce power grid consumption and for generation of power to be inserted into the grid for revenue.
Our End-of-the-line turbine system is a micro power station attached to a number of homes and to the power grid. Several advantages are: maintenance of normal services, no power loss due to impurities in transmission and the excess power can be re-injected into the grid.
Commercial Applications
Due to their height, large commercial buildings may be especially suitable for turbine application as they are likely to have relatively steady winds at their roofs and their vertical walls cause the wind to sweep up and over the tops of the buildings.
SEI entered its WindCharger into a pilot test program headed by an industry leader in communication technology. The proposed use of the turbines was on cell phone towers as backup power. The feedback was positive.
It is our intention to design custom proprietary mounting hardware to the commercial market for adaptation to the structure and architecture of existing buildings.
Industrial Applications
9
The WindCutter will contribute to allowing the industrial sector to satisfy the need for consumption. Furthermore, due to our simplicity of design, they can be manufactured on a large scale in fabrication factories throughout the world.
Oil Rigs and Off-Shore Platforms
Many off-shore locations receive relatively steady reliable winds and our systems could produce a substantial supply of energy, reducing the need for hydrocarbon based electrical generation. Our systems could allow for auxiliary and emergency power needs in addition to maintaining daily functions.
Ships
Ships create an optimum use for our turbine systems. While travelling over water, ships are also powering through the air, thus creating a reliable and steady supply of wind. Turbines could be mounted throughout a ship
s superstructure to produce continuous supplementary energy to offset fuel consumption or for emergency use. Various candidates include tankers, cruise ships, cargo ships and military vessels. For example, Helix turbines can be seen in San Francisco on a ferry that travels to Alcatraz.
Islands and Other Remote Facilities
Many islands are extremely dependent upon fuel feed generators and importation of the fuel can be costly and generate emissions. Our systems are ideal for islands and other remote facilities as they are being designed to withstand various climates. The advantages are many: flexibility in various locations, ease of installation, strength and durability, virtually no maintenance and their ability to withstand harsh climates.
Communications Towers and Bridges
Various towers and bridges are subject to Federal Aviation Authority requirements to provide 24/7, 365 days per year illumination. Our systems can easily be installed on any tower or bridge. They can operate the tower or bridge lights and/or provide a backup power supply while potentially generating revenue if connected to the power grid.
Lighting billboard signage is an ideal use for deriving backup or primary power from our turbines.
Funding
After acquiring BCO Hydrocarbon, SEI has raised approximately $2.4M. These funds have been used for research and development of the WindCharger. Dieter Sauer, CEO and President of SEI, holds all of the shares that he received at the outset of the BCO and Sauer acquisition and continues to be committed to this project.
Management secured an Equity Purchase Agreement for up to $3 million from Beaufort Capital Partners, LLC and through October 12, 2015, had availed itself of $516,520 under this agreement. We were not able to avail ourselves of further funds under this Equity Purchase Agreement after October 31, 2015.
10
On December 21, 2015, management secured an Equity Purchase Agreement for up to $3 million from Beaufort Capital Partners, LLC and through June 27, 2016, all the registered shares were sold and the Company had availed itself of $393,610.
Management secured an Equity Purchase Agreement for up to $3 million from Beaufort Capital Partners, LLC on July 1, 2016, and through November 16, 2016, has availed itself of $262,500 under this agreement.
Management secured an Equity Purchase Agreement for up to $3 million from East Six Opportunity Fund, LLC on May 9, 2017, and through December 14, 2017, has availed itself of $420,000 under this agreement.
Management can give no assurance that any additional capital will be raised or that SEI
s VAWT
s will be successfully marketed or that, if marketed, they can be marketed profitably.
Future Projections
There are several ideas on the drawing board at Sauer Energy. The time frame within which they are completed will depend upon the availability of funding for such. A few are mentioned herein:
·
SEI has future plans to make the purchase of renewable energy more accessible to consumers in the current economic climate by offering third-party financing options. In SEI
’
s opinion, this will expand the customer base considerably and create a significant advantage.
·
SEI plans to offer an around-the-clock monitoring and data collecting system so that customers can access the actual renewable energy output from their particular turbine.
