UNITED
STATES

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 May 31, 2011                                            
|          |                                                                                            
|[
      ] | Transition
    Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934       
|          |                                                                                            
|          | For
    the transition period from __________ to__________                                 
|          |                                                                                            
|          | Commission
    File Number: 333-91191                                                      



XZERES
Corp.

(Exact
name of registrant as specified in its charter)



|Nevada                                                             | 74-2329327                           
|------------------------------------------------------------------ | -------------------------------------
|(State
    or other jurisdiction of incorporation or organization) | (IRS
    Employer Identification No.)



|9025
    SW Hillman Court, Suite 3126 Wilsonville, OR 97070
|-----------------------------------------------------------
|(Address
    of principal executive offices)               



|503-388-7350                                                                          
|--------------------------------------------------------------------------------------
|(Registrant’s
    telephone number)                                                   
|_________________________________________________________________                     
|(Former
    name, former address and former fiscal year, if changed since last report)



Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 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 [ X] Yes [ ] No



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 [ ] No



Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company.



|[
    ] Large accelerated filer Accelerated filer | [
    ] Non-accelerated filer
|------------------------------------------------- | -----------------------------
|[X]
    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 [X] No



Indicate
the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 19,103,708
shares as of July 14, 2011




Table of Contents




|                                       | TABLE
                                                                      OF CONTENTS   |     
|-------------------------------------- | ----------------------------------------------------------------------------------------- | ----
|                                       |                                                                                           | Page
|PART
        I – FINANCIAL INFORMATION
|Item 1:                                | Financial
    Statements                                                                  | 3   
|Item 2:                                | Management’s
    Discussion and Analysis of Financial Condition and Results of Operations | 4   
|Item 3:                                | Quantitative
    and Qualitative Disclosures About Market Risk                            | 7   
|Item 4:                                | Controls
    and Procedures                                                               | 7   
|PART
        II – OTHER INFORMATION   
|Item 1:                                | Legal
    Proceedings                                                                     | 8   
|Item 2:                                | Unregistered
    Sales of Equity Securities and Use of Proceeds                           | 8   
|Item 5:                                | Other
    Information                                                                     | 8   
|Item 6:                                | Exhibits                                                                                  | 8   

2


Table of Contents


PART
I - FINANCIAL INFORMATION



Item
1. Financial Statements



|Our
    financial statements included in this Form 10-Q are as follows:
|-----------------------------------------------------------------------
|                                                                       
|F-1                                                                    
|F-2                                                                    
|F-3                                                                    
|F-4                                                                    
|F-5                                                                    



These
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America
for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. Operating results for the interim period ended May 31, 2011 are not necessarily
indicative of the results that can be expected for the full year.

3


Table of Contents




XZERES
CORP.

(FORMERLY
XZERES WIND CORP)

CONSOLIDATED
BALANCE SHEETS (UNAUDITED)

AS
OF MAY 31, 2011 AND FEBRUARY 28, 2011







|ASSETS                                                              | May 31, 2011 |            | February 28, 2011
|------------------------------------------------------------------- | ------------ | ---------- | -----------------
|Current Assets                                                      |              |            |                  
|Cash and cash equivalents                                           | $            | 283,842    |                  
|Subscription receivable                                             |              | 650,000    |                  
|Accounts receivable                                                 |              | 1,279,475  |                  
|Inventories                                                         |              | 803,172    |                  
|Inventory deposit                                                   |              | 40,066     |                  
|Prepaid expenses                                                    |              | 121,034    |                  
|Total Current Assets                                                |              | 3,177,589  |                  
|                                                                    |              |            |                  
|Property and Equipment, net                                         |              | 376,449    |                  
|                                                                    |              |            |                  
|Other Assets                                                        |              |            |                  
|Intellectual property                                               |              | 1,603,082  |                  
|Website development costs, net                                      |              | 16,469     |                  
|Deposit                                                             |              | 18,198     |                  
|Total Other Assets                                                  |              | 1,637,749  |                  
|                                                                    |              |            |                  
|TOTAL ASSETS                                                        | $            | 5,191,787  |                  
|                                                                    |              |            |                  
|LIABILITIES AND STOCKHOLDERS’ EQUITY                                |              |            |                  
|LIABILITIES                                                         |              |            |                  
|Current Liabilities                                                 |              |            |                  
|Accounts payable                                                    | $            | 915,663    |                  
|Accrued expenses                                                    |              | 73,051     |                  
|Customer deposits                                                   |              | 42,685     |                  
|Warranty reserve                                                    |              | 27,643     |                  
|Notes Payable – related party                                       |              | —          |                  
|Notes Payable                                                       |              | —          |                  
|Total Liabilities                                                   |              | 1,059,042  |                  
|                                                                    |              |            |                  
|STOCKHOLDERS’ EQUITY                                                |              |            |                  
|Preferred stock, par $0.01, 5,000,000 shares authorized, no shares  |              |            |                  
|issued and outstanding                                              |              | 0          |                  
|Common stock, par $0.001, 100,000,000 shares authorized, 18,965,167 |              |            |                  
|and 15,382,816 shares issued and outstanding, respectively          |              | 18,965     |                  
|Stock warrants                                                      |              | 2,566,144  |                  
|Additional paid in capital                                          |              | 8,921,626  |                  
|Accumulated deficit                                                 |              | (7,373,990 | )                
|Total Stockholders’ Equity                                          |              | 4,132,745  |                  
|                                                                    |              |            |                  
|TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                          | $            | 5,191,787  |                  





The
accompanying notes are an integral part of the financial statements.

F-1


Table of Contents


XZERES
CORP.

