American Wind Energy Corp Review – AWNE is it a shell or not?

Despite the performance of the company upon its aggressive market launch in April/May of 2009, American Wind Energy Corp has had a few good months, but I am sceptical of this companies continued direction at this time. It clearly states that the company has licensed its technology, and therefore, I am unsure of the potential since it has given its primary markets to a company by the name of EWT America Inc as paraphrased below from the most recently filed 10Q:

“On March 5, 2009, the Company sublicensed its license to EWT-Americas Inc., thereby transferring its exclusive intellectual property and know-how rights in relation to the manufacturing and sales of medium capacity wind turbines in the size range of 600kW-1MW to the Canadian, United States, Mexican and related territory markets to EWT-Americas Inc. The Company will be receiving sublicense payments in an amount equal to the sum of (i) 2.5% of sales revenues and (ii) 12.5% of gross profit, not exceeding $28,000,000 in aggregate. The sublicense term is for up to five years, unless the $28,000,000 maximum payment cap is reached, or the agreement is terminated before the five year anniversary. “

In addition, the core assets of contracts are to be transferred to EWT America Inc, including all of its risks and benefits to its Waverly Light and Power (“Waverly”) and Rural Electric Convenience Cooperative Co. (“Rural”) contracts. As such, the Company is committed to transfer the deposits made by these customers of $627,500 and $313,750 by Waverly and Rural, respectively, to EWT-Americas Inc.

EWT-Americas Inc. has assumed the current and estimated future costs incurred on the Confederation Power Inc. (previousely Vector Wind Energy Inc.) (“Confederation”) and Wind Vision LLC (“Windvision”) contracts. At April 30, 2009, total aggregatre costs along with the deposits on the Waverly and Rural contracts owing to EWT were $1,973,079 (herein “debt”). This debt will only be repaid to the extent of up to 25% of the sublicense payments that the Company receives from EWT-Americas Inc. In the case no sublicense payments are received, no part of the debt will be repaid to EWT-Americas Inc.

Also, as part of the agreement, the Company assigned all of its rights, interest and obligations under the license agreement with GE Power Technology LLC (“GEPT”). Such license agreement required the Company to pay GEPT a royalty equal to $32,500 per one megawatt of capacity for each sale of a wind turbine. 

They have a convertible loan of roughly $350,000 shares at $0.32 per share which was not repaid, however, as in all convertible debentures, especially when they are not in the money, often the debenture holder will be reading like I am the filings for some error or omission. I imagine that EWT America Inc doesn’t take this on, its to be paid in the long term returns from the spin-out agreement, which looks like a wopping $28,000,000.

The company makes reference to the EWT America being a wholly owned subsidiary but at the same time defines AWNE as “a company with no operations and a projected revenue stream of up to $28 million over the next 5 years.”

Otherwise, a shell company at this point forward in my opinion, but its not my opinion that is important is it!!! In addition, the two employees, who appear to be the CEO and the Finance Officer have taken agreements with the subsidiary for consulting. One would assume because they have chosen the jurisdiction of Ontario for the transfer of rights and the Netherlands, that there is going to be some kind of “Canadian IPO” and some kind of “European IPO” such as Frankfurt. I would be really surprised if this doesn’t happen, however, they could also be looking to keep it private with the current projects and make payments only upon sales and revenues as projected by the agreement. In effect, the company looks like it has hit a wall with its ability to perform as an OTC company after a grand total of 4 months…. Yes 4 months, and has backed out the assets to try and effect growth within a new vehicle where the consideration back to the company at its current rate is a little over 4 times current share price over 5 years with various small contingency stakes.

If this is in fact a subsidiary that has been created, the company is “still” wind energy focussed to some degree, however, given the light of the spin-out of the companies core assets aside from international market potential, I am uncertain of the companies future as a wind energy company. However, the future of this company is unsure and the current outstanding shares and price, market cap, and foreseeable compensation for the companies assets don’t add up for me to be going into this one in my personal opinion. I would think something like this would drop in price based on the flimsy 5 year guess of potential payments to a maximum of $28,000,000 which may or may not ever happen from a subsidiary of which there is no clear definition of ownership …. No mention of a share for share swap for example. If that where the case, I would say it might be worth looking at, depending on the swap date to the shareholders, but this seems to be an “EXECUTIVE DECISION” to go in this direction. Need I say more… but its in my chart of wind energy companies, thus I shall write my review. However, this is not an undervalued up and comer to the best of my findings.

If anything, if I was a shareholder of the company, I would be a little upset with this decision without a share swap and commitment, its less than par in my opinion.