·
SEI has plans for automobile solutions that will enhance the performance of electric vehicles by creating electricity as they are driven.
·
SEI plans to make compatible batteries available for the turbine systems for off-grid rural applications, such as water pumping, irrigation, purification and delivery for drinking and/or general use.
·
SEI plans to further develop its emergency backup cart that provides electricity to charge batteries and for use in communication, lights, medical equipment, etc. Turbine technology was designed for immediate use, the cart can be a welcome addition to the military and to FEMA for emergency and routine use.
·
While our initial turbine designs are smaller scale, we may design large VAWT Systems in the future that can be placed off-shore along a coastal environment to catch on and off shore wind. The principles of our VAWT Systems could be used underwater to take advantage of tidal flows in the ocean, streams and rivers.
In addition to the aforementioned applications, there are several emerging markets for small wind solutions that SEI is pursuing as it continues to diversify and broaden its product portfolio. For example,
11
oil and gas producers have become motivated to adopt renewable energy and we plan to address the need for redundant backup power for pumping at remote well head locations.
Small Wind Turbine Industry Overview
Although wind is the largest source of renewable power in the USA, at 5.5%, according to the American Wind Energy Association (AWEA), management believes that wind has barely begun to penetrate its renewable energy market potential. The percentage of global electricity supplied by wind power is 3.7%, with 341,320 wind turbines spinning around the world at the end of 2016. AWEA also reports that Wind surpassed hydropower dams to become the largest source of renewable electric capacity in the U.S., and the fourth largest overall. Further, wind energy in the U.S. powers over 25 million homes.
American wind power is now the #1 source of renewable capacity, thanks to more than 100,000 wind workers across all 50 states, said Tom Kiernan, AWEA CEO, in their February 9, 2017, press release. Growing this made-in-the-USA clean energy resource helps rural communities pay for new roads, bridges, and schools, while bringing back manufacturing jobs to the Rust Belt. With our two-thirds cost reduction over the last seven years, household brands like General Motors, Walmart, and more are buying low-cost wind energy to cut costs and power their businesses. American wind power is on track to double our output over the next five years, and supply 10 percent of U.S. electricity by 2020.
The Global Wind Energy Council (GWEC) reports in its publication,
Global Wind Report: Annual Market Update
that in 2016, installed global capacity, including large wind, was more than 55.6 GW. Wind power also avoided over 637 million tonnes of CO2 emissions globally. There were 52,343 turbines in the U.S. at the end of 2016. The record-setting figure represents a 41% increase for 2016.
According to the Department of Energy,
Distributed Wind Market Report
of 2016
,
the number of small wind manufacturers has also contracted. A total of 31 companies reported U.S. revenues in 2012 compared to 16 in 2013, 11 in 2014, and 10 in 2015.
SEI has entered into a strategic alliance with North Wind Power, Inc. (NW), a Canadian corporation located in Newfoundland and Labrador, in eastern Canada. NW has chosen the WindCutter as their primary solution for bringing off-grid power to the Aboriginal communities first, to work in extreme weather conditions and to lower the carbon footprint of diesel in Canada. Negotiations are progressing and management feels that an agreement is in the near future.
Governmental Regulation
There are no Federal-level regulations that specifically control the sale, distribution and installation of small wind turbines beyond general small business regulations. However, each state regulates the sale, installation and interconnection of alternative energy within their state. Utilities are required to interconnect and purchase renewable energy from small wind systems under the Public Utility Regulatory Policies Act of 1978 (
PURPA
), and individual utilities are permitted to regulate that process.
Rebates and incentives are offered by most states, some by utility companies and some are state and/or federal rebates or tax credits. Although net-metering is not mandatory, it can
assist states in meeting their renewable portfolio standards (RPS) or targets.
Property owners are also able to depreciate their units.
12
Local zoning laws and regulations may impose special requirements on the installation of our turbines now or in the future, but we are not aware of any specific regulations.
Competition
SEI has the only turbine in its class to do certification testing and pass. The WindCutter was rigorously tested by ATA Engineering, Inc., and it effectively completed the thorough mechanical engineering review. It successfully met all the criteria per the International Electrotechnical Committee (IEC) Standard IEC 61400-2 for "Small Wind Turbines." It was verified by their high-accuracy engineering analysis to Small Wind Turbine Class 3, which includes sustained 50-year extreme winds of up to 117 mph, as well as worst case gusts stipulated by IEC.