(FORMERLY
XZERES WIND CORP)

CONSOLIDATED
STATEMENTS OF OPERATIONS (UNAUDITED)

FOR
THE THREE MONTHS ENDED MAY 31, 2011 AND 2010



|                                              | Three Months Ended
|--------------------------------------------- | ------------------
|                                              | May 31, 2011      
|                                              |                   
|GROSS REVENUES                                | $                 
|                                              |                   
|COST OF GOODS SOLD                            |                   
|                                              |                   
|GROSS PROFIT                                  |                   
|                                              |                   
|OPERATING EXPENSES                            |                   
|General and administrative expenses           |                   
|Marketing                                     |                   
|Sales expense                                 |                   
|Engineering/R&D expense                       |                   
|TOTAL OPERATING EXPENSES                      |                   
|                                              |                   
|LOSS FROM OPERATIONS                          |                   
|                                              |                   
|OTHER INCOME (EXPENSE)                        |                   
|                                              |                   
|NET LOSS BEFORE PROVISION FOR INCOME TAXES    |                   
|                                              |                   
|PROVISION FOR INCOME TAXES                    |                   
|                                              |                   
|NET LOSS                                      | $                 
|                                              |                   
|WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING |                   
|                                              |                   
|NET LOSS PER SHARE:                           |                   
|BASIC AND DILUTED                             | $                 



The
accompanying notes are an integral part of the financial statements.

F-2


Table of Contents


XZERES
CORP.

(FORMERLY
XZERES WIND CORP)

CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT) (UNAUDITED)

AS
OF MAY 31, 2011



|                                                    |  |              |            |  |       |   |        |  | Additional |          |           |  |             |         |           |   |  |        
|--------------------------------------------------- |  | ------------ | ---------- |  | ----- | - | ------ |  | ---------- | -------- | --------- |  | ----------- | ------- | --------- | - |  | -------
|                                                    |  | Common Stock |            |  | Stock |   |        |  | Paid-In    |          |           |  | Accumulated |         |           |   |  |        
|                                                    |  |              | Shares     |  |       |   | Amount |  |            | Warrants |           |  |             | Capital |           |   |  | Deficit
|                                                    |  |              |            |  |       |   |        |  |            |          |           |  |             |         |           |   |  |        
|Balance, February 28, 2010                          |  |              | 4,682,602  |  |       | $ | 4,683  |  |            | $        | —         |  |             | $       | 40,641    |   |  | ($     
|                                                    |  |              |            |  |       |   |        |  |            |          |           |  |             |         |           |   |  |        
|Correction of shares outstanding                    |  |              | 3          |  |       |   | —      |  |            |          | —         |  |             |         | —         |   |  |        
|                                                    |  |              |            |  |       |   |        |  |            |          |           |  |             |         |           |   |  |        
|Shares issued for consulting services               |  |              | 688,375    |  |       |   | 689    |  |            |          | —         |  |             |         | 453,299   |   |  |        
|                                                    |  |              |            |  |       |   |        |  |            |          |           |  |             |         |           |   |  |        
|Shares issued in payment of an accrued expense      |  |              | 320,000    |  |       |   | 320    |  |            |          | —         |  |             |         | 82,061    |   |  |        
|                                                    |  |              |            |  |       |   |        |  |            |          |           |  |             |         |           |   |  |        
|Shareholder loans converted to shares               |  |              | 226,850    |  |       |   | 227    |  |            |          | —         |  |             |         | 90,513    |   |  |        
|                                                    |  |              |            |  |       |   |        |  |            |          |           |  |             |         |           |   |  |        
|Shares issued to acquire assets                     |  |              | 3,192,150  |  |       |   | 3,192  |  |            |          | —         |  |             |         | 1,273,669 |   |  |        
|                                                    |  |              |            |  |       |   |        |  |            |          |           |  |             |         |           |   |  |        
|Shares issued in connection with private placements |  |              | 6,272,836  |  |       |   | 6,272  |  |            |          | 1,565,054 |  |             |         | 4,393,327 |   |  |        
|                                                    |  |              |            |  |       |   |        |  |            |          |           |  |             |         |           |   |  |        
|Equity issuance costs                               |  |              |            |  |       |   | —      |  |            |          | —         |  |             |         | (589,558  | ) |  |        
|                                                    |  |              |            |  |       |   |        |  |            |          |           |  |             |         |           |   |  |        
|Stock options issued to employees                   |  |              | —          |  |       |   | —      |  |            |          | —         |  |             |         | 463,251   |   |  |        
|                                                    |  |              |            |  |       |   |        |  |            |          |           |  |             |         |           |   |  |        
|Net loss for the year ended February 28, 2011       |  |              | —          |  |       |   | —      |  |            |          | —         |  |             |         | —         |   |  |        
|                                                    |  |              |            |  |       |   |        |  |            |          |           |  |             |         |           |   |  |        
|Balance, February 28, 2011                          |  |              | 15,382,816 |  |       |   | 15,383 |  |            |          | 1,565,054 |  |             |         | 6,207,203 |   |  |        
|                                                    |  |              |            |  |       |   |        |  |            |          |           |  |             |         |           |   |  |        
|Shares issued in connection with private placement  |  |              | 3,277,630  |  |       |   | 3,278  |  |            |          | 1,001,090 |  |             |         | 2,437,144 |   |  |        
|                                                    |  |              |            |  |       |   |        |  |            |          |           |  |             |         |           |   |  |        
|Equity issuance costs                               |  |              | —          |  |       |   | —      |  |            |          | —         |  |             |         | (237,051  | ) |  |        
|                                                    |  |              |            |  |       |   |        |  |            |          |           |  |             |         |           |   |  |        
|Shares issued to acquire assets                     |  |              | 304,721    |  |       |   | 305    |  |            |          | —         |  |             |         | 249,567   |   |  |        
|                                                    |  |              |            |  |       |   |        |  |            |          |           |  |             |         |           |   |  |        
|Stock options issued to employees                   |  |              | —          |  |       |   | —      |  |            |          | —         |  |             |         | 264,763   |   |  |        
|                                                    |  |              |            |  |       |   |        |  |            |          |           |  |             |         |           |   |  |        
|Net loss for the quarter ended May 31, 2011         |  |              | —          |  |       |   | —      |  |            |          | —         |  |             |         | —         |   |  |        
|                                                    |  |              |            |  |       |   |        |  |            |          |           |  |             |         |           |   |  |        
|Balance, May 31, 2011                               |  |              | 18,965,167 |  |       | $ | 18,965 |  |            | $        | 2,566,144 |  |             | $       | 8,921,626 |   |  | ($     



The
accompanying notes are an integral part of the financial statements.

