UNITED
STATES

SECURITIES
AND EXCHANGE COMMISSION

WASHINGTON,
D.C. 20549



FORM
10-K



ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For
the Fiscal Year Ended December 31, 2014



Commission
File Number 000-54360



WINDSTREAM
TECHNOLOGIES, INC.

(Exact
name of registrant as specified in its charter)



|Wyoming                             |  | 98-0178621             
|----------------------------------- |  | -----------------------
|(State
    or other jurisdiction of |  | (IRS
    Employer      
|incorporation
    or organization)  |  | Identification
    No.)



|819
    Buckeye Street                      |  |                |  |                                                         
|------------------------------------------- |  | -------------- |  | --------------------------------------------------------
|North
    Vernon, Indiana                   |  | 47265          |  | (812)
    953-1481                                      
|(Address
    of principal executive office) |  | (Zip
    Code) |  | (Registrant’s
    telephone number, including area code)



Securities
registered pursuant to Section 12(b) of the Act: None



Securities
registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par value



Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act. Yes [  ]
No [X]



Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes [  ]
No [X]



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. Yes [X] 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 (§ 229.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]



Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]



Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.



|Large
    accelerated filer [  ]                  |  | Accelerated
    filer [  ]       
|------------------------------------------------- |  | ---------------------------------
|Non-accelerated
    filer [  ]                    |  | Smaller reporting
    company [X]
|(Do not check
    if a smaller reporting company) |  |                                  



Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No
[X]



The
aggregate market value of the voting common equity held by non-affiliates as of June 30, 2014, based on the closing sales price
of the common stock as quoted on the OTCQB market was $57,784,759. For purposes of this computation, all officers, directors,
and 5 percent beneficial owners of the registrant are deemed to be affiliates. Such determination should not be deemed an admission
that such directors, officers, or 5 percent beneficial owners are, in fact, affiliates of the registrant.



As
of April 13, 2015, there were 93,604,796 shares of registrant’s common stock outstanding.
















TABLE
OF CONTENTS



|             |                                                                                                                  |  | PAGE
|------------ | ---------------------------------------------------------------------------------------------------------------- |  | ----
|PART
    I   |                                                                                                                  | 
|             |                                                                                                                  |  |     
|Item
    1.  | Business                                                                                                         |  | 3   
|Item
    1A. | Risk
    Factors                                                                                                 |  | 17  
|Item
    1B. | Unresolved
    Staff Comments                                                                                    |  | 25  
|Item
    2.  | Properties                                                                                                       |  | 25  
|Item
    3.  | Legal
    Proceedings                                                                                            |  | 25  
|Item
    4.  | Mine
    Safety Disclosures                                                                                      |  | 25  
|             |                                                                                                                  |  |     
|PART
    II  |                                                                                                                  | 
|             |                                                                                                                  |  |     
|Item
    5.  | Market
    for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 26  
|Item
    6.  | Selected
    Financial Data                                                                                      |  | 26  
|Item
    7.  | Management’s
    Discussion and Analysis of Financial Condition and Results of Operations                        |  | 27  
|Item
    7A. | Quantitative
    and Qualitative Disclosures about Market Risk                                                   |  | 38  
|Item
    8.  | Financial
    Statements and Supplementary Data                                                                  |  | 38  
|Item
    9.  | Changes
    in and Disagreements with Accountants on Accounting and Financial Disclosures                        |  | 38  
|Item
    9A. | Controls
    and Procedures                                                                                      |  | 40  
|Item
    9B. | Other
    Information                                                                                            |  | 40  
|             |                                                                                                                  |  |     
|PART
    III |                                                                                                                  | 
|             |                                                                                                                  |  |     
|Item
    10. | Directors,
    Executive Officers and Corporate Governance                                                       |  | 41  
|Item
    11. | Executive
    Compensation                                                                                       |  | 44  
|Item
    12. | Security
    Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 48  
|Item
    13. | Certain
    Relationships and Related Transactions, and Director Independence                                    |  | 48  
|Item
    14. | Principal
    Accounting Fees and Services                                                                       |  | 49  
|             |                                                                                                                  |  |     
|PART
    IV  |                                                                                                                  | 
|             |                                                                                                                  |  |     
|Item
    15. | Exhibits,
    Financial Statement Schedules                                                                      |  | 50  
|             |                                                                                                                  |  |     
|             | Signatures                                                                                                       |  | 51  
|             |                                                                                                                  |  |     
|             | Financial
    Statements                                                                                         |  | F-1 



2







PART
I



ITEM
1. – BUSINESS



This
Annual Report on Form 10-K (including the section regarding Management’s Discussion and Analysis of Financial Condition
and Results of Operations) contains forward-looking statements regarding our business, financial condition, results of operations
and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,”
“seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking
statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this
Annual Report on Form 10-K. Additionally, statements concerning future matters are forward-looking statements.



Although
forward-looking statements in this Annual Report on Form 10-K reflect the good faith judgment of our Management, such statements
can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject
to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or
anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes
include, without limitation, those specifically addressed under the heading “Risks Factors” below, as well as those
discussed elsewhere in this Annual Report on Form 10-K. Readers are urged not to place undue reliance on these forward-looking
statements, which speak only as of the date of this Annual Report on Form 10-K. We file reports with the Securities and Exchange
Commission (“SEC”). You can read and copy any materials we file with the SEC at the SEC’s Public Reference Room
at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (www.sec.gov) that contains reports, proxy
and information statements, and other information regarding issuers that file electronically with the SEC, including us.



We
undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that
may arise after the date of this Annual Report on Form 10-K. Readers are urged to carefully review and consider the various disclosures
made throughout the entirety of this annual Report, which attempt to advise interested parties of the risks and factors that may
affect our business, financial condition, results of operations and prospects.



This
Annual Report on Form 10-K includes the accounts of WindStream Technologies, Inc., a Wyoming corporation (“WindStream”),
together with its wholly-owned subsidiaries, as follows, collectively referred to as “we”, “us” or the
“Company”: WindStream Technologies, Inc., a California corporation (“WindStream Sub”), and WindStream
Technologies Latin America Inc., a Peru corporation (“WTLA”) as well as the Company’s majority-owned subsidiary,
WindStream Energy Technologies Pvt. Ltd., an Indian corporation (“WET”).



“TurboMill®”,
“TurboMills®”, “SolarMill®”, “TowerMillTM”, “MobileMillTM”
and other trademarks and intellectual property of ours appearing in this report are our property. This report contains additional
trade names and trademarks of other companies. We do not intend our use or display of other companies’ trade names or trademarks
to imply an endorsement or sponsorship of us by such companies, or any relationship with any of these companies.



Corporate
History



We
were originally incorporated as Solarte Hotel Corporation in May 2008 to purchase real estate in the archipelago of Bocas Del
Toro, Panama and to develop a luxury eco-lodge hotel on the property. In June 2009, we abandoned this business plan and embarked
on a new plan to market incorporation services, including U.S. jurisdictions, Panama and other offshore jurisdictions, as a form
of estate planning or asset protection for our clients.



In
October 2011, a new interim President was appointed with the intention that we would acquire a Spokane, Washington-based company
named Blue Star Technologies, as soon as an audit of that entity could be completed. In December 2011, we changed our name to
Blue Star Entertainment Technologies, Inc., in connection with that proposed acquisition. However, no audit was ever completed
for, nor did we acquire, Blue Star Technologies.



In
November 2012, we entered into that certain Share Exchange Agreement (the “Original Share Exchange”), by and among
the Company, Windaus Global Energy, Inc., a company incorporated pursuant to the laws of the Province of Ontario (“OpCo”)
and Maurice and Judy Dechamps, the sole shareholders of OpCo (the “Shareholder”), pursuant to which we were to acquire
all of the outstanding shares of OpCo (the “Opco Stock”) in exchange for the right to receive 36 million shares of
our common stock (the “Windaus Stock”).



3







Subsequent
to the execution of the Original Share Exchange, in December 2012, we entered into that certain Technology Transfer Agreement
(the “Technology Transfer Agreement”) by and between the Company, as buyer, and OpCo, as seller, whereby we sought
to acquire certain patent rights and other technology owned by OpCo in exchange for the issuance of approximately 36 million shares
of our common stock, and mutually cancel and rescind the Original Share Exchange together with the obligations thereunder.



Effective
on May 22, 2013 (the “Closing Date”), we entered into that certain Rescission Agreement (the “Rescission Agreement”)
by and among the Company, OpCo and the Shareholder. Pursuant to the terms of the Rescission Agreement, the parties confirmed and
ratified the rescission of the Original Share Exchange and the Technology Transfer Agreement. In addition, the Shareholder agreed
to surrender the Windaus Stock held by it, if any, to us for cancellation and cancel or terminate any instructions to issue shares
to any other recipients, the OpCo Stock was returned by the Company to the Shareholder and any assets transferred to the Company
by OpCo were transferred and conveyed back to OpCo.



Simultaneously
on the Closing Date, we entered into that certain Share Exchange Agreement (the “New Share Exchange Agreement”) by
and among the Company, WindStream Sub and certain shareholders of WindStream Sub. Pursuant to the New Share Exchange Agreement,
the outstanding common and preferred stock of WindStream Sub held by the WindStream Shareholders were exchanged for shares of
our common stock. 955,000 shares of WindStream Sub common stock and 581,961 shares of WindStream Sub preferred stock were exchanged
for 39,665,899 new shares of our common stock. Also, approximately 13.4 million shares were reserved for issuance upon the exercise
of options under WindStream Sub’s stock option plan. As a result of the New Share Exchange Agreement and the other transactions
contemplated thereunder, WindStream Sub became our wholly-owned subsidiary. The share exchange is accounted for as a reverse merger
with Windstream Sub being the accounting acquirer. The historical financial statements of WindStream Sub are our historical financial
statements and information as of the date of the merger.



Prior
to May 22, 2013, the Company was a shell company. Subsequent to that date, the Company was no longer a shell company.



Business
Overview



We
are developing low-cost, high efficient products that harness renewable energy resources in urban and rural environments as well
as both on- and off-grid. As the cost of energy rises, both in monetary and environmental terms, we believe consumers and governments
will increasingly seek inexpensive and renewable alternatives to fossil fuels. We believe billions of people around the world
could see direct benefit from the clean, renewable, distributed energy solutions that our products provide.



We
have already begun to capitalize on these enormous market opportunities by creating products designed to meet the demands of any
customer, whether on- or off-grid. We currently are shipping or have shipped products to over 34 countries around the world. These
products can be scaled up to expand the generation needs of the individual consumer, business or industry.



The
SolarMill®, our core product, is a unique, hybrid energy solution that allows customers to achieve cost savings
and access to an uninterrupted supply of clean, renewable energy. The SolarMill® is a modular, renewable energy
system designed and optimized for both on- and off- grid applications. It utilizes three low-profile, vertical-axis wind turbines
mounted on a single base, which can be interconnected to maximize wind energy production in low and turbulent wind environments,
commonly found in urban settings. This modular, scalable system integrates photovoltaic panels into the structure, using the same
mounting structure, electronics and inverters to capture the complementary solar and wind resources.



| |  |  |  | 
| |  |  |  | 



4







Our
Strategy



Our
strategy is to focus on developing regional distribution relationships. Companies with deep expertise about their own local or
regional markets will be selected to handle product promotion and manage sales channels. We provide all the necessary training
to enable our partners to handle all aspects of the sale process: assembly; siting; installation; maintenance and service. We
are positioning ourselves to mainly be a business-to-business supplier, with distributors handling relationships with the ultimate
customers. We may get directly involved in a customer installation for particularly large projects.



We
target markets that have one or more of the following properties:



| | ● | Electricity
    is expensive;                                                       
| | - | ------------------------------------------------------------------------------------
| |   |                                                                                     
| | ● | Electricity
    supply is inconsistent or non-existent;                             
| |   |                                                                                     
| | ● | Government
    mandates exist to introduce renewable and hybrid energy solutions; or
| |   |                                                                                     
| | ● | Electricity
    consumers exhibit a high level of concern for sustainability.       



As
a result, developing economies make a perfect target market for us because they often suffer from electricity shortages and/or
high energy costs. At the same time, developed economies are potential markets as governments and consumers realize the importance
of switching to environmentally-friendly and sustainable energy sources and are willing to adopt solutions that may be more expensive
than conventional sources, which are often based on burning fossil fuels.



Target
Markets



The
greatest opportunity for our products is in markets where consumers have no access to electricity at all or where the cost of
electricity is very high. This demand-driven opportunity is also attractive due to abundant sun and wind typical of many of these
regions. The population in these markets is vast and our products provide less expensive renewable energy generation than is typically
available.



We
target countries with a mean wind speed of greater than 5 m/s and a solar resource in excess of 4 direct normal insolation (DNI)
a day. See the maps below showing worldwide solar and wind data. If both of these parameters are met and local cost of energy
is greater than $0.20 per kilowatt-hour (kWh), then the period of time it would take a consumer to see savings from energy production
to recover their initial costs, without government incentives, will be less than 10 years, which is the period of time we believe
most consumers, commercial property owners, and governments/municipalities look for when making such investments in energy-related
infrastructure.



5















Markets
Where Energy Is Expensive



One
of our primary market opportunities comes from the high cost of electricity in many parts of the world. Typically, renewable energy
sources are associated with a higher price per kWh than conventional electricity, but this is not a universal rule and generally
applies to developed markets with high rates of electrification and/or countries with ample energy from conventional sources,
such as hydro, coal, oil and gas.



6







However,
even with conventional energy sources, many countries have very expensive electricity. Island nations, for instance, often have
to import fuel to produce electricity, and shipping costs add significantly to the users’ electric bills. The table below
shows energy rates in selected countries around the world.



|Country/Territory            |  | US
    cents/kWh                                                                                            |  | Date
|---------------------------- |  | ----------------------------------------------------------------------------------------------------------- |  | ----
|Argentina
    (Concordia)    |  | 19.13                                                                                                       |  | 2013
|Australia                    |  | 30.817
    kWh plus 91.755 cents per day service fee                                                        |  | 2012
|Belgium                      |  | 18.66                                                                                                       |  | 2013
|Bulgaria                     |  | 13.38
    day (between 7:00-23:00 DST); 9.13 night                                                          |  | 2014
|Brazil                       |  | 16.20                                                                                                       |  | 2011
|Cambodia
    (Phnom Penh)    |  | 15.63
    to 21.00                                                                                          |  | 2014
|Canada,
    Ontario, Toronto |  | 6.52
    to 11.69 depending on time of day plus transmission, delivery, and other charges of about 3.75/kWh |  | 2014
|China                        |  | 7.5
    to 10.7                                                                                             |  | 2012
|Chile                        |  | 23.11                                                                                                       |  | 2011
|Colombia
    (Bogota)        |  | 18.05                                                                                                       |  | 2013
|Denmark                      |  | 38                                                                                                          |  | 2013
|Egypt                        |  | 1.24
    to 12.21, depending on total monthly consumption, subsidized                                       |  | 2014
|Ethiopia                     |  | 6.7
    to 7.7                                                                                              |  | 2012
|France                       |  | 20                                                                                                          |  | 2011
|Germany                      |  | 28.49                                                                                                       |  | 2013
|Romania                      |  | 18.40                                                                                                       |  | 2013
|Hungary                      |  | 17                                                                                                          |  | 2013
|India                        |  | 0.1
    to 18 (average 7)                                                                                   |  | 2013
|Indonesia                    |  | 8.75                                                                                                        |  | 2013
|Israel                       |  | 18                                                                                                          |  | 2013
|Italy                        |  | 32                                                                                                          |  | 2013
|Jamaica                      |  | 33
    to 34 (reduction due to lower fuel prices)                                                           |  | 2015
|Jordan                       |  | 5
    to 33                                                                                                 |  | 2012
|Korea
    (South)            |  | 5.50
    to 52.2                                                                                            |  | 2013
|Malaysia                     |  | 7.09
    to 14.76                                                                                           |  | 2013
|Netherlands                  |  | 26                                                                                                          |  | 2013
|New
    Zealand              |  | 19.15                                                                                                       |  | 2012
|Nicaragua                    |  | 10
    to 48, depending on total monthly consumption                                                        |  | 2014
|Nigeria                      |  | 2.58
    to 16.55                                                                                           |  | 2013
|Philippines                  |  | 36.13                                                                                                       |  | 2013
|Russia                       |  | 2.4
    to 14                                                                                               |  | 2013
|Singapore                    |  | 20.88                                                                                                       |  | 2013
|Spain                        |  | 30                                                                                                          |  | 2013
|South
    Africa             |  | 8
    to 16                                                                                                 |  | 2012
|Thailand                     |  | 6
    to 13                                                                                                 |  | 2013
|Turkey                       |  | 12.57
    to 18.63                                                                                          |  | 2014
|United
    Kingdom           |  | 24                                                                                                          |  | 2013
|United
    States            |  | 12                                                                                                          |  | 2013
|Vietnam                      |  | 6.20
    to 10.01                                                                                           |  | 2011



Sources:
http://en.wikipedia.org/wiki/Electricity_pricing#Global_electricity_price_comparison;http://www.eia.gov/todayinenergy/detail.cfm?id=18851http://cleantechnica.com/2013/09/30/average-electricity-prices-around-world/



7







Island
nations have some of the highest energy prices in the world, an average of $0.39/kWh in 2010, according to data from the Pacific
Power Association. Yet most of them are located in areas with ample solar and wind resources, a combination of factors that makes
them good markets for our products. For example, Jamaica was the country of one of our first large-scale deployments.





Markets
Where Energy Supply Is Inconsistent or Non-Existent



Places
where the supply of electricity either does not exist or is very unreliable or sporadic represent a huge opportunity for us. The
“World Energy Outlook 2011” (WEO-2011), published by the International Energy Agency (IEA) and the World Bank, reports
that 1.3 billion people lived without any access to electricity in 2009:



|Region               |  | Population
                                         withoutelectricity(in millions) |       |  | Electrificationrate |  |      | Urbanelectrificationrate |  |  | Ruralelectrificationrate |  
|-------------------- |  | ----------------------------------------------------------------------------------- | ----- |  | ------------------- |  | ---- | ------------------------ |  |  | ------------------------ | -
|Africa               |  |                                                                                     | 587   |  |                     |  | 41.8 | %                        |  |  | 68.8                     | %
|North Africa         |  |                                                                                     | 2     |  |                     |  | 99.0 | %                        |  |  | 99.6                     | %
|Sub-Saharan Africa   |  |                                                                                     | 585   |  |                     |  | 30.5 | %                        |  |  | 59.9                     | %
|Developing Asia      |  |                                                                                     | 675   |  |                     |  | 81.0 | %                        |  |  | 94.0                     | %
|China & East Asia    |  |                                                                                     | 182   |  |                     |  | 90.8 | %                        |  |  | 96.4                     | %
|South Asia           |  |                                                                                     | 493   |  |                     |  | 68.5 | %                        |  |  | 89.5                     | %
|Latin America        |  |                                                                                     | 31    |  |                     |  | 93.2 | %                        |  |  | 98.8                     | %
|Middle East          |  |                                                                                     | 21    |  |                     |  | 89.0 | %                        |  |  | 98.5                     | %
|Developing countries |  |                                                                                     | 1,314 |  |                     |  | 74.7 | %                        |  |  | 90.6                     | %
|World*               |  |                                                                                     | 1,317 |  |                     |  | 80.5 | %                        |  |  | 93.7                     | %



*World
total includes OECD and Eastern Europe/Eurasia

Source:
http://www.worldenergyoutlook.org/resources/energydevelopment/accesstoelectricity/



The
countries with the greatest number of people without access to electricity are shown below; these twenty countries are home to
almost 890 million people who lack electricity, representing about three-quarters of the global total.







Source:
http://www.iea.org/publications/freepublications/publication/Global_Tracking_Framework.pdf.



8







In
addition to those who lack any access to electricity, the United Nations Foundation reports that about 1 billion people have only
intermittent access to electricity, which is in addition to those without access to power. In India, according to the World Bank,
“grid-based power shortages during peak hours averaged 17 percent in the first half of 2009.” Moreover, the World
Bank also notes that, “To cope with widespread outages in Sub-Sahara Africa, a number of countries have had to contract
short term leases for emergency generation in the form of containerized mobile diesel units costing as much as $0.35 per kilowatt-hour,
with lease payment absorbing more than 1 percent of GDP in many cases.”



According
to the United Nations Foundation, “The lack of modern energy services stifles income-generating activities and hampers the
provision of basic services such as health care and education. In addition, smoke from polluting and inefficient cooking, lighting,
and heating devices kills nearly two million people a year and causes a range of chronic illnesses and other health impacts. These
emissions are important drivers of climate change and local environmental degradation. They also consume time that women and girls
could spend in more productive activities and pose security risks for them as they forage for fuel.” As a result, the UN
has called for reaching 100% electrification rate by 2030, as part of its very ambitious “Sustainable Energy for All”
(SE4ALL) initiative. In financial terms, it is estimated that the costs to implement the three objectives of the SE4ALL initiative
will be at least $600–$800 billion per year in addition to current spending.



The
many local, national and international projects aimed at improving access to electricity in poor countries represent a huge opportunity
for us. We believe that our products are more affordable than many alternatives from competitors, allowing our products to electrify
more villages for any given budget. At the same time, our units are small, scalable and easily installed. They can be delivered
to remote areas with an ordinary pick-up truck (or even a cart) and do not require an installation team or specialized equipment
(such as a truck or lifting equipment) to be installed, reducing deployment time and the cost to local communities, authorities
and sponsors.



Recognizing
the urgent need to provide power to the Sub-Saharan region of Africa, the Obama Administration has established the “Power
Africa” initiative, a $7 billion effort to bring energy to the continent. Project partners have committed an additional
$20 billion in the form of direct loans, guarantee facilities, and equity investments. Power Africa works with African governments,
the private sector, and other partners such as the World Bank and African Development Bank to add more than 30,000 megawatts (MW)
of cleaner, more efficient electricity generation capacity in Sub-Saharan Africa. By expanding mini-grid and off-grid solutions
and building out power generation, transmission, and distribution structures, Power Africa will also increase electricity access
by adding more than 60 million new household and business connections. At the same time, Power Africa will enhance energy resource
management capabilities, allowing partner countries to meet their critical energy needs and achieve sustainable, long-term energy
security.



Government
Mandates for Renewable Energy



Another
strong market for our products is the global trend of government incentives or legal mandates to utilize renewable energy sources.
There are several reasons for government intervention:



| | ● | Need
    to control climate change;                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                    
| | ● | Need
    to reduce pollution and other negative externalities;                                                                                                     
| |   |                                                                                                                                                                    
| | ● | Need
    to ensure adequate electricity supply to the growing population or the need to increase electrification rates and the quality
    of supplied electricity;
| |   |                                                                                                                                                                    
| | ● | Need
    to switch to sustainable energy sources in the context of rising energy prices and finite fossil fuels; and                                               
| |   |                                                                                                                                                                    
| | ● | Political
    pressure from environmentally conscious citizens.                                                                                                    



Because
of the relatively high cost of renewable energy (especially in markets where conventional electricity is quite cheap due to an
abundant supply of fossil fuels or hydro-electric power), such government intervention and incentivizing is often necessary to
make sure that renewables are being actively researched and introduced and that they are not prohibitively expensive for consumers.



By
early 2014, at least 144 countries had renewable energy targets and 138 countries had renewable energy support policies in place.
Developing and emerging economies have led the expansion in recent years and account for 95 of the countries with support policies,
up from 15 in 2005.



9







|Share
    of electricity generation from renewables, existing in 2012 and targets
|---------------------------------------------------------------------------------
|                                                                                 
|COUNTRY                                                                          
|                                                                                 
|EU-27                                                                            
|Algeria                                                                          
|                                                                                 
|Antigua                                                                          
|and                                                                              
|Barbuda                                                                          
|Argentina2                                                                       
|Australia                                                                        
|Austria                                                                          
|Azerbaijan                                                                       
|Bahamas                                                                          
|                                                                                 
|Bangladesh                                                                       
|                                                                                 
|Barbados                                                                         
|Belgium                                                                          
|Belize                                                                           
|Bulgaria                                                                         
|Cape Verde                                                                       
|Chile3                                                                           
|Cook Islands                                                                     
|                                                                                 
|Costa Rica                                                                       
|Croatia                                                                          
|Cyprus                                                                           
|Czech Republic                                                                   
|Denmark4                                                                         
|                                                                                 
|Djibouti                                                                         
|Dominica                                                                         
|Dominican
    Republic                                                           
|Egypt                                                                            
|Eritrea                                                                          
|Estonia                                                                          
|Fiji                                                                             
|Finland                                                                          
|France                                                                           
|Gabon                                                                            
|Germany                                                                          
|                                                                                 
|                                                                                 
|                                                                                 
|Ghana2                                                                           
|Greece                                                                           
|Guatemala                                                                        
|Guyana                                                                           
|Honduras                                                                         
|                                                                                 
|Hungary                                                                          
|Indonesia                                                                        
|Iraq                                                                             
|Ireland                                                                          
|Israel                                                                           
|                                                                                 
|Italy                                                                            
|Jamaica                                                                          
|Kazakhstan                                                                       
|                                                                                 
|Kiribati                                                                         
|Kuwait                                                                           
|Latvia                                                                           
|Lebanon                                                                          
|Liberia                                                                          
|Libya                                                                            
|Lithuania                                                                        
|Luxembourg                                                                       
|                                                                                 



Notes:
1 National share is for 2012 unless otherwise noted. 2 National target(s) exclude(s) large hydropower. 3Chile’s target excludes hydropower plants over 40 MW. 4 Denmark set a target of 50% electricity consumption
supplied by wind power by 2020 in March 2012. 5 Mali’s target excludes large hydropower. 6 Nigeria’s
target excludes hydropower plants over 30 MW. 7 Russia’s targets exclude hydropower plants over 25 MW. 8Thailand does not classify hydropower installations larger than 6 MW as renewable energy sources, so large-scale hydro >6
MW is excluded from national shares and targets. 9 India does not classify hydropower installations larger than 25
MW as renewable energy sources, so large-scale hydro >25 MW is excluded from national shares and targets.

Source:
http://www.ren21.net/portals/0/documents/resources/gsr/2014/gsr2014_full%20report_low%20res.pdf



10







Sustainability-Conscious
Market



Another
market segment of interest to us is the “voluntary” market, which is driven by individuals and corporations that want
to switch to environmentally-friendly energy alternatives. These consumers are prepared to pay a premium for electricity generated
from the sun, wind, or other sustainable and non-polluting sources.



It
is difficult to clearly separate the part of renewable energy demand that is motivated purely by voluntary sustainability-driven
decisions from the part driven by government mandates, prices or lack of alternatives. Nonetheless, we believe that this demand
factor will be more prominent in developed economies, where consumers can afford to be environmentally conscious.



On
the corporate side, many businesses wish to communicate to their customers that they are environmentally aware in order to build
brand equity. According to a 2012 National Renewable Energy Laboratory report, the motivation behind such labeling is driven by
several factors, including:



| | ● | Product
    differentiation;                                                            
| | - | ----------------------------------------------------------------------------------------
| |   |                                                                                         
| | ● | Enhancing
    the brand image and building customer loyalty;                            
| |   |                                                                                         
| | ● | Targeting
    a specific consumer segment (the environmentally-conscious consumers); and
| |   |                                                                                         
| | ● | Ability
    to charge a price premium.                                                  



We
believe this demonstrates that there is significant demand for sustainable products among consumers, and that this demand extends
to energy as well, as a “green” consumer will try to be green in everything, not just in products bought from a supermarket.



Distributed
Energy Generation (DEG)



Many
areas in the world lack access to energy infrastructure, often due to the prohibitive cost of its construction or insufficient
generating capacity. Such infrastructure is not only expensive but also time-consuming to build. This often means that it is quicker,
often cheaper, and more reliable to introduce point-of-use generation capacity, also called a Distributed Energy Generation model.
For example, in India, where the overall electrification rate stands at 75%, one-third of total installed capacity is so-called
“captive” generation—electricity produced by firms for their own consumption. In addition, sustainability-conscious
consumers who lack a choice of renewable energy options may conclude that installing their own generation equipment is the only
way to consume sustainable, reliable energy. According to a report by Grand View Research, Inc., it is expected that an increase
in consumer awareness with regard to benefits offered by distributed energy generation in terms of air pollution, climate changes
and greenhouse emission are expected to drive demand for DEG.



The
DEG market is a logical consequence of infrastructure problems and various goals set by international organizations and local
governments. It is hard to imagine 100% electrification through the conventional large-scale utility business model alone, as
this would require building transmission lines to serve every single remote community, no matter its size or energy demands. The
cost of such construction and subsequent maintenance would be so great that such infrastructure would eventually be abandoned
due to the inability of consumers or governments to pay the full cost. As a result, DEG could be an effective and cost-efficient
method of providing electricity to areas that otherwise would not be economically feasible.



One
report estimates that 36% of all new generation capacity added by 2030 will come from mini-grids and another 20% from off-grid
stand-alone installations. In addition, more and more countries are integrating off-grid energy solutions into broader rural development
policies and frameworks, such as:



| | ● | Bangladesh,
    where over 2 million solar systems with capacities of 10–200W had been installed as of May 2013, with over 1,000 systems
    estimated to be installed every day; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                      
| | ● | Inner
    Mongolia, China, where around 130,000 wind systems with capacities between 200W and 1,000W each were in operation as of early
    2013, serving more than 500,000 people.  



The
Grand View Research report estimates that the DEG market will grow to $179.7 billion by 2020. Currently the most active DEG regions
are Europe and Asia Pacific. Europe has dominated the market as a result of massive corporate investments spurred by generous
government incentives. However, Asia Pacific is expected to experience the strongest regional growth due to cheap labor and financial
incentives, significantly driven by growing energy demand in India and China. Overall, Europe, the Middle East and Africa are
expected to benefit from abundant solar and wind resources as strong drivers for the DEG market.