We compete with all energy suppliers, including utilities and manufacturers of energy producing equipment. We are aware of 10 other U.S. small wind turbine companies reporting revenues. A
few have longer operating histories or greater name recognition such as
Xzeres Corporation, Windside Production Ltd., Windstream Technololgies, and Royall Power. Companies in other countries also produce small wind turbines. We also compete with solar-thermal and solar-photovoltaics systems. However, solar power installations are significantly more expensive than our VAWT Systems and we also feel that our turbine systems are a great complement to those who already employ solar systems, as they can work 24 hours and produce electricity at times when solar is ineffective.
Wind is now the largest producer of renewable electricity in the U.S. at 5.5% of overall capacity. In 2016, 1,115,000 jobs were created globally, with over 102,000 of them in the U.S alone. In third quarter, 2017, U.S. installations were over 8,400 MW, according to AWEA. The industry continues to grow.
For the past nine years, the U.S. has emphasized the need for greater energy efficiency and a more diversified energy portfolio. This led to a collaborative effort involving the Department of Energy, National Renewable Energy Laboratories and others to explore a modeled energy scenario in which wind provides 20% of U.S. electricity by 2030 has been endorsed by the American Wind Energy Association and has become our national goal as well. Currently, we are at 5.5% for wind alone.
Management believes we have the competitive advantage of offering the right product at the right time.
Research and Development
We have focused our research and development on the quality and efficiency of our wind turbine systems. Extensive technical development has been completed and is ongoing. We are targeting our market for sales expansion. Future research and development will be focusing on scaling up our turbine systems for service to larger buildings, like apartment complexes, hospitals and office buildings. We spent approximately $352,000 on research and development in fiscal 2017, and $215,000 in fiscal 2016. Our primary focus now will be on manufacturing, however, we plan to continue research and development. We do not anticipate that our research and development expenditures will continue to rise in the current year if we are able to secure financing so that we have the resources to begin manufacturing.
We have conducted testing at the local airport in real life wind scenarios. This includes on-grid, off-grid and compatibility of electronics with specific load controls. Results have been analyzed in collaboration with wind industry experts and these are factual net test results. What that means is that our design mirrors the design expectations necessary for certification.
13
In the year ended August 31, 2011, we conducted third party testing at the University of Washington Aeronautical Laboratory, a testing organization under the University's Department of Aeronautics and Astronautics. The primary aerodynamic testing facility is the F. K. Kirsten Wind Tunnel. We have done our third-party wind tunnel testing at their facility in the past and look forward to utilizing their facility for continued research and development testing.
Manufacturing
Our facility in Oxnard, California, is well suited for our manufacturing needs. Our headquarters is 26,550 square feet, which is about two and a half times larger than the last facility. Administration, distribution, research and development, prototyping, testing, inventory and light manufacturing is able to be done under one roof. Management is optimistic that this facility is adequate for all the necessary operations. Its location is ideal for international shipping needs as well.
We have begun commercial assembly of turbines. We do not plan to manufacture certain components of our wind turbine systems ourselves and we are outsourcing them. Based upon our preliminary review, we anticipate those components will be available from other sources at reasonable prices.
With regard to the WindCharger, although we had previously agreed to outsource the manufacturing process to VEC Technologies, LLC (
VEC
) in Pennsylvania, we discovered in August, 2014, that the Pennsylvania VEC plant was being shutdown, thus negating all plans to outsource the manufacturing process to VEC. Accordingly, we have decided to wait until the WindCutter turbines are being distributed extensively before we begin the manufacturing process, marketing and distributing the WindCharger.
Employees
As of August 31, 2017, we had 14 independent contractors. We retain a limited number of independent contractors to perform projects on an
as needed basis
. Due to our preliminary early phase operations we have not engaged employees to date, but as we enter the manufacturing stage we anticipate that we will hire employees. We believe our relationships with our current independent contractors are good. To implement our business strategy, we expect, over time, continued growth in our independent contractor and infrastructure requirements, particularly as we expand our engineering, sales and marketing capacities going forward. As the Company begins to record adequate revenues, we will be restructuring and our officers will become employees of the Company.