F-3


Table of Contents


XZERES
CORP.

(FORMERLY
XZERES WIND CORP)

CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)

FOR
THE THREE MONTHS ENDED MAY 31, 2011 AND 2010



|                                                                            | Three Months Ended May 31, 2011 |            | Three Months Ended May 31, 2010
|--------------------------------------------------------------------------- | ------------------------------- | ---------- | -------------------------------
|Cash Flows from Operating Activities:                                       |                                 |            |                                
|Net loss for the period                                                     | $                               | (1,998,698 | )                              
|Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: |                                 |            |                                
|Depreciation and Amortization expense                                       |                                 | 41,081     |                                
|Share-based compensation                                                    |                                 | 264,763    |                                
|Issuance of common shares for services                                      |                                 | —          |                                
|Changes in Assets and Liabilities                                           |                                 |            |                                
|Accounts receivable                                                         |                                 | (645,806   | )                              
|Inventories                                                                 |                                 | (300,623   | )                              
|Prepaid expenses                                                            |                                 | (9,235     | )                              
|Accounts payable                                                            |                                 | 315,213    |                                
|Accrued expenses                                                            |                                 | (34,226    | )                              
|Customer deposits                                                           |                                 | (5,543     | )                              
|Warranty reserve                                                            |                                 | 11,042     |                                
|Net Cash Used in Operating Activities                                       |                                 | (2,362,032 | )                              
|                                                                            |                                 |            |                                
|Cash Flows from Investing Activities:                                       |                                 |            |                                
|Purchase of property and equipment                                          |                                 | (25,155    | )                              
|Deposit paid                                                                |                                 | —          |                                
|Acquisition of Property                                                     |                                 | (50,000    | )                              
|Net Cash Used in Investing Activities                                       |                                 | (75,155    | )                              
|                                                                            |                                 |            |                                
|Cash Flows from Financing Activities:                                       |                                 |            |                                
|Proceeds from issuance of common shares                                     |                                 | 2,791,512  |                                
|Repayment of notes payable                                                  |                                 | (197,500   | )                              
|Equity issuance costs                                                       |                                 | (237,051   | )                              
|Net Cash Provided by Financing Activities                                   |                                 | 2,356,961  |                                
|                                                                            |                                 |            |                                
|Net Increase (Decrease) in Cash and Cash Equivalents                        |                                 | (80,226    | )                              
|                                                                            |                                 |            |                                
|Cash and Cash Equivalents – Beginning                                       |                                 | 364,068    |                                
|                                                                            |                                 |            |                                
|Cash and Cash Equivalents – Ending                                          | $                               | 283,842    |                                
|                                                                            |                                 |            |                                
|Supplemental Cash Flow Information:                                         |                                 |            |                                
|Cash paid for interest                                                      | $                               | —          |                                
|Cash paid for income taxes                                                  | $                               | —          |                                
|                                                                            |                                 |            |                                
|Supplemental Non-Cash Investing and Financing Activities:                   |                                 |            |                                
|Shares issued to acquire assets                                             | $                               | 249,871    |                                
|Shares issued in payment of accrued expense                                 |                                 | —          |                                
|Loans from shareholder converted to common shares                           |                                 | —          |                                
|Warrants issued in connection with private placements                       | $                               | 1,395,675  |                                
|Shares Issued for Subscription Receivable                                   | $                               | 650,000    |                                



The
accompanying notes are an integral part of the financial statements.

F-4


Table of Contents


XZERES
CORP.

(FORMERLY
XZERES WIND CORP)

NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS

MAY
31, 2011



NOTE
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Nature
of Business



XZERES
Corp. (“XZERES” and the “Company”) is located in Portland, Oregon and was originally incorporated in the
state of New Mexico in January of 1984.  The Company was engaged in the natural gas and asphalt businesses until 2007,
at which time it liquidated its assets and operations and distributed the net proceeds to its shareholders after paying its debts.  On
October 2, 2008, the Company re-domiciled from New Mexico to Nevada in anticipation of pursuing the wind turbine business. The
Company commenced operations in the wind turbine business in the fiscal quarter ended May 31, 2010.



The
Company formed two subsidiaries during the year ended February 28, 2011. XZERES Energy Services Corp. was incorporated in Nevada
in January, 2011 and XZERES Wind Europe Limited was formed in Ireland in October, 2010.



The
Company is in the business of designing, developing, and marketing small wind turbine systems and related equipment for electrical
power generation, specifically for use in residential, small business, rural electric utility systems, other rural locations,
and other infrastructure applications.  The Company employs proprietary technology, including power electronics, alternator
design, and blade design to increase performance, reliability, and sound suppression.  The Company also works with manufacturers
of inverters, lightning protection equipment and towers to integrate their equipment into the Company’s products.



Development
Stage in Prior Periods

XZERES
Corp. was in the development stage from October 3, 2008 to May 31, 2010. The fiscal year ending February 28, 2011 is the first
fiscal year during which the Company is considered an operating company and is no longer in the development stage.



Principles
of Consolidation

The
financial statements reflect the consolidated results of XZERES Corp. and its wholly-owned subsidiaries XZERES Energy Services
Corp. (a Nevada corporation) and XZERES Wind Europe Limited (formed in Ireland). All material inter-company transactions have
been eliminated in the consolidation.



Basis
of Presentation

The
accompanying interim financial statements have been prepared in accordance with accounting principles generally accepted in the
United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction
with the audited financial statements and notes thereto contained in the Company’s Form 10-K filed with the SEC as of and
for the period ended February 28, 2011. In the opinion of management, all adjustments necessary in order for the financial statements
to be not misleading have been reflected herein. The results of operations for interim periods are not necessarily indicative
of the results expected for the full year.