While
the commercial and industrial DEG market segments have dominated to date, the residential sector is expected to post the fastest
growth of all segments in coming years with a compounded annual growth rate of 13.5% expected between 2014 and 2020. This provides
us with a great opportunity, as we believe our products are better suited for residential and small commercial projects than for
large-scale industrial ones.



11







Our
Products



Although
we started with the wind-only TurboMill® product, which forms the basic building block of all of our energy solutions,
we have evolved the product into a hybrid SolarMill® solution, which combines wind with solar power. We also have
two additional products in various stages of development, the MobileMillTM and the TowerMillTM.



SolarMill®



Our
concept is that this product will be simple to operate, elegant and appealing to place in any setting, yet durable, reliable,
efficient, affordable and safe. We believe that the renewable resources available in 90% of the world can justify a hybrid energy
system, not just to balance annual energy output, but also to capture the available resources at the lowest cost per watt in the
market for a renewable energy platform. Our engineers have developed a product that overcomes the “inconsistent” nature
of renewable energy resources. By integrating wind and solar technologies in a single unit, the SolarMill is a reliable renewable
energy generation device that a customer can depend on year round.



The
SolarMill® is a modular, scalable, distributed renewable energy system designed and optimized for on- and off-grid
installations. It utilizes three low-profile vertical axis wind turbines mounted on a single base with integrated photovoltaic
(PV) panels. By incorporating wind and PV technology within a compact footprint, we believe that it can be an effective solution
in markets where the natural resources available for wind energy alone cannot justify any small wind product.



Each
SolarMill® is constructed as a stand-alone, small power generator and is equipped with all necessary circuitry,
electronics and sensors. At the same time, multiple SolarMills can be interconnected to maximize wind energy production in low
and turbulent wind environments, commonly found in urban settings. Additional modules can be attached at a later date, if the
customer desires greater power generation capability.



Proprietary
generators are coreless, permanent magnet machines, which offer increased energy generation capabilities while operating at lower
speeds, eliminating gearboxes that are more prone to failure. Each unit has a solid-state independent control circuit that extracts
power from the wind, which power is then sent to an industry standard grid-tie inverter for transfer to a building’s electrical
system or a battery bank for off-grid applications.



When
grid-connected, the electrical energy created is directly fed into the building’s electrical service panel, offsetting portions
of the building’s overall draw. In off-grid or direct-to-storage applications, the products utilize the on-board charge
controller to regulate a 48V direct current battery system and then output via a DC/AC or DC/DC converter, based on the type of
loads that need to be served. Onboard each SolarMill® is our proprietary Maximum Power Point Tracking (MPPT) electronics
and solar charge controller, which is designed to maximize the power handling and generation capabilities of both the wind turbines
and solar panels. This system maintains all power generation at maximum efficiency without the need for additional hardware or
software.



SolarMills
are designed to be aesthetically pleasing and are manufactured in a variety of colors to match the needs and aesthetic choices
of specific customers and installation requirements. All aspects of the product, including bases, turbine blades and mounting
assemblies, are designed to be lightweight but durable enough to withstand the elements. Designed for longevity, the products
incorporate fault and failure protection and come with a 5-year warranty on all parts and labor. The bases and turbine blades
are interchangeable and easily configured.



MobileMillTM



In
October 2014, we launched a unique mobile product, the MobileMillTM. The MobileMillTM is designed to meet the needs
of “first responders” around the world. By providing a self-contained solution for the rapid deployment of renewable
energy generation and “command and control” operations, the MobileMillTM speeds up the deployment of operations
for those who serve on the front line of disaster relief and assists in saving the lives of those who have been affected by these
tragedies.



12







Originally
designed and developed for the Indiana Department of Homeland Security (IDHS), the MobileMillTM is a renewable energy platform
that features rapid deployment and operation, extreme energy efficiency and redundant power generation. From a customized vehicle,
solar panels and wind turbines deploy in under 60 seconds, powering computers and communication equipment while storing energy
on-site for an uninterrupted 24-hour power supply. The batteries may be charged in transit allowing the MobileMillTM to be
fully functional upon arrival at a disaster zone. To meet customer needs, the MobileMillTM will be available in a variety
of configurations, with generation capability between 3 kW and 8 kW, a scalable battery array for energy storage, and required
peripherals, such as laptops, communication devices, task lighting, and device charging. This first-of-its-kind mobile technology
will replace or supplement the traditional diesel generators required to operate the primary systems IDHS uses to provide location-based
emergency support. Drawing energy from wind and solar resources, the MobileMillTM ensures that the stored system will stay
charged by offering a generator and grid-tied energy as a backup.



Our
representatives have presented the MobileMillTM to decision makers in the Philippines, India, Malaysia and Japan, all of
whom have shown excitement about the technology. The MobileMillTM was featured at the 99th Annual League of Municipalities
in Atlantic City, New Jersey, and drew wide interest from city representatives and the emergency responders’ community.
The MobileMillTM will be a separate manufacturing line within WindStream’s growing suite of products. We expect MobileMillTM
production to commence in the fourth quarter of 2015.



TowerMillTM



We
are developing what we believe is a unique technology, a derivative of our SolarMill® products, which harnesses
the available renewable resources to power communication towers. By taking the efficient and affordable design of the SolarMill®technology and installing the turbine and solar components of the product along the side of a communications tower, the
electronic components can then be powered from clean renewable energy with a fail-safe generator used only at times when natural
resources alone cannot provide the needed energy. This new product line, the TowerMillTM, is now being piloted in the Bahamas
as a means of providing clean and consistent energy to a telecom tower insuring 100% uptime for the telecommunications company.
We believe that these early-phase trials will prove the efficiency of the product and the ultimate cost savings to the owner and/or
operator of the tower and its supporting electronics.





Distribution
Channels



Our
products are sold primarily through distribution agreements.



Project
Partnering



Our
business plan involves “partnering” with various entities such as utilities, sovereign and independent power producers,
to provide the ability to bring solutions to the market as rapidly as possible. Our involvement in each project is to facilitate
product development with our expertise, intellectual property and project management team. This project partnering allows us to
increase our penetration in various international markets without committing costly “on the ground” resources for
extended periods of time and reducing the amount of upfront capital that we need to commit to new markets.



Jamaica



We
began 2014 with a large purchase order from Jamaica Public Service (JPS), the billion dollar utility of Jamaica. This contract
called for $14.5 million of products that we began delivery upon the first quarter of 2014, and in May 2014 JPS ordered an additional
$8.1 million in products. We continue to build and ship products to JPS to fulfill the current purchase orders, which are expected
to be fulfilled in 2015. With energy rates in the Caribbean close to three times greater than the U.S. average of $0.12kWh, the
cost of grid supplied energy on Jamaica is very high, providing us with an opportunity that makes our SolarMills an attractive
option. SolarMills offset their initial cost with renewable energy while reducing the demand on the JPS generation and distribution
infrastructure. JPS now offers our products to its customers as a direct sale through its chain of eStores and retail outlets
as well as advertising the products on national television.



In
addition to marketing to residential customers, JPS has also begun marketing the SolarMill® products to businesses
throughout the country. Large installations have been sold to customers ranging from 10 kW to 300 kW. As well, JPS has agreed
to be an authorized distributor for the SolarMill® and our related technologies in the Caribbean. JPS is one of
the largest public utilities in the Caribbean and its commercial commitment and promotional activities have generated significant
interest in other countries in the region. To date, we have initiated shipments to Curacao, Grand Cayman and the Bahamas. Our
joint business plan with JPS includes our goal is to increase our penetration in the Caribbean and replicate our relationship
with JPS with other public utilities in other parts of the Caribbean.



India



To
better position ourselves to capitalize on this huge potential market, on October 26, 2013, we created a wholly-owned subsidiary,
WindStream Energy Technologies India, Pvt. Ltd. (WET), which is an Indian entity located in Hyderabad. WET will provide sales,
marketing, engineering, and service support for our products and customers as well as manage the Indian manufacturing operations.
We are in the process of acquiring certifications for our products from the Ministry of New and Renewable Energy (MNRE), Gujarat
Energy Research & Management Institute, and the Center for Wind Energy Technologies. Once certified, the SolarMill®and its associated products will be eligible to be included as authorized products for use within any government-promoted
initiatives. Additionally, customers of the products will be eligible for the government incentives offered for the use of renewable
energy products.



13







In
October 2014, we announced our entrance into an agreement with West Coast Ventures (India) Pvt. Ltd. (WCV), based in Chennai,
India, and a group of strategic investors. A new entity, DEEPAN Energy Venture LLP (Deepan), has been created by WCV for this
investment, which has committed $2 million for an equity stake. WET has received $873,000 of the $2 million dollars and expects
the balance of the funding to arrive during April 2015. We have accounted for WCV’s interest in WET as a non-controlling
45% interest as of December 31, 2014, although WCV will legally own and receive its shares representing its 45% interest only
upon full payment of the subscription amount.





Deepan
and WET are in the process of establishing a manufacturing presence in India and South Asia. WET was slated to take occupancy
of its manufacturing facility in April 2015, and begin manufacturing our SolarMill® products in the second quarter
of 2015, which will rapidly accelerate our penetration into that market. Due to delays in the construction of the manufacturing
facility, WET is now scheduled to take occupancy of the factory by May 4, 2015. This delay will not adversely affect the production
schedule of WET as assembly of products has continued in the adjacent facility.



Manufacturing



In
August 2011, we leased a 50,000 sq. ft. building in North Vernon, Indiana and retrofitted the facility for mass production of
our renewable energy products. This facility houses all the necessary elements for us to manufacture, assemble and deliver our
products. The facility houses the following disciplines: assembly of turbines; painting; metal fabrication; electronics fabrication;
generator assembly; final product assembly; testing; and shipping and receiving.



Utilizing
one assembly line and one shift of workers, we are currently capable of producing 500 units a month with 35 employees, which can
be scaled up to 1,000 units/month by hiring additional employees and adding a second shift as demand for the products warrant.
We plan to expand our manufacturing capability, when needed. To meet demand for the MobileMillTM product, specifically designed
fabrication and manufacturing areas will be added to this facility.



As
discussed above, the factory in India will use the same design and manufacturing model as the North Vernon facility and the disciplines
will also be the same. Initially, the U.S. facility will be supplying WET with component parts, which WET will use to build our
products. Over time, the WET operation will phase out the need for the U.S.-supplied components, as the tooling for the individual
parts are manufactured and the component parts are inspected, tested and meet the approval of WindStream’s engineers. We
expect to deliver between 2,000 and 3,000 SolarMills from the WET facility in 2015.



Governmental
Regulation



We
are subject to laws and regulations affecting our domestic and international operations in a number of areas. These U.S. and foreign
laws and regulations affect the Company’s activities which include, but are not limited to, the areas of labor, advertising,
consumer protection, real estate, billing, quality of services, intellectual property and ownership and infringement, tax, import
and export requirements, anti-corruption, foreign exchange controls and cash repatriation restrictions, data privacy requirements,
anti-competition, environmental, and health and safety.



In
the U.S., our operations are subject to stringent and complex federal, state and local laws and regulations governing the occupational
health and safety of our employees and wage regulations. For example, we are subject to the requirements of the federal Occupational
Safety and Health Act, as amended, or OSHA, and comparable state laws that protect and regulate employee health and safety. We
expend resources to maintain compliance with OSHA requirements and industry best practices that could otherwise be spent on sales
or business development.



14







Compliance
with these laws and regulations may be onerous and expensive, and they may be inconsistent from jurisdiction to jurisdiction,
which further increases the cost of doing business. Any such costs, which may rise in the future as a result of changes in these
laws and regulations or in their interpretation, could individually or in the aggregate make our products and services less attractive
to our customers, delay the introduction of new products in one or more regions, or cause us to change or limit our business practices.
We have implemented policies and procedures designed to ensure compliance with applicable laws and regulations, but there are
no assurances that our employees, contractors or agents will not violate such laws and regulations or our policies and procedures.



Regulatory
Matters



To
operate our systems, our customers may need to obtain interconnection agreements from the applicable local primary electricity
utility. This frequently depends on the size of the energy system and the specific utility tariffs, but the interconnection agreements
are between the local utility and our customers. In almost all cases, interconnection agreements are standard form agreements
that have been pre-approved by the local public utility commission or other regulatory body with jurisdiction over interconnection.
As such, no additional regulatory approvals are required once interconnection agreements are signed.



Environmental
Considerations



Environmental
regulations may affect us by restricting the manufacturing or use of our products. Regulatory or legislative changes may cause
future increases in our operating cost or otherwise affect operations. Although we believe we are and have been in complete compliance
with such regulations, there is no assurance that in the future we may not be adversely affected by such regulations or incur
increased operating costs in complying with such regulations. However, neither the compliance with regulatory requirements nor
our environmental procedures can ensure that we will not be subject to claims for personal injury, property damages or governmental
enforcement.



Government
Incentives



Each
of the United States, Canada, the United Kingdom and Chile has established various incentives and financial mechanisms to reduce
the cost of solar and wind energy and to accelerate the adoption of solar and wind energy. These incentives include tax credits,
cash grants, tax abatements, rebates and renewable energy credits or green certificates and net energy metering programs. These
incentives help catalyze private sector investments in solar energy and positively impact our products’ financial performance.



Intellectual
Property



We
believe that we have an extensive patent portfolio and substantial know-how relating to our renewable energy solutions. We strive
to protect the proprietary technology that we believe is important to our business, including our proprietary products and our
processes. We seek patent protection in the United States and internationally for our products, their methods of use and processes
of manufacture, and any other technology to which we have rights, where available and when appropriate. We also rely on trade
secrets that may be important to the development of our business.





Our
success will depend on 1) the ability to obtain and maintain patent and other proprietary rights in commercially important technology,
inventions and know-how related to our business, 2) the validity and enforceability of our patents, 3) the continued confidentiality
of our trade secrets, and 4) our ability to operate without infringing the valid and enforceable patents and proprietary rights
of third parties. We also rely on continuing technological innovation and in-licensing opportunities to develop and maintain our
proprietary position.



We
cannot be certain that patents will be granted with respect to any of our pending patent applications or with respect to any patent
applications we may own or license in the future, nor can we be certain that any of our existing patents or any patents we may
own or license in the future will be useful in protecting our technology.



The
term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most countries
in which we file, the patent term is 20 years from the date of filing the first non-provisional priority application. In the United
States, a patent’s term may be lengthened by patent term adjustment, which compensates a patentee for administrative delays
by the U.S. Patent and Trademark Office, or PTO, in granting a patent, or may be shortened if a patent is terminally disclaimed
over an earlier-filed patent.



15







Issued
Patents



Our
current patents owned are as follows:



|Patent
    No. |  | Title                                                       |  | Country/Region |  |  | Expiration
    Date | 
|-------------- |  | ----------------------------------------------------------- |  | -------------- |  |  | ------------------- | 
|8,823,194      |  | Modular Alternative Energy Unit                             |  | U.S.A.         |  |  | January 29, 2030    | 
|8,536,720      |  | Modular Wind Energy Unit with Simple Electrical Connections |  | U.S.A.         |  |  | January 29, 2030    | 



Pending
Patent Applications



Our
current pending patent applications are as follows:



|Application
    No. |  | Title                               |  | Country/Region            
|------------------- |  | ----------------------------------- |  | --------------------------
|PCT/US2010/001011   |  | Modular Alternative
    Energy Unit |  | PCT                       
|P10910897-1         |  |                                     |  | Brazil                    
|10 767 409.5        |  |                                     |  | European
    Patent Office
|8985/DELNP/2011     |  |                                     |  | India                     
|2012-507193         |  |                                     |  | Japan                     
|10-2011-7027840     |  |                                     |  | South
    Korea           
|MX/a/2011/011042    |  |                                     |  | Mexico                    



Trademarks
and Service Marks



We
seek trademark and service mark protection in the United States and outside of the United States where available and when appropriate.
We have registered the following trademarks: TurboMill®, TurboMills® and SolarMill®
and have filed trademark applications for TowerMillTM and MobileMillTM.





Competition

Our
products require specific site locations and appropriate weather conditions. Given these constraints and the increasing focus
on renewable energy to offset the environmental problems caused by fossil fuels, the renewable energy industry is highly competitive,
and rapidly evolving. Our major competitors include leading global players, and other regional and international developers.

In
the markets where we plan to conduct business, we will compete with many energy producers including electric utilities and large
independent power producers. There is also competition from fossil fuel sources such as natural gas and coal, and other renewable
energy sources such as solar, traditional wind, hydro and geothermal. The competition depends on the resources available within
the specific markets. However, we are selling our products to the user that either does not have access to a connection or is
connecting to supplement their use of energy that is high in cost or inconsistent. Additionally, we believe that our pricing and
focus on distributor and end-customer relationships allow us to compete favorably with traditional utilities in the regions we
service.

Although
the cost to produce clean, reliable, renewable energy is becoming more competitive with traditional fossil fuel sources, it generally
remains more expensive to produce, and the reliability of its supply is less consistent than traditional fossil fuel. Deregulation
and consumer preference are becoming important factors in increasing the development of alternative energy projects.

We
believe that governments and consumers recognize the importance of renewable energy resources in the energy mix, and are facilitating
the implementation of wind and other renewable technologies. We believe that we can compete favorably with our competitors given
that the key competitive factors for wind and solar project development and operation include, without limitation:

| | ● | site
                                         selection and acquisition;                                                                                                                           
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                    
| | ● | permit
                                         and project development experience;                                                                                                                
| |   |                                                                                                                                                                                                    
| | ● | relationship
                                         with government authorities and knowledge of local policies;                                                                                 
| |   |                                                                                                                                                                                                    
| | ● | ability
                                         to secure high-quality, Tier 1 panels and balance-of-system components at favorable prices
                                         and terms; and
| |   |                                                                                                                                                                                                    
| | ● | expertise
                                         in permit and project development.                                                                                                              



However,
we cannot guarantee that some of our competitors do not or will not have advantages over us in terms of greater operational, financial,
technical, management or other resources in particular markets or in general. Wind and solar power has certain advantages and
disadvantages when compared to other power generating technologies. The advantages include the ability to deploy products in many
sizes and configurations, install products almost anywhere in the world, provide reliable power for many applications and reduce
air, water and noise pollution.



16









Employees



We
currently have 47 full-time employees, of which 28 are hourly workers in the manufacturing facility. We employ 19 full time personnel
in sales, engineering, management and administrative capacity. None of our employees are represented by a labor union.



ITEM
1A – RISK FACTORS



RISKS
RELATED TO OUR BUSINESS



We
have a short operating history and have not produced significant revenues over a period of time. This makes it difficult to evaluate
our future prospects and increases the risk that we will not be successful.



We
have a short operating history with our current business model, which involves the manufacture, marketing and distribution of
products producing solar and wind renewable energy. While we have been in existence since 2008, we have only generated revenues
in the last few years, and our operations have not yet been profitable. No assurances can be given that we will generate any significant
revenue in the future. As a result, we have a very limited operating history for you to evaluate in assessing our future prospects.
Our operations have not produced significant revenues over a period of time, and may not produce significant revenues in the near
term, which may harm our ability to obtain additional financing and may require us to reduce or discontinue our operations. You
must consider our business and prospects in light of the risks and difficulties we will encounter as an early-stage company in
a new and rapidly evolving industry. We may not be able to successfully address these risks and difficulties, which could significantly
harm our business, operating results, and financial condition.



We
have a history of losses which may continue and which may negatively impact our ability to achieve our business objectives.





For
the years ended December 31, 2014 and 2013, we incurred net losses of approximately $11,270,000 and $4,845,000 respectively. In
addition, at December 31, 2014, we had an accumulated deficit of approximately $21,750,000. We cannot assure you that we can achieve
or sustain profitability on a quarterly or annual basis in the future. Our operations are subject to the risks and competition
inherent in the establishment of a business enterprise. There can be no assurance that future operations will be profitable. Revenues
and profits, if any, will depend upon various factors, including whether we will be able to continue expansion of our revenue.
We may not achieve our business objectives and the failure to achieve such goals would have an adverse impact on us.



We
expect to rely upon strategic relationships in order to execute our business plan and the Company may not be able to consummate
the strategic relationships necessary to execute its business plan.



We
plan to enter into and rely on strategic relationships with other parties, in particular to acquire rights necessary to develop
and build proposed projects and to develop and build such projects. These strategic relationships could include licensing agreements,
partnerships, joint ventures, or even business combinations. We believe that these relationships will be particularly important
to our future growth and success due to our size and resources and the resources necessary to complete our proposed projects.
We may, however, not be able to successfully identify potential strategic relationships. Even if we do identify one or more potentially
beneficial strategic relationships, we may not be able to consummate these relationships on favorable terms or at all, obtain
the benefits it anticipates from such relationships or maintain such relationships. In addition, the dynamics of our relationships
with possible strategic partners may require us to incur expenses or undertake activities it would not otherwise be inclined to
undertake in order to fulfill our obligations to these partners or maintain the our relationships.



To
the extent we consummate strategic relationships: it may become reliant on the performance of independent third parties under
such relationships. Moreover, certain potentially critical strategic relationships are only in the early stages of discussion
and have not been officially agreed to and formalized. If strategic relationships are not identified, established or maintained,
or are established or maintained on terms that become unfavorable, our business prospects may be limited, which could have a negative
impact on our ability to execute our business plan, diminish our ability to conduct our operations and/or materially and adversely
affect our business and financial results.



Project
development or construction activities may not be successful and proposed projects may not receive required permits or construction
may not proceed as planned.



The
development and construction of our proposed projects will involve numerous risks. We may be required to spend significant sums
for preliminary engineering, permitting, legal, and other expenses before we can determine whether a project is feasible, economically
attractive or capable of being built. Success in developing a particular project is contingent upon, among other things: (i) negotiation
of satisfactory engineering, procurement and construction agreements; (ii) receipt of required governmental permits and approvals,
including the right to interconnect to the electric grid on economically acceptable terms; (iii) payment of interconnection and
other deposits (some of which may be non-refundable); (iv) obtaining construction financing; and (v) timely implementation and
satisfactory completion of construction.



Successful
completion of a particular project may be adversely affected by numerous factors, including: (i) delays in obtaining required
governmental permits and approvals with acceptable conditions; (ii) uncertainties relating to land costs for projects on land
subject to Bureau of Land Management procedures; (iii) unforeseen engineering problems; (iv) construction delays and contractor
performance shortfalls; (v) work stoppages; (vi) cost over-runs; (vii) equipment and materials supply; (viii) adverse weather
conditions; and (ix) environmental and geological conditions.



17









The
solar industry competes with both conventional power industries and other renewable power industries.



The
solar industry faces intense competition from all other players within the energy industry, including both conventional energy
providers such as nuclear, natural gas and fossil fuels as well as other renewable energy providers, including geothermal, hydropower,
biomass, wind, nuclear energy, natural gas and other fossil fuels. Other energy sources may benefit from innovations that reduce
costs, increase safety or otherwise improve their competitiveness. New natural resources may be discovered, or global economic,
business or political developments may disproportionately benefit conventional energy sources or other renewable energy sources
at the expense of solar. Governments may strengthen their support for other renewable energy sources and reduce their support
for the solar industry. For instance, the recent decline in oil prices has adversely impacted the competitiveness of solar energy.
Failure for our customers, other business partners or us to compete with the providers of other energy sources may materially
and adversely affect our business, results of operations and financial condition.



The
report of our independent registered public accounting firm contains an emphasis paragraph that indicates there is substantial
doubt concerning our ability to continue as a going concern as a result of our recurring losses from operations and working capital
deficiencies.



Our
audited consolidated financial statements for the fiscal years ended December 31, 2014 and 2013 were prepared on a going concern
basis in accordance with GAAP. The going concern basis of presentation assumes that we will continue in operation and be able
to realize our assets and discharge our liabilities and commitments in the normal course of business. In order for us to continue
operations beyond the next twelve months, we must be able discharge our liabilities and commitments in the normal course of business;
generate operating income; reduce operating expenses; produce cash from our operating activities, and potentially raise additional
funds to meet our working capital needs. We cannot guarantee that we will be able to generate operating income, reduce operating
expenses, produce cash from our operating activities, or obtain additional funds through either debt or equity financing transactions,
or that such funds, if available, will be obtainable on satisfactory terms. If we are unable to reduce operating expenses, produce
cash from our operating activities, or obtain additional funds through either debt or equity financing transactions, we may be
unable to continue to fund our operations, provide our services or realize value from our assets and discharge our liabilities
in the normal course of business. These uncertainties raise substantial doubt about our ability to continue as a going concern.
If we become unable to continue as a going concern, we may have to liquidate our assets, and might realize significantly less
than the values at which they are carried on our consolidated financial statements, and stockholders may lose all or part of their
investment in our common stock. The accompanying financial statements do not contain any adjustments as a result of this uncertainty.



To
execute our overall business strategy, we require additional working capital, which may not be available on terms favorable to
us or at all. If additional capital is not available or is available at unattractive terms, we may be forced to delay, reduce
the scope of or eliminate our operations, including our research and development programs.



We
have an ambitious business plan for strong growth of our business, which will require us to raise additional financing to supplement
our cash flows from operations to fully execute. We will require additional financing to execute our business strategy. To the
extent we raise additional capital through the sale of equity securities, the issuance of those securities could result in dilution
to our shareholders. In addition, if we obtain debt financing, a substantial portion of our operating cash flow may be dedicated
to the payment of principal and interest on such indebtedness, thus limiting funds available for our business activities. If adequate
funds are not available, we may be required to delay, reduce the scope of or eliminate our research and development programs,
reduce our marketing and sales efforts or reduce or curtail our operations. In addition, we may be required to obtain funds through
arrangements with collaborative partners or others that may require us to relinquish rights to technologies or products that we
would otherwise seek to develop or commercialize ourselves or license rights to technologies or products on terms that are less
favorable to us than might otherwise be available.



There
can be no assurance that if we were to need additional funds to meet obligations we have incurred, or may incur in the future,
that additional financing arrangements would be available in amounts or on terms acceptable to us, if at all. Furthermore, if
adequate additional funds are not available, we may be required to delay, reduce the scope of, or eliminate material parts of
the implementation of our business strategy.



18









We
face strong competition from other energy companies, including traditional and renewable providers.



The
energy provider business is highly competitive. Our competitors range in size from small companies focusing on single products
to large multinational corporations that manufacture and supply many types of products. Our main competitors vary by region and
product. We compete against other renewable energy providers, including wind, solar, hydropower and geo-thermal, as well as traditional
electricity providers. Almost all of our competitors have greater financial and other resources than we do and may be able to
grow more quickly through strategic acquisitions and may be able to better respond to changing business and economic conditions.
Our net income could be adversely affected by competitors’ product innovations and increased pricing pressure. Individual
competitors have advantages and strengths in different sectors of our markets, in different products and in different areas, including
manufacturing and distribution systems, geographic market presence, customer service and support, breadth of product, delivery
time and price. Many of our competitors also have greater access to capital and technological resources and we may not be able
to compete successfully with them.





Our
lack of diversification will increase the risk of an investment in us, and our financial condition and results of operations may
deteriorate if we fail to diversify.



Our
current business focuses primarily on one product in the renewable energy space, our SolarMill. We are also working to bring other
products to market, including the TowerMill and MobileMill. Larger companies have the ability to manage their risk by diversification.
However, we currently lack diversification, specifically in terms of the nature of our business. As a result, we will likely be
impacted more acutely by factors affecting our industry in which we operate, than we would if our business were more diversified,
enhancing our risk profile.



If
we fail to successfully introduce new products, we may lose market position.



New
products, product improvements, line extensions or new services will be an important factor in our sales growth. If we fail to
identify emerging consumer and technological trends, to maintain and improve the competitiveness of our existing products or to
successfully introduce new products on a timely basis, we may lose market position. Continued product development and marketing
efforts have all the risks inherent in the development of new products and line extensions, including development delays, the
failure of new products and line extensions to achieve anticipated levels of market acceptance and the cost of failed product
introductions.



Our
continued success depends on our ability to protect our intellectual property. The failure to do so could impact our profitability
and stock price.



Our
success depends, in part, on our ability to obtain and enforce patents, maintain trade-secret protection and operate without infringing
on the proprietary rights of third parties. Litigation can be costly and time consuming. Litigation expenses could be significant.
While we have been issued patents and have registered trademarks with respect to our products and technology, our competitors
may infringe upon our patents or trademarks, independently develop similar or superior products or technologies, duplicate our
designs, trademarks, processes or other intellectual property or design around any processes or designs on which we have or may
obtain patents or trademark protection. In addition, it is possible that third parties may have or acquire other technology or
designs that we may use or desire to use, so that we may need to acquire licenses to, or to contest the validity of, such third-party
patents or trademarks. Such licenses may not be made available to us on acceptable terms, if at all, and we may not prevail in
contesting the validity of such third-party rights.



In
addition to patent and trademark protection, we also protect trade secrets, know-how and other confidential information against
unauthorized use by others or disclosure by persons who have access to them, including our employees, through contractual arrangements.
These agreements may not provide meaningful protection for our trade secrets, know-how or other proprietary information in the
event of any unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary information.
If we are unable to maintain the proprietary nature of our technologies, we may lose market share to competing products using
the same or similar technology.



Litigation
brought by third parties claiming infringement of their intellectual property rights or trying to invalidate intellectual property
rights owned or used by us may be costly and time consuming.



We
may face lawsuits from time to time alleging that our products infringe on third-party intellectual property, and/or seeking to
invalidate or limit our ability to use our intellectual property. If we become involved in litigation, we may incur substantial
expense defending these claims and the proceedings may divert the attention of management, even if we prevail. An adverse determination
in proceedings of this type could subject us to significant liabilities, allow our competitors to market competitive products
without a license from us, prohibit us from marketing our products or require us to seek licenses from third parties that may
not be available on commercially reasonable terms, if at all.



19







Product
liability claims could have a material adverse effect on our operating results and negatively impact our stock price.