Company Philosophy
We strive to embrace, support and enact, within our sphere of influence, a set of core values that define us.
Our Duty to Ourselves
With honesty and integrity at the heart of us as individuals and as a company, our sincerity will be evident.
Our Duty to Each Other
14
Working as a team with fairness and respect for each other and for our company as a whole will always produce a winning combination.
Our Duty to Our Shareholders
Our Shareholders are partnering alongside us and placing their faith in us. They share our expectations and vision for growth and diligent use of their investment in us and in our company.
Our Duty to
Our Consumers
This business revolves around the Consumers, not the other way around. We must live up to their trust in the quality, value, effectiveness, reliability, and safety of our products, and also in the integrity of what we say and do.
Our Duty to
Our Vendors
The list of those with whom we choose to do business is based on clarity, honesty, reliability, accountability and trust. Only then, will our product maintain the standards we have set for quality and dependability our consumers can expect.
Our Duty to
Our Dealers and Distributors
These individuals represent our products and our company and deserve all the assistance we can give them. Their reliance on our honest representations regarding our products and our company sits at the center of our relationship with them.
Our Duty to
Our Community, Our Nation, and Our World
Our commitment to the environment is paramount. We strive to create products that are least invasive in their output to the atmosphere, at less cost, with the smallest possible carbon footprint.
Management believes that the foregoing commitments will not only enhance the spheres in which we operate but will also result in returns to our investors.
Item 1A. Risk Factors.
This report includes forward-looking statements about our business and results of operations that are subject to risks and uncertainties. See "Forward-Looking Statements," above. Factors that could cause or contribute to such differences include those discussed below. In addition to the risk factors discussed below, we are also subject to additional risks and uncertainties not presently known to us or that we currently deem immaterial. If any of these known or unknown risks or uncertainties actually occur, our business could be harmed substantially.
Risks Related To Our Financial Condition and Our Business
SEI is in startup stage, has never realized any revenue and has a history of losses. If we continue incurring losses and fail to achieve profitability, we may have to cease our operations. Unless we bring our products to market and realize revenues from their sale, shareholders are likely to lose their entire investment.
15
We do not have sufficient cash on hand.
As at August 31, 2017, we had $1,952 cash on hand. These cash resources are not sufficient for us to execute our business plan. If we do not generate sufficient cash from our intended financing activities and sales, we will be unable to continue our operations. We estimate that within the next 12 months we will need $7,000,000 in cash from either investors or operations. While we intend to engage in several equity or debt financings there is no assurance that these will actually occur. Nor can we assure our shareholders that we will not be required to obtain additional financing on terms that are dilutive of their interests.
On February 27, 2015, we entered into an Equity Purchase Agreement with Beaufort Capital Partners, LLC. On March 17, 2015 we filed an S-1 Registration Statement which the SEC deemed effective on April 27, 2015. To date we have received $516,020 under the Equity Purchase Agreement. This agreement has expired.
On December 21, 2015, we entered into an Equity Purchase Agreement with Beaufort Capital Partners, LLC. On January 5, 2016, we filed an S-1 Registration Statement which the SEC deemed effective on February 17, 2016. We received a total of $393,610 under the Equity Purchase Agreement. This agreement has expired.
On July 1, 2016, we entered into an Equity Purchase Agreement with Beaufort Capital Partners, LLC. On July 15, 2016, we filed an S-1 Registration Statement which the SEC deemed effective on September 8, 2016. Therefore, as of August 31, 2016, we had not received any funds under the Equity Purchase Agreement. As of November 16, 2016, we have received $262,500 under the Equity Purchase Agreement. This agreement has expired.
On May 9, 2017, we entered into an Equity Purchase Agreement with East Six Opportunity Fund, LLC. On May 17, 2017, we filed an S-1 Registration Statement which the SEC deemed effective on June 5, 2017. Therefore, as of August 31, 2017, we had received $210,000 under the Equity Purchase Agreement. As of December 14, 2017, we have received $420,000 under the Equity Purchase Agreement.