Accounting
Basis

The
Company uses the accrual basis of accounting and accounting principles generally accepted in the United States of America (“GAAP”
accounting).  The Company has adopted a February 28 fiscal year end.



Use
of Estimates

The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual
results could differ from those estimates.

F-5


Table of Contents


XZERES
CORP.

(FORMERLY
XZERES WIND CORP)

NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS

MAY
31, 2011



NOTE
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)



Concentration
of Credit Risks

The
Company maintains its cash in institutions insured by the Federal Deposit Insurance Corporation (FDIC). All deposit accounts at
FDIC-insured institutions are insured up to at least $250,000 per depositor. At certain times the Company’s balances exceed
the insured amount.



Recent
Accounting Pronouncements

The
Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s
results of operation, financial position or cash flows.



Revenue
Recognition

The
Company recognizes revenue when products are shipped from the factory and collection is reasonably assured.



XZERES
sells wind turbines to dealers and end users directly. Dealers are required to sign an agreement with XZERES that requires the
dealer to sell one unit the first year and three units per year, thereafter. Dealers receive dealer pricing, a discount to the
suggested retail price of the product. Products sold directly to end users are sold at the retail price. To date, the Company
has not offered any other price concessions to its dealers, and has no post shipment obligations other than the warranty it provides.



Accounts
Receivable

Accounts
receivable is generated from sales of wind turbine systems. At May 31, 2011 and February 28, 2011, accounts receivable were substantially
comprised of balances due from end customers and dealers.



As
of the May 31, 2011 quarter end, the Company has not created an allowance for doubtful accounts. While the Company has not experienced
any customer defaults to date, it may elect to begin reserving for potential bad debts in future quarters as sales continue to
increase.



Cash
and Cash Equivalents

XZERES
considers all highly liquid investments with maturities of three months or less to be cash equivalents. The Company had cash of
$283,842 and $364,068 at May 31, 2011 and February 28, 2011, respectively.



Advertising
Costs

The
Company’s policy regarding advertising is to expense advertising when incurred. XZERES incurred advertising expense of $35,228
during the quarter ended May 31, 2011.



Stock-Based
Compensation

Stock-based
compensation is accounted for at fair value in accordance with SFAS No. 123 and 123 (R) (ASC 718). The Company adopted its stock
option plan in 2010. The Company issued 2,735,000 stock options to its employees beginning in fiscal
year 2011 thru the quarter ended May 31, 2011. The Company recorded stock-based compensation expense of $358,106 during the quarter
ended May 31, 2011. The Company has also issued shares to outside consultants for various services rendered. For the quarter
ended May 31, 2011, the Company recorded stock-based compensation to non-employees in the amount of $11,813.



Fair
Value of Financial Instruments

The
Company’s financial instruments consist of cash and cash equivalents, subscription receivable, accounts receivable, inventories,
inventory deposit, prepaid expenses, accounts payable, accrued expenses, customer deposits, and warranty reserve. The carrying
amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate
prevailing market rates unless otherwise disclosed in these financial statements.

F-6


Table of Contents


XZERES
CORP.

(FORMERLY
XZERES WIND CORP)

NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS

MAY
31, 2011



NOTE
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)



Dividends

The
Company has not adopted any policy regarding payment of dividends. No dividends have been paid during any of the periods shown.



Income
Taxes

Income
taxes are accounted for under the assets and liability method. Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.



It
is the Company’s policy to classify interest and penalties on income taxes as interest expense or penalties expense. As
of May 31, 2011, there have been no interest or penalties incurred on income taxes.



Basic
Income (Loss) Per Share

Basic
income (loss) per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted
average number of common shares during the period. Diluted earnings per share is calculated by dividing the Company’s net
income available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted
weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt
or equity.Common share equivalents totaling 7,296,194 at May 31, 2011 representing outstanding warrants and options
were not included in the computation of diluted earnings per share for the quarter ended May 31, 2011, as their effect would have
been anti-dilutive.



NOTE
2 – PREPAID EXPENSES



Prepaid
expenses consisted of the following:



|                       | May
    31, 2011 |         | Feb
    28, 2011
|---------------------- | ---------------- | ------- | ----------------
|Software licenses      | $                | 92,713  |                 
|Interest               |                  | 0       |                 
|Consulting             |                  | 28,321  |                 
|Total prepaid expenses | $                | 121,034 |                 



NOTE
3 – INVENTORIES



Inventories
consist of parts and supplies used in the development, manufacture and installation of wind turbines as well as finished goods.
Inventories are stated at the lower of cost, computed using the first-in first-out method, or market.



Inventories
consisted of the following:



|                   | May 31, 2011 |         | Feb 28, 2011
|------------------ | ------------ | ------- | ------------
|Finished goods     | $            | 520,085 |             
|Parts and supplies |              | 283,087 |             
|Total Inventories  | $            | 803,172 |             

F-7


Table of Contents


XZERES
CORP.

(FORMERLY
XZERES WIND CORP)

NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS

MAY
31, 2011



NOTE
4 – SUBSCRIPTION RECEIVABLE



The
subscription receivable was collected on June 7th, 2011.



NOTE
5 – PROPERTY AND EQUIPMENT



Property
and equipment are being depreciated over their estimated useful lives using the straight-line method of depreciation for book
purposes.



|                               | May 31, 2011 |         | Feb 28, 2011
|------------------------------ | ------------ | ------- | ------------
|Furniture                      | $            | 42,477  |             
|Computer equipment             |              | 139,873 |             
|Shop machinery and equipment   |              | 231,356 |             
|Vehicles                       |              | 18,095  |             
|Subtotal                       |              | 431,801 |             
|Less: accumulated depreciation |              | (55,352 | )           
|Property and equipment, net    | $            | 376,449 |             





Depreciation expense
totaled $12,617 for the three months ended May 31, 2011.