We
face an inherent business risk of exposure to product liability claims arising from the alleged failure of our products. Any material
uninsured losses due to product liability claims that we experience could subject us to material losses. We could be required
to recall or redesign our products if they prove to be defective.We maintain insurance against product liability claims,
but it is possible that our insurance coverage will not continue to be available on terms acceptable to us or that such coverage
will not be adequate for liabilities actually incurred. A successful claim
brought against us in excess of available insurance coverage, or any claim or product recall that results in significant expense
or adverse publicity against us, could have a material adverse effect on our business, operating results and financial condition.



Our
executive officers and other key personnel are critical to our business, and our future success depends on our ability to retain
them.



Our
success depends to a significant extent upon the continued services of Mr. Daniel Bates, our President and Chief Executive Officer
and Mr. Travis Campbell, our Chief Operating Officer. Mr. Bates has overseen WindStream Sub since its inception in 2008 and provides
leadership for our growth and operations strategy as well as being an inventor on our patents. Mr. Campbell provides significant
business development and international operations experience. Loss of the services of Messrs. Bates or Campbell would have a material
adverse effect on our growth, revenues, and prospective business. The loss of any of our key personnel, or the inability to attract
and retain qualified personnel, may significantly delay or prevent the achievement of our research, development or business objectives
and could materially adversely affect our business, financial condition and results of operations.



Any
employment agreement we enter into will not ensure the retention of the employee who is a party to the agreement. In addition,
we have only limited ability to prevent former employees from competing with us. Furthermore, our future success will also depend
in part on the continued service of our key sales and marketing personnel and our ability to identify, hire, and retain additional
personnel. We experience intense competition for qualified personnel and may be unable to attract and retain the personnel necessary
for the development of our business.



Our
resources may not be sufficient to manage our expected growth; failure to properly manage our potential growth would be detrimental
to our business.



We
may fail to adequately manage our anticipated future growth. Any growth in our operations will place a significant strain on our
administrative, financial and operational resources, and increase demands on our management and on our operational and administrative
systems, controls and other resources. We cannot assure you that our existing personnel, systems, procedures or controls will
be adequate to support our operations in the future or that we will be able to successfully implement appropriate measures consistent
with our growth strategy. As part of this growth, we may have to implement new operational and financial systems, procedures and
controls to expand, train and manage our employee base, and maintain close coordination among our staff. We cannot guarantee that
we will be able to do so, or that if we are able to do so, we will be able to effectively integrate them into our existing staff
and systems.



If
we are unable to manage growth effectively, such as if our sales and marketing efforts exceed our capacity to perform our services
and maintain our products or if new employees are unable to achieve performance levels, our business, operating results and financial
condition could be materially adversely affected. As with all expanding businesses, the potential exists that growth will occur
rapidly. If we are unable to effectively manage this growth, our business and operating results could suffer. Anticipated growth
in future operations may place a significant strain on management systems and resources. In addition, the integration of new personnel
will continue to result in some disruption to ongoing operations. The ability to effectively manage growth in a rapidly evolving
market requires effective planning and management processes. We will need to continue to improve operational, financial and managerial
controls, reporting systems and procedures, and will need to continue to expand, train and manage our work force.



Our
ability to provide effective customer service and efficiently fulfill orders depends, to a large degree, on the efficient and
uninterrupted operation of the manufacturing and related distribution centers and management information systems and on the timely
performance of other third parties, such as shipping companies. Any material disruption or slowdown in our manufacturing, order
processing or fulfillment systems resulting from strikes or labor disputes, telephone down times, electrical outages, mechanical
problems, human error or accidents, fire, natural disasters, adverse weather conditions or comparable events could cause delays
in our ability to receive and distribute orders and may cause orders to be lost or to be shipped or delivered late. As a result,
customers may cancel orders or refuse to receive goods on account of late shipments that would result in a reduction of net sales
and could mean increased administrative and shipping costs. Our success depends in part on our maintaining high quality customer
service and any failure to do so could adversely affect our business, financial condition or results of operations.



20







Failure
to properly manage projects may result in unanticipated costs or claims.



Our
project engagements may involve large scale, highly complex projects. The quality of our performance on such projects depends
in large part upon our ability to manage the relationship with our customers, and to effectively manage the project and deploy
appropriate resources, including third-party contractors and our own personnel, in a timely manner. Any defects or errors or failure
to meet customers’ expectations could result in claims for substantial damages against us. Our contracts generally limit
our liability for damages that arise from negligent acts, errors, mistakes or omissions in rendering services to our customers.
However, we cannot be sure that these contractual provisions will protect us from liability for damages in the event we are sued.
In addition, in certain instances, we guarantee customers that we will complete a project by a scheduled date or that the network
will achieve certain performance standards. If the project or network experiences a performance problem, we may not be able to
recover the additional costs we would incur, which could exceed revenues realized from a project.



We
use hazardous chemicals in our business. Potential claims relating to improper handling, storage or disposal of these chemicals
could affect us and be time consuming and costly.



Our
research and development processes and/or those of our third party contractors may involve the controlled use of hazardous materials
and chemicals. These hazardous chemicals are reagents and solvents typically found in a chemistry laboratory. Our operations also
produce hazardous waste products. Federal, state and local laws and regulations govern the use, manufacture, storage, handling
and disposal of hazardous materials. While we attempt to comply with all environmental laws and regulations, including those relating
to the outsourcing of the disposal of all hazardous chemicals and waste products, we cannot eliminate the risk of contamination
from or discharge of hazardous materials and any resultant injury. In the event of such an accident, we could be held liable for
any resulting damages and any liability could materially adversely affect our business, financial condition and results of operations.



Compliance
with environmental laws and regulations may be expensive. Current or future environmental regulations may impair our research,
development or production efforts. We might have to pay civil damages in the event of an improper or unauthorized release of,
or exposure of individuals to, hazardous materials. We are not insured against these environmental risks.



If
we enter into collaborations with third parties, they might also work with hazardous materials in connection with our collaborations.
We may agree to indemnify our collaborators in some circumstances against damages and other liabilities arising out of development
activities or products produced in connection with these collaborations.



In
addition, the federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of
hazardous or radioactive materials and waste products may require us to incur substantial compliance costs that could materially
adversely affect our business, financial condition and results of operations.



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 our existing and potential distributors.
A reduction, delay or cancellation of orders from one or more significant distributors could significantly reduce our revenues
and could damage our reputation among our current and potential customers. We have signed multiple distribution agreements throughout
the United States and international locations. The agreements have no termination penalties and not all of the distributors are
currently active.



We
depend on a limited number of third-party suppliers for key raw materials and components and their failure to perform could cause
manufacturing delays and impair our ability to deliver our products to customers in the required quality and quantities and at
a price that is profitable to us.



Our
failure to obtain raw materials and components that meet our quality, quantity and cost requirements in a timely manner could
interrupt or impair our ability to manufacture our products or increase our manufacturing cost. Most of our key raw materials
are either sole-sourced or sourced by a limited number of third-party suppliers. As a result, the failure of any of our suppliers
to perform could disrupt our supply chain and impair our operations. In addition, many of our suppliers are small companies that
may be unable to supply our increasing demand for raw materials as we implement our planned rapid expansion. We may be unable
to identify new suppliers or qualify their products for use on our production lines in a timely manner and on commercially reasonable
terms, if at all, which could have a material adverse impact on our financial condition and results of operations.



21







Our
international operations subject us to a number of risks, including unfavorable political, regulatory, labor and tax conditions
in foreign countries.



We
have operations outside the U.S. and expect to continue to have operations outside the U.S. in the near future. Currently, we
have manufacturing operations in India and established subsidiaries in Peru and India. As a result, we will be subject to the
legal, political, social and regulatory requirements and economic conditions of many jurisdictions. Risks inherent to international
operations, include, but are not limited to, the following:



| | ● | difficulty
    in enforcing agreements in foreign legal systems;                                                                                                                                                                                        
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                         
| | ● | foreign
    countries may impose additional withholding taxes or otherwise tax our foreign income, impose tariffs, or adopt other restrictions
    on foreign trade and investment, including currency exchange controls;                               
| |   |                                                                                                                                                                                                                                                         
| | ● | fluctuations
    in exchange rates may affect product demand and may adversely affect our profitability in U.S. dollars to the extent the price
    of our products, cost of raw materials and labor and equipment is denominated in a foreign currency;
| |   |                                                                                                                                                                                                                                                         
| | ● | inability
    to obtain, maintain, or enforce intellectual property rights;                                                                                                                                                                             
| |   |                                                                                                                                                                                                                                                         
| | ● | risk
    of nationalization of private enterprises;                                                                                                                                                                                                     
| |   |                                                                                                                                                                                                                                                         
| | ● | changes
    in general economic and political conditions in the countries in which we operate;                                                                                                                                                          
| |   |                                                                                                                                                                                                                                                         
| | ● | unexpected
    adverse changes in foreign laws or regulatory requirements, including those with respect to environmental protection, export
    duties and quotas;                                                                                      
| |   |                                                                                                                                                                                                                                                         
| | ● | difficulty
    with staffing and managing widespread operations; and                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                         
| | ● | trade
    barriers such as export requirements, tariffs, taxes and other restrictions and expenses, which could increase the prices
    of our solar modules and make us less competitive in some countries.                                            





We
may be exposed to liabilities under the Foreign Corrupt Practices Act, and any determination that we violated the Foreign Corrupt
Practices Act could have us subject to civil or criminal liability and that could have a material adverse effect on our business
and prevent us from operating in one or more jurisdictions.



We are
subject to the Foreign Corrupt Practices Act (“FCPA”) and other laws that prohibit improper payments or offers of
payments to foreign governments and their officials and political parties for the purpose of obtaining or retaining business.
We may do business in the future in countries and regions, in which we may face, directly or indirectly, corrupt demands by officials,
tribal or insurgent organizations, or private entities. Thus, we face the risk of unauthorized payments or offers of payments
by one of our employees or consultants, even though these parties are not always subject to our control. Our existing safeguards
and any future improvements may prove to be less than effective, and our employees and consultants may engage in conduct for which
we might be held responsible. Violations of the FCPA may result in severe criminal or civil sanctions, and we may be subject to
other liabilities, which could negatively affect our business, operating results and financial condition. In addition, the government
may seek to hold us liable for successor liability FCPA violations committed by companies in which we invest or that we acquire.



22







RISKS
RELATED TO OUR STOCK



There
has been a limited trading market for our common stock.



It
is anticipated that there will be a limited trading market for our common stock on the OTC Markets for the foreseeable future.
The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that
you consider reasonable. The lack of an active market may also reduce the fair market value of your shares. An inactive market
may also impair our ability to raise capital by selling shares of capital stock and may impair our ability to acquire other companies
or technologies by using common stock as consideration.



The
market price of our common stock may, and is likely to continue to be, highly volatile and subject to wide fluctuations.



The
market price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in response to a number
of factors that are beyond our control, including:



| | ● | dilution
    caused by our issuance of additional shares of common stock and other forms of equity securities, which we expect to make
    in connection with future capital financings to fund our operations and growth, to attract and retain valuable personnel and
    in connection with future strategic partnerships with other companies;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                   
| | ● | quarterly
    variations in our revenues and operating expenses;                                                                                                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                   
| | ● | changes
    in the valuation of similarly situated companies, both in our industry and in other industries;                                                                                                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                   
| | ● | changes
    in analysts’ estimates affecting our company, our competitors and/or our industry;                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                   
| | ● | changes
    in the accounting methods used in or otherwise affecting our industry;                                                                                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                   
| | ● | additions
    and departures of key personnel;                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                   
| | ● | announcements
    of technological innovations or new products available to the renewable energy industry;                                                                                                                                                                                                                                        
| |   |                                                                                                                                                                                                                                                                                                                                                   
| | ● | fluctuations
    in interest rates and the availability of capital in the capital markets; and                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                   
| | ● | significant
    sales of our common stock.                                                                                                                                                                                                                                                                                                        



These
and other factors are largely beyond our control, and the impact of these risks, singly or in the aggregate, may result in material
adverse changes to the market price of our common stock and/or our results of operations and financial condition.



We
do not anticipate paying dividends on our common stock and, accordingly, shareholders must rely on stock appreciation for any
return on their investment.



We
have never declared or paid cash dividends on our common stock and do not expect to do so in the foreseeable future. The declaration
of dividends is subject to the discretion of our board of directors and will depend on various factors, including our operating
results, financial condition, future prospects and any other factors deemed relevant by our board of directors. You should not
rely on an investment in our company if you require dividend income from your investment in our company. The success of your investment
will likely depend entirely upon any future appreciation of the market price of our common stock, which is uncertain and unpredictable.
There is no guarantee that our common stock will appreciate in value.



23







We
expect that our quarterly results of operations will fluctuate, and this fluctuation could cause our stock price to decline.



Our
quarterly operating results are likely to fluctuate in the future. These fluctuations could cause our stock price to decline.
The nature of our business involves variable factors, such as the timing of new contracts, purchase orders, research and development
and introduction of new products, which could cause our operating results to fluctuate. Due to the possibility of fluctuations
in our revenues and expenses, we believe that quarter-to-quarter comparisons of our operating results are not a good indication
of our future performance.



Certain
provisions of our corporate governing documents and Wyoming law could discourage, delay, or prevent a merger or acquisition at
a premium price and can impair the rights of the holders of common stock.



Certain
provisions of our organizational documents and Wyoming law could discourage potential acquisition proposals, delay or prevent
a change in control of our company, or limit the price that investors may be willing to pay in the future for shares of our common
stock. For example, our Articles of Incorporation and Bylaws permit us to issue, without any further vote or action by the stockholders,
shares of preferred stock in one or more series and, with respect to each series, to fix the number of shares constituting the
series and the designation of the series, the voting powers (if any) of the shares of the series, and the preferences and relative,
participating, optional, and other special rights, if any, and any qualifications, limitations, or restrictions of the shares
of the series. As well, our Articles of Incorporation and Wyoming law allow us to issue an unlimited number of shares of equity
stock, both common and preferred. As a result, we never need to seek shareholder approval to increase the number of shares of
stock that we are authorized to issue, as is common in most other jurisdictions. In addition, our corporate governance documents
allow our Board of Directors to adopt amendments to our Bylaws.



Our
common stock is subject to the “penny stock” rules of the SEC and the trading market in our securities is limited,
which makes transactions in our stock cumbersome and may reduce the value of an investment in our stock.



The
SEC has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as
any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share,
subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:



| | ● | that
    a broker or dealer approve a person’s account for transactions in penny stocks; and                                                                              
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                           
| | ● | the
    broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity
    of the penny stock to be purchased.



In
order to approve a person’s account for transactions in penny stocks, the broker or dealer must:



| | ● | obtain
    financial information and investment experience objectives of the person; and                                                                                                                                                                     
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                              
| | ● | make
    a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient
    knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.



The
broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating
to the penny stock market, which, in highlight form:



| | ● | sets
    forth the basis on which the broker or dealer made the suitability determination; and                
| | - | --------------------------------------------------------------------------------------------------------------
| |   |                                                                                                               
| | ● | that
    the broker or dealer received a signed, written agreement from the investor prior to the transaction.



Generally,
brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make
it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.



Disclosure
also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the
rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to
be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny
stocks.



24







FINRA
sales practice requirements may also limit a shareholder’s ability to buy and sell our stock.



In
addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an
investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that
customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make
reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other
information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced
securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers
to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse
effect on the market for our shares.



ITEM
1B – UNRESOLVED STAFF COMMENTS



There
are no unresolved staff comments at December 31, 2014.



ITEM
2 – PROPERTIES



We
maintain our principal office and manufacturing facility at 819 Buckeye Street, North Vernon, Indiana 47265, pursuant to a twenty
four month lease entered into effective October 1, 2014, with rent in the first twelve months of $7,800 per month plus building
operating expenses. For the second twelve month period, the rent will be approximately $8,500 per month plus building operating
expenses. This principal office and manufacturing space consists of approximately 50,000 square feet and is believed to be suitable
and adequate to meet current business requirements.



In
2014, WET leased office space, of approximately 9,500 square feet, and manufacturing space, of approximately 50,000 square feet,
in India in connection with expanding its operations. The office space lease is a month-to-month lease with annual rent of approximately
$24,000. The manufacturing facility lease is a six-year lease with annual rent of approximately $120,000. The lease commenced
on April 1, 2015, when the Company’s subsidiary occupied the space.



ITEM
3 – LEGAL PROCEEDINGS



From
time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business.
However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time
to time that may harm our business. Except as disclosed below, we are currently not aware of any such legal proceedings or claims
that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or
operating results.







In
2013, we filed a lawsuit in theUnited States District Court for
the Southern District of Indianaagainst a prior vendor asserting causes of action for trademark
infringement, false designation of origin, breach of contract, and interference with contract. We contracted with certain of the
defendants to provide component parts and to act as our authorized dealer in specified territories. Those defendants have breached
the various agreements. Other defendants, in violation of the Lanham Act, have misappropriated our creations, are passing off
our products as their own, and are infringing our trademarks and trade dress. By the action, we seek damages (including treble
damages, punitive damages, and attorney’s fees) and injunctive relief under the Lanham Act and related statutory and common
law of the State of Indiana. At this point in the litigation, we have not yet quantified the precise amount of damages it seeks,
but we believe the damages to be in excess of $100,000.







The
defendant has asserted counter-claims against us. In the counter-claims, the defendant seeks against damages from us of at least
$29,246, plus interest, in connection with our handling of certain warranty claims, and an award of an unspecified number of TurboMill
windmills (or the monetary value of the windmills) in connection with an alleged loan made to us.



The
deposition of persons most knowledgeable for the defendants and other related parties was taken on May 19, 2014. The current status
of the case is that defendants have answered our amended complaint and we have answered their counterclaims, and the parties have
begun the discovery process. The case has a final Status Conference Hearing scheduled for May 8, 2015 with a trial date set for
October 13, 2015. While the parties have made significant progress in settling the case, our counsel is unable to provide a meaningful
evaluation of the likelihood of a favorable outcome or an estimate of the realistic range of damages should we prevail. If the
parties are unable to settle the matter, we intend to take the case to trial and seek damages and injunctive relief.



ITEM
4 – MINE SAFETY DISCLOSURES



Not
applicable.



25







PART
II



ITEM
5 – MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES



Price
Range of Common Stock



Our
common stock is currently available for quotation on the OTCQB market under the symbol “WSTI.” The following table
sets forth, for the periods indicated, the high and low sales prices per share of our common stock as reported by the OTCQB market.
Our stock did not trade prior to October 2013.



|               |  | Fiscal
    Year 2013 |     
|-------------- |  | -------------------- | ----
|               |  | High                 |     
|Fourth Quarter |  | $                    | 0.65



|               |  | Fiscal
    Year 2014 |     
|-------------- |  | -------------------- | ----
|               |  | High                 |     
|First Quarter  |  | $                    | 1.25
|Second Quarter |  | $                    | 2.07
|Third Quarter  |  | $                    | 1.04
|Fourth Quarter |  | $                    | .65 



On
April 10, 2015, the closing sale price of our common stock, as reported by the OTCQB market, was $0.249 per share. On April 10,
2015, there were 173 holders of record of our common stock. Because many of our shares of common stock are held by brokers and
other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these
record holders.



Dividend
Policy



We
have never paid any cash dividends on our capital stock and do not anticipate paying any cash dividends on our common stock in
the foreseeable future. We intend to retain future earnings to fund ongoing operations and future capital requirements of our
business. Any future determination to pay cash dividends will be at the discretion of the Board and will be dependent upon our
financial condition, results of operations, capital requirements and such other factors as the Board deems relevant.



Equity
Compensation Information



None.



Recent
Sales of Unregistered Securities



During
the three months ended December 31, 2014, we entered into subscription agreements with accredited investors for the issuance of
302,572 shares of common stock at prices ranging from $0.35 to $0.40 per share, for an aggregate purchase price of $109,348, less
commissions paid of $13,540.



During the three months
ended December 31, 2014, two stock option holders exercised their options and received 356,993 shares of our common stock at an
exercise price of $0.05 per share.



Purchases
of Equity Securities by the Issuer and Affiliated Purchasers



We
did not purchase any of our registered securities during the period covered by this Annual Report.



ITEM
6 – SELECTED FINANCIAL DATA



Not
required under Regulation S-K for “smaller reporting companies.”



26







ITEM
7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



This
Management’s Discussion and Analysis of Financial Condition and Results of Operations includes a number of forward-looking
statements that reflect Management’s current views with respect to future events and financial performance. You can identify
these statements by forward-looking words such as “may” “will,” “expect,” “anticipate,”
“believe,” “estimate” and “continue,” or similar words. Those statements include statements
regarding the intent, belief or current expectations of us and members of its management team as well as the assumptions on which
such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of
future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by
such forward-looking statements.



Readers
are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with
the Securities and Exchange Commission. Important factors known to us could cause actual results to differ materially from those
in forward-looking statements. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions,
the occurrence of unanticipated events or changes in the future operating results over time. We believe that its assumptions are
based upon reasonable data derived from and known about our business and operations and the business and operations of the Company.
No assurances are made that actual results of operations or the results of our future activities will not differ materially from
its assumptions. Factors that could cause differences include, but are not limited to, expected market demand for the Company’s
products and services, fluctuations in pricing for materials, and competition.



Overview



WindStream
has designed and manufactures a patented small-wind (the TurboMill®) and hybrid (wind and solar) (the SolarMill®)
renewable energy device that is suitable for “on or off” grid installations in the urban or rural setting. The Company
operates out of its 50,000 sq. ft. facility in North Vernon, Indiana. It has secured an Export Insurance Policy from the Export
Import Bank of the United States, (EXIM) allowing it to offer financing terms to its overseas buyers. The Company is actively
marketing and selling its products to customers all over the world.



Plan
of Operations



WindStream
has identified two significant markets for the sale of its products in the near term:



| | 1. | Areas
    of the world where energy is inconsistent or non-existent (e.g., India, Africa, South Asia, Latin America and Asia)                                                                                                                                                                                                                                                        
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                      
| | 2. | Areas
    of the world where energy costs are high, which includes Jamaica and throughout the Caribbean, South Asia and Europe. In many
    cases, available energy in a given region may be generated by running diesel generators in which case the displaced cost of
    energy include the upfront cost of the equipment as the ongoing operating cost of the generator and fuel.



These
two drivers present a large percentage of the world’s population and as such, we are finding great success in penetrating
these markets with its highly efficient, low cost devices. We have entered into various distribution partnerships with key companies
and individuals in these markets in order to more quickly establish a presence and generate revenue from these territories and
the Company will continue to use these types of arrangements to expand.



Revenues



We
generate substantially all of our net sales from the sale of small wind and hybrid products, the TurboMill® and
SolarMill®, respectively. We are primarily selling the SolarMill® to our customers who are looking
for a more consistent energy generation device.



27







Cost
of Sales



Our
cost of sales includes the cost of raw material and components such as stamped metal parts contained in the turbine blades and
generator housings, injection molded components, electronic circuitry, and other components. Other items contributing to our cost
of sales are the direct assembly labor and manufactured overhead from our component suppliers. Overall, we currently expect our
cost of sales per unit to decrease as we ramp production lots in the future to meet the product demands from our customers.



Gross
Profit



Gross
profit is affected by numerous factors, including our average selling prices, distributor discounts, foreign exchange rates, and
our manufacturing costs. Another factor impacting gross profits is the ramp of production going forward. As a result of the above,
gross profits may vary from quarter to quarter and year to year.



Research
and Development



Research
and development expense consists primarily of salaries and personnel-related costs and the cost of products, materials and outside
services used in our process and product research and development activities.



Stock Compensation Expense



The
Company issues stock-based awards to employees and also for acquiring goods or services. For awards to employees, stock compensation
is measured at the grant date, based on the fair value of the award and is recognized over the estimated service period on the
straight-line attribute method. For options issued for acquiring good or services, the expense for the acquiring goods or services
is based on the fair value of the goods or services and the measurement date is the earlier of the date of commitment for performance
or the date at which the performance is complete.



Selling,
General and Administrative



Selling,
general and administrative expense consists primarily of salaries and other personnel-related costs, professional fees, insurance
costs, travel expense and other selling expenses. We expect these expenses to increase in the near term, both in absolute dollars
and as a percentage of net sales, in order to support the growth of our business as we expand our sales and marketing efforts,
improve our information processes and systems and implement the financial reporting, compliance and other infrastructure required
by a public company. Over time, we expect selling, general and administrative expense to decline as a percentage of net sales
as our net sales increase.



WindStream
sells its products through distribution channels to reduce the direct sales cost incurred by the Company. The Company has signed
distribution agreements with Jamaica’s national utility company, Jamaica Public Service, (JPS) for Jamaica and throughout
the Caribbean. In Japan, the Company has signed a distribution agreement with Tosmo, Inc. In Malaysia, the Company has signed
a distribution agreement with MY WindStream Energy, Sdn Bhd, an unrelated third party. In Africa, several agreements have been
signed with the following distributors for sales throughout Africa: Suka Wind & Solar Ltd. in Ghana, one of the country’s
largest solar installers, Senan Liberia, Inc. in Liberia, Africa Energy Limited in Kenya and Viza Networks Limited Tanzania. In
Turkey, the distributor is Meytek Group, a large installer of solar systems, and Key City Trading in the Netherlands and B.E.S.T.
Ltd. in New Zealand. These are generally non-exclusive agreements giving the distributor the right to sell the Company’s
products and see in-market success prior to entering into exclusive sales agreements with success-based milestones.



While limiting the cost
of sales by Windstream-based sales staff, there are costs involved in setting up these distribution agreements, primarily in travel
to vet the distributor and their capabilities. Windstream also requires the distributor to attend training in the North Vernon
facility for assembly and installation of the Company’s products.



Other
Expenses



Interest
expense, net of amounts capitalized, is incurred on various debt financings as well as the amount recorded for the derivative
liability associated with convertible notes and warrants. Any interest income earned on our cash, cash equivalents and marketable
securities is netted in other expenses as it is immaterial.



Use
of Estimates



Our
discussion and analysis of our financial condition and results of operations are based upon our audited consolidated financial
statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amount of assets, liabilities, net sales and expenses and related disclosure
of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to inventories,
intangible assets, income taxes, warranty obligations, marketable securities valuation, derivative financial instrument valuation,
end-of-life collection and recycling, contingencies and litigation and share based compensation. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.



28







Recent
Developments



| | ● | We
    have leased a 50,000 sq. ft. manufacturing facility in Hyderabad, India to manufacture our products in India.       
| | - | ---------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                            
| | ● | SolarMills
    have been used to illuminate an iconic statue in Tandil, Argentina.                                         
| |   |                                                                                                                            
| | ● | Our
    first TowerMill trial installation began on April 7, 2015 in the Bahamas.                                          
| |   |                                                                                                                            
| | ● | We
    have shipped 8 containers of SolarMill product to Jamaica Public Service Co. (JPS).                                 
| |   |                                                                                                                            
| | ● | We
    launched our MobileMill TM product, a portable renewable energy generation for 1st responders in disaster situations.



Results
of Operations for the Years Ended December 31, 2014 and 2013, in Aggregate



|                                                           |  | December
    31, 2014 |             |   | December
    31, 2013 |  
|---------------------------------------------------------- |  | --------------------- | ----------- | - | --------------------- | -
|Sales                                                      |  | $                     | 1,764,358   |   |                       | $
|Cost of Sales                                              |  |                       | 2,331,707   |   |                       |  
|Gross Loss                                                 |  |                       | (567,349    | ) |                       |  
|Research and Development Expenses                          |  |                       | 146,178     |   |                       |  
|Inventory write-down                                       |  |                       | 111,000     |   |                       |  
|Stock compensation                                         |  |                       | 5,224,258   |   |                       |  
|General and Administrative Expenses                        |  |                       | 3,632,857   |   |                       |  
|Operating Expenses                                         |  |                       | 9,114,293   |   |                       |  
|Other Expense                                              |  |                       | (1,651,496  | ) |                       |  
|Net Loss                                                   |  | $                     | (11,333,138 | ) |                       | $
|Non Controlling Interest                                   |  |                       | (63,501     | ) |                       |  
|Net Loss attributable to Windstream
    Technologies, Inc. |  |                       | (11,269,637 | ) |                       |  



For
the twelve months ended December 31, 2014 and 2013, we reported net losses of $11,269,637 and $4,844,553, respectively. The $6,425,084
increase in net loss in the twelve months ended December 31, 2014 from 2013 was primarily attributable to a $3.3 million increase
in stock-based compensation, an increase in, general and administrative expenses of 2.2 million, primarily Compensation
related, as well as an increase in interest expense, net, of $1,112,793,
which includes higher interest costs on increased short term borrowings and adjustments to convertible notes payable with imbedded
derivatives of $424,071 charged to interest expense in 2014. There were no such convertible debt charges in 2013.



Sales
-Net sales for the twelve months ended December 31, 2014 were $1,764,358, compared to $895,561 for the twelve months ended
December 31, 2013. The increase in sales is due to our success in obtaining international customers in 2014.



29







Cost
of Sales -During twelve months ended December 31, 2014, cost of sales was $2,331,707 compared to $1,491,166 for the twelve
months ended December 31, 2013. The amounts are higher due to increased sales in 2014 versus 2013 and the gross profit loss decreased
due to greater efficiency in the sales and manufacturing activities.



Gross
Loss -During the twelve months ended December 31, 2014 and 2013, the gross loss percentage was approximately 32% and 67%,
respectively. The decrease in the gross loss percentage is primarily attributable to increased sales as well as increased manufacturing
costs, labor and overheads, which grew at a rate slower than the rate of increase in sales, and increased warranty expenses in
2014 versus 2013.



Operating
Expenses



Total
operating expenses for the twelve months ended December 31, 2014 were $9,114,293, as compared to $3,710,245 for the twelve months
ended December 31, 2013.



Research
and Development - Research and development expenses for the twelve months ended December 31, 2014 were $146,178, compared
to $402,273 for the twelve months ended December 31, 2013. The decrease is primarily attributable to reduced development activities
as we concentrated on increasing sales of our existing products.



Write-down
of Inventory -During the twelve months ended December 31, 2014, we evaluated our inventory and wrote down inventory by approximately
$111,000, ascertain materials and components were no longer saleable.  There was no such write-down in 2013.