We recognize that if we are unable to generate sufficient revenues or obtain debt or equity financing, we will not be able to earn profits, which raises substantial doubt as to the Companys ability to continue as a going concern.
We did not conduct any offerings of our common stock, under regulation D during fiscal 2017.
If we are unable to continue to retain the services of Dieter Sauer, Jr., or if we are unable to successfully recruit qualified managerial and company personnel having experience in the small wind turbine industry, we may not be able to continue operations.
Our success depends to a significant extent upon the continued services of Dieter Sauer, Jr. our CEO and President. The loss of the services of Mr. Sauer could have a material adverse effect on our growth, revenues, and prospective business. Mr. Sauer will enter into an employment agreement with us requiring
16
him to devote substantially all of his time to us. We do not have a
key person
life insurance policy on Mr. Sauer. Additionally, there are a limited number of qualified technical personnel with significant experience in the design, development, manufacture, and sale of our wind turbines, and we may face challenges hiring and retaining these types of employees.
In order to successfully implement and manage our business plan, we will be dependent upon, among other things, successfully recruiting qualified managerial and company personnel having experience in the small wind turbine business. Competition for qualified individuals is intense. There can be no assurance that we will be able to find, attract and retain existing employees or that we will be able to find, attract and retain qualified personnel on acceptable terms.
If we are unable to successfully achieve broad market acceptance of our systems, we may not be able to generate enough revenues in the future to achieve or sustain profitability.
We are dependent on the successful commercialization of our systems. The market for small wind turbines is gaining momentum. The market for our systems is proven. The technology may not gain adequate commercial acceptance or success for our business plan to succeed. However, this was why we put the WindCutter through the certification analysis and testing. It is the first in its class to have achieved certification accreditation.
If we cannot establish and maintain relationships with distributors, we may not be able to increase revenues.
In order to increase our revenues and successfully commercialize our systems, we must establish and maintain relationships with various third party distributors. We currently do not have any signed distribution agreements.
If we cannot assemble a large number of our systems, we may not meet anticipated market demand or we may not meet our product commercialization schedule.
To be successful, we will have to assemble our systems in large quantities at acceptable costs while preserving high product quality and reliability. If we cannot maintain high product quality on a large scale, our business will be adversely affected. We may encounter difficulties in scaling up production of our systems, including problems with the supply of key components. Even if we are successful in developing our assembly capability, we do not know whether we will do so in time to meet our product commercialization schedule or satisfy the requirements of our customers. In addition, product enhancements need to be implemented to various components of the platform to provide better overall quality and uptime in high wind regimes. The implementation of the enhancements to our system may also delay significant production by requiring additional manufacturing changes and technical support to facilitate the manufacturing process.
If we experience quality control problems or supplier shortages from component suppliers, our revenues and profit margins may suffer.
We do not plan to manufacture certain components of our wind turbine systems ourselves and plan to outsource those. Our dependence on third-party suppliers for components of our turbine systems involves several risks, including limited control over pricing, availability of materials, quality and delivery schedules. Any quality control problems or interruptions in supply with respect to one or more
17
components or increases in component costs could materially adversely affect our customer relationships, revenues and profit margins.
Technological advances could render our VAWT products uncompetitive.
While management believes that our current and proposed designs are sufficiently advanced to be commercially successful, we cannot assure you that any competitor will not design a superior product with which we cannot compete or that other energy production sources may not in the future prove superior to wind power generation. Those events could substantially harm our operations.
Any future international expansion will subject us to risks associated with international operations that could increase our costs and decrease our profit margins.
International operations are subject to several inherent risks that could increase our costs and decrease our profit margins including:
|
|
·
|
changes in foreign currency exchange rates;
|
·
|
changes in a specific country
s economic conditions;
|
·
|
trade protective measures and import or export requirements or other restrictive actions by foreign governments; and,
|
·
|
changes in tax laws.
|
If we determine to seek sales or contract for manufacturing outside the United States, we will be subject to these risks. However, we plan to be in a strong financial position before we would attempt to do so.
If we cannot effectively manage our internal growth, our business prospects, revenues and profit margins may suffer.