NOTE
6 – INTELLECTUAL PROPERTY



Intellectual
property consists of product designs with an infinite life, including the designs for the recently acquired power efficiency products.



The
Company annually, or more frequently if events or changes indicate that the asset might be impaired, evaluates the fair value
of the intellectual property to determine whether events and circumstances warrant a revision to the fair value of these assets.



NOTE
7 – WEBSITE DEVELOPMENT COSTS



The
Company has capitalized certain costs incurred in developing their website, which consisted of the following at May 31:



|                                   | May 31, 2011 |        | Feb 28, 2011
|---------------------------------- | ------------ | ------ | ------------
|Website development costs          | $            | 21,175 |             
|Less: Accumulated amortization     |              | (4,706 | )           
|Website development
    costs, net | $            | 16,469 |             



The
Company began amortizing the website costs, using the straight-line method over the estimated useful life of 3 years, once it
was put into service in September 2010. Ongoing updates to the website are expensed as incurred.



Amortization
expense was $1,765 and $0 for the three months ended May 31, 2011 and 2010, respectively.

F-8


Table of Contents


XZERES
CORP.

(FORMERLY
XZERES WIND CORP)

NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS

MAY
31, 2011





NOTE
8 – ACCRUED EXPENSES



Accrued
expenses consisted of the following:



|                       | May 31, 2011 |        | Feb 28, 2011
|---------------------- | ------------ | ------ | ------------
|Wages                  | $            | 73,051 |             
|Professional fees      |              | 0      |             
|Miscellaneous          |              | 0      |             
|Total Accrued Expenses | $            | 73,051 |             



NOTE
9 – CUSTOMER DEPOSITS



A
customer deposit of 50% of the selling price is sometimes made at the time a wind turbine is ordered. Deposits are reclassified
to revenue once the unit is completed and delivered. Customer deposits were $42,685 at May 31, 2011 and $48,228 at February 28,
2011.



NOTE
10 – WARRANTY RESERVE



The
Company accrues for estimated future warranty costs associated with products sold. The Company provides a ten year limited warranty
for defects in materials and workmanship. In order to maintain some existing dealer/distributor relationships, the Company elected
to set up an initial reserve to estimate its future costs of honoring warranties on previous installations. In Fiscal year 2011,
an initial reserve was created based on 100 installed units with estimated warranty costs of $1,000 per unit, creating an initial
reserve of $100,000. The reserve is increased by the addition of two percent of all system and tower sales.



Warranty
reserve activity for the three months ended May 31, 2011 was as follows:



|                                   | Three Months Ended
    May 31, 2011
|---------------------------------- | -----------------------------------
|Reserve balance, February 28, 2011 | $                                  
|Added to reserve                   |                                    
|Charges against reserve            |                                    
|Reserve balance,
    May 31, 2011  | $                                  



NOTE
11 – STOCKHOLDERS’ EQUITY



In
October, 2008, the Company amended its Articles of Incorporation to increase the authorized common stock from 10,000,000 to 100,000,000
shares, and changed the par value of the common stock from no par to $0.001 par value.   The Company also reverse
split the outstanding shares of common stock at a ratio of 7.7 to 1, leaving a total of 150,079 shares of common stock issued
and outstanding following the split.



During
the period ended February 28, 2009, the Company issued 4,501,899 shares of our common stock at a price of $0.01 per share. The
Company conducted the offering as a private placement, exempt from the registration requirements of the Securities Act of 1933
under Section 4(2) and/or Rule 506 of Regulation D there under.

F-9


Table of Contents


XZERES
CORP.

(FORMERLY
XZERES WIND CORP)

NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS

MAY
31, 2011





NOTE
11 – STOCKHOLDERS’ EQUITY (CONTINUED)



During
the year ended February 28, 2010 an additional 30,545 shares of common stock were issued for cash totaling $305. There was also
a correction to the shares outstanding of 79 additional shares, and an additional correction of 3 additional shares during the
nine months ended November 30, 2010.



During
the fiscal year ending February 28, 2011, the following equity-related transactions occurred:



- 200,000
common shares were issued for consulting services. The shares were valued at $.01 per share, which in the opinion of management,
approximates the value of the services rendered.

- 320,000
common shares were issued to an unrelated third party in payment of an accrued expense. The shares were valued at $82,381, representing
the fair value of the accrued expense.

- 226,850
common shares were issued in exchange for $90,740 of shareholder loans. The shares were issued at $.40 per share.

- 3,192,150
common shares were issued to acquire assets with a total cost of $1,276,864. The shares were issued at $.40 per share.

- 648,150
common shares were sold to unrelated third parties in a private placement at $.40 per share for total proceeds of $259,260.

- 4,010,500
common shares were sold in a private placement at $1.00 per share for net proceeds of $3,611,949.

- 488,375
common shares were issued for consulting services to multiple providers. The shares were valued at various market prices ranging
between $0.75 and $1.50 per share. The combined value of the shares totaled $451,988. Of the total value, $358,296 was expensed
during the fiscal year end February 28, 2011.

- 1,614,186
common shares were sold to unrelated third parties in an ongoing private placement at $1.05 per share for net proceeds of $1,503,887.



During
the three months ended May 31, 2011, the following equity-related transactions occurred:



- 3,227,630
common shares were sold to unrelated third parties in a private placement at $1.05 per share for gross proceeds of $3,441,511.

- 304,721
common shares were issued to acquire assets with a total cost of $299,871.



Total
common shares issued and outstanding at May 31, 2011 are 18,965,167.







F-10


Table of Contents




XZERES
CORP.

(FORMERLY
XZERES WIND CORP)

NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS

MAY
31, 2011



NOTE
12 – STOCK WARRANTS AND OPTIONS



The
Company granted 4,561,194 stock warrants in connection with private placements. The Company has accounted for these warrants as
equity instruments in accordance with EITF 00-19 (ASC 815-40), Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company’s Own Stock, and as such, were classified in stockholders’ equity. The Company has
estimated the fair value of the warrants issued in connection with the private placements at $2,566,145 as of the grant dates
using the Black-Scholes option pricing model.