Stock
Compensation - Stock compensation expense for the twelve months ended December 31, 2014, was $5,224,258 as compared to $1,957,606
for the twelve months ended December 31, 2013. Included in stock compensation expense for the twelve months ended December 31,
2013 was $1.5 million in stock based compensation paid to several outside parties, as well as $54,000 in warrants expense. There
was no such transactions in 2014.



General
and Administrative Expenses – General and administrative expenses for the twelve months ended December 31, 2014 were
$3,632,857, compared to $1,350,366 for the twelve months ended December 31, 2013, representing a year to year increase of $2,282,491.
The primary increase in general and administrative expenses in 2014 is attributable to cash compensation expenses for employees
and consultants of $2,248,218 for the year ended December 31, 2014 compared to $60,334 for the year ended December 31, 2013, an
increase of $1,687,884.



Inaddition, included in general and administrative expenses for the years ended December 31, 2014 and 2013 were advertising
fees totalling $259,309 and $25,937, respectively, resulting in an increase of $233,372. Materials for the years ended December
31, 2014 and 2013 were $117,098 and $1,953, respectively, resulting in an increase of $115,145. Insurance costs for the years
ended December 31, 2014 and 2013 were $117,098 and $1,953, respectively, resulting in an increase of $107,250. Travel fees for
the years ended December 31, 2014 and 2013 were $248,392 and $157,136, respectively, resulting in an increase of $91,256. The
increases in these general and administrative expenses were a result of increased sales and marketing efforts related to our products.



We anticipate that as
our operations increase, our research and development expenses may increase because we believe that maintaining state-of-the-art
products is key to our continued success, although we expect that such expenses will constitute a lower percentage of our operating
budget as much of our initial development efforts have been completed. We expect to achieve economies of scale in our general
and administrative expenses as our operations increase as much our administrative expenses are fixed costs, such as salaries of
key personnel and rent. As a result, while we may need to hire additional personnel as operations increase, we believe that the
increases in general and administrative expenses will be at a lower rate than the increase in revenues.



Other
Expense -Other expense for the twelve months ended December 31, 2014 was $1,651,496, compared to $538,703 for the twelve
months ended December 31, 2013. The increase in other expense is due to the amortization of original issue discount, approximately
$453,000 in 2014 and $220,000 in 2013, the adjustments to convertible notes with imbedded derivatives of $424,071 charged to interest
expense in 2014 that did not occur in 2013 as well as increased interest expense with the higher level of debt in 2014 versus
2013.



Results
of Operations for the Years Ended December 31, 2014 and 2013, Domestic



Sales
-Net sales in the domestic segment for the twelve months ended December 31, 2014 were $31,761, compared to $34,746 for the
twelve months ended December 31, 2013. The decrease in domestic sales is due to our efforts being focused on international sales
during 2014.



Cost
of sales -During the twelve months ended December 31, 2014, the cost of sales in the domestic segment was $39,304 compared
to $57,854 for the twelve months ended December 31, 2013. The decrease is due to the corresponding decrease in domestic sales
in 2014.



30







Results
of Operations for the Years Ended December 31, 2014 and 2013, International



Sales
-Net sales in the international segment for the twelve months ended December 31, 2014 were $1,732,597, compared to $860,815
for the twelve months ended December 31, 2013. The increase in sales is due to our successful efforts to obtain international
sales during 2014.



Cost
of sales -During twelve months ended December 31, 2014, the cost of sales in the international segment was $2,292,403, compared
to $1,433,312 for the twelve months ended December 31, 2013. The increase is due to the corresponding increase in international
sales in 2014, and the gross profit loss decreased due to greater efficiency in the sales and manufacturing activities.



Liquidity
and Capital Resources



The
following table summarizes total current assets, liabilities and working capital at December 31, 2014 compared to December 31,
2013:



|                    |  | December
    31, 2014 |            |   | December
    31, 2013 |   |            | Increase/(Decrease) | 
|------------------- |  | --------------------- | ---------- | - | --------------------- | - | ---------- | ------------------- | 
|Current Assets      |  | $                     | 5,049,596  |   |                       | $ | 1,776,758  |                     | 
|Current Liabilities |  | $                     | 9,993,240  |   |                       | $ | 3,173,428  |                     | 
|Working Capital     |  | $                     | (4,943,644 | ) |                       | $ | (1,396,670 | )                   | 



As
of December 31, 2014 and 2013, we had working capital deficiencies of $4,943,644 and $1,396,670, respectively. The increase in
deficiency was due primarily to increased use of short term financing to fund operations.



Our
working capital revolving line of credit with a bank was extended for another twelve months at substantially the same terms, but
with an increase in the current credit limit. The outstanding borrowings under the line of credit as of December 31, 2014 and
2013 were $1,991,605 and $500,000, respectively, which has been included in the short-term debt – third parties in the accompanying
consolidated balance sheets.



Going
Concern



In
their report dated April 10, 2015, our independent registered public accounting firm stated that our financial statements for
the year ended December 31, 2014 were prepared assuming that we would continue as a going concern. Our ability to continue as
a going concern is an issue raised due to net losses of approximately $11,330,000 and $4,845,000 for the years ended December
31, 2014 and 2013, respectively, and working capital deficits of approximately $4,944,000 and $1,396,000 at December 31, 2014
and 2013, respectively. In addition, we have an accumulated deficit of approximately $21,750,000 as of December 31, 2014 and require
additional financing to fund future operations. Our financial statements contain additional note disclosures describing the circumstances
that led to this disclosure.



Our
operations have not been sufficient to generate cash flow to fund operations and we have financed our activities using equity
and debt financings and borrowings from a line of credit. Our ability to achieve and maintain profitability and a positive cash
flow is dependent upon our ability to successfully develop and market our products and our ability to generate revenues. Our ability
to continue as a going concern is subject to our ability to obtain necessary funding from outside sources, including obtaining
additional funding from the sale of our securities or obtaining loans from various financial institutions, where possible. Our
continued net operating losses increase the difficulty in meeting such goals and there can be no assurances that such methods
will prove successful. While we continually look for additional financing sources, in the current economic environment, the procurement
of outside funding is difficult and there can be no assurance that such financing will be available on terms acceptable to us,
if at all.



The
following table provides selected financial data about us as of December 31, 2014 and 2013. For detailed financial information,
see the accompanying financial statements.



|                    |  | December
    31, 2014 |            |   | December
    31, 2013 |  
|------------------- |  | --------------------- | ---------- | - | --------------------- | -
|Cash                |  | $                     | 594,508    |   |                       | $
|Total assets        |  |                       | 5,365,295  |   |                       |  
|Total liabilities   |  | $                     | 11,210,403 |   |                       | $
|Stockholder deficit |  | $                     | (5,845,108 | ) |                       | $



31







Sources
of Liquidity



On
April 15, 2014, we entered into a note payable for $200,000 with a term of one year and interest accruing at a rate of 8%, which
is accruing and due in full at the end of the note. At December 31, 2014, the outstanding balance on this note was $200,000.



On
June 1, 2014, we entered into a subscription agreement with one accredited investor for the issuance of a convertible promissory
note in the principal amount of $400,000, which is convertible into shares of our common stock at $0.40 per share, and a warrant
entitling the holder to purchase up to 50,000 of shares of our common stock at $0.40 per share. The warrant has a term of three
years and vested immediately. The note bears interest at 12% for the first ninety days of the term and then bears interest at
18% for the next nine months. The note is due in one year. In connection with this transaction, a major shareholder and a related
party (the “Pledgor”) signed a pledge and security agreement, which grants a security interest in one million shares
of our common stock owned by the Pledgor.



During
the three months ended December 31, 2014, the Company entered into subscription agreements with accredited investors for the issuance
of 302,572 shares of common stock at prices ranging from $0.35 to $0.40 per share, for an aggregate purchase price of $109,348,
less commissions paid of $13,540.



On
September 26, 2014, we entered into a subscription agreement with an accredited investor for the issuance of a convertible promissory
note in the principal amount of $550,000, in exchange for $250,000 in cash at closing, investor notes payable to us of $250,000,
and $50,000 of original issue discount interest. The note is convertible into shares of our common stock as follows:



Lender Conversion



The Lender has the right
at any time after the Effective Date until the outstanding balance of the note has been paid in full, including without limitation
(i) until any Optional Prepayment Date or at any time thereafter with respect to any amount that is not prepaid, and (ii) during
or after any fundamental Default Measuring Period, at its election to convert (each instance of conversion is referred to as a
“Lender Conversion”) all or any part of the outstanding balance into shares (“Lender Conversion Shares”)
of the Company’s Common Stock, of the portion of the outstanding balance being converted (the “Conversion Amount”)
divided by the “Lender Conversion Price” of $.80, subject to potential future adjustments described below.



The conversion by the
Lender of any portion of the outstanding balance is only exercisable in three (3) tranches (each, a “Tranche”), consisting
of (i) an initial Tranche in an amount equal to $275,000 and any interest, costs, fees or charges accrued thereon or added thereto
under the terms of the note and the other Transaction Documents (as defined in the Securities Purchase Agreement) (the “Initial
Tranche”), and (ii) two (2) additional Tranches, each in the amount of $137,500, plus any interest, costs, fees, or charges
accrued thereon or added thereto under the terms of the note and the other Transaction Documents (each, a “Subsequent Tranche”).



Installment Conversions



At the option of the company
or the Lender, payments of each Installment Amount may be made (a) in cash, or (b) by converting such Installment Amount into
a number of shares of Common Stock (“Installment Conversion Shares”) derived by dividing the portion of the applicable
Installment Amount being converted by the Installment Conversion Price) an “Installment Conversion”), or (c) by any
combination of the forgoing, so long as the cash is delivered to the Lender on the applicable Installment Date and the Installment
Conversion Shares are delivered to the Lender on or before the applicable delivery date.



The Installment Conversion
Price is the lesser of (i) the Lender Conversion Price (defined under Lender Conversionbelow), and (ii) 70% (the “Conversion
Factor”) of the average of the three (3) lowest Closing Bid Prices in the twenty (20) Trading Days immediately preceding
the applicable Conversion (the “Market Price”), provided that if at any time the average of the three (3) lowest Closing
Bid Prices in the twenty (20) Trading Days immediately preceding any date of measurement is blow $0.40, then the then-current
Conversion Factor will be reduced to 65% for all future conversion (subject to other reductions). Additionally, if at any time
after the Effective Date, Borrower is not DWAC Eligible, then the then-current Conversion Factor will automatically be reduced
by 5% for all future Conversions. If at any time after the Effective Date, the Conversion shares are not OTC Eligible, then the
then-current Conversion Factor will automatically be reduced by additional 5% for all future conversions.



In
addition, warrants entitling the accredited investor to purchase shares of common stock at a price of the investors’ notes,
$250,000, plus original issue discount interest of $25,000 at a price driven by the market price of the Company’s common
stock at the time of conversion.  The warrants have a term of five years and vested immediately. Principal payments on the
note are due starting six months from the date of the note in the amount of $68,750 and will be paid in cash or by converting
the amount due into shares of our common stock. The note bears interest at 10% per annum and any unpaid principal and accrued
interest is due in full in thirteen months from the date of issuance.



During
the twelve months ended December 31, 2014, we entered into subscription agreements with accredited investors for the issuance
of an aggregate of 4,562,262 shares of common stock at prices ranging from $0.35 to $0.50 per share, for an aggregate purchase
price of $1,424,149, less commissions paid of $79,184. One investor also received warrants to purchase 100,000 shares of common
stock exercisable at $0.80 per share. The warrants vested immediately and have a term of three years.



On
October 9, 2014, we entered into a subscription agreement with an accredited investor for the issuance of a convertible promissory
note in the aggregate principal amount of $200,000, in exchange for $100,000 in cash at closing, additional amounts due to us
at the investor’s discretion and $20,000 of original issue discount interest.





Lender Conversion



At the option of the Holder,
at any time or times on or after the Issuance Date payments, the lender shall be entitled to convert any portion of the outstanding
and unpaid Conversion Amount into fully paid and non-assessable shares of the common stock of the Company at the Conversion Price.
The Conversion amount means the original principal amount and unpaid interest to be converted at the date of conversion.



The Conversion Price is
the lesser of (i) $.80 or (ii) 70% (the “Conversion Factor”) of the average of the three (3) lowest Closing Bid Prices
in the twenty (20) consecutive Trading Days immediately preceding the applicable Conversion Date on which the Holder elects to
convert all or part of this Note. If the average of the three (3) lowest Closing Bid Prices in the twenty (20) Trading Days immediately
preceding the applicable Conversion Date on which the Holder elects to is less than $0.40, the Conversion price shall be the lesser
of (a) $0.80 or (b) 65% of the average of the 3 lowest closing bid prices for the twenty (20) consecutive Trading days immediately
preceding the applicable Conversion Date on which the Holder elects to convert all or part of this Note.



In
addition, warrants entitling the investor to purchase 199,396 shares of our common stock at a price driven by the market price
of the Company’s stock at the date of conversion.  The warrants have a term of five years and vested immediately. The
note bears interest at 10% per annum and any unpaid principal and interest is due in full in one year from October 9, 2014.



On
October 16, 2014, we entered into a securities purchase agreement with accredited investors for the issuance of original issue
discount senior debt secured convertible debentures in the aggregate principal amount of $3,520,000, in exchange for $3,520,000
in secured investor notes payable to the Company, less the initial subscription amount of $712,500 and initial cash at closing
of $622,500. The debentures include a 5% original issue discount and bear interest at 10% per annum, of which the first year is
guaranteed by the lenders. The secured investor notes are secured by equity interests in one of the investors held by members
thereof pursuant to a security agreement.



The
various above convertible notes are convertible into shares of our common stock at a price determined as Follows:



Lender
Conversion



The investors has the
right at any time after the Issue Date until the outstanding balance of the note has been paid in full, at its election, to convert
(each instance of conversion is referred to as a “Lender Conversion”) all or any part of the outstanding balance into
shares (“Conversion Shares”) of the Company’s Common Stock, of the portion of the outstanding balance being
converted (the “Conversion Amount”) divided by the “Lender Conversion Price” of $0.4634, subject to potential
future adjustments described below.



The Company evaluated
the note under the requirements of ASC 815 “Derivatives and Hedging”. Due to the existense of the antidilution provision
which reduces the Lender Conversion Price in the event of subsequent Dilutive Issuances by the Company described above, the Lender
Conversion feature does not meet the definition of “indexed to” the Company’s stock, and the scope exception
to ASC 815’s derivative accounting provisions does not apply. The Company also evaluated the embedded derivative criteria
in ASC 815, and concluded that the default and remedy provisions of the note (see Default Provisions below) cause the Lender
Conversion feature to meet the net settlement criterion in ASC 815. Based on the Lender Conversion feature meeting all the embedded
derivative criteria in ASC 815, the Lender Conversion feature meets the definition of an embedded derivative that should be separated
from the note and accounted for as a derivative liability.



We
may prepay any portion of the principal amount due under the debentures at 115% to 150% of the particular outstanding note balance
and accrued interest at various periods over the next year, depending on the terms of the specific note.



Net cash used in operating
activities for the years ended December 31, 2014 and 2013 was $5,195,508 and $3,729,528, respectively. The increase in cash used
in operating activities was primarily related to the sale of products in the first year of our sales activities and increases
in related working capital.



Net cash used in all investing
activities for the year ended December 31, 2014 was $32,825 as compared to $38,734 for the year ended December 31, 2013. We purchased
$32,825 of machinery and equipment during the twelve months ended December 31, 2014 and $6,618 during the twelve months ended
December 31, 2013.



32







Net cash obtained through
all financing activities for the year ended December 31, 2014, was $5,619,307, as compared to $3,967,774 for the year ended December
31, 2013. We received proceeds from sale of common stock, borrowings on
line of credit, proceeds from short term debt - related parties, proceeds from notes payable, proceeds from issuance of convertible
debt, payments on notes receivable during the year ended December 31, 2014 and proceeds
from sale of common stock, borrowings on line of credit, proceeds from short term debt - related parties, proceeds from notes
payable and proceeds from issuance of convertible debt during the year ended December 31, 2013. The estimated working capital
requirement for the next 12 months is $2,400,000 with an estimated burn rate of approximately $200,000 per month. As reflected
in the accompanying financial statements, we had cash of $594,508 at December 31, 2014, compared to $203,534 at December 31, 2013.



Recent
Financings



LG
Capital Financing



On
March 5, 2015, the Company entered into a securities purchase agreement with LG Capital Funding, LLC, an accredited investor (“LG”)
whereby the Company issued and sold to LG an 8% convertible note (the “LG Note”) in the principal amount of $105,000
for $105,000 (collectively, the “LG Financing”).



The
LG Note is due on the first anniversary of issuance and bears interest at the rate of 8% per annum. The LG Note is convertible,
in whole or in part, into shares of Common Stock at the option of LG, at a conversion price equal to 60% of the lowest trading
price of the Common Stock for the 15 trading days immediately preceding, and including, the date of conversion, subject to adjustment
and further discount upon certain events, as set forth in the LG Note.



The
Company has the right, at any time prior to the six month anniversary of the issuance date of the LG Note to redeem the outstanding
LG Note at a redemption price equal to an amount between 115% and 145% of the amount of principal plus interest being redeemed,
depending on the date of prepayment.



The
convertibility of the LG Note may be limited if, upon conversion, the holder thereof or any of its affiliates would beneficially
own more than 9.9% of Common Stock.



The
Company reimbursed LG for all costs and expenses incurred by it in connection with the transactions contemplated by the transaction
documents in an amount equal to $5,000 and paid $8,000 to Carter Terry & Company in connection with due diligence fees.



JSJ
Investments Financing



On
March 6, 2015, the Company issued and sold to JSJ Investments Inc. (“JSJ”) a convertible note (the “JSJ Note”)
in the principal amount of $100,000 (collectively, the “JSJ Financing”).



The
JSJ Note is due on demand and bears interest at the rate of 12% per annum. The JSJ Note is convertible, in whole or in part, into
shares of Common Stock at the option of JSJ, at a conversion price equal to the lesser of (i) 55% of the lowest trading price
of the Common Stock for the 20 trading days immediately preceding the date of issuance of the JSJ Note or (ii) 55% of the lowest
trading price of the Common Stock for the 20 trading days immediately preceding the date of conversion, subject to adjustment
and further discount upon certain events, as set forth in the JSJ Note.



The
Company has the right to redeem the outstanding JSJ Note at a redemption price equal to 150% of the amount of principal and interest
being redeemed, provided that any repayment, including at maturity, can only be made with the consent of JSJ.



The
Company reimbursed JSJ for all costs and expenses incurred by it in connection with the transactions contemplated by the transaction
documents in an amount equal to $2,000 and paid $10,000 to Carter Terry & Company in connection with due diligence fees.



JMJ
Financial Financing



On
March 9, 2015, the Company issued and sold to JMJ Financial (“JMJ”) a convertible note (the “JMJ Note”)
in the principal amount of $100,000 for $90,000 (collectively, the “JMJ Financing”). JMJ has the right to invest an
additional $400,000 on the same terms and conditions from time to time in its sole discretion.



Each
portion funded of the JMJ Note is due on the second anniversary of funding and bears no interest for the first three months and
then a one-time interest charge of 12% will be due. The JMJ Note is convertible, in whole or in part, into shares of Common Stock
at the option of JMJ, at a conversion price equal to the lesser of (i) $0.084 or (ii) 60% of the lowest trading price of the Common
Stock for the 25 trading days immediately preceding the date of conversion, subject to adjustment and further discount upon certain
events, as set forth in the JMJ Note.



The
convertibility of the JMJ Note may be limited if, upon conversion, the holder thereof or any of its affiliates would beneficially
own more than 4.99% of Common Stock.



The
Company granted JMJ piggyback registration rights on the shares issuable upon conversion of the JMJ Note. If the Company fails
to include such shares, the Company shall pay JMJ liquidated damages of 25% of the outstanding principal amount of the JMJ Note,
but not less than $25,000.





33







EMA
Financial Financing



On
March 10, 2015, the Company entered into a securities purchase agreement with EMA Financial, LLC, an accredited investor (“EMA”)
whereby the Company issued and sold to EMA an 8% convertible note (the “EMA Note”) in the principal amount of $100,000
for $90,000 (collectively, the “EMA Financing”).



The
EMA Note is due on the first anniversary of issuance and bears interest at the rate of 10% per annum. The EMA Note is convertible,
in whole or in part, into shares of Common Stock at the option of EMA, at a conversion price equal to 60% of the lowest trading
price of the Common Stock for the 15 trading days immediately preceding the date of conversion, subject to adjustment and further
discount upon certain events, as set forth in the EMA Note.



The
Company has the right, at any time prior to the four month anniversary of the issuance date of the EMA Note, upon at least five
trading days prior written notice, to redeem the outstanding EMA Note at a redemption price equal to 135% of the amount of principal
and interest being redeemed.



The
convertibility of the EMA Note may be limited if, upon conversion, the holder thereof or any of its affiliates would beneficially
own more than 4.9% of Common Stock.



The
Company granted EMA a right of first refusal on all future financings for a year from the date of issuance of the EMA Note.



The
Company reimbursed EMA for all costs and expenses incurred by it in connection with the transactions contemplated by the transaction
documents in an amount equal to $3,500.



Adar
Bays Financing



On
March 20, 2015, the Company entered into a securities purchase agreement with Adar Bays, LLC, an accredited investor (“Adar”)
whereby the Company issued and sold to Adar an 8% convertible note (the “Adar Note”) in the principal amount of $50,000
for $50,000 (collectively, the “Adar Financing”).



The
Adar Note is due on the first anniversary of issuance and bears interest at the rate of 8% per annum. The Adar Note is convertible,
in whole or in part, into shares of Common Stock at the option of Adar, at a conversion price equal to 65% of the lowest trading
price of the Common Stock for the 15 trading days immediately preceding, and including, the date of conversion, subject to adjustment
and further discount upon certain events, as set forth in the Adar Note.



The
Company has the right, at any time prior to the six month anniversary of the issuance date of the Adar Note to redeem the outstanding
Adar Note at a redemption price equal to 150% of the amount of principal being redeemed plus interest.



The
convertibility of the Adar Note may be limited if, upon conversion, the holder thereof or any of its affiliates would beneficially
own more than 9.9% of Common Stock.



The
Company reimbursed Adar for all costs and expenses incurred by it in connection with the transactions contemplated by the transaction
documents in an amount equal to $2,500 and paid $4,000 to Carter Terry & Company in connection with due diligence fees.



Union
Capital Financing



On
March 27, 2015, the Company entered into a securities purchase agreement with Union Capital, LLC, an accredited investor (“Union
Capital”) whereby the Company issued and sold to Union Capital an 8% convertible note (the “Union Capital Note”)
in the principal amount of $75,000 for $75,000 (collectively, the “Union Capital Financing”).



The
Union Capital Note is due on the first anniversary of issuance and bears interest at the rate of 8% per annum. The Union Capital
Note is convertible, in whole or in part, into shares of Common Stock at the option of Union Capital, at a conversion price equal
to 60% of the lowest trading price of the Common Stock for the 15 trading days immediately preceding, and including, the date
of conversion, subject to adjustment and further discount upon certain events, as set forth in the Union Capital Note.



The
Company has the right, at any time prior to the six month anniversary of the issuance date of the Union Capital Note to redeem
the outstanding Union Capital Note at a redemption price equal to an amount between 115% and 145% of the amount of principal plus
interest being redeemed, depending on the date of prepayment.





34







The
convertibility of the Union Capital Note may be limited if, upon conversion, the holder thereof or any of its affiliates would
beneficially own more than 9.9% of Common Stock.



The
Company reimbursed Union Capital for all costs and expenses incurred by it in connection with the transactions contemplated by
the transaction documents in an amount equal to $3,500 and paid $6,000 to Carter Terry & Company in connection with due diligence
fees.



Recent
Accounting Pronouncements, not yet adopted



On
May 28, 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which
it expects to be entitled for the transfer of promised goods or services to customers. This ASU will replace most existing revenue
recognition guidance in GAAP when it becomes effective. The new standard is effective for us on January 1, 2017. Early application
is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. We are currently
evaluating the effect that ASU 2014-09 will have on our consolidated financial statements and related disclosures. We have not
yet selected a transition method nor have we determined the effect of the standard on our ongoing financial reporting.



In
August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure
of Uncertainties about an Entity’s Ability to Continue as a Going Concern.ASU 2014-15 defines management’sresponsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going
concern and toprovide related footnote disclosures. Under GAAP, financial statements are prepared under the presumption
that the reporting organization will continue to operate as a going concern, except in limited circumstances. The going concern
basis of accounting iscritical to financial reporting because it establishes the fundamental basis for measuring and classifying
assets and liabilities.Currently, GAAP lacks guidance about management’s responsibility to evaluate whether there
is substantial doubt about the organization’s ability to continue as a going concern or to provide related footnote disclosures.
The ASU is effective for annual andinterim periods beginning after December 15, 2016, and should be applied prospectively.
Early adoption is permitted. We have notdetermined the effect of the standard on our ongoing financial reporting.



In
April 2014, FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic
360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. Under the new guidance, a
disposal of part of an organization that has a major effect on its operations and financial results is a discontinued operation.
The amendments will be effective for the Company for annual periods and interim periods within those annual periods beginning
after December 15, 2014, with early implementation of the guidance permitted. The Company does not expect these amendments to
have a material effect on its financial statements.



In
February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810) - Amendments to the Consolidation Analysis,(ASU
2015-02). ASU 2015-02 modifies existing consolidation guidance related to (i) limited partnerships and similar legal entities,
(ii) the evaluation of variable interests for fees paid to decision makers or service providers, (iii) the effect of fee arrangements
and related parties on the primary beneficiary determination, and (iv) certain investment funds. These changes reduce the number
of consolidation models from four to two and place more emphasis on the risk of loss when determining a controlling financial
interest. This guidance is effective for public companies for fiscal years beginning after December 15, 2015. We are in the process
of evaluating the adoption of this ASU, and do not expect this to have a material effect on our consolidated results of operations
and financial condition.





In
June 2014, the FASB issued ASU 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance
Target Could Be Achieved After the Requisite Service Period. The amendments in the ASU require that a performancetarget
that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting
entity should apply existing guidance in Topic 718, Compensation - Stock Compensation, as it relates to awards with performance
conditions that affect vesting to account for such awards. The performance target should not be reflected in estimating the grant-date
fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance
target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service
has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service
period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period.
The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards
that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends
when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved.
The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December
15, 2015. Earlier adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s
financial position and results of operations.



Critical
Accounting Policies



Our
financial statements and related public financial information are based on the application of accounting principles generally
accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective
interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported.
These estimates can also affect supplemental information contained in our external disclosures including information regarding
contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP
and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different
assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.



Our
significant accounting policies are summarized in Note 2 of our financial statements. While all these significant accounting policies
impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to
be critical are those policies that have the most significant impact on our financial statements and require management to use
a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given
current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause
effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report.



We
believe the following critical accounting policies and procedures, among others, affect our more significant judgments and estimates
used in the preparation of our consolidated financial statements:



35







Principles
of Consolidation



The
consolidated financial statements include the accounts of WindStream Technology, Inc., (fka Windaus Global Energy, Inc.) and its
subsidiaries, Windstream Technologies, Inc. (A California corporation), WindStream Energy Technologies Pvt Ltd. and WindStream
Technologies Latin America S.A. All material intercompany balances have been eliminated in consolidation.



Foreign
Currency Translation



The
accounting records of the Company are maintained in U.S. Dollars. The fair value of investments and other assets and liabilities
denominated in non-U.S. currencies are translated into U.S. Dollars using the exchange rate at 4:00 p.m., Eastern Time, at each
quarter end. Amounts related to the purchases and sales of investments, investment income and expenses are translated at the rates
of exchange prevailing on the respective dates of such transactions. Net unrealized currency gains and losses arising from valuing
foreign currency-denominated assets and liabilities at the current exchange rate are reflected as part of unrealized appreciation/depreciation
on translation of assets and liabilities denominated in foreign currencies.



Revenue
Recognition



Sales
revenue consists of amounts earned from customers through the sale of its primary products, the TurboMill and the SolarMill, power
generation devices, which use alternative energy sources, primarily wind, to generate electricity. We also provide accessory products
in support of these devices in the form of mounting equipment, data collection/monitoring equipment, batteries, inverters and
various wiring solutions and accessories.



Sales
revenue is recognized when persuasive evidence of an arrangement exists, title to and risk of loss for the product has passed,
which is generally when the products are shipped to its customers and collection is reasonably assured.



Basic
and Diluted Net Loss per Share



We
compute loss per share in accordance with ASC 260, Earnings per Share.ASC 260 requires presentation of both basic and
diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net loss
available to common shareholders (numerator) by the weighted average number of common shares outstanding (denominator) during
the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock options,
using treasury stock method, and convertible preferred stock using the if-converted method. In computing diluted EPS, the average
stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options
or warrants. Diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive. Common stock equivalents
pertaining to the convertible debt, options, warrants and convertible preferred shares were not included in the computation of
diluted net loss per common share because the effect would have been anti-dilutive due to the net loss for the years ended December
31, 2014 and 2013, respectively.



Stock
Based Payments



We
account for share-based awards to employees in accordance with ASC 718 “Stock Compensation”. Under this guidance,
stock compensation expense is measured at the grant date, based on the fair value of the award, and is recognized as an expense
over the estimated service period (generally the vesting period) on the straight-line attribute method. Share-based awards to
non-employees are accounted for in accordance with ASC 505-50 “Equity”, wherein such awards are expensed over the
period in which the related services are rendered.



Deferred
Financing Costs



Costs
associated with the issuance of debt is capitalized as deferred financing costs and amortized into interest expense using the
effective interest method over the life of the related debt. At December 31, 2014 and December 31, 2013, unamortized deferred
financing costs incurred totaled $0 and $37,529, respectively. Amortization of deferred financing costs, which has been included
interest expense, for the years ended December 31, 2014 and 2013 was approximately $38,000 and $52,000, respectively.