If we fail to effectively manage our internal growth in a manner that minimizes strains on our resources, we could experience disruptions in our operations and ultimately be unable to generate revenues or profits. We expect that we will need to significantly expand our operations to successfully implement our business strategy. As we add marketing, sales and build our infrastructure, we expect that our operating expenses and capital requirements will increase. To effectively manage our growth, we must continue to expend funds to improve our operational, financial and management controls, and our reporting systems and procedures. In addition, we must effectively expand, train and manage our independent contractor base. If we fail in our efforts to manage our internal growth, our prospects, revenue and profit margins may suffer.
Our technology competes against other small wind turbine technologies. Competition in our market may result in pricing pressures, reduced margins or the inability of our systems to achieve market acceptance.
We compete against several companies seeking to address the small wind turbine market. We may be unable to compete successfully against our current and potential competitors, which may result in price reductions, reduced margins and the inability to achieve market acceptance. The current level of market penetration for small wind turbines is relatively low and as the market increases, we expect competition to grow significantly. Our competition may have significantly more capital than we do and as a result, they
18
may be able to devote greater resources to take advantage of acquisition or other opportunities more readily.
Our inability to protect our patents and proprietary rights in the United States and foreign countries could materially adversely affect our business prospects and competitive position.
Our wind turbine designs are protected by patents. However, the grant of a patent does not ensure against the possibility that our patent will not be found to infringe upon patents or other intellectual property rights held by others, nor does the grant of a patent ensure that the patent will provide meaningful protection against potential or actual infringers by others.
If we encounter unforeseen problems with our current technology offering, it may inhibit our sales and early adoption of our product.
We are in the process of setting a certification standard through extensive computer fluid dynamic testing and actual field testing to curb anomalies related to manufacturing as we finalize our process. We do not anticipate negative results based on our preliminary results. We have perfected our design prior to going into mass production.
We are a technology development company and are in a production phase where we may encounter difficulties that we did not anticipate. Unforeseen problems relating to manufacture of the units or their operating effectively in the field could have a negative impact on adoption, future shipments and our operating results.
We are to establish and maintain required disclosure controls and procedures and internal controls over financial reporting and to meet the public reporting and the financial requirements for our business.
Our management has a legal and fiduciary duty to establish and maintain disclosure controls and control procedures in compliance with the securities laws, including the requirements mandated by the Sarbanes-Oxley Act of 2002. The standards that must be met for management to assess the internal control over financial reporting as effective are new and complex, and require significant documentation, testing and possible remediation to meet the detailed standards. Because we have limited resources, we may encounter problems or delays in completing activities necessary to make an assessment of our internal control over financial reporting, and disclosure controls and procedures. In addition, the attestation process by our independent registered public accounting firm is new and we may encounter problems or delays in completing the implementation of any requested improvements and receiving an attestation of our assessment by our independent registered public accounting firm. If we cannot assess our internal control over financial reporting as effective or provide adequate disclosure controls or implement sufficient control procedures, or our independent registered public accounting firm is not expressly reporting on our internal controls and the lack of such report on such assessment, may cause investor confidence and share value may be negatively impacted. We currently do not have a sufficient number of management and independent contractors to establish adequate controls and procedures.
Control by Management
As of August 31, 2017, Dieter Sauer, Jr., our CEO and director, owns 49,812,500 shares or 18% of our 351,229,209 issued and outstanding shares of common stock. No other shareholder owns more than 5%
19
with substantial interests or directorship of the company. All of our officers and directors as a group control 62,852,500 shares or 23%.
Risks Related to Common Stock
The large number of shares eligible for immediate and future sales may depress the price of our stock.
As of August 31, 2017, we had 351,229,209 shares of common stock outstanding, 185,693,772 shares are free trading
and may serve to overhang the market and depress the price of our common stock.
23,000,000 shares were originally registered in the Beaufort S-1 of and we issued 16,231,584 over 8 Puts as of August 31, 2015. In the Sauer v. St George settlement, 5,000,000 shares were issued as free trading. Payments to St George for a note were converted and 11,891,270 shares were issued as free trading. Therefore, 13,052,392 shares are available for sale under Rule 144.