The
Company also granted 2,735,000 stock options to employees. The Company has estimated the fair value of the options as of the grant
dates at $2,170,268 using the Black-Scholes option pricing model. Compensation expense is being recognized over the vesting periods
of the options which range from immediate vesting to vesting over four years. Fifteen percent of total issued and outstanding
common shares are available for stock options.



The
Company granted 1,035,000 new options during the three months ended May 31, 2011, at an exercise price of the $1.25.



Key
assumptions used by the Company are summarized as follows:



|                         | Private Placement
    Warrants |             | Employee Stock Options
|------------------------ | ------------------------------ | ----------- | ----------------------
|Stock Price              |                                | $1.00-$1.05 |                       
|Exercise Price           |                                | $1.25-$1.50 |                       
|Expected volatility      |                                | 69.10       | %                     
|Expected dividend yield  |                                | 0.00        | %                     
|Risk-free rate           |                                | 2.62        | %                     
|Vesting period           |                                | —           |                       
|Expected term (in years) |                                | 3-5 Years   |                       



A
Stock Price of $1.00 to $1.05 was used in valuing the warrants and a range of $0.75-$2.20 for valuing the options. The stock price
was based on the per share issuance prices from a recent unrelated third party private placements. Volatility was computed based
on the average volatility of similar companies in the wind turbine business. The risk-free interest rate is the Treasury Constant
Maturity Rate on the date of grant for a period equivalent to the expected term of the instrument. The expected term is the same
as the contractual term for the above valuations.



The
warrants issued in connection with the private placement were valued at $2,960,729 and have been accounted for as an equity transaction.
Options issued to employees were classified as compensation expense for the three months ended May 31, 2011. Stock option expense
recognized in net earnings amounted to $264,763 for the three months ended May 31, 2011. As of May 31, 2011, there was $1,442,254
of unrecognized compensation expense related to non-vested share awards that we expect to recognize over a weighted average period
of 3.5 years.



NOTE
13 – INCOME TAXES



For
the period ended May 31, 2011, Xzeres has incurred net losses from continuing operations and, therefore, has no tax liability.
The net deferred tax asset generated by the loss carry-forward has been fully reserved. The cumulative net operating loss carry-forward
is approximately $7,374,000 at May 31, 2011, and will expire beginning in the year 2029. The cumulative tax effect at the expected
rate of 34% of significant items comprising our net deferred tax amount is as follows:

F-11


Table of Contents




XZERES
CORP.

(FORMERLY
XZERES WIND CORP)

NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS

MAY
31, 2011



NOTE
13 – INCOME TAXES (CONTINUED)



The provision
for Federal income tax consists of the following:



|                                            | May 31, 2011 |          | May 31, 2010
|------------------------------------------- | ------------ | -------- | ------------
|Federal income tax benefit attributable to: |              |          |             
|Current operations                          | $            | 680,000  |             
|Less: valuation allowance                   |              | (680,000 | )           
|Net provision for Federal income taxes      | $            | 0        |             



The
cumulative tax effect at the expected rate of 34% of significant items comprising our net deferred tax amount is as follows:



|                                    | May 31, 2011 |            | May 31, 2010
|----------------------------------- | ------------ | ---------- | ------------
|Deferred tax asset attributable to: |              |            |             
|Net operating loss carryover        | $            | 2,508,000  |             
|Less: valuation allowance           |              | (2,508,000 | )           
|Net deferred tax asset              | $            | 0          |             



Due
to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards of $7,374,000 for Federal
income tax reporting purposes are subject to annual limitations. Should a change in ownership occur net operating loss carry forwards
may be limited as to use in future years.



NOTE
14 – COMMITMENTS



Operating
Leases

The
Company leases its office and manufacturing facilities under a lease which expires in July, 2013. The lease provides for the payment
of taxes and operating costs, such as insurance and maintenance in addition to the base rental payments. The lease is renewable
for an additional three year term.



Aggregate
minimum annual rental payments under the non-cancelable operating lease are as follows:



|Year ended February 28, 2012 |  | $ | 70,448  | 
|---------------------------- |  | - | ------- | 
|2013                         |  |   | 72,564  | 
|2014                         |  |   | 37,152  | 
|Total                        |  | $ | 180,164 | 



Rent
expense totaled $72,391 and $4,001 for the three months ended May 31, 2011 and 2010, respectively.



NOTE
15 – SUBSEQUENT EVENTS



Management
has evaluated subsequent events through the date on which the financial statements were issued, July 13, 2011, and has determined
it does not have any material subsequent events to disclose.



F-12


Table of Contents


Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations



Forward-Looking
Statements



Certain
statements, other than purely historical information, including estimates, projections, statements relating to our business plans,
objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified
by the words “believes,” “project,” “expects,” “anticipates,” “estimates,”
“intends,” “strategy,” “plan,” “may,” “will,” “would,”
“will be,” “will continue,” “will likely result,” and similar expressions. We
intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in
the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor
provisions.Forward-looking statements are based on current expectations and assumptions that are subject to risks and
uncertainties which may cause actual results to differ materially from the forward-looking statements. Our
ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have
a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes
in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted
accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue
reliance should not be placed on such statements.We undertake no obligation to update or revise publicly any forward-looking
statements, whether as a result of new information, future events or otherwise. Further information
concerning our business, including additional factors that could materially affect our financial results, is included herein and
in our other filings with the SEC.



Company
Overview



XZERES
Corp. (“Xzeres” and the “Company”) was originally incorporated in New Mexico in 1984. We re-domiciled
in Nevada in 2008. We were in the development stage from October 3, 2008 to May 31, 2010. The fiscal year ending February 28,
2011, was the first fiscal year during which we are considered an operating company and are no longer in the development stage.
Beginning during the fiscal quarter ended May 31, 2010, we have been engaged in the small wind turbine business.