36







Accounting
for Derivatives Liabilities



We
evaluate stock options, stock warrants or other contracts to determine if those contracts or embedded components of those contracts
qualify as derivatives to be separately accounted for under the relevant sections of ASC Topic 815-40, Derivative Instruments
and Hedging: Contracts in Entity’s Own Equity. The result of this accounting treatment could be that the fair value
of a financial instrument is classified as a derivative instrument and is marked-to-market at each balance sheet date and recorded
as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement
of operations as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to
fair value at the conversion date and then that fair value is reclassified to equity. Financial instruments that are initially
classified as equity that become subject to reclassification under ASC Topic 815-40 are reclassified to a liability account at
the fair value of the instrument on the reclassification date.



Research
and Development



Costs
incurred in developing the ability to create and manufacture products for sale are included in research and development. Once
a product is commercially feasible and starts to sell to third party customers, the classification of such costs as development
costs stops and such costs are recorded as costs of production, which is included in cost of goods sold. Research and development
costs are expensed when incurred.



Related
parties



A
party is considered to be related to us if the party directly or indirectly or through one or more intermediaries, controls, is
controlled by, or is under common control with us. Related parties also include our principal owners, our management, members
of the immediate families of our principal owners and our management and other parties with which we may deal if one party controls
or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties
might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or
operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly
influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate
interests is also a related party.



Contractual
Commitments



A
summary of contractual debt obligations is as follows:



|                                                                   |  |       |           |  | Payments
    due by period: |   |           |               |  |   |               | 
|------------------------------------------------------------------ |  | ----- | --------- |  | --------------------------- | - | --------- | ------------- |  | - | ------------- | 
|                                                                   |  |       |           |  | Less
    than               |   |           |               |  |   |               | 
|Contractual
    Obligations:                                       |  | Total |           |  | one
    year                |   |           | 1-3
    years |  |   | 3-5
    years | 
|                                                                   |  |       |           |  |                             |   |           |               |  |   |               | 
|Short term convertible notes payable with
    imbedded derivatives |  | $     | 3,041,332 |  |                             | $ | 3,041,332 |               |  |   | -             | 
|Short term debt - related party                                    |  | $     | 221,000   |  |                             | $ | 221,000   |               |  |   | -             | 
|Short term debt - third parties, includes:                         |  |       |           |  |                             |   |           |               |  |   |               | 
|Line of credit with a bank                                         |  | $     | 1,991,606 |  |                             | $ | 1,991,606 |               |  |   | -             | 
|Notes payable to various individuals                               |  | $     | 485,000   |  |                             | $ | 485,000   |               |  |   | -             | 
|Total short term debt - third parties                              |  | $     | 2,476,606 |  |                             | $ | 2,476,606 |               |  |   | -             | 
|                                                                   |  |       |           |  |                             |   |           |               |  |   |               | 
|Notes payable, including interest                                  |  | $     | 1,616,535 |  |                             | $ | 285,097   |               |  | $ | 1,331,438     | 



Off
Balance Sheet Arrangements:



We
do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons,
also known as “special purpose entities” (SPEs).



37







ITEM
7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Not
required under Regulation S-K for “smaller reporting companies.”



ITEM
8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



See
the consolidated financial statements commencing at page F-1 of this report.



ITEM
9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES



Engagement
of Somerset



On
February 25, 2015, we received notice of the resignation of Hartley Moore Accountancy Corporation (“Hartley Moore”),
as our independent registered public accounting firm.



The
report of Hartley Moore on the Company’s financial statements for the past fiscal year ended December 31, 2013 contained
no adverse opinion or a disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles,
except as that the report of Hartley Moore for the fiscal years ended December 31, 2013 indicated conditions which raised substantial
doubt about the Company’s ability to continue as a going concern.



During
our two most recent fiscal years and throughall subsequent interim periods precedingHartley
Moore’s resignation, we had no disagreements with Hartley Moore on any matter
of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of Hartley Moore, would have caused it to make reference to the subject matter of such disagreements
in its report on our financial statements for such periods.



There
were “reportable events” (as that term is defined in Item 304(a) (1) (v) of Regulation S-K) during the fiscal years
ended December 31, 2014 and 2013 and the subsequent interim period through February 25, 2015, as follows. In its resignation letter,
Hartley Moore stated the following, among other things:



“On
or about February 16, 2015, [Hartley Moore] was informed by Messrs. Bates and Thorpe that the Company’s subsidiary in India,
Windstream Energy Technologies India Private Limited (“WSPVT”), [of] which the Company owned a 99.9% interest, had
entered into a joint venture. Per Messrs. Bates and Thorpe, in December 2014, WSPVT entered into a joint venture with a third
party, West Coast Ventures Private Limited (“WCPV”), in which WCPV contributed approximately $1,500,000 to the joint
venture and WSPVT would license the technology. HMCPA requested the joint venture agreement and related documentation, which was
received on February 24, 2015.”



“As
a result, [Hartley Moore] determined the agreement was entered into subsequent to the third quarter September 30, 2014 but prior
to the issuance of such third quarter financial statements on Form 10-Q, which was filed on November 14, 2014. The financial statements
included in such third quarter Form 10-Q did not disclose or refer to this transaction and it was never mentioned to [Hartley
Moore] during our review of the third quarter. As a result, the management representation letter provided to us by Mr. Bates,
and the representations made to us during our third quarter review by both Messrs. Bates and Thorpe may be incorrect.”



“Because
the audit process necessitates the reliance on various representations made by management, [Hartley Moore] has determined that,
due to the issues outlined above, it can no longer fully rely on the representations made by the Company’s management.”



Effective
March 3, 2015, we appointed Somerset CPAs, P.C. (“Somerset”) as our new independent registered public accounting firm.
The decision to engage Somerset was recommended and approved by our board of directors. During the two most recent fiscal years
and through the date of engagement, we did not consult with Somerset regarding either (1) the application of accounting principles
to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial
statements, or (2) any matter that was either the subject of a disagreement (as defined in Regulation S-K Item 304(a) (1) (v)),
during the two most recent fiscal years.



38







Engagement
of Hartley Moore



On
October 25, 2013, we dismissed MaloneBailey, LLP (“MaloneBailey”), as our independent registered public accounting
firm.



The
report of MaloneBailey on the Company’s financial statements for the fiscal year ended December 31, 2012 contained no adverse
opinion or a disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles.



During
our two most recent fiscal years and throughall subsequent interim periods precedingMaloneBailey’s
dismissal, we had no disagreements with MaloneBailey on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of MaloneBailey, would have
caused it to make reference to the subject matter of such disagreements in its report on our financial statements for such periods.



During
our two most recent fiscal years and through the date of termination of MaloneBailey, there were no reportable events as defined
under Item 304(a)(1)(v) of Regulation S-K adopted by the SEC.



Effective
October 17, 2013, we appointed Hartley Moore as our new independent registered public accounting firm. The decision to engage
Hartley Moore was recommended and approved by our board of directors. During the two most recent fiscal years and through the
date of engagement, we did not consult with Hartley Moore regarding either (1) the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements, or
(2) any matter that was either the subject of a disagreement (as defined in Regulation S-K Item 304(a)(1)(v)), during the two
most recent fiscal years.



Engagement
of MaloneBailey



On
May 16, 2013, we dismissed Weinberg & Company, P.A. (“Weinberg”), as our independent registered public accounting
firm.



The
report of Weinberg on the Company’s financial statements for the fiscal year ended June 30, 2012 contained no adverse opinion
or a disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles.



During
our two most recent fiscal years and throughall subsequent interim periods precedingWeinberg’s
dismissal, we had no disagreements with Weinberg on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Weinberg, would have caused
it to make reference to the subject matter of such disagreements in its report on our financial statements for such periods.



During
our two most recent fiscal years and through the date of termination of Weinberg, there were no reportable events as defined under
Item 304(a)(1)(v) of Regulation S-K adopted by the SEC.



Effective
May 16, 2013, we appointed MaloneBailey as our new independent registered public accounting firm. The decision to engage MaloneBailey
was recommended and approved by our board of directors. During the two most recent fiscal years and through the date of engagement,
we did not consult with MaloneBailey regarding either (1) the application of accounting principles to a specified transaction,
either completed or proposed, or the type of audit opinion that might be rendered on our financial statements, or (2) any matter
that was either the subject of a disagreement (as defined in Regulation S-K Item 304(a) (1) (v)), during the two most recent fiscal
years.



39







ITEM
9A – CONTROLS AND PROCEDURES



Evaluation
of disclosure controls and procedures.



Our
management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of
our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act. In designing and evaluating the disclosure
controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls
and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment
in evaluating the benefits of possible controls and procedures relative to their costs.



Based
on management’s evaluation, our chief executive officer and chief financial officer concluded that, as a result of the material
weaknesses described below, as of December 31, 2014, our disclosure controls and procedures are not designed at a reasonable assurance
level and are ineffective to provide reasonable assurance that information we are required to disclose in reports that we file
or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules
and forms, and that such information is accumulated and communicated to our management, including our chief executive officer
and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. The material weaknesses,
which relate to internal control over financial reporting, that were identified are:



| | a) | Due
    to our small size, we do not have a proper segregation of duties in certain areas of our financial reporting process. The
    areas where we have a lack of segregation of duties include cash receipts and disbursements, approval of purchases and approval
    of accounts payable invoices for payment. This control deficiency, which is pervasive in nature, results in a reasonable possibility
    that material misstatements of the consolidated financial statements will not be prevented or detected on a timely basis;
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | b) | We
    did not maintain sufficient personnel with an appropriate level of technical accounting knowledge, experience, and training
    in the application of U.S. GAAP commensurate with our complexity and our financial accounting and reporting requirements.
    This control deficiency is pervasive in nature. Further, there is a reasonable possibility that material misstatements of
    the financial statements including disclosures will not be prevented or detected on a timely basis as a result;                          



We
are committed to improving our financial organization. When funds are available, we will take the following action to enhance
our internal controls: Hiring additional knowledgeable personnel with technical accounting expertise to further support our current
accounting personnel, which management estimates will cost approximately $100,000 per annum. As our operations are relatively
small and we continue to have net cash losses each quarter, we do not anticipate being able to hire additional internal personnel
until such time as our operations are profitable on a cash basis or until our operations are large enough to justify the hiring
of additional accounting personnel. We currently engage an outside accounting firm to assist us in the preparation of our consolidated
financial statements and anticipate doing so until we have a sufficient number of internal accounting personnel to achieve compliance.
As necessary, we will engage consultants in the future in order to ensure proper accounting for our consolidated financial statements.



Due
to the fact that our internal accounting staff consists solely of a Chief Financial Officer and an accounting manager, additional
personnel will also ensure the proper segregation of duties and provide more checks and balances within the department. Additional
personnel will also provide the cross training needed to support us if personnel turnover issues within the department occur.
We believe this will greatly decrease any control and procedure issues we may encounter in the future.



Management’s
report on internal control over financial reporting.



Our
management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange
Act Rule 13a-15(f). Management conducted an evaluation of the effectiveness of our internal control over financial reporting based
on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of
the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was
not effective as of December 31, 2014 for the reasons discussed above.



This
annual report does not include an attestation report by Somerset CPAs, P.C., our independent registered public accounting firm
regarding internal control over financial reporting. As a smaller reporting company, our management’s report was not subject
to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit
us to provide only management’s report in this annual report.



Changes
in internal control over financial reporting.



There
were no changes in our internal control over financial reporting that occurred during the year ended December 31, 2014 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



ITEM
9B – OTHER INFORMATION





On
October 16, 2014, we, WET and West Coast Ventures Private Limited (“West Coast”) entered into an agreement (the “WET
Agreement”). Pursuant to the WET Agreement, we agreed to sell a 45% noncontrolling interest in WET to West Coast in exchange
for $2 million. In addition, West Coast received two of the five seats on the board of directors of WET, and we control the remaining
three. As of December 31, 2014, we had received approximately $873,000 of the capital contribution required by West Coast, and
as of April 13, 2015, we had received approximately $873,000 in total from West Coast. The WET Agreement should have been disclosed
on a Form 8-K during the quarter ended December 31, 2014.



40







PART
III



ITEM
10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE



The
names of our executive officers and directors and their age, title, and biography as of April 10, 2015 are set forth below:



|Name                 |  | Age |  | Position                                                 |  | Director
    Since
|-------------------- |  | --- |  | -------------------------------------------------------- |  | ------------------
|Daniel
    Bates     |  | 57  |  | Chief Executive
    Officer and Chairperson of the Board |  | 2013              
|William
    Thorpe   |  | 60  |  | Chief Financial
    Officer                              |  | n/a               
|Travis
    Campbell  |  | 39  |  | Chief Operating
    Officer                              |  | n/a               
|Wanda
    Ferguson   |  | 60  |  | Secretary                                                |  | n/a               
|Channing
    Dawson  |  | 62  |  | Director                                                 |  | 2014              
|David
    Lowenstein |  | 73  |  | Director                                                 |  | 2014              



Directors
are elected annually and hold office until the next annual meeting of the stockholders of the Company and until their successors
are elected. Officers are elected annually and serve at the discretion of the Board of Directors.



Daniel
Bates has served as our President, Chief Executive Officer and a member of the Board of Directors since May 2013 and has
served as the President and Chief Executive Officer of WindStream Technologies, Inc. (A California corporation) a subsidiary before
May 2013. Between 2001 and 2006, Mr. Bates was President of Avant Interactive, an internet video company providing interactive
video technology to television networks, advertising agencies and video publishers. Mr. Bates’ significant experience with
our business, as well as his extensive senior management experience and entrepreneurship were instrumental in his selection as
a member of the board of directors.



William
Thorpe has served as our Chief Financial Officer since January 2015. Since September 2013, Mr. Thorpe has been a partner
in CFO Edge, LLC, a provider of outsourced CFO services. From June 2006 to March 2013, Mr. Thorpe was the Chief Financial Officer
for West Coast Materials, Inc., a provider of construction aggregates and building materials. From February 2004 to May 2006,
Mr. Thorpe was the Chief Financial Officer of the Garden Products Division of Central Garden & Pet, Inc. Between October 2001
and February 2004, Mr. Thorpe was the Chief Financial Officer of CBCA, Inc., a health benefits services administrator. From March
2000 through August 2001, Mr. Thorpe was Chief Financial Officer of On Station Corp. (formerly CarStation). Previously, Mr. Thorpe
worked at Visa International (1992 – 2000) as Senior Vice President and Controller and Vice President and Controller of
the Products and Systems division, Milk Products Holdings (North America), Inc., a wholly owned subsidiary of the New Zealand
Dairy Board, as Chief Financial Officer. Mr. Thorpe has also previously worked for KPMG, whereby he progressed from an intern
to a Senior Manager. Mr. Thorpe has been a Certified Public Accountant, (inactive) in California since 1980 and earned a Bachelor
of Arts degree in Business Economics in 1977 from the University of California, Los Angeles.





Travis Campbellhas served as our Chief Operating Officer since May 2013. Mr. Campbell joined WindStream in August 2011 as Director of
Business Development until his appointment as Chief Operating Officer. From 2009 to 2010, Mr. Campbell worked as a consultant
for Montrow Tool & Machine and Seymour Glass. From 2004 to 2009, Mr. Campbell explored his interest as an entrepreneur and
built a $30 million brokerage and logistics company as the President of Oceanstar, LLC. From 2000 to 2004, Mr. Campbell worked
for the North Vernon Industry Corporation as the Director of International Operations in the joint venture between Toyota Automated
Loom Works, Ltd. and Ota Heavy Industries, Ltd., where he led operational teams and established global counterweight production
in China, Japan, North America, and Europe. Mr. Campbell was the Executive Director of the Jennings County Economic Development
Commission from 1998 to 2000. Mr. Campbell holds a Bachelor of Arts Degree in Political Science and Economics from Butler University.





41







Wanda Fergusonhas
served as our Secretary since May 2014. Wanda Ferguson joined WindStream as plant manager in October, 2011, with 33 years of experience
in all disciplines of manufacturing, primarily for Tier 1 automotive suppliers. Ms. Fergusons’ vast experience is not only
in manufacturing, but quality assurance, employee training, human resources, and plant management. From 2006 until October 2011,
when she joined the Company, Wanda held a number of part-time positions with a number of companies. From 2003 to 2006, Wanda was
a plant manager for Martinrea and from 1993 to 2003, she was a plant manager for Pilot Industries. While working full-time, Ms.
Ferguson earned a Bachelor of Science degree from Purdue University in Organizational Leadership and was presented with the Distinguished
Alumni Award.



Channing
Dawson has served as a member of the Board of Directors since May 2014. Since 2007, Mr. Dawson has been a senior consultant,
business development, to the Scripps Networks. Between 1994 and 2006, Mr. Dawson held several executive positions at the Scripps
Networks, including VP of New Media, Senior VP of New Media and Senior VP and New Ventures. Mr. Dawson was part of the founding
executive team for both HGTV and DIY Network; developed one of the very first media call centers, HGTV Viewer Services; conceived
HGTV Ideas magazine which has evolved into an e-newsletter with more than 3 million subscribers; created Scripps Networks’
first broadband channels; and launched Scripps Networks On Demand, one of the most widely distributed video on-demand programs
in the country. In 2005, he received an Advanced Media Technology Emmy, and currently sits on the board of governors for that
award. Since 2007, Mr. Dawson has served as the President of Channing Media, a media advisory company. Prior to joining Scripps,
Mr. Dawson served as director of marketing and communications for The New York Times – Magazine Division, editorial director
of Home Magazine, editor-in-chief of The Practical Homeowner, and assistant editor of Sunset. Mr. Dawson holds a B.A. degree in
English Literature from Colorado College. Mr. Dawson’s extensive executive expertise and experience in formulating partnering
and business development strategies was instrumental in his selection as a member of our board of directors.



David
Lowenstein has served as a member of the Board of Directors since May 2014. Mr. Lowenstein retired in 2014 from UCLA,
where he was the Director of the UCLA Central Ticket Office since founding this unit in 1979. As Director of the ticket office,
Mr. Lowenstein was responsible for the ticketing for over 700 events held on the campus each year, including athletics, performing
arts, academic arts and student events, along with professional tennis tournament and special events. Mr. Lowenstein has also
founded his own corporation, IMS Management Services, which handles the ticketing services for a variety of large events held
throughout the country, including State Fairs, county fairs and festivals, and large concert events. IMS also handles the ticketing
services for the annual Rose Bowl Game, as well as the Gold Cup soccer matches. Mr. Lowenstein is also a well-known speaker, giving
presentations on the principles of excellent customer service at various conferences. He serves as a Board member for the Chuck
Jones Center for Creativity, which is charged with ensuring that the vision of the late animation director, Chuck Jones, of providing
a place for young people to learn and create, is fulfilled. Mr. Lowenstein holds a B.A. degree in History from UCLA. Mr. Lowenstein’s
extensive management and marketing experience was instrumental in his selection as a member of our board of directors.



Family
Relationships



None.



Board
Independence



We
are not required to have any independent members of the Board of Directors. The board of directors has determined that (i) Daniel
Bates has a relationship which, in the opinion of the board of directors, would interfere with the exercise of independent judgment
in carrying out the responsibilities of a director and is not an “independent director” as defined in the Marketplace
Rules of The NASDAQ Stock Market and (ii) Channing Dawson and David Lowenstein are each an independent director as defined in
the Marketplace Rules of The NASDAQ Stock Market.



Meetings
and Committees of the Board of Directors



During
the fiscal year ended December 31, 2014, our board of directors held two meetings and approved certain actions by unanimous
written consent. We expect our directors to attend all board and committee meetings and to spend the time needed and meet as frequently
as necessary to properly discharge their responsibilities. Due to the limited size of our board of directors, we currently do
not use board committees. As a result, the board as a whole carries out the functions of audit, nominating and compensation committees.



42







Involvement
in Certain Legal Proceedings



Our
Directors and Executive Officers have not been involved in any of the following events during the past ten years:



| | 1. | any
    bankruptcy petition filed by or against such person or any business of which such person was a general partner or executive
    officer either at the time of the bankruptcy or within two years prior to that time;                                                                                                                                                                                                                                                           
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | 2. | any
    conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other
    minor offenses);                                                                                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | 3. | being
    subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction,
    permanently or temporarily enjoining him from or otherwise limiting his involvement in any type of business, securities or
    banking activities or to be associated with any person practicing in banking or securities activities;                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | 4. | being
    found by a court of competent jurisdiction in a civil action, the Securities and Exchange Commission or the Commodity Futures
    Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed,
    suspended, or vacated;                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | 5. | being
    subject of, or a party to, any federal or state judicial or administrative order, judgment decree, or finding, not subsequently
    reversed, suspended or vacated, relating to an alleged violation of any federal or state securities or commodities law or
    regulation, any law or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting
    mail or wire fraud or fraud in connection with any business entity; or
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | 6. | being
    subject of or party to any sanction or order, not subsequently reversed, suspended, or vacated, of any self-regulatory organization,
    any registered entity or any equivalent exchange, association, entity or organization that has disciplinary authority over
    its members or persons associated with a member.                                                                                                                                                     



Compliance
with Section 16(a) of the Exchange Act



Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers, directors and beneficial owners of
more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission statements of
ownership and changes in ownership. The same persons are required to furnish us with copies of all Section 16(a) forms they file.
We believe that, during fiscal 2014 and 2013, all of our executive officers, directors and beneficial owner of more than 10% of
a registered class of our equity securities complied with the applicable filing requirements except for the following:



| | ● | A
    Form 4 filed by Adrian James on July 17, 2014 relating to the sale of common stock on June 26, 2014 and a purchase of common
    stock on July 8, 2014; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                  
| | ● | Forms
    3 for Channing Dawson and David Lowenstein relating to their appointment to the Board of Directors on May 2, 2014 have not
    been filed.             



In
making these statements, we have relied upon examination of the copies of all Section 16(a) forms provided to us and the written
representations of our executive officers, directors and beneficial owners of more than 10% of a registered class of our equity
securities.



43







Code
of Business Conduct and Ethics



A
Code of Business Conduct and Ethics is a written standard designed to deter wrongdoing and to promote (a) honest and ethical conduct,
(b) full, fair, accurate, timely and understandable disclosure in regulatory filings and public statements, (c) compliance with
applicable laws, rules and regulations, (d) prompt reporting of violations of the code to an appropriate person and (e) accountability
for adherence to the Code. We are not currently subject to any law, rule or regulation requiring that we adopt a Code of Business
Conduct and Ethics and we have not adopted one.



ITEM
11 – EXECUTIVE COMPENSATION



Summary
Compensation Table



The
following table provides certain summary information concerning compensation awarded to, earned by or paid to our Chief Executive
Officer, the two highest paid executive officers and up to two other highest paid individuals whose total annual salary and bonus
exceeded $100,000 for fiscal years 2014 and 2013.



|                                                            |  |  |      |  |  |  |         |  |  |  |       |  |  |  |        |  |  |  |           |  |  |  |              |  |  |  | Change
                                         in |  |  |  |                                                    |  |  |  |           | 
|----------------------------------------------------------- |  |  | ---- |  |  |  | ------- |  |  |  | ----- |  |  |  | ------ |  |  |  | --------- |  |  |  | ------------ |  |  |  | -------------------------------------------------- |  |  |  | -------------------------------------------------- |  |  |  | --------- | 
|                                                            |  |  |      |  |  |  |         |  |  |  |       |  |  |  |        |  |  |  |           |  |  |  |              |  |  |  | Pension                                            |  |  |  |                                                    |  |  |  |           | 
|                                                            |  |  |      |  |  |  |         |  |  |  |       |  |  |  |        |  |  |  |           |  |  |  |              |  |  |  | Value                                              |  |  |  |                                                    |  |  |  |           | 
|                                                            |  |  |      |  |  |  |         |  |  |  |       |  |  |  |        |  |  |  |           |  |  |  |              |  |  |  | and                                                |  |  |  |                                                    |  |  |  |           | 
|                                                            |  |  |      |  |  |  |         |  |  |  |       |  |  |  |        |  |  |  |           |  |  |  | Non-Equity   |  |  |  | Nonqualified                                       |  |  |  |                                                    |  |  |  |           | 
|                                                            |  |  |      |  |  |  |         |  |  |  |       |  |  |  |        |  |  |  |           |  |  |  | Incentive    |  |  |  | Deferred                                           |  |  |  |                                                    |  |  |  |           | 
|Name
    and                                                |  |  |      |  |  |  |         |  |  |  |       |  |  |  | Stock  |  |  |  | Options   |  |  |  | Plan         |  |  |  | Compensation                                       |  |  |  | All
                                         Other |  |  |  |           | 
|Principal                                                   |  |  |      |  |  |  | Salary  |  |  |  | Bonus |  |  |  | Awards |  |  |  | Awards    |  |  |  | Compensation |  |  |  | Earnings                                           |  |  |  | Compensation                                       |  |  |  | Total     | 
|Position                                                    |  |  | Year |  |  |  | ($)     |  |  |  | ($)   |  |  |  | ($)    |  |  |  | ($)       |  |  |  | ($)          |  |  |  | ($)                                                |  |  |  | ($)                                                |  |  |  | ($)       | 
|Daniel Bates,  Chief Executive Officer
    and Director (1) |  |  | 2014 |  |  |  | 204,846 |  |  |  | -     |  |  |  | -      |  |  |  | 3,255,000 |  |  |  | -            |  |  |  | -                                                  |  |  |  | -                                                  |  |  |  | 3,459,846 | 
|                                                            |  |  | 2013 |  |  |  | 123,706 |  |  |  | -     |  |  |  | -      |  |  |  | 147,500   |  |  |  | -            |  |  |  | -                                                  |  |  |  | -                                                  |  |  |  | 271,206   | 
|                                                            |  |  |      |  |  |  |         |  |  |  |       |  |  |  |        |  |  |  |           |  |  |  |              |  |  |  |                                                    |  |  |  |                                                    |  |  |  |           | 
|David Worrall,  Former Chief Executive Officer
    (2)      |  |  | 2013 |  |  |  | -       |  |  |  | -     |  |  |  | -      |  |  |  | -         |  |  |  | -            |  |  |  | -                                                  |  |  |  | -                                                  |  |  |  | -         | 
|                                                            |  |  |      |  |  |  |         |  |  |  |       |  |  |  |        |  |  |  |           |  |  |  |              |  |  |  |                                                    |  |  |  |                                                    |  |  |  |           | 
|Travis Campbell,  Chief Operating Officer                   |  |  | 2014 |  |  |  | 127,436 |  |  |  | -     |  |  |  | -      |  |  |  | 620,000   |  |  |  | -            |  |  |  | -                                                  |  |  |  | -                                                  |  |  |  | 747,436   | 
|                                                            |  |  |      |  |  |  |         |  |  |  |       |  |  |  |        |  |  |  |           |  |  |  |              |  |  |  |                                                    |  |  |  |                                                    |  |  |  |           | 
|Wanda Ferguson, Secretary                                   |  |  | 2014 |  |  |  | 89,846  |  |  |  | -     |  |  |  | -      |  |  |  | 310,000   |  |  |  | -            |  |  |  | -                                                  |  |  |  | -                                                  |  |  |  | 399,846   | 



|(1) | Mr.
    Bates was appointed as of Chief Executive Officer on May 22, 2013.
|--- | --------------------------------------------------------------------------
|    |                                                                           
|(2) | Mr.
    Worrall resigned as of Chief Executive Officer on May 22, 2013.   



Employment
Contracts and Termination of Employment and Change-In-Control Arrangements



The
Company entered into employment agreements (each, an “Agreement” and collectively, the “Agreements”) with
Daniel Bates (“Bates”) to serve as President and Chief Executive Officer, William Thorpe (“Thorpe”) to
serve as Chief Financial Officer, Travis Campbell (“Campbell”) to serve as Chief Operating Officer and Wanda Ferguson
(“Ferguson,” and together with Bates, Thorpe and Campbell, the “Executives”) to serve as Secretary for
the Company. The Agreements with Bates, Campbell and Ferguson were entered into on November 11, 2014 and with Thorpe on January
1, 2015.



The
base salaries for Bates, Thorpe, Campbell and Ferguson under the Agreements are $350,000, $112,500, $175,000 and $120,000 per
annum, respectively, and shall increase 10% per annum, subject to Board approval. The Agreements for Bates, Thorpe, Campbell and
Ferguson have an initial term of five years, three years, three years and two years, respectively, with automatic renewal for
successive one year terms, unless either party delivers prior written notice at least 30 days prior to the end of a term of its
intention to not renew.



Pursuant
to the Agreement with Bates, Bates has the option to defer payment of his base salary to a future date he determines. Any deferred
base salary will accrue interest at 10% per annum, and Bates has the right to convert any deferred base salary into shares of
the Company’s common stock at a conversion price equal to the market price at such date. No such conversion or deferral
occurred in 2014.



44







Pursuant
to the Agreement with Thorpe, initially Thorpe is required to devote approximately 75% of his working time to the Company, and
the Company’s Chief Executive Officer will determine when and/or if Thorpe shall be required to devote all of his working
time to the Company. At such time as Thorpe devotes 100% of his working time to the Company, his base salary will be increased
to $150,000 per annum.



Pursuant
to the Agreements, Bates, Thorpe, Campbell and Ferguson were granted 10,500,000, 250,000, 2,000,000 and 1,000,000 stock options,
respectively, all of which vested upon the execution of the Agreements.



Pursuant
to the Agreements, if the Company terminates Executive’s employment without Cause (as defined in the Agreements) or the
Executive resigns for Good Reason (as defined in the Agreements), the Executive is entitled to the following payments and benefits:
(i) unpaid base salary plus any accrued but unpaid benefits to the effective date of termination and any unpaid bonus earned in
accordance with the then applicable bonus plan or program to the effective date of termination; (ii) if there is no unpaid bonus
earned for the year of termination, then an amount determined by a formula based upon the base salary and number of days employed,
and if the termination occurs prior to the date on which the annual bonus would otherwise be paid, an amount equal to the annual
bonus that would have been paid to Executive for such immediately preceding year, based on the actual achievement of applicable
performance goals; (iii) severance in an amount equal to Executive’s then-current base salary for a period of 18 months;
and (iv) continuation of health benefits for Executive and his or her eligible dependents for a period of 18 months following
termination, provided, however, that the foregoing subsections (ii), (iii) and (iv) are subject to the Executive maintaining compliance
with certain covenants, including confidentiality, non-solicitation and non-competition clauses, set forth in the Agreements.