38,000,000 were originally registered in the Beaufort S-1 filed on January 5, 2016, and we issued 37,999,956 shares over 13 Puts as of August 31, 2016.
55,700,000 shares were originally registered in the Beaufort S-1 of July 15, 2016. As of August 31, 2016, we had not issued any shares; as of November 21, 2017, we issued 20,867,229 over 8 Puts under the Equity Purchase Agreement. Therefore, 21,236,041 shares are available for sale under Rule 144.
Additional financings may dilute the holdings of our current shareholders.
In order to provide capital for the operation of the business, we may enter into additional financing arrangements. These arrangements may involve the issuance of new shares of common stock or debt securities that are convertible into common stock or warrants for the purchase of common stock. Any of these items could result in a material increase in the number of shares of common stock outstanding, which would in turn result in a dilution of the ownership interests of existing common shareholders. In addition, these new securities could contain provisions, such as priorities on distributions and voting rights, which could affect the value of our existing common stock.
There is currently a limited public market for our common stock. Failure to develop or maintain a trading market could negatively affect its value and make it difficult or impossible for you to sell your shares.
Our common stock trades on the OTCQB under the Symbol SENY. There has been a limited public market for our common stock and an active public market for our common stock may not develop. Failure to develop or maintain an active trading market could make it difficult for you to sell your shares or recover any part of your investment in us. Even if a market for our common stock does develop, the market price of our common stock may be highly volatile. In addition to the uncertainties relating to future operating performance and the profitability of operations, factors such as variations in interim financial results or various, as yet unpredictable, factors, many of which are beyond our control, may have a negative effect on the market price of our common stock.
Penny Stock
rules may make buying or selling our common stock difficult.
Limitations upon Broker-Dealers Effecting Transactions in "Penny Stocks"
20
Trading in our common stock is subject to material limitations as a consequence of regulations which limit the activities of broker-dealers effecting transactions in "penny stocks." Pursuant to Rule 3a51-1 under the Exchange Act, our common stock is a "penny stock" because it (i) is not listed on any national securities exchange or The NASDAQ Stock Market, (ii) has a market price of less than $5.00 per share, and (iii) its issuer (the Company) has net tangible assets less than $2,000,000 (if the issuer has been in business for at least three (3) years) or $5,000,000 (if the issuer has been in business for less than three (3) years).
Rule 15g-9 promulgated under the Exchange Act imposes limitations upon trading activities on "penny stocks", which makes selling our common stock more difficult compared to selling securities which are not "penny stocks." Rule 15a-9 restricts the solicitation of sales of "penny stocks" by broker-dealers unless the broker first (i) obtains from the purchaser information concerning his financial situation, investment experience and investment objectives, (ii) reasonably determines that the purchaser has sufficient knowledge and experience in financial matters that the person is capable of evaluating the risks of investing in "penny stocks", and (iii) delivers and receives back from the purchaser a manually signed written statement acknowledging the purchaser's investment experience and financial sophistication.
Rules 15g-2 through 15g-6 promulgated under the Exchange Act require broker-dealers who engage in transactions in "penny stocks" first to provide their customers with a series of disclosures and documents, including (i) a standardized risk disclosure document identifying the risks inherent in investing in "penny stocks", (ii) all compensation received by the broker-dealer in connection with the transaction, (iii) current quotation prices and other relevant market data, and (iv) monthly account statements reflecting the fair market value of the securities.
There can be no assurance that any broker-dealer which initiates quotations for the Common Stock will continue to do so, and the loss of any such broker-dealer likely would have a material adverse effect on the market price of our common stock.
Shares Eligible for Future Sale
Of our 351,229,209 issued and outstanding shares, 185,693,772 are currently free trading. In addition, we believe that approximately 87,739,892 shares are currently restricted but are presently eligible or become eligible to become free trading under Rule 144 under the Securities Act of 1933, as amended, in the next six months. In addition, each of our officers, directors or affiliates, who own an aggregate of 62,852,500 shares may sell 1% of the Companys outstanding shares (approximately 3,512,292 shares) every three months under Rule 144.
No Dividends
We never have paid any dividends on our common stock and we do not intend to pay any dividends in the foreseeable future.
.