Our
principal offices are located at 9025 SW Hillman, Suite 3126, Wilsonville, OR 97070. Our phone number is (503) 388-7350.



Business
of Company



We
are in the business of designing, developing, and marketing distributed generation, wind power systems for the small wind (2.5kW-100kW)
market as well as power management solutions.  Our grid connected and off grid wind turbine systems, which consist of
our 2.5kW and 10kW devices and related equipment, are utilized for electrical power generation for applications and markets such
as residential, micro-grid based rural and island electrification, agricultural, small business, rural electric utility systems,
as well as other private, corporate infrastructure and government applications. Our wind power systems are focused on distributed
energy, where a specific machine's energy output is largely or entirely used on-site where the equipment is installed, as well
as grid connected applications. While many of our customers take advantage of their local net-metering rules within the United
States and Feed In Tariffs that are often available in Europe and Internationally (to sell power back to the grid), our wind power
systems are not dependent on transmission needs to carry the energy produced to another location and are therefore well suited
for remote electrification, available with or without a battery coupled solution. Our power management solutions are deployed
primarily for commercial and light industrial applications, and secondarily residential usage and target both urban and rural
customers.



4


Table of Contents


Our
wind turbine products integrate with currently available complementary products from other manufacturers, such as inverters, lightning
protection equipment and towers.  We do not have any written agreements with these other manufacturers. Our systems
comprise several major components including the turbine sub-system (which converts wind energy into electricity), the tower (which
holds the turbine high in the wind), a turbine controller (which controls the turbine subsystem and contains monitoring hardware
and software), and an inverter (which converts the electricity generated from DC to AC to connect to a customer’s electrical
load or to the grid). We currently design and engineer the turbine and controller, but contract the manufacturing of the turbine
and controller through outside parties. The tower, while designed to specifications suitable to our turbine requirements, is made
and sold by separate companies depending on the style that the customer orders.  Similarly, the inverter, which converts
the energy generated to a form suitable to connect into the electric grid, is manufactured by another company and is a commercial
off-the-shelf product.  We sell a “system” with all of these parts included in the selling price.  The
system will not operate as designed without these complementary products.  In the case of the inverter, there are other
commercially available products that will integrate with our components, but we perform the system integration design to sell
the entire system as a package to the customer.  Going forward, we intend to develop new turbine systems, designed for
ease of installation and to certification standards which cover standard testing procedures, power ratings, and structural designs
of small wind systems.



We
take a system integrator approach to our turbine business combined with a service-centric vertical integration program in order
to provide complete solutions to our customers. We design, develop, manufacture, test, assemble and market our systems. In addition,
we provide site assessment, customer financing, assistance with government-based financial incentives and local permitting, application
engineering, installation, support and maintenance. And now we offer “tip-to-tower” insurance to our wind turbine
customers to enable them to protect their valuable investment over the 20 year useful life of their system.



On
April 25, 2011, we acquired the assets of Rochester Power Saver Inc. and now manufacture and sell a family of power efficiency
products which are designed to improve the "power factor" and reduce the amount of reactive power being drawn at a location.
This acquisition expanded our product offering beyond small wind power generation into the realm of power management and power
efficiency solutions. The addition of this complementary and diversified family of products enables us to offer both business
and residential customers, in urban and rural locations, the ability to reduce their power consumption, extend the life of their
electrical equipment and electronics via central surge suppression, reduce their carbon footprint, and depending upon the type
of customer and the application, provide significant energy savings. As a result of this acquisition, we have recently introduced
the new power efficiency product line and generated initial sales in the quarter ending May 31, 2011.



Results
of operations for the three months ended May 31, 2011 and 2010



Overview.  We
commenced our current operations during the quarter ended May 31, 2010. Shortly thereafter, we began to aggressively expand operations,
including the hiring of sales and marketing personnel to begin selling our products.  Such sales and marketing efforts
enabled us to generate meaningful initial revenue during the August 31, 2010 quarter, which further expanded in each subsequent
quarter.  Additionally, the company has also announced key strategic initiatives that include new selling methods, such
as direct-to-end users, and its new micro-generation utility sales model.  The results of these new selling efforts
has resulted in further contribution to the overall sales growth.



With the
combination of the additional sales channels and larger number of sales personnel, the company is experiencing a rapid increase
in both completed sales and the pipeline of potential customers.  We will also continue to initiate key marketing efforts
such as promotion of our new website, the creation of online user tools, and targeted email campaigns.  While it can
be difficult to predict when a potential customer may purchase one of our turbine systems or when a newly closed customer will
have their site ready for product delivery, we believe that the growing sales backlog and potential pipeline along with the greater
overall interest in our products may contribute to higher revenues in future quarters.  Potential risks to this outlook
include: closed customers taking longer to prepare their sites for installation (since we do not recognize revenue until we deliver
the system to the customer), negative changes in available federal and state incentives for renewable energy such as tax credits,
rebates, etc.; increased restrictions on obtaining permits; and a reduction in sentiment toward wind energy.  While
we are unaware of any significant changes to any of these factors, if such were to occur, it could have a material impact on our
current growth opportunities.  Fortunately, current trends remain generally positive for renewable energy.

5


Table of Contents


Income.  For
the three months ended May 31, 2011 and 2010, we generated gross revenue of $1,017,217 and $4,385, respectively.  Our
revenue growth during the period ended May 31, 2011 was attributable to our ongoing efforts to sell our wind turbine systems,
which began last year.  Our initial selling efforts began toward the end of our first quarter last year (ending May
31, 2010) and resulted in growing sales during each of the subsequent quarters, including the recently completed quarter ending
May 31, 2011.