Pursuant
to the Agreements, if Executive’s employment is terminated as a result of permanent disability, Executive is entitled to
the following payments and benefits: (i) unpaid base salary plus any accrued but unpaid benefits to the effective date of termination
and any unpaid bonus earned in accordance with the then applicable bonus plan or program to the effective date of termination;
and (ii) if there is no unpaid bonus earned for the year of termination, then an amount determined by a formula based upon the
base salary and number of days employed during the year in which termination occurs.



Rights
with regard to equity incentive awards, including stock options and restricted stock units, shall be governed by separate applicable
agreements entered into between Executive and the Company; provided, however, that in the event of termination without Cause,
any stock options awarded to Executive under the Agreements shall immediately vest upon termination.



If
within one year of a Change of Control (as defined in the Agreements) occurring during the Executive’s employment, the Company
or a succeeding entity terminates Executive without Cause (as defined in the Agreements) or Executive terminates his employment
for Good Reason (as defined in the Agreements), the Executive is entitled to the following payments and benefits, subject to certain
conditions: (i) unpaid base salary, bonus and benefits accrued up to the effective date of termination, (ii) if there is no unpaid
bonus earned for the year of termination, then an amount determined by a formula based upon the base salary and number of days
employed, and if the termination occurs prior to the date on which the annual bonus would otherwise be paid, an amount equal to
the annual bonus that would have been paid to Executive for such immediately preceding year, based on the actual achievement of
applicable performance goals; (iii) a lump sum payment equal to Executive’s then-current base salary for a period of 36
months, and (iv) continuation of health benefits for Executive and his or her eligible dependents for a period of 18 months following
termination. The foregoing payments shall be in lieu of, and not in addition to, any severance payments. All unvested stock awards
held by Executive, including stock options and any other subsequent awards, shall become fully vested upon a Change of Control.



As
used in the Agreements, the term “Cause” means and includes: (i) Executive’s abuse of alcohol that materially
affects Executive’s performance of Executive’s duties under the Agreement, or use of any controlled substance; (ii)
a willful act of fraud, dishonesty or breach of fiduciary duty on the part of Executive with respect to the business or affairs
of the Company; (iii) material failure by Executive to comply with applicable laws and regulations or professional standards relating
to the business of the Company; (iv) material failure by Executive to satisfactorily perform his duties hereunder, a material
breach by Executive of the Agreement, or Executive engaging in conduct that materially conflicts with the best interests of the
Company or that may materially harm the Company’s reputation; (v) Executive being subject to an inquiry or investigation
by a governmental authority or self-regulatory organization such that the existence of such inquiry or investigation is reasonably
likely to result in damage to the Company’s business interests, licenses, reputation or prospects; or (vi) Executive’s
being convicted of a felony or a misdemeanor involving moral turpitude.



45







As
used in the Agreements, the term “Good Reason” means: (i) a material diminution in Executive’s authority, duties
or responsibilities; (ii) requiring Executive to move his place of employment more than 75 miles from his place of employment
prior to such move; or (iii) a material breach by the Company of the Agreement; provided that in any such case Executive has not
consented thereto. In addition to the foregoing requirements, in no event shall an Executive’s termination be considered
for Good Reason unless such termination occurs within two years following the initial existence of one of the conditions specified
in clauses (i), (ii) and (iii) of the preceding sentence.



For
purposes of the Agreements, “Change in Control” generally means: (i) the date on which any person or group acquires
ownership of the Company’s stock constituting more than 50% of the total fair market value or total voting power of the
stock of the Company; (ii) the date on which any person or group acquires ownership of the Company’s stock possessing 40%
or more of the total voting power of the Company’s stock; (iii) the date on which a majority of the members of the Board
is replaced during any 12 month period by directors whose appointment or election is not endorsed by a majority of the members
of the Board before the date of the appointment or election; or (iv) the date on which any person or group acquires Company assets
with a total gross fair market value equal to or more than 40% of the total gross fair market value of all the Company’s
assets immediately before such acquisition(s).



Option/SAR
Grants in Fiscal Year Ended December 31, 2014



|Name            |  | Grant
    Date |  | All Other Option Awards:Number of SecuritiesUnderlying Options (#) |            |  | Exercise
    or Base Price ofOption Awards ($/Share) |   |      | Grant
    Date Fair Value ofStock and Option Awards($) | 
|--------------- |  | -------------- |  | ------------------------------------------------------------------ | ---------- |  | ---------------------------------------------------- | - | ---- | ------------------------------------------------------ | 
|Daniel Bates    |  | 11/11/2014     |  |                                                                    | 10,500,000 |  |                                                      | $ | 0.15 |                                                        | 
|                |  |                |  |                                                                    |            |  |                                                      |   |      |                                                        | 
|Travis Campbell |  | 11/11/2014     |  |                                                                    | 2,000,000  |  |                                                      | $ | 0.15 |                                                        | 
|                |  |                |  |                                                                    |            |  |                                                      |   |      |                                                        | 
|Wanda Ferguson  |  | 11/11/2014     |  |                                                                    | 1,000,000  |  |                                                      | $ | 0.15 |                                                        | 



Outstanding
Equity Awards at Fiscal Year-End



The
following table sets forth information for the named executive officers regarding the number of shares subject to both exercisable
and unexercisable stock options, as well as the exercise prices and expiration dates thereof, as of December 31, 2014.



|                |  | Number
    of
    Securities underlying Unexercised  Options (#)  Exercisable (1) |            |  | Number
    of
    Securities underlying Unexercised Options (#) Unexercisable |  |   | Option
    Exercise Price ($/Sh) |  |  | Option Expiration
    Date
|--------------- |  | --------------------------------------------------------------------------------- | ---------- |  | ----------------------------------------------------------------------------- |  | - | -------------------------------- |  |  | --------------------------
|                |  |                                                                                   |            |  |                                                                               |  |   |                                  |  |  |                           
|Daniel Bates    |  |                                                                                   | 2,500,000  |  |                                                                               |  | - |                                  |  |  | 0.05                      
|Daniel Bates    |  |                                                                                   | 10,500,000 |  |                                                                               |  | - |                                  |  |  | 0.15                      
|                |  |                                                                                   | 13,000,000 |  |                                                                               |  | - |                                  |  |  | 0.13                      
|                |  |                                                                                   |            |  |                                                                               |  |   |                                  |  |  |                           
|Ryan Keating    |  |                                                                                   | 100,000    |  |                                                                               |  | - |                                  |  |  | 0.15                      
|                |  |                                                                                   | 100,000    |  |                                                                               |  | - |                                  |  |  | 0.15                      
|                |  |                                                                                   |            |  |                                                                               |  |   |                                  |  |  |                           
|Travis Campbell |  |                                                                                   | 12,500     |  |                                                                               |  | - |                                  |  |  | 0.90                      
|Travis Campbell |  |                                                                                   | 500,000    |  |                                                                               |  | - |                                  |  |  | 0.05                      
|                |  |                                                                                   | 512,500    |  |                                                                               |  | - |                                  |  |  | 0.07                      
|Travis Campbell |  |                                                                                   | 2,000,000  |  |                                                                               |  | - |                                  |  |  | 0.15                      
|                |  |                                                                                   | 2,512,500  |  |                                                                               |  | - |                                  |  |  | 0.13                      
|                |  |                                                                                   |            |  |                                                                               |  |   |                                  |  |  |                           
|Wanda Ferguson  |  |                                                                                   | 250,000    |  |                                                                               |  | - |                                  |  |  | 0.05                      
|Wanda Ferguson  |  |                                                                                   | 1,000,000  |  |                                                                               |  | - |                                  |  |  | 0.15                      
|                |  |                                                                                   | 1,250,000  |  |                                                                               |  | - |                                  |  |  |                           
|                |  |                                                                                   |            |  |                                                                               |  |   |                                  |  |  |                           
|                |  |                                                                                   | 16,062,500 |  |                                                                               |  | - |                                  |  |  | 0.13                      



|(1) | The
    fair value of these options was estimated at the dates of the grants, using the Black-Scholes option-pricing model. See note
    15 to the financial statements included elsewhere for a listing of assumptions used in the valuation.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



46







Equity
Compensation Plan Information



The
following table gives Information about our Common Stock that may be issued upon the exercise of options and rights as of December
31, 2014.



|                                                                                               |  | (a)
    Number of securitiesto be issuedupon the exercise ofoutstanding options,warrants and rights |            |  | (b)
    Weighted-averageexercise price ofoutstanding options,warrants and rights |  |      | (c)
    Number of securitiesremaining availablefor futureissuance under equitycompensation plans(excluding securitiesreflected in column (a)) | 
|---------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------- | ---------- |  | -------------------------------------------------------------------------------- |  | ---- | --------------------------------------------------------------------------------------------------------------------------------------------- | 
|                                                                                               |  |                                                                                                     |            |  |                                                                                  |  |      |                                                                                                                                               | 
|Stock
                                         Compensation Options                            |  |                                                                                                     | 16,062,500 |  |                                                                                  |  | 0.13 |                                                                                                                                               | 
|Equity
                                         Compensation Plan not Approved by Shareholders |  |                                                                                                     | 700,000    |  |                                                                                  |  | 0.15 |                                                                                                                                               | 
|Warrants                                                                                       |  |                                                                                                     | 450,000    |  |                                                                                  |  | 0.25 |                                                                                                                                               | 
|                                                                                               |  |                                                                                                     |            |  |                                                                                  |  |      |                                                                                                                                               | 
|                                                                                               |  |                                                                                                     | 17,212,500 |  |                                                                                  |  | 0.13 |                                                                                                                                               | 



On
November 11, 2014, the Company adopted the 2014 Stock Incentive Plan. The plan provides for Options, Stock Appreciation Rights,
Dividend Equivalent Rights Restricted Stock, Restricted Stock Units or other rights or benefits under the Plan. The maximum aggregate
number of Shares which may be issued pursuant to all Awards (including Incentive Stock Options) is five million (5,000,000) Shares.
The Shares may be authorized, but unissued, or reacquired Common Stock. In addition, Dividend Equivalent Rights shall be payable
solely in cash and therefore the issuance of Dividend Equivalent Rights shall not be deemed to reduce the maximum aggregate number
of Shares which may be issued under the Plan. The plan has a term of ten years. On November 11, 2014, 700,000 options were granted
under this plan with a weighted average exercise price of $0.15 and a weighted average contractual term of three years.



Director
Compensation



The
following table sets forth summary information concerning the total compensation paid to our non-employee directors in 2014 for
services to our company.



|Name             |  | Fees
    Earnedor Paid inCash ($) |       |  | OptionAwards ($) |   | Total
    ($) | 
|---------------- |  | --------------------------------- | ----- |  | ---------------- | - | ------------- | 
|Channing Dawson  |  |                                   | 1,000 |  |                  | — |               | 
|David Lowenstein |  |                                   | 1,250 |  |                  | — |               | 
|Total:           |  |                                   | 2,250 |  |                  | — |               | 



47







ITEM
12 – SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS



The
following table sets forth certain information regarding beneficial ownership of our common stock as of April 13, 2015:



| | ● | by
    each person who is known by us to beneficially own more than 5% of our common stock;
| | - | -------------------------------------------------------------------------------------------
| |   |                                                                                            
| | ● | by
    each of our officers and directors; and                                             
| |   |                                                                                            
| | ● | by
    all of our officers and directors as a group.                                       



Unless
otherwise indicated in the footnotes to the following table, each person named in the table has sole voting and investment power
and that person’s address is c/o WindStream Technologies, Inc., 819 Buckeye Street, North Vernon, Indiana 47265.



|NAME
    OF OWNER                             |  | TITLE
    OFCLASS |  | NUMBER
    OFSHARES OWNED (1) |            |     | PERCENTAGE
    OFCOMMON STOCK (2) | 
|--------------------------------------------- |  | ----------------- |  | ----------------------------- | ---------- | --- | --------------------------------- | 
|Daniel Bates                                  |  | Common Stock      |  |                               | 31,042,980 | (3) |                                   | 
|William Thorpe                                |  | Common Stock      |  |                               | 250,000    | (4) |                                   | 
|Travis Campbell                               |  | Common Stock      |  |                               | 2,518,500  | (5) |                                   | 
|Wanda Ferguson                                |  | Common Stock      |  |                               | 1,000,000  | (4) |                                   | 
|Channing Dawson                               |  | Common Stock      |  |                               | 0          |     |                                   | 
|David Lowenstein                              |  | Common Stock      |  |                               | 0          |     |                                   | 
|Officers and Directors as a Group (6 persons) |  | Common Stock      |  |                               | 35,115,852 | (6) |                                   | 
|                                              |  |                   |  |                               |            |     |                                   | 
|Adrian James (7)                              |  | Common Stock      |  |                               | 12,815,000 | (8) |                                   | 








*
Denotes less than 1%



(1)
Beneficial Ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with
respect to securities. Shares of common stock subject to options or warrants currently exercisable or convertible, or exercisable
or convertible within 60 days of April 13, 2015 are deemed outstanding for computing the percentage of the person holding such
option or warrant but are not deemed outstanding for computing the percentage of any other person.



(2)
Percentage based upon 93,604,796 shares of common stock issued and outstanding as of April 13, 2015.



(3)
Includes 13,450,000 shares of common stock underlying options, and 250,000 shares of common stock underlying warrants; which are
currently exercisable or become exercisable within 60 days.



(4)
Represents shares of common stock underlying options, which are currently exercisable or become exercisable within 60 days.



(5)
Includes 2,208,128 shares of common stock underlying options, which are currently exercisable or become exercisable within 60
days.



(6)
Includes 17,462,500 shares of common stock underlying options, and 250,000 shares of common stock underlying warrants; which are
currently exercisable or become exercisable within 60 days.



(7)
The mailing address for this beneficial owner is 3736 Bee Caves Rd, Suite 1-105, Austin, Texas 78746.



(8)
Based upon a Schedule 13G dated as of August 22, 2013 and filed with the SEC on July 18, 2014. Includes 12,675,000 shares of common
stock owned by Vanguard Financial Trust, of which Mr. James is the trustee and has investment and voting control over the shares
held by this entity.



ITEM
13 – CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE



Other
than as disclosed below, during the last two fiscal years, there have been no transactions, or proposed transactions, which have
materially affected or will materially affect us in which any director, executive officer or beneficial holder of more than 5%
of the outstanding common, or any of their respective relatives, spouses, associates or affiliates, has had or will have any direct
or material indirect interest. We have no policy regarding entering into transactions with affiliated parties.



Short
Term Debt - Related Parties



Our
President has lent us money under the terms of unsecured notes, which are due on demand. During the twelve months ended December
31, 2014 and 2013, our President advanced us $88,000 and $62,000, respectively, to fund our operations and we repaid $55,000 and
$27,500, respectively, of the total amounts that were advanced in 2014 and 2013.



48







ITEM
14 – PRINCIPAL ACCOUNTING FEES AND SERVICES



Somerset
CPAs, P.C. and Hartley Moore Accountancy Corp. were our principal independent registered public accountants engaged to audit our
financial statements for the fiscal years ended December 31, 2014 and 2013, respectively. The following table shows the fees that
we paid or accrued for the audit and other services provided by Hartley Moore and Somerset CPAs.



|Fee
    Category         |  | 2014 |         |  | 2013 |  
|------------------------ |  | ---- | ------- |  | ---- | -
|Audit Fees-Somerset CPAs |  | $    | 100,000 |  |      | $
|Audit Fees-Hartley Moore |  | $    | 29,500  |  |      | $
|Audit-Related Fees       |  | $    | —       |  |      | $
|Tax Fees                 |  | $    | —       |  |      | $
|All Other Fees           |  | $    | —       |  |      | $



Audit
Fees



This
category consists of fees for professional services rendered by our principal independent registered public accountant for the
audit of our annual financial statements, review of financial statements included in our quarterly reports and services that are
normally provided by the independent registered public accounting firms in connection with statutory and regulatory filings or
engagements for those fiscal years.



Audit-Related
Fees



This
category consists of fees for assurance and related services by our principal independent registered public accountant that are
reasonably related to the performance of the audit or review of our financial statements and are not reported above under “Audit
Fees”. The services for the fees disclosed under this category include consultations concerning financial accounting and
reporting standards.



Tax
Fees



This
category consists of fees for professional services rendered by our principal independent registered public accountant for tax
compliance, tax advice, and tax planning.



All
Other Fees



This
category consists of fees for services provided by our principal independent registered public accountant other than the services
described above.



The
Board of Directors has considered whether the provision of non-audit services is compatible with maintaining the principal accountant’s
independence.



49







PART
IV



ITEM
15 – EXHIBITS, FINANCIAL STATEMENT SCHEDULES



|(a) | Documents Filed.
    The following documents are filed as part of this report:
|--- | ------------------------------------------------------------------------------



| | (1) | Financial
    Statements. The following reports and financial statements:
| | --- | -------------------------------------------------------------------------



| | ● | Report
    of Somerset CPAs, P.C., Independent Registered Public Accounting Firm;                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                            
| | ● | Report
    of Hartley Moore Accountancy Corporation, Independent Registered Public Accounting Firm;                                                                                        
| |   |                                                                                                                                                                                            
| | ● | Consolidated
    Balance Sheets as of December 31, 2014 and 2013;                                                                                                                          
| |   |                                                                                                                                                                                            
| | ● | Consolidated
    Statements of Operations for the years ended December 31, 2014 and 2013;                                                                                                  
| |   |                                                                                                                                                                                            
| | ● | Consolidated
                                         Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2014
                                         and 2013;
| |   |                                                                                                                                                                                            
| | ● | Consolidated
    Statements of Cash Flows for the years ended December 31, 2014 and 2013; and                                                                                              
| |   |                                                                                                                                                                                            
| | ● | Notes
    to Consolidated Financial Statements                                                                                                                                             



| | (2) | Financial
    Statement Schedules. See subsection (c) below.
| | --- | ------------------------------------------------------------



| | (3) | Exhibits.
    See subsection (b) below.
| | --- | ---------------------------------------



|(b) | Exhibits.
    The exhibits filed or furnished with this report are set forth on the Exhibit Index immediately following the signature page
    of this report, which Exhibit Index is incorporated herein by reference.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(c) | Financial
    Statement Schedules. All schedules are omitted because they are not applicable, the amounts involved are not significant
    or the required information is shown in the financial statements or notes thereto.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





50







SIGNATURES



In
accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.



|                         | WINDSTREAM
    TECHNOLOGIES, INC.
|------------------------ | ---------------------------------
|                         |                                  
|Date:
    April 15, 2015 | By:                              
|                         |                                  
|                         |                                  
|                         |                                  
|Date
    April 15, 2015  | By:                              
|                         |                                  
|                         |                                  



Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.



|Name                     |  | Position |  | Date              
|------------------------ |  | -------- |  | ------------------
|                         |  |          |  |                   
|/s/
    DANIEL BATES     |  | Director |  | April
    15, 2015
|Daniel Bates             |  |          |  |                   
|                         |  |          |  |                   
|/s/
    DAVID LOWENSTEIN |  | Director |  | April
    15, 2015
|David Lowenstein         |  |          |  |                   
|                         |  |          |  |                   
|/s/
    CHANNING DAWSON  |  | Director |  | April
    15, 2015
|Channing Dawson          |  |          |  |                   



51







INDEX
TO EXHIBITS



Exhibits:



|2.01  | Form
    of Rescission Agreement, effective as of May 22, 2013, by and among Windaus Global Energy, Inc., Windaus Global Energy, Inc.,
    and Maurice and Judy Dechamps, filed as an exhibit to the Company’s Current Report on Form 8-K, filed with the Securities
    and Exchange Commission (the “Commission”) on May 23, 2013 and incorporated herein by reference.
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                                                                                                                                                                                                          
|2.02  | Form
    of Share Exchange Agreement, effective as of May 22, 2013, by and among Windaus Global Energy, Inc., WindStream Technologies,
    Inc. and the shareholders of WindStream Technologies, Inc., filed as an exhibit to the Company’s Current Report on Form
    8-K, filed with the Commission on May 23, 2013 and incorporated herein by reference.              
|      |                                                                                                                                                                                                                                                                                                                                                                          
|3.01  | Certificate
    of Continuation, filed as an exhibit to the Company’s amended Current Report on Form 8-K/A, filed with the Commission
    on February 14, 2013 and incorporated herein by reference.                                                                                                                                                                     
|      |                                                                                                                                                                                                                                                                                                                                                                          
|3.02  | Memorandum
    and Articles of Association, filed as an exhibit to the Company’s registration statement on Form F-1, filed with the
    Commission on July 11, 2008 and incorporated herein by reference.                                                                                                                                                                
|      |                                                                                                                                                                                                                                                                                                                                                                          
|3.03  | Amendment
    to Memorandum and Articles of Association, filed as an exhibit to the Company’s registration statement on Form 10, filed
    with the Commission on June 13, 2012 and incorporated herein by reference.                                                                                                                                                    
|      |                                                                                                                                                                                                                                                                                                                                                                          
|3.04  | Articles of Incorporation,
                                         as amended, of WindStream Technologies, Inc.                                                                                                                                                                                                                                                         
|      |                                                                                                                                                                                                                                                                                                                                                                          
|3.05  | Amended
    and Restated Bylaws of WindStream Technologies, Inc., filed as an exhibit to the Company’s Current Report on Form 8-K,
    filed with the Commission on May 6, 2014 and incorporated herein by reference.                                                                                                                                                    
|      |                                                                                                                                                                                                                                                                                                                                                                          
|10.01 | Form
    of distribution agreement with HG Energy, filed as an exhibit to the Company’s amended Current Report on Form 8-K/A,
    filed with the Commission on November 1, 2013 and incorporated herein by reference.                                                                                                                                                    
|      |                                                                                                                                                                                                                                                                                                                                                                          
|10.02 | Form
    of distribution Agreement with Jamaica Public Service Company, filed as an exhibit to the Company’s amended Current
    Report on Form 8-K/A, filed with the Commission on November 1, 2013 and incorporated herein by reference.                                                                                                                               
|      |                                                                                                                                                                                                                                                                                                                                                                          
|10.03 | Form
    of Convertible Promissory Note , filed as an exhibit to the Company’s Current Report on Form 8-K, filed with the Commission
    on May 23, 2013 and incorporated herein by reference.                                                                                                                                                                           
|      |                                                                                                                                                                                                                                                                                                                                                                          
|10.04 | Form
    of Warrant, filed as an exhibit to the Company’s Current Report on Form 8-K, filed with the Commission on May 23, 2013
    and incorporated herein by reference.                                                                                                                                                                                                
|      |                                                                                                                                                                                                                                                                                                                                                                          
|10.05 | Form
    of Securities Purchase Agreement, filed as an exhibit to the Company’s Current Report on Form 8-K, filed with the Commission
    on October 21, 2014 and incorporated herein by reference.                                                                                                                                                                      
|      |                                                                                                                                                                                                                                                                                                                                                                          
|10.06 | Form
    of Secured Convertible Promissory Note, filed as an exhibit to the Company’s Current Report on Form 8-K, filed with
    the Commission on October 21, 2014 and incorporated herein by reference.                                                                                                                                                                
|      |                                                                                                                                                                                                                                                                                                                                                                          
|10.07 | Form
    of Warrant, filed as an exhibit to the Company’s Current Report on Form 8-K, filed with the Commission on October 21,
    2014 and incorporated herein by reference.                                                                                                                                                                                            
|      |                                                                                                                                                                                                                                                                                                                                                                          
|10.08 | Form
    of Securities Purchase Agreement, filed as an exhibit to the Company’s Current Report on Form 8-K, filed with the Commission
    on October 21, 2014 and incorporated herein by reference.                                                                                                                                                                      
|      |                                                                                                                                                                                                                                                                                                                                                                          
|10.09 | Form
    of Secured Convertible Promissory Note, filed as an exhibit to the Company’s Current Report on Form 8-K, filed with
    the Commission on October 21, 2014 and incorporated herein by reference.                                                                                                                                                                



52







|10.10       | Form
    of Warrant, filed as an exhibit to the Company’s Current Report on Form 8-K, filed with the Commission on October 21,
    2014 and incorporated herein by reference.                                                                                         
|----------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            |                                                                                                                                                                                                                                                                       
|10.11       | Form
    of Convertible Debenture Subscription Agreement, filed as an exhibit to the Company’s Current Report on Form 8-K, filed
    with the Commission on October 30, 2014 and incorporated herein by reference.                                                    
|            |                                                                                                                                                                                                                                                                       
|10.12       | Form
    of Original Issue Discount Senior Secured Convertible Debenture, filed as an exhibit to the Company’s Current Report
    on Form 8-K, filed with the Commission on October 30, 2014 and incorporated herein by reference.                                    
|            |                                                                                                                                                                                                                                                                       
|10.13       | Form
    of Original Issue Discount Senior Secured Convertible Debenture, filed as an exhibit to the Company’s Current Report
    on Form 8-K, filed with the Commission on October 30, 2014 and incorporated herein by reference.                                    
|            |                                                                                                                                                                                                                                                                       
|10.14       | Form
    of Original Issue Discount Senior Secured Convertible Debenture, filed as an exhibit to the Company’s Current Report
    on Form 8-K, filed with the Commission on October 30, 2014 and incorporated herein by reference.                                    
|            |                                                                                                                                                                                                                                                                       
|10.15       | Form
    of Secured Investor Note, filed as an exhibit to the Company’s Current Report on Form 8-K, filed with the Commission
    on October 30, 2014 and incorporated herein by reference.                                                                           
|            |                                                                                                                                                                                                                                                                       
|10.16       | Form
    of Secured Investor Note, filed as an exhibit to the Company’s Current Report on Form 8-K, filed with the Commission
    on October 30, 2014 and incorporated herein by reference.                                                                           
|            |                                                                                                                                                                                                                                                                       
|10.17       | Form
    of Secured Investor Note, filed as an exhibit to the Company’s Current Report on Form 8-K, filed with the Commission
    on October 30, 2014 and incorporated herein by reference.                                                                           
|            |                                                                                                                                                                                                                                                                       
|10.18       | Form
    of Investor Security Agreement, filed as an exhibit to the Company’s Current Report on Form 8-K, filed with the Commission
    on October 30, 2014 and incorporated herein by reference.                                                                     
|            |                                                                                                                                                                                                                                                                       
|10.19       | Employment
    Agreement, between WindStream Technologies, Inc. and Daniel Bates, dated November 11, 2014, filed as an exhibit to the Company’s
    Current Report on Form 8-K, filed with the Commission on February 6, 2015 and incorporated herein by reference.   
|            |                                                                                                                                                                                                                                                                       
|10.20       | Employment
    Agreement, between WindStream Technologies, Inc. and Travis Campbell, dated November 11, 2014, filed as an exhibit to the
    Company’s Current Report on Form 8-K, filed with the Commission on February 6, 2015 and incorporated herein by reference.
|            |                                                                                                                                                                                                                                                                       
|10.21       | Employment
    Agreement, between WindStream Technologies, Inc. and Wanda Ferguson, dated November 11, 2014, filed as an exhibit to the Company’s
    Current Report on Form 8-K, filed with the Commission on February 6, 2015 and incorporated herein by reference. 
|            |                                                                                                                                                                                                                                                                       
|10.22       | Employment
    Agreement, between WindStream Technologies, Inc. and William Thorpe, dated November 11, 2014, filed as an exhibit to the Company’s
    Current Report on Form 8-K, filed with the Commission on February 6, 2015 and incorporated herein by reference. 
|            |                                                                                                                                                                                                                                                                       
|10.23       | Joint Venture Agreement of WindStream Technologies,
    Inc., dated as of October 16, 2014, by and among WindStream Technologies, Inc., WindStream Energy Technologies India Private
    Limited and West Coast Ventures Private Limited.                             
|            |                                                                                                                                                                                                                                                                       
|10.24       | Securities Purchase Agreement, dated March 5, 2015,
    by and between the Company and LG.                                                                                                                                                                            
|            |                                                                                                                                                                                                                                                                       
|10.25       | Form of Convertible Note, dated March 5, 2015, issued
    by the Company to LG.                                                                                                                                                                                       
|            |                                                                                                                                                                                                                                                                       
|10.26       | Form of Convertible Note, dated March 6, 2015, issued
    by the Company to JSJ.                                                                                                                                                                                      
|            |                                                                                                                                                                                                                                                                       
|10.27       | Form of Convertible Note, dated March 9, 2015, issued
    by the Company to JMJ.                                                                                                                                                                                      
|            |                                                                                                                                                                                                                                                                       
|10.28       | Securities
                                         Purchase Agreement, dated March 10, 2015, by and between the Company and EMA.                                                                                                                                     
|            |                                                                                                                                                                                                                                                                       
|10.29       | Form of Convertible Note, dated March 10, 2015,
    issued by the Company to EMA.                                                                                                                                                                                     
|            |                                                                                                                                                                                                                                                                       
|10.30       | Securities Purchase Agreement, dated March 20, 2015,
    by and between the Company and Adar.                                                                                                                                                                         
|            |                                                                                                                                                                                                                                                                       
|10.31       | Form of Convertible Note, dated March 20, 2015,
    issued by the Company to Adar.                                                                                                                                                                                    
|            |                                                                                                                                                                                                                                                                       
|10.32       | Securities Purchase Agreement, dated March 27, 2015,
    by and between the Company and Union Capital.                                                                                                                                                                
|            |                                                                                                                                                                                                                                                                       
|10.33       | Form of Convertible Note, dated March 27, 2015,
    issued by the Company to Union Capital.                                                                                                                                                                           
|            |                                                                                                                                                                                                                                                                       
|21.01       | List
    of Subsidiaries.                                                                                                                                                                                                                                             
|            |                                                                                                                                                                                                                                                                       
|31.01       | Certification
    of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.                                                                                        
|            |                                                                                                                                                                                                                                                                       
|31.02       | Certification
    of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.                                                                                        
|            |                                                                                                                                                                                                                                                                       
|32.01       | Certifications
    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.                                                                               
|            |                                                                                                                                                                                                                                                                       
|101
    INS | XBRL
    Instance Document                                                                                                                                                                                                                                            
|            |                                                                                                                                                                                                                                                                       
|101
    SCH | XBRL
    Taxonomy Extension Schema Document                                                                                                                                                                                                                           
|            |                                                                                                                                                                                                                                                                       
|101
    CAL | XBRL
    Taxonomy Calculation Linkbase Document                                                                                                                                                                                                                       
|            |                                                                                                                                                                                                                                                                       
|101
    LAB | XBRL
    Taxonomy Labels Linkbase Document                                                                                                                                                                                                                            
|            |                                                                                                                                                                                                                                                                       
|101
    PRE | XBRL
    Taxonomy Presentation Linkbase Document                                                                                                                                                                                                                      
|            |                                                                                                                                                                                                                                                                       
|101
    DEF | XBRL
    Taxonomy Extension Definition Linkbase Document                                                                                                                                                                                                              



53







INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS



|WindStream
    Technologies, Inc.                                                                               |  |             
|--------------------------------------------------------------------------------------------------------------- |  | ------------
|                                                                                                                |  |             
|Reports
    of Independent Registered Public Accounting Firms                                                   |  | F-2,
    F-3
|                                                                                                                |  |             
|Consolidated
    Balance Sheets, December 31, 2014 and 2013                                                     |  | F-4         
|                                                                                                                |  |             
|Consolidated
    Statements of Operations for Fiscal Years Ended December 31, 2014 and 2013                     |  | F-5         
|                                                                                                                |  |             
|Consolidated
    Statements of Stockholders’ Equity (Deficit) for Fiscal Years Ended December 31, 2014 and 2013 |  | F-6         
|                                                                                                                |  |             
|Consolidated
    Statements of Cash Flows for Fiscal Years Ended December 31, 2014 and 2013                     |  | F-7         
|                                                                                                                |  |             
|Notes
    to Consolidated Financial Statements for Fiscal Years Ended December 31, 2014 and 2013                |  | F-8         



F-1







REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



Board
of Directors and Stockholders

WindStream
Technologies Inc.

North
Vernon, Indiana



We
have audited the accompanying consolidated balance sheet of WindStream Technologies Inc. (“the Company”) as of December
31, 2014 and the related consolidated statement of operations, stockholders’ equity (deficit), and cash flows for the year
then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these financial statements based on our audit.



We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.



In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of WindStream Technologies Inc. at December 31, 2014, and the results of its operations and its cash flows for the year then ended,in conformity with accounting principles generally accepted in the United States of America.



The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
As discussed in Note 3 to the consolidated financial statements, the Company had an accumulated deficit at December 31, 2014,
recurring net losses, and a working capital deficit at December 31, 2014, which raises substantial doubt about its ability to
continue as a going concern. Management’s plans concerning these matters are also described in Note 3. The consolidated
financial statements do not include any adjustments that might result from the outcome of this uncertainty.



|/s/ Somerset
    CPAs, P.C. | 
|--------------------------- | 
|Indianapolis, Indiana       | 
|April 10, 2015              | 





F-2







REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To
the Board of Directors and Shareholders of

WindStream
Technologies, Inc.



We
have audited the accompanying consolidated balance sheet of WindStream Technologies, Inc. (fka Windaus Global Energy, Inc.). (the
Company) as of December 31, 2013, and the related Consolidated statements of operations, stockholders’ (deficit) equity,
and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.



We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States of America).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. The Company is not required to have, nor were we engaged, to perform an audit of
its internal control over financial reporting. An audit includes consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provide a reasonable basis for our opinion.



In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of Windstream Technologies, Inc. (fka Windaus Global Energy, Inc.) as of December 31, 2013, and the results of their operations
and their cash flows for the year then ended in conformity with U.S. generally accepted accounting principles.



The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
As discussed in Note 3 to the consolidated financial statements, the Company had an accumulated deficit at December 31, 2013,
recurring net losses, and a working capital deficit at December 31, 2013, which raises substantial doubt about its ability to
continue as a going concern. Management’s plans concerning these matters are also described in Note 3. The consolidated
financial statements do not include any adjustments that might result from the outcome of this uncertainty.



|/s/
    Hartley Moore Accountancy Corporation | 
|--------------------------------------------- | 
|Anaheim, California                           | 
|                                              | 
|April 9, 2014                                 | 



F-3







WINDSTREAM
TECHNOLOGIES, INC.

CONSOLIDATED
BALANCE SHEETS



|                                                                                                                                       |  | December
    31, 2014 |             |   | December
    31, 2013 |  
|-------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------- | ----------- | - | --------------------- | -
|ASSETS                                                                                                                                 |  |                       |             |   |                       |  
|CURRENT ASSETS                                                                                                                         |  |                       |             |   |                       |  
|Cash                                                                                                                                   |  | $                     | 594,508     |   |                       | $
|Accounts receivable, net                                                                                                               |  |                       | 1,017,522   |   |                       |  
|Inventories                                                                                                                            |  |                       | 1,184,957   |   |                       |  
|Prepaid expenses                                                                                                                       |  |                       | 77,349      |   |                       |  
|Investor notes receivable                                                                                                              |  |                       | 2,175,260   |   |                       |  
|Deferred
    financing costs                                                                                                           |  |                       | —           |   |                       |  
|TOTAL CURRENT ASSETS                                                                                                                   |  |                       | 5,049,596   |   |                       |  
|Property and equipment, net                                                                                                            |  |                       | 253,640     |   |                       |  
|OTHER ASSETS                                                                                                                           |  |                       |             |   |                       |  
|Deposits                                                                                                                               |  |                       | 62,059      |   |                       |  
|TOTAL
    ASSETS                                                                                                                       |  | $                     | 5,365,295   |   |                       | $
|                                                                                                                                       |  |                       |             |   |                       |  
|LIABILITIES AND STOCKHOLDERS’
    EQUITY (DEFICIT)                                                                                     |  |                       |             |   |                       |  
|CURRENT LIABILITIES                                                                                                                    |  |                       |             |   |                       |  
|Accounts payable                                                                                                                       |  | $                     | 1,154,283   |   |                       | $
|Accrued liabilities                                                                                                                    |  |                       | 1,052,891   |   |                       |  
|Short term debt - third parties                                                                                                        |  |                       | 2,476,605   |   |                       |  
|Current maturities of note payable                                                                                                     |  |                       | 107,838     |   |                       |  
|Convertible notes payable, net
    of unamortized debt discount of $166,668 and $219,979, respectively                                 |  |                       | 3,041,332   |   |                       |  
|Derivative liabilities                                                                                                                 |  |                       | 1,939,292   |   |                       |  
|Short term
    debt - related parties                                                                                                  |  |                       | 221,000     |   |                       |  
|TOTAL CURRENT LIABILITIES                                                                                                              |  |                       | 9,993,241   |   |                       |  
|                                                                                                                                       |  |                       |             |   |                       |  
|LONG TERM LIABILITY                                                                                                                    |  |                       |             |   |                       |  
|Note payable,
    non-current                                                                                                          |  |                       | 1,217,162   |   |                       |  
|TOTAL LIABILITIES                                                                                                                      |  |                       | 11,210,403  |   |                       |  
|                                                                                                                                       |  |                       |             |   |                       |  
|STOCKHOLDERS’ EQUITY (DEFICIT)                                                                                                         |  |                       |             |   |                       |  
|Common
    stock; $0.001 par value; unlimited shares authorized; 88,617,154 and 83,461,899 shares issued and outstanding, respectively |  |                       | 87,283      |   |                       |  
|Additional paid in capital                                                                                                             |  |                       | 15,881,419  |   |                       |  
|Accumulated
    deficit                                                                                                                |  |                       | (21,750,309 | ) |                       |  
|Deficit attributable to Windstream
    Technologies, Inc.                                                                              |  |                       | (5,781,606  | ) |                       |  
|Noncontrolling
    interest                                                                                                            |  |                       | (63,501     | ) |                       |  
|TOTAL STOCKHOLDERS’ DEFICIT                                                                                                            |  |                       | (5,845,108  | ) |                       |  
|                                                                                                                                       |  |                       |             |   |                       |  
|TOTAL
    LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)                                                                               |  | $                     | 5,365,295   |   |                       | $



The
accompanying notes are an integral part of these consolidated financial statements.



F-4







WINDSTREAM
TECHNOLOGIES, INC.

CONSOLIDATED
STATEMENTS OF OPERATIONS



|                                                           |  | For
    the Year      |             |   | For
    the Year      |  
|---------------------------------------------------------- |  | --------------------- | ----------- | - | --------------------- | -
|                                                           |  | Ended                 |             |   | Ended                 |  
|                                                           |  | December
    31, 2014 |             |   | December
    31, 2013 |  
|SALES                                                      |  | $                     | 1,764,358   |   |                       | $
|                                                           |  |                       |             |   |                       |  
|COST OF GOODS SOLD                                         |  |                       | 2,331,707   |   |                       |  
|                                                           |  |                       |             |   |                       |  
|GROSS LOSS                                                 |  |                       | (567,349    | ) |                       |  
|                                                           |  |                       |             |   |                       |  
|OPERATING EXPENSES:                                        |  |                       |             |   |                       |  
|Research and development                                   |  |                       | 146,178     |   |                       |  
|Write down of inventory                                    |  |                       | 111,000     |   |                       |  
|Stock compensation                                         |  |                       | 5,224,258   |   |                       |  
|General and administrative expenses                        |  |                       | 3,632,857   |   |                       |  
|                                                           |  |                       |             |   |                       |  
|TOTAL OPERATING EXPENSES                                   |  |                       | 9,114,293   |   |                       |  
|                                                           |  |                       |             |   |                       |  
|LOSS FROM OPERATIONS                                       |  |                       | (9,681,642  | ) |                       |  
|                                                           |  |                       |             |   |                       |  
|OTHER INCOME (EXPENSE)                                     |  |                       |             |   |                       |  
|Other expense                                              |  |                       | (800        | ) |                       |  
|Interest expense, net                                      |  |                       | (1,226,625  | ) |                       |  
|Loss on
    change in fair value of derivative liabilities |  |                       | (424,071)   |   |                       |  
|                                                           |  |                       |             |   |                       |  
|TOTAL OTHER INCOME (EXPENSE)                               |  |                       | (1,651,496  | ) |                       |  
|                                                           |  |                       |             |   |                       |  
|NET LOSS                                                   |  | $                     | (11,333,138 | ) |                       | $
|                                                           |  |                       |             |   |                       |  
|Noncontrolling interest                                    |  |                       | (63,501     | ) |                       |  
|                                                           |  |                       |             |   |                       |  
|NET LOSS ATTRIBUTABLE TO WINDSTREAM TECHNOLOGIES,
    INC. |  | $                     | (11,269,637 | ) |                       |  
|                                                           |  |                       |             |   |                       |  
|Net Loss Per Share - Basic and Diluted                     |  | $                     | (0.13       | ) |                       |  
|                                                           |  |                       |             |   |                       |  
|Weighted Average Shares Outstanding - Basic and Diluted    |  |                       | 88,696,836  |   |                       |  



The
accompanying notes are an integral part of these consolidated financial statements.



F-5







WINDSTREAM
TECHNOLOGIES, INC.

CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)





|                                                                  |  | Series
    APreferred Shares |         |   | Seed
    1Preferred Shares |   |          | Seed
    2Preferred Shares |  |  | Common
    Stock |   |  | AdditionalPaid in |         |   | Non-controlling |  |          | Accumulated |  |   |            |  
|----------------------------------------------------------------- |  | ---------------------------- | ------- | - | -------------------------- | - | -------- | -------------------------- |  |  | ---------------- | - |  | ----------------- | ------- | - | --------------- |  | -------- | ----------- |  | - | ---------- | -
|                                                                  |  | Shares                       |         |   | Amount                     |   |          | Shares                     |  |  | Amount           |   |  | Shares            |         |   | Amount          |  |          | Shares      |  |   | Amount     |  
|                                                                  |  |                              |         |   |                            |   |          |                            |  |  |                  |   |  |                   |         |   |                 |  |          |             |  |   |            |  
|Balance
    - December 31, 2012                                   |  |                              | 83,053  |   |                            | $ | 740,000  |                            |  |  | 35,000           |   |  | $                 | 35,000  |   |                 |  | 463,908  |             |  | $ | 1,521,353  |  
|                                                                  |  |                              |         |   |                            |   |          |                            |  |  |                  |   |  |                   |         |   |                 |  |          |             |  |   |            |  
|Reverse
    merger adjustment                                     |  |                              | (83,053 | ) |                            |   | (740,000 | )                          |  |  | (35,000          | ) |  |                   | (35,000 | ) |                 |  | (463,908 | )           |  |   | (1,521,353 | )
|                                                                  |  |                              |         |   |                            |   |          |                            |  |  |                  |   |  |                   |         |   |                 |  |          |             |  |   |            |  
|Common
    stock issued in connection with reverse merger         |  |                              |         |   |                            |   |          |                            |  |  |                  |   |  |                   |         |   |                 |  |          |             |  |   | -          |  
|                                                                  |  |                              |         |   |                            |   |          |                            |  |  |                  |   |  |                   |         |   |                 |  |          |             |  |   |            |  
|Stock
    option expense                                          |  |                              | -       |   |                            |   | -        |                            |  |  | -                |   |  |                   | -       |   |                 |  | -        |             |  |   | -          |  
|                                                                  |  |                              |         |   |                            |   |          |                            |  |  |                  |   |  |                   |         |   |                 |  |          |             |  |   |            |  
|Common
    stock issued for services                              |  |                              |         |   |                            |   |          |                            |  |  |                  |   |  |                   |         |   |                 |  |          |             |  |   |            |  
|                                                                  |  |                              |         |   |                            |   |          |                            |  |  |                  |   |  |                   |         |   |                 |  |          |             |  |   |            |  
|Warrants
    issued                                               |  |                              |         |   |                            |   |          |                            |  |  |                  |   |  |                   |         |   |                 |  |          |             |  |   |            |  
|                                                                  |  |                              |         |   |                            |   |          |                            |  |  |                  |   |  |                   |         |   |                 |  |          |             |  |   |            |  
|Beneficial
    conversion feature on convertible debt             |  |                              |         |   |                            |   |          |                            |  |  |                  |   |  |                   |         |   |                 |  |          |             |  |   |            |  
|                                                                  |  |                              |         |   |                            |   |          |                            |  |  |                  |   |  |                   |         |   |                 |  |          |             |  |   |            |  
|Warrant
    issued for deferred financing costs                   |  |                              |         |   |                            |   |          |                            |  |  |                  |   |  |                   |         |   |                 |  |          |             |  |   |            |  
|                                                                  |  |                              |         |   |                            |   |          |                            |  |  |                  |   |  |                   |         |   |                 |  |          |             |  |   |            |  
|Offering
    costs                                                |  |                              |         |   |                            |   |          |                            |  |  |                  |   |  |                   |         |   |                 |  |          |             |  |   |            |  
|                                                                  |  |                              |         |   |                            |   |          |                            |  |  |                  |   |  |                   |         |   |                 |  |          |             |  |   |            |  
|Common
    stock issued to stockholders                           |  |                              |         |   |                            |   |          |                            |  |  |                  |   |  |                   |         |   |                 |  |          |             |  |   |            |  
|                                                                  |  |                              |         |   |                            |   |          |                            |  |  |                  |   |  |                   |         |   |                 |  |          |             |  |   |            |  
|Net
    loss                                                      |  |                              | -       |   |                            |   | -        |                            |  |  | -                |   |  |                   | -       |   |                 |  | -        |             |  |   | -          |  
|                                                                  |  |                              |         |   |                            |   |          |                            |  |  |                  |   |  |                   |         |   |                 |  |          |             |  |   |            |  
|Balance
    - December 31, 2013                                   |  |                              | -       |   |                            | $ | -        |                            |  |  | -                |   |  | $                 | -       |   |                 |  | -        |             |  | $ | -          |  
|                                                                  |  |                              |         |   |                            |   |          |                            |  |  |                  |   |  |                   |         |   |                 |  |          |             |  |   |            |  
|Stock-based
    compensation expense                              |  |                              |         |   |                            |   |          |                            |  |  |                  |   |  |                   |         |   |                 |  |          |             |  |   |            |  
|                                                                  |  |                              |         |   |                            |   |          |                            |  |  |                  |   |  |                   |         |   |                 |  |          |             |  |   |            |  
|Beneficial
    conversion feature on convertible debt             |  |                              |         |   |                            |   |          |                            |  |  |                  |   |  |                   |         |   |                 |  |          |             |  |   |            |  
|                                                                  |  |                              |         |   |                            |   |          |                            |  |  |                  |   |  |                   |         |   |                 |  |          |             |  |   |            |  
|Conversion
    of warrants to common stock                        |  |                              |         |   |                            |   |          |                            |  |  |                  |   |  |                   |         |   |                 |  |          |             |  |   |            |  
|                                                                  |  |                              |         |   |                            |   |          |                            |  |  |                  |   |  |                   |         |   |                 |  |          |             |  |   |            |  
|Issuance
                                         of Common Stock |  |                              |         |   |                            |   |          |                            |  |  |                  |   |  |                   |         |   |                 |  |          |             |  |   |            |  
|                                                                  |  |                              |         |   |                            |   |          |                            |  |  |                  |   |  |                   |         |   |                 |  |          |             |  |   |            |  
|Sale
    of Noncontrolling Interest in Subsidiary                 |  |                              |         |   |                            |   |          |                            |  |  |                  |   |  |                   |         |   |                 |  |          |             |  |   |            |  
|                                                                  |  |                              |         |   |                            |   |          |                            |  |  |                  |   |  |                   |         |   |                 |  |          |             |  |   |            |  
|Net
    loss                                                      |  |                              |         |   |                            |   |          |                            |  |  |                  |   |  |                   |         |   |                 |  |          |             |  |   |            |  
|                                                                  |  |                              |         |   |                            |   |          |                            |  |  |                  |   |  |                   |         |   |                 |  |          |             |  |   |            |  
|Exercise
    of Stock Options                                     |  |                              |         |   |                            |   |          |                            |  |  |                  |   |  |                   |         |   |                 |  |          |             |  |   |            |  
|                                                                  |  |                              |         |   |                            |   |          |                            |  |  |                  |   |  |                   |         |   |                 |  |          |             |  |   |            |  
|Deposit
    for future financings written off                     |  |                              |         |   |                            |   |          |                            |  |  |                  |   |  |                   |         |   |                 |  |          |             |  |   |            |  
|                                                                  |  |                              |         |   |                            |   |          |                            |  |  |                  |   |  |                   |         |   |                 |  |          |             |  |   |            |  
|Offering
                                         Costs           |  |                              |         |   |                            |   |          |                            |  |  |                  |   |  |                   |         |   |                 |  |          |             |  |   |            |  
|                                                                  |  |                              |         |   |                            |   |          |                            |  |  |                  |   |  |                   |         |   |                 |  |          |             |  |   |            |  
|Balance
    –December 31, 2014                                    |  |                              |         |   |                            | $ |          |                            |  |  |                  |   |  | $                 |         |   |                 |  |          |             |  | $ |            |  



The
accompanying notes are an integral part of these consolidated financial statements.



F-6







WINDSTREAM
TECHNOLOGIES, INC.

CONSOLIDATED
STATEMENTS OF CASH FLOWS





|                                                                                                 |  | For
    the Year Ended |             |   | For
    the Year Ended |  
|------------------------------------------------------------------------------------------------ |  | ---------------------- | ----------- | - | ---------------------- | -
|                                                                                                 |  | Dec.
    31, 2014      |             |   | Dec.
    31, 2013      |  
|                                                                                                 |  |                        |             |   |                        |  
|CASH
    FLOWS FROM OPERATING ACTIVITIES:                                                        |  |                        |             |   |                        |  
|Net loss                                                                                         |  | $                      | (11,333,138 | ) |                        | $
|                                                                                                 |  |                        |             |   |                        |  
|Adjustments to reconcile net loss
    to net cash used in operating activities:                  |  |                        |             |   |                        |  
|Depreciation                                                                                     |  |                        | 125,111     |   |                        |  
|Amortization of deferred financing
    costs                                                     |  |                        | 37,529      |   |                        |  
|Provision for bad debt                                                                           |  |                        | 28,402      |   |                        |  
|Loss from change in fair value
    of derivative liability                                       |  |                        | 424,071     |   |                        |  
|Beneficial conversion of convertible
    debt                                                    |  |                        | 400,000     |   |                        |  
|Stock based compensation and stock
    warrant expense                                           |  |                        | 5,224,258   |   |                        |  
|Inventory write-down                                                                             |  |                        | 111,000     |   |                        |  
|Amortization of debt discount                                                                    |  |                        | —           |   |                        |  
|                                                                                                 |  |                        |             |   |                        |  
|Changes in operating Assets and
    Liabilities:                                                 |  |                        |             |   |                        |  
|Accounts receivable                                                                              |  |                        | (644,375    | ) |                        |  
|Inventories                                                                                      |  |                        | (349,152    | ) |                        |  
|Prepaid expenses                                                                                 |  |                        | 109,037     |   |                        |  
|Deposits                                                                                         |  |                        | (53,604     | ) |                        |  
|Accounts payable                                                                                 |  |                        | 411,801     |   |                        |  
|Accounts payable - related parties                                                               |  |                        | —           |   |                        |  
|Accrued
    liabilities                                                                          |  |                        | 313,552     |   |                        |  
|NET CASH
    USED IN OPERATING ACTIVITIES                                                        |  |                        | (5,195,508  | ) |                        |  
|                                                                                                 |  |                        |             |   |                        |  
|CASH FLOWS USED IN INVESTING ACTIVITIES:                                                         |  |                        |             |   |                        |  
|Cash paid for property and equipment                                                             |  |                        | (32,825     | ) |                        |  
|Reverse
    merger cash                                                                          |  |                        | —           |   |                        |  
|                                                                                                 |  |                        |             |   |                        |  
|NET CASH
    USED IN INVESTING ACTIVITIES                                                        |  |                        | (32,825     | ) |                        |  
|                                                                                                 |  |                        |             |   |                        |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                            |  |                        |             |   |                        |  
|Cash payments on deferred financing
    costs                                                    |  |                        | —           |   |                        |  
|Proceeds from sale of common stock,
    net offering costs of $79,184 and $109,000, respectively |  |                        | 1,826,426   |   |                        |  
|Borrowings on line of credit                                                                     |  |                        | 2,445,000   |   |                        |  
|Repayments on line of credit                                                                     |  |                        | (953,394    | ) |                        |  
|Proceeds from short term debt -
    related parties                                              |  |                        | 88,500      |   |                        |  
|Payments on short term debt - related
    parties                                                |  |                        | (55,000     | ) |                        |  
|Proceeds from notes payable                                                                      |  |                        | 653,388     |   |                        |  
|Principal payments on long term
    debt                                                         |  |                        | (380,353    | ) |                        |  
|Proceeds from issuance of convertible
    debt                                                   |  |                        | 400,000     |   |                        |  
|Payments
    on note receivable                                                                  |  |                        | 1,594,740   |   |                        |  
|                                                                                                 |  |                        |             |   |                        |  
|NET CASH PROVIDED BY FINANCING
    ACTIVITIES                                                    |  |                        | 5,619,307   |   |                        |  
|                                                                                                 |  |                        |             |   |                        |  
|NET INCREASE IN CASH                                                                             |  |                        | 390,974     |   |                        |  
|                                                                                                 |  |                        |             |   |                        |  
|CASH, Beginning of Period                                                                        |  |                        | 203,534     |   |                        |  
|                                                                                                 |  |                        |             |   |                        |  
|CASH, End of Period                                                                              |  | $                      | 594,508     |   |                        | $
|                                                                                                 |  |                        |             |   |                        |  
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                                               |  |                        |             |   |                        |  
|Cash paid during the year for:                                                                   |  |                        |             |   |                        |  
|Interest                                                                                         |  | $                      | 185,934     |   |                        | $
|Income taxes                                                                                     |  |                        | 800         |   |                        |  
|                                                                                                 |  |                        |             |   |                        |  
|NON CASH INVESTING AND FINANCING ACTIVITIES                                                      |  |                        |             |   |                        |  
|Notes receivable (in exchange for
    debt)                                                      |  |                        | 3,770,000   |   |                        |  
|Debt converted to common stock                                                                   |  |                        | 200,000     |   |                        |  
|Deposit for future financing write
    off                                                       |  |                        | 50,000      |   |                        |  
|Debt discount on warrants issued
    with debt                                                   |  |                        | —           |   |                        |  
|Warrants issued for deferred financing
    costs                                                 |  |                        | —           |   |                        |  
|Property and equipment purchased
    on credit                                                   |  |                        | 6,504       |   |                        |  
|Transfer of short term debt - related
    party to short - term debt third parties               |  | $                      | —           |   |                        | $



The
accompanying notes are an integral part of these consolidated financial statements.



F-7









WINDSTREAM
TECHNOLOGIES, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER
31, 2014 AND 2013



NOTE
1 – BASIS OF PRESENTATION AND NATURE OF ORGANIZATION



WindStream
Technologies Inc. (the “Company”), is engaged in the development and commercialization of wind driven electrical generation.
The Company’s facilities are located in North Vernon, Indiana. The accompanying consolidated financial statements of Windstream
Technologies Inc. (the “Company”), 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 expressed in U.S.
dollars. The Company’s fiscal year end is December 31.



On
March 24, 2014, Windaus Global Energy, Inc. filed an Articles of Amendment with the Secretary of State of the State of Wyoming
effecting a name change of Windaus Global Energy, Inc. to WindStream Technologies, Inc. (the “name Change”). Windaus
Global Energy, Inc. has notified the Financial Industry Regulatory Authority (“FINRA”) of the Name Change and a new
trading symbol, “WSTI” was assigned effective March 27, 2014. The new CUSIP number for the Company’s common
stock is 97382J102.



India



On
October 26, 2013, the Company formed a 99.9% owned subsidiary company, in India, Windstream Energy Technologies India Private
Limited, (“WET”), located in Hyderabad to perform various commercial activities including reselling, manufacturing,
repairing, importing, exporting various types renewable energy sources including turbines, windmills, solar-wind hybrids and other
devices. A Board of Directors was established consisting of the Chief Executive Officer of the Company and an Indian national.
At the time of formation, the Parent Company received 10,000 shares of stock in the wholly-owned subsidiary, and WET did not have
any significant assets or liabilities.





On
December 11, 2013, WET held a board of directors meeting to approve opening a bank account and the investor began funding the
working capital line.



India
- Noncontrolling interest



In
October 2014, we entered into an agreement with unrelated third parties, whereby in exchange for $2 million, these investors would
receive 8,184 shares of stock in WET, or a 45% interest of WET. These are in addition to the 10,000 shares owned by the Company,
and the Company retained a 55% ownership in WET, making it a majority-owned subsidiary. The Company also
has three of the five board seats on the board of directors of India.

In
November and December 2014, WET leased office space, approximately 9,500 square feet, and manufacturing space, approximately 50,000
square feet, in India in connection with expanding its operations. The office space lease is a month-to-month lease with annual
rent of approximately $24,000. The manufacturing facility lease is a six-year lease with annual rent of approximately $120,000.
The lease commenced on April 1, 2015 when WET occupied the space.



As
of December 31, 2014, approximately $475,000 of the $2 million purchase price of the WET stock had been funded by the third party
investors. This has been included in the Company’s statement of stockholder’s equity (deficit) as additional paid
in capital, due to the issuance of stock in the subsidiary.



Peru



In
December 2013, the Company filed documents to incorporate a 100% owned subsidiary in Peru, Windstream Technologies Latin America
S.A (“the Peru subsidiary”). The Peru subsidiary has appointed a temporary board of directors as required by local
regulation, but the Peru subsidiary has had no operations, has entered into no contracts, opened no bank accounts and has not
begun any business activity.



NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



This
summary of significant accounting policies is presented to assist the reader in understanding and evaluating the Company’s
financial statements. The consolidated financial statements and notes are representations of the Company’s management, which
is responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles
and have been consistently applied in the preparation of the financial statements.



Consolidations





The
Consolidated Financial Statements include the accounts of the Company and companies in which the Company has a controlling interest
including the accounts of Windstream Technologies, Inc., (fka, Windaus Global Energy, Inc.) Windstream Technologies, Inc. (a California
corporation), Windstream Energy Technologies Pvt Ltd. and Windstream Technologies Latin America S. A. For consolidated subsidiaries
where the Company’s ownership in the subsidiary is less than 100%, the equity interest not held by the Company is shown
as non-controlling interests. Management also evaluates whether an investee company is a variable interest entity and whether
the Company is the primary beneficiary. Consolidation is required if both of these criteria are met. The Company did not have
any variable interest entities requiring consolidation during the years ended December 31, 2014 and 2013. All material
intercompany balances have been eliminated in consolidation.





Reclassifications



Certain prior period amounts have been reclassified
to conform to the current presentation. The reclassifications did not impact prior period results of operations, cash flows, total
assets, total liabilities or total equity.



F-8







WINDSTREAM
TECHNOLOGIES, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER
31, 2014 AND 2013



Comprehensive
Income



The
Company reports comprehensive income in accordance with FASB ASC Topic 220 “Comprehensive Income,” which established
standards for reporting and displaying comprehensive income and its components in a financial statement that is displayed with
the same prominence as other financial statements.



Total
comprehensive income is defined as all changes in stockholders’ equity during a period, other than those resulting from
investments by and distributions to stockholders (i.e., issuance of equity securities and dividends). Generally, for the Company,
total comprehensive income (loss) equals net income (loss) plus or minus adjustments for currency translation. Comprehensive income
was de minimous for the twelve months ended December 31, 2014 and 2013, respectively.