Operating
Expenses. Our Operating Expenses during the three month period ended May 31, 2011 equaled $2,235,947, consisting of $325,817
in sales expense, $92,668 in marketing costs, $639,583 in R&D/Engineering expenses, and $1,177,879 in general and administrative
expenses. We had other expense of $14,187 for the period.  Therefore, we recorded a net loss of $1,998,698 for the three
months ended May 31, 2011. Inclusive in our net loss was non-cash compensation in the amount of $264,763. Our Operating Expenses
during the three month period ended May 31, 2010 equaled $654,006, consisting of $23,034 in sales expense, $35,596 in marketing
costs, $177,667 in R&D/Engineering expenses, and $408,709 in general and administrative expenses. We had other income
of $1,074 for the period.  We therefore, recorded a net loss of $641,256 for the three months ended May 31, 2010.  The
substantial increase in our net loss for the period ended May 31, 2011 over the same period in 2010 is attributable to the costs
attributable to commencing our business operations as a small wind turbine manufacturing and sales company.



Net
Loss.  We recorded a net loss of $1,998,698 for the three months ended May 31, 2011 as compared to a net loss
of $641,256 for the three months ended May 31, 2010.  The substantial increase in our net loss for the period over the
same period in 2010 is attributable to the costs attributable to commencing our business operations as a small wind turbine manufacturing
and sales company.



We expect
further net losses in the near future as a result of increased operating expenses until we are able to increase the sale of our
products and achieve higher revenues.



Liquidity
and Capital Resources



As of May
31, 2011, we had total current assets of $3,177,589, consisting primarily of $283,842 in cash and cash equivalents, $650,000 in
subscription receivables, $1,279,475 in accounts receivable, $803,172 in inventories, $40,066 in inventory deposits, and $121,034
in prepaid expenses.  Our total current liabilities as of May 31, 2011 were $1,059,043.  Thus, we have working
capital of $2,118,546 as of May 31, 2011.   As of May 31, 2011, we had total assets of $5,191,787.



Operating
activities used $2,362,032 and $1,068,506 in cash for the three months ended May 30, 2011 and May 31, 2010, respectively. Our
net loss of $1,998,698, our inventory purchasing of $300,623, and an increase in accounts receivable of $645,806, were the primary
components of our negative operating cash flow for the three months ended May 31, 2011.

Investing Activities used $75,155 in cash during the three month period
ending May 31, 2011, as a result of the purchase of computer, machinery and equipment, as compared to $101,435 cash used for the
three months ended May 31, 2010.



Financing
Activities generated $2,356,961 and $3,823,709 in cash for the three months ended May 31, 2011 and 2010, respectively, consisting
entirely of proceeds from the issuance of new common shares and related party note payable.



After the
period ended, on June 27, 2011, we announced that we had arranged for a $1.0 million credit facility to fund against our accounts
receivable, which we anticipate will provide us with additional liquidity.



As of May
31, 2011, the ability to continue the implementation of our business plan over the next twelve months is contingent upon us either
generating sufficient revenues from our ongoing operations to fund our business, obtaining additional financing, or some combination
of revenues and additional financing.

6


Table of Contents


Off Balance
Sheet Arrangements



As
of July 8th, there were no off balance sheet arrangements.



Going
Concern



We
have incurred losses since inception, and have not yet received revenues from sales of products or services. These factors create
substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustment that
might be necessary if we are unable to continue as a going concern.



Our
ability to continue as a going concern is dependent on generating cash from the sale of our common stock and/or obtaining debt
financing and attaining future profitable operations. Management’s plans include selling our equity securities and obtaining
debt financing to fund our capital requirement and ongoing operations; however, there can be no assurance we will be successful
in these efforts.



Item
3. Quantitative and Qualitative Disclosures About Market Risk



A
smaller reporting company is not required to provide the information required by this Item.



Item
4. Controls and Procedures



We
carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of May 31, 2011. This evaluation was carried out under the supervision and with
the participation of our Chief Executive Officer, Frank Greco and our Chief Financial Officer, Steven Shum. Based upon that evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that, as of May 31, 2011 our disclosure controls and procedures
are effective. There have been no changes in our internal controls over financial reporting during the quarter ended May 31, 2011.



Disclosure
controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed
in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods
specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated
to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required
disclosure.



Limitations
on the Effectiveness of Internal Controls



Our
management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily
prevent all fraud and material error. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving
our objectives and our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures
are effective at that reasonable assurance level. 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 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 internal 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,
control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may
deteriorate.

7


Table of Contents


PART
II – OTHER INFORMATION



Item
1. Legal Proceedings



We
are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers,
directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse
to us.



Item
2. Unregistered Sales of Equity Securities and Use of Proceeds



On
March 29, 2011, we closed a second and final round of a private placement of common stock and warrants. We sold 4,891,815 shares
of common stock and warrants to purchase additional shares in an amount equal to 50% of the number of shares purchased, exercisable
at $1.50 per share at any time for a period of five years from the issue date. Each share and one-half warrant sold for $1.05,
for total gross proceeds $5,136,406. In connection with the private placement, we paid our placement agents commissions in the
amount of $458,907. The shares of common stock were issued pursuant to the exemption from registration provided by Section 4(2)
of the Securities Act of 1933, as amended and Rule 506 of Regulation D. The shares and warrants were sold to accredited investors
as defined in Regulation D under the Securities Act. No general solicitation or advertising was used in connection with the offering.
All securities sold are “restricted securities” within the meaning of Regulation D.



Item
5. Other Information



Effective
July 12, 2011, S. Clayton Wood, Executive Vice President of Operations, is no longer employed by us.



Item
6. Exhibits



|Exhibit
    Number | Description
    of Exhibit                                                                                                                                                   
|------------------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|31.1               | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                            
|31.2               | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                            
|32.1               | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

8


Table of Contents


SIGNATURES



Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.



|       | XZERES Corp.               
|------ | ---------------------------
|       |                            
|Date:  |                            
|       | /s/
    Frank Greco        
|By:    | Frank
    Greco            
|Title: | Chief
    Executive Officer



9


Table of Contents