Foreign
Currency Transactions and Translation



The
Company’s subsidiaries in India and Peru conduct business primarily denominated in their respective local currency, which
is their functional currency. Assets and liabilities have been translated to U.S. dollars at the period-end exchange rates. Revenues
and expenses have been translated at exchange rates which approximate the average of the rates prevailing during each period.
Translation adjustments are deminimous for the years ended December 31, 2014 and 2013, and are included in the Company’s
results of operations as a component of general and administrative expenses.



Use
of Estimates



The preparation of the consolidated financial
statements in conformity with US GAAP requires the Company to make estimates and assumptions that affect reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements as well
as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Significant accounting estimates reflected in the Company’s consolidated financial statements include the allowance made
for doubtful accounts receivable, inventory write-downs, the estimated useful lives of long-lived assets, the impairment of goodwill,
long-lived assets and project assets, fair value of derivative liability, valuation allowance of deferred income tax assets, accrued
warranty expenses, the grant-date fair value of share-based compensation awards and related forfeiture rates, and fair value of
financial instruments. Changes in facts and circumstances may result in revised estimates. The current economic environment has
increased the degree of uncertainty inherent in those estimates and assumptions.



Deferred
Financing Costs



Deferred
financing costs represent costs incurred in connection with obtaining the debt financing. These costs are amortized ratably and
changed to financing expenses over the term of the related debt.



In
connection with one of the five debt issuances as discussed in Note 11, the Company paid finder’s fees of approximately
$42,000 as well as 140,000 common stock warrants at $0.05 per share. The warrants vest immediately and have a three years term.
The fair value of the warrants was determined to be approximately $48,000 using the Black-Scholes option pricing model with the
same assumptions as the warrants discussed in Notes 11 and 16,, except the exercise price used for the warrants discussed above
was $0.05 per share.





The
combined value of the warrants and cash to approximately $90,000, which was capitalized as a financing cost and is being amortized
to interest expense over the life of the notes.



As
of December 31, 2014 and 2013, the deferred financing costs had an unamortized balance of approximately $0 and $38,000. Amortization
of deferred financing costs, which has been included interest expense, for the year ended December 31, 2014 and 2013, was approximately
$38,000 and $52,000, respectively.



Cash
and Cash Equivalents



The
Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.



Accounts
Receivable



Trade
accounts receivable are periodically evaluated for collectability based on past credit history with customers and their current
financial condition. Bad debts expense or write offs of receivables are determined on the basis of loss experience, known and
inherent risks in the receivable portfolio and current economic conditions. The Company believes its allowance for doubtful accounts
as of December 31, 2014 and 2013 are adequate, but actual write-offs could exceed the recorded allowance. There have been no write-offs
during the various periods being reported on.



Export
Import Bank Credit Insurance



The
Company sells its products outside the United States under the terms of a short-term multi-buyer export credit insurance policy
with the Export Import Bank (“Ex Im Bank”) of the United States, an agency of the United States Government. Under
the terms of the policy, the Ex Im Bank agrees to pay the Company up to 95% of the outstanding invoice amounts, on qualified sales,
due after ninety days or depending on the specific terms with each customer. The limit of the policy is $4,000,000 at December
31, 2014 and 2013.



F-9







WINDSTREAM
TECHNOLOGIES, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER
31, 2014 AND 2013



Inventories



Inventories
are primarily raw materials. Inventories are valued at the lower of, cost as determined on a first-in-first-out (FIFO) basis,
or market. Market value is determined by reference to selling prices after the balance sheet date or to management’s estimates
based on prevailing market conditions. Management writes down the inventories to market value if it is below cost. During the
year ended December 31, 2014, there were write-downs to inventories due to lower of cost or market aggregating $111,000. Management
also regularly evaluates the composition of its inventories to identify slow-moving and obsolete inventories to determine if valuation
allowance is required. Costs of raw material inventories include purchase and related costs incurred in bringing the products
to their present location and condition.



Property
and Equipment



Property
and equipment consists of manufacturing equipment, factory equipment, furniture and fixtures, leasehold improvements and tooling
costs. These assets are recorded at cost and are being amortized on the straight-line basis over estimated lives of two to seven
years. Leasehold improvements are being amortized over their useful life or the term of the related lease, whichever is shorter.
Repair and maintenance expenditures, which do not result in improvements, are charged to expense as incurred.



Long-Lived
Assets



The
Company’s long-lived assets consisted of property and equipment and are reviewed for impairment in accordance with the guidance
of FASB ASC Topic, 360, Property, Plant and Equipment, and FASB ASC Topic 205, Presentation of Financial Statements.The Company tests for impairment losses on long-lived assets used in operations whenever events or changes in circumstances
indicate the carrying amount of the asset may not be recoverable. Recoverability of an asset to be held and used is measured by
a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying value
of the asset exceeds its fair value. Impairment evaluations involve management’s estimates on asset useful lives and future
cash flows. Actual useful lives and cash flows could be different from those estimated by management which could have a material
effect on our reporting results and financial positions. Fair value is determined through various valuation techniques including
discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. Through December
31, 2014, the Company had not experienced impairment losses on its long-lived assets. However, there can be no assurances that
the demand for the Company’s products and services will continue, which could result in an impairment of long-lived assets
in the future.



Deferred
Revenues



The
Company typically receives advance payments on certain individual sales. These advance payments are recorded as deferred revenue,
under accrued liabilities, on the accompanying consolidated balance sheets and reclassified as revenue in the statement of operations
only after the product has been delivered and the revenue has been earned. Deferred revenues as of December 31, 2013, was recognized
as revenues in the first two fiscal quarters of 2014.



Revenue
Recognition



Sales
revenue consists of amounts earned from customers through the sale of its primary products, the TurboMill and the SolarMill, power
generation devices, which use alternative energy sources, primarily wind, to generate electricity. The Company also provides accessory
products in support of these devices in the form of mounting equipment, data collection/monitoring equipment, batteries, inverters
and various wiring solutions and accessories.



Sales
revenue is recognized when persuasive evidence of an arrangement exists, title to and risk of loss for the product has passed,
which is generally when the products are shipped to its customers and collection is reasonably assured.



F-10







WINDSTREAM
TECHNOLOGIES, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER
31, 2014 AND 2013



Sales
Returns



The
Company allows customers to return defective products when they meet certain established criteria as outlined in the Company’s
sales terms and conditions. It is the Company’s practice to regularly review and revise,when deemed necessary, the
estimates of sales return, which are based primarily on historical rates. The Company records estimated sales returns as reductions
in sales and accounts receivable. Returned products, which are recorded as inventory, are valued based upon the amount the Company
expects to realize upon any subsequent disposition. As of December 31, 2014 and 2013, the reserve for sales returns and allowances
was $16,000 and $0, respectively.



Warranty
Policy



For
the Company’s products it sells, the Company warrants to the original purchaser only that the products will be free from
defects in workmanship and material for five years after the shipment date with exclusions for improper installation, ordinary
wear and tear, improper maintenance or accident or damage. Estimated future warranty obligations related to certain products are
provided by charges to operations in the period in which the related revenue is recognized. Estimates are based on, in part, historical
experience. For the years ended December 31, 2014 and 2013, the Company had accrued warranty expense liability of $253,000 and
$63,000, respectively. The Company had $345,777 and $63,000 had warranty expense for the years ended December 31, 2014 and 2013,
respectively.



Cost
of goods sold



Cost
of goods sold consists primarily of raw materials, utility and supply costs consumed in the manufacturing process, manufacturing
labor, depreciation expense and direct overhead expenses necessary to manufacture finished goods as well as warehousing and distribution
costs such as inbound freight charges, shipping and handling costs, purchasing and receiving costs.



Shipping
and Handling Costs



Shipping
and handling costs for all sales transactions are billed to the customer and are included in cost of goods sold for all periods
presented.



Income
Taxes



In
accordance with ASC 740 - Income Taxes, the provision for income taxes is computed using the asset and liability method. Under
the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the
financial reporting and tax basis of assets and liabilities and are measured using the currently enacted tax rates and laws. A
valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be
realized.



Profit
from non-U.S. activities are subject to local taxes, but not subject to U.S. tax until repatriated to the U.S. It is the Company’s
intention to permanently reinvest these earnings outside the U.S., subject to our management’s continuing assessment as
to whether repatriation may, in some cases, still be in the best interests of the Company. The calculation of tax liabilities
involves dealing with uncertainties in the application of complex global tax regulations.





The
Company also follows the guidance related to accounting for income tax uncertainties. The Company recognizes the benefit of uncertain
tax in its positions in its financial statements when it concludes that a tax position is more likely than not to be sustained
upon examination based solely on its technical merits. Only after a tax position passed the first step of recognition will measurement
be required. Under the measurement step, the tax benefit not measured as the largest amount of benefit that is more likely than
not to be realized upon effective settlement. This is determined on a cumulative probability basis. The Company elects not to
accrue any interest or penalties related to its uncertain tax positions as part of its income tax expense. No reserve for uncertain
tax positions was booked by the Company for the years ended December 31, 2014 and 2013.



For
tax positions meeting the more likely than not threshold, the amount recognized in the consolidated financial statements is the
largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority.
No liability for unrecognized tax benefits was recorded as of December 31, 2014 and 2013.



Stock
Based Payments



We
account for stock-based awards to employees in accordance with ASC 718 - Stock Compensation. Under this guidance, stock compensation
expense is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the estimated
service period (generally the vesting period) on the straight-line attribute method. Share-based awards to non-employees are accounted
for in accordance with ASC 505-50 “Equity”, wherein such awards are expensed over the period in which the related
services are rendered.



F-11







WINDSTREAM
TECHNOLOGIES, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER
31, 2014 AND 2013



General
and Administrative Expenses



General
and administrative expenses consist of business development, commissions, insurance costs, marketing, salary and benefit expenses,
rent, professional fees, travel and entertainment expenses and other general and administrative overhead costs. Expenses are recognized
when incurred.



Research
and Development



Costs
incurred in developing the ability to create and manufacture products for sale are included in research and development in the
Company’s consolidated statement of operations. Once a product is commercially feasible and starts to sell to third party
customers, the classification of such costs as development costs stops and such costs are recorded as costs of production, which
is included in cost of goods sold. Research and development costs are expensed when incurred.



For
the years ended December 31, 2014 and 2013, research and development expenses were approximately $146,000 and $402,000, respectively.



Basic
and Diluted Net Loss per Share



The
Company computes loss per share in accordance with ASC 260, - Earnings per
Share.ASC 260 requires presentation
of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by
dividing net loss available to common shareholders (numerator) by the weighted average number of common shares outstanding (denominator)
during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock
options, using treasury stock method, and convertible preferred stock using the if-converted method. In computing diluted EPS,
the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of
stock options or warrants. Diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive. Common
stock equivalents pertaining to the convertible debt, options and warrants were not included in the computation of diluted net
loss per common share because the effect would have been anti-dilutive due to the net loss for the years ended December 31, 2014
and 2013.



Concentration
of Credit Risk



Financial
instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and trade receivables.
The Company places its cash with high credit quality financial institutions. At times such cash may be in excess of the FDIC limit
of $250,000.



The
Company sells primarily to companies and governmental entities across the globe. Receivables arising from those sales domestically
are not collateralized; however, credit risk is minimized by continuing to diversify the customer base. International sales typically
take place under the auspices of the Export Import Bank, a U.S. government entity, and are guaranteed by that entity under the
terms of an insurance policy with a limit of $4 million. The Company establishes an allowance for doubtful accounts based upon
factors surrounding the credit risk of the specific customers, historical trends and other information.



As
of December 31, 2014, two customers represented 90% of outstanding accounts receivable balances. As of December 31, 2013, four
customers made up 94% of the outstanding accounts receivable balance. For the years ended December 31, 2014 and 2013, one and
three customers represented approximately 80% and 69% of revenue, respectively.



For
the years ended December 31, 2014 and 2013, three and two vendors represented approximately 51% and 43% of total cost of goods
sold, respectively.



F-12







WINDSTREAM
TECHNOLOGIES, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER
31, 2014 AND 2013



Related
parties



A
party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls,
is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its
management, members of the immediate families of principal owners of the Company and its management and other parties with which
the Company may deal if one party controls or can significantly influence the management or operating policies of the other to
an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which
can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest
in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties
might be prevented from fully pursuing its own separate interests is also a related party.



An
officer of the Company is also a relative of the mayor of North Vernon, which has a loan with the Company as described in Notes
12 and 13. The terms of the loan are at fair market. The officer has an employment contract with the Company. Management believes
all compensation is based on market value comparisons and is not impacted at all by the related party officer’s relationship
to the mayor of the lender,all relationships have been disclosed to all parties, and all transactions
have been entered into on an unrelated, third party basis.



Financial
Instruments and Fair Value of Financial Instruments



The
Company applies the provisions of accounting guidance, FASB Topic ASC 825, Financial Instruments, that requires all entities
to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance
sheet, for which it is practicable to estimate the fair value, and defines the fair value of a financial instrument as the amount
at which the instrument could be exchanged in a current transaction between willing parties. At December 31, 2014 and 2013, the
fair value of cash, accounts receivable, inventory, accounts payable, accrued expenses, deferred revenues and short term debt
approximate carrying value due to the short maturity of the instruments, quoted market prices or interest rates which fluctuate
with market rates.



The
Company defines fair value as the price that would be received to sell an asset or be paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The Company applies the following fair value hierarchy upon the
lowest level of input that is available and significant to the fair value measurement. The Company applies the following fair
value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within
the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. The hierarchy gives
the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements)
and the lowest priority to unobservable inputs (Level 3 measurements).



| | ● | Level
    1 – Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting
    entity has the ability to access at the measurement date.                                                                                                                                         
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                            
| | ● | Level
    2 – Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or
    liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must
    be observable for substantially the full term of the asset or liability.
| |   |                                                                                                                                                                                                                                                                                                                                            
| | ● | Level
    3 – Level 3 inputs are unobservable inputs for the asset or liability in which there is little, if any, market activity
    for the asset or liability at the measurement date.                                                                                                                                                  



The
Company uses quoted marked prices to determine the fair values when available. If quoted market prices are not available, the
Company measure fair value using valuation techniques that use, when possible, current market-based or independently-sourced market
parameters, such as interest rates and currency rates.



The
carrying value of financial assets and liabilities recorded at fair value is measured on a recurring or nonrecurring basis. Financial
assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs.
The Company had no financial assets or liabilities carried and measured on a nonrecurring basis during the reporting periods.
Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial
statement is prepared.



Accounting
for Derivatives Liabilities



The
Company evaluates stock options, stock warrants or other contracts to determine if those contracts or embedded components of those
contracts qualify as derivatives to be separately accounted for under the relevant sections of ASC Topic 815-40, Derivative
Instruments and Hedging: Contracts in Entity’s Own Equity. The result of this accounting treatment could be that the
fair value of a financial instrument is classified as a derivative instrument and is marked-to-market at each balance sheet date
and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded
in the statement of operations as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument
is marked to fair value at the conversion date and then that fair value is reclassified to equity. Financial instruments that
are initially classified as equity that become subject to reclassification under ASC Topic 815-40 are reclassified to a liability
account at the fair value of the instrument on the reclassification date. See Note 11 for disclosure of derivatives and their
valuation related to various convertible debt agreements.



F-13







WINDSTREAM
TECHNOLOGIES, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER
31, 2014 AND 2013



Equity
Instruments Issued to Non-Employees for Acquiring Goods or Services



Issuances
of the Company’s common stock or warrants for acquiring goods or services are measured at the fair value of the consideration
or the fair value of the equity instruments issued, whichever is more reliably measurable. The measurement date for the fair value
of the equity instruments issued to consultants or vendors is determined at the earlier of (i) the date at which a commitment
for performance to earn the equity instruments is reached (a “performance commitment” which would include a penalty
considered to be of a magnitude that is sufficiently large disincentive for non-performance) or (ii) the date at which performance
is complete. When it is appropriate for the Company to recognize the cost of a transaction during the financial reporting periods
prior to the measurement date, for purposes of recognition of costs during those periods, the equity instrument is measured at
the then-current fair values at each of those interim financial reporting dates.



In
May 2013, the Company issued 4.36 million shares of common stock for consulting services. The shares were valued at $.345 per
share with a par value of .001 per share. The shares were not forfeitable and vested immediately. A total of approximately $1.5
million in stock based compensation was recognized on the share issuances and recorded under general and administrative expenses
in the accompanying consolidated financial statements as of December 31, 2013.



Segment
Information



The
Company operates in two segments in accordance with accounting guidance FASB ASC Topic 280, Segment Reporting. Our Chief
Executive Officer has been identified as the chief operating decision maker as defined by FASB ASC Topic 280. See additional discussion
at Note 20.





Recently
Issued Accounting Pronouncements, not yet adopted



On
May 28, 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which
it expects to be entitled for the transfer of promised goods or services to customers. This ASU will replace most existing revenue
recognition guidance in GAAP when it becomes effective. The new standard is effective for us on January 1, 2017. Early application
is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. We are currently
evaluating the effect that ASU 2014-09 will have on our consolidated financial statements and related disclosures. We have not
yet selected a transition method nor have we determined the effect of the standard on our ongoing financial reporting.



In
August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure
of Uncertainties about an Entity’s Ability to Continue as a Going Concern.ASU 2014-15 defines management’sresponsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going
concern and toprovide related footnote disclosures. Under GAAP, financial statements are prepared under the presumption
that the reporting organization will continue to operate as a going concern, except in limited circumstances. The going concern
basis of accounting iscritical to financial reporting because it establishes the fundamental basis for measuring and classifying
assets and liabilities.Currently, GAAP lacks guidance about management’s responsibility to evaluate whether there
is substantial doubt about the organization’s ability to continue as a going concern or to provide related footnote disclosures.
The ASU is effective for annual andinterim periods beginning after December 15, 2016, and should be applied prospectively.
Early adoption is permitted. We have notdetermined the effect of the standard on our ongoing financial reporting.



In
April 2014, FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic
360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. Under the new guidance, a
disposal of part of an organization that has a major effect on its operations and financial results is a discontinued operation.
The amendments will be effective for the Company for annual periods and interim periods within those annual periods beginning
after December 15, 2014, with early implementation of the guidance permitted. The Company does not expect these amendments to
have a material effect on its financial statements.



In
February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810) - Amendments to the Consolidation Analysis,(ASU
2015-02). ASU 2015-02 modifies existing consolidation guidance related to (i) limited partnerships and similar legal entities,
(ii) the evaluation of variable interests for fees paid to decision makers or service providers, (iii) the effect of fee arrangements
and related parties on the primary beneficiary determination, and (iv) certain investment funds. These changes reduce the number
of consolidation models from four to two and place more emphasis on the risk of loss when determining a controlling financial
interest. This guidance is effective for public companies for fiscal years beginning after December 15, 2015. We are in the process
of evaluating the adoption of this ASU, and do not expect this to have a material effect on our consolidated results of operations
and financial condition.





In
June 2014, the FASB issued ASU 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance
Target Could Be Achieved After the Requisite Service Period. The amendments in the ASU require that a performancetarget
that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting
entity should apply existing guidance in Topic 718, Compensation - Stock Compensation, as it relates to awards with performance
conditions that affect vesting to account for such awards. The performance target should not be reflected in estimating the grant-date
fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance
target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service
has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service
period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period.
The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards
that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends
when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved.
The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December
15, 2015. Earlier adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s
financial position and results of operations.



F-14







WINDSTREAM
TECHNOLOGIES, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER
31, 2014 AND 2013



NOTE
3 – GOING CONCERN



The
accompanying financial statements have been prepared assuming the Company will continue as a going concern, which contemplates,
among other things, the realization of assets and satisfaction of liabilities in the normal course of business.



The
Company had an accumulated deficits of approximately $21,750,000 and $10,481,000 at December 31, 2014 and 2013, respectively,
had a net losses of approximately $11,333,000 and $4,845,000 for the years ended December 31, 2014 and 2013, respectively, and
working capital deficits of approximately $4,944,000 and $1,396,000, at December 31, 2014 and 2013, respectively. These matters
among others, raise substantial doubt about the Company’s ability to continue as a going concern.



While
the Company is attempting to increase operations and generate additional revenues, the Company’s cash position may not be
significant enough to support the Company’s daily operations. The Company will continue to pursue additional equity and/or
debt financing while managing cash flows from operations in an effort to provide funds to meet its obligations on a timely basis
and to support future business development. There is no assurance that these efforts will be successful. Management believes that
the actions presently being taken to further implement its business plan and generate additional revenues provide the opportunity
for the Company to continue as a going concern. While the Company believes in the viability of its strategy to generate additional
revenues and in its ability to raise the additional funds, there can be no assurances to that effect. The ability of the Company
to continue as a going concern is dependent upon the Company’s ability to further implement its business plans and generate
additional revenues. The financial statements do not include any adjustments that might be necessary if the Company is unable
to continue as a going concern.



NOTE
4 – REVERSE MERGER



Effective
May 22, 2013, Windaus Global Energy, Inc. entered into a Share Exchange Agreement with WindStream Technologies, Inc., (a California
corporation) pursuant to which, the Company agreed to exchange the outstanding common and preferred stock of WindStream held by
the WindStream shareholders for shares of common stock of the Company on a 1:25.808 basis. At the Closing, there were approximately
955,000 shares of WindStream common stock and 581,961 shares of WindStream preferred stock outstanding. Pursuant to the Share
Exchange Agreement, the shares of WindStream common stock and preferred stock were exchanged for 39,665,899 (24,646,646 for the
Windstream common shares and 15,019,253 for the Windstream preferred shares) new shares of the Company’s common stock, par
value of $0.001 per share. At the closing of the agreement, Windaus Global Energy, Inc. had approximately 24,000,000 shares of
common stock issued outstanding and no preferred stock. The Company has retroactively restated the common shares outstanding and
weighted average shares outstanding for prior years pursuant to the reverse merger share exchange ratio of 1:25.808.



For
accounting purposes, this transaction is being accounted for as a reverse merger and has been treated as a recapitalization of
Windaus Global Energy, Inc., with WindStream Technologies, Inc. considered the accounting acquirer, and the financial statements
of the accounting acquirer became the financial statements of the registrant. The Company did not recognize goodwill or any intangible
assets in connection with the transaction. The 39,665,899 shares issued to the shareholder of WindStream Technologies, Inc., and
its designees in conjunction with the share exchange transaction have been presented as outstanding for all periods. The historical
consolidated financial statements include the operations of the accounting acquirer for all periods presented.



F-15







WINDSTREAM
TECHNOLOGIES, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER
31, 2014 AND 2013



NOTE
5 – ACCOUNTS RECEIVABLE



Accounts
receivable consisted of the following as of:



|                                                                      |  | December
    31, |          
|--------------------------------------------------------------------- |  | ---------------- | ---------
|                                                                      |  | 2014             |          
|Accounts Receivable – EXIM insured                                    |  | $                | 1,013,938
|Accounts Receivable –
    not insured                                 |  |                  | 31,986   
|                                                                      |  |                  | 1,045,924
|Allowances for doubtful accounts
    and sales returns and allowances |  |                  | (28,402  
|                                                                      |  | $                | 1,017,522



Under
the terms of a revolving line of credit agreement with the Export Import Bank as discussed in Note 10, 95% of customer’s
outstanding balances under the terms of the Export Import Bank are guaranteed by the Export Import Bank, an agency of the United
States government.



NOTE
6 – INVENTORIES



Inventories
consist of raw materials; work in process and finished goods. Inventory, consisting mostly of raw materials (which principally
consist of components) are stated at the lower of cost or market on the first-in, first-out basis, or market. Inventories are
classified as current assets.



Inventories
consisted of the following as of:



|                |  | December
    31, |          
|--------------- |  | ---------------- | ---------
|                |  | 2014             |          
|Raw Materials   |  | $                | 729,981  
|Work in process |  |                  | 384,213  
|Finished goods  |  |                  | 70,763   
|                |  | $                | 1,184,957



During
the twelve months ended December 31, 2014, the Company evaluated its inventory and wrote down inventory by approximately $111,000,
which has been included in the accompanying consolidated statements of operations. There was no such expense in 2013.



NOTE
7 – PREPAID EXPENSES



Prepaid
expenses consisted of the following as of:



|                  |  | December
    31, 2014 |        |  | December
    31, 2013 |  
|----------------- |  | --------------------- | ------ |  | --------------------- | -
|                  |  |                       |        |  |                       |  
|Prepaid inventory |  | $                     | 77,349 |  |                       | $



F-16







WINDSTREAM
TECHNOLOGIES, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER
31, 2014 AND 2013



NOTE
8 – PROPERTY AND EQUIPMENT



Property
and equipment consisted of the following as of:



|                                  |  | December
    31, 2014 |          |   | December
    31, 2013 |  
|--------------------------------- |  | --------------------- | -------- | - | --------------------- | -
|                                  |  |                       |          |   |                       |  
|Manufacturing equipment           |  | $                     | 154,666  |   |                       | $
|Factory equipment                 |  |                       | 15,800   |   |                       |  
|Furniture and fixtures            |  |                       | 7,888    |   |                       |  
|Leasehold improvements            |  |                       | 64,582   |   |                       |  
|Tooling                           |  |                       | 473,893  |   |                       |  
|                                  |  |                       |          |   |                       |  
|Total                             |  |                       | 716,829  |   |                       |  
|                                  |  |                       |          |   |                       |  
|Less accumulated depreciation     |  |                       | (463,189 | ) |                       |  
|Net property, plant and equipment |  | $                     | 253,640  |   |                       | $



Depreciation
expense for the periods ended as follows amounted to:



|                     |  | Year
    endedDecember 31, 2014 |         |  | Year
    ended
    December 31, 2013 | 
|-------------------- |  | ------------------------------- | ------- |  | ------------------------------------ | 
|Depreciation Expense |  | $                               | 125,111 |  |                                      | 



NOTE
9 – ACCRUED LIABILITIES



Accrued
expenses consisted of the following as of:



|                           |  | December
    31, 2014 |           |  | December
    31, 2013 |  
|-------------------------- |  | --------------------- | --------- |  | --------------------- | -
|                           |  |                       |           |  |                       |  
|Accrued interest           |  | $                     | 426,938   |  |                       | $
|Accrued liabilities        |  |                       | 25,618    |  |                       |  
|Deferred revenues          |  |                       | -         |  |                       |  
|Accrued payroll            |  |                       | 332,909   |  |                       |  
|Accrued warranty liability |  |                       | 253,000   |  |                       |  
|Deposit for future funding |  |                       | -         |  |                       |  
|Accrued property taxes     |  |                       | 14,426    |  |                       |  
|                           |  |                       |           |  |                       |  
|Total                      |  | $                     | 1,052,891 |  |                       | $



NOTE
10 – SHORT TERM DEBT





On
February 25, 2013, the Company entered into a working capital revolving line of credit with a bank, with a credit limit of $500,000
which was increased to $2 million when the line was renewed on June 26, 2014. The line is used in financing overseas sales of
the Company’s products. The Company’s draws under the line are transaction specific and are guaranteed by the Export
Import Bank, a U.S. government entity. The line is secured by a perfected first security interest on all of the Company assets.
Drawdowns on the line are used to meet the working capital needs of the Company to purchase materials and fund the labor and overhead
to manufacture specific products for export to specific customers. The current line, which accrues interest at a fixed rate of
6.0%, expires on June 26, 2015, and has a total credit limit of 2,000,000. The loan is guaranteed by the Company’s President.



For
the year ended December 31, 2014, there were total draws on the line of credit of $2,445,000 and repayments of $953,394. For the
year ended December 31, 2013, there were total draws on the line of credit of $785,712 and repayments of $285,712.



The
outstanding balance as of December 31, 2014 and 2013 were $1,991,605 and $500,000, respectively, which has been included in the
short-term debt – third parties on the balance sheet.



During
the year ended December 31, 2013, one of the Company’s board members resigned, therefore $100,000 of short term debt - related
parties in the prior year that was owed to him was reclassified to short term debt – third parties in the year ended December
31, 2014.



During
2013 and 2012, the Company has entered into other various notes to individuals at interest rates ranging from 5% to 18% and are
due on demand. During the years ended December 31, 2014 and 2013, the Company repaid $115,000 and $199,750 respectively, on these
various notes.



At
December 31, 2013, these notes aggregated $400,000, which includes the $100,000 reclassified from short term debt – related
parties as described above, and are included in the short term debt – third parties on the balance sheet along with the
$500,000 line of credit above for a total of $900,000.



On
April 15, 2014, the Company entered into a note payable for $200,000 with a term of one year and interest accruing at a rate of
8%, which is accruing and due in full at the end of the note.



At
December 31, 2014, the outstanding balance on this note was $200,000 and is included in the short term debt – third parties
in the accompanying consolidated balance sheet along with the $1,991,605 line of credit and $485,000 in various notes payable
to individuals above for a total of $2,476,605.



Interest
expense for the short-term debt was approximately $158,000 and $62,000 for the years ended December 31, 2014 and 2013, respectively.



F-17







WINDSTREAM
TECHNOLOGIES, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER
31, 2014 AND 2013



NOTE
11 – CONVERTIBLE NOTES PAYABLE



|                             |  | 2014 |           |   | 2013 |  
|---------------------------- |  | ---- | --------- | - | ---- | -
|Short term convertible notes |  |      |           |   |      |  
|Various Notes payable        |  | $    | 550,000   |   |      | $
|Debt discount                |  |      | (166,668  | ) |      |  
|Typenex note payable         |  |      | 342,000   |   |      | $
|Vista note payable           |  |      | 2,184,000 |   |      |  
|Redwood
    note payable     |  |      | 132,000   |   |      |  
|                             |  | $    | 3,041,332 |   |      | $



|Derivative and warrant liability |  |   |           |  |  |  
|-------------------------------- |  | - | --------- |  |  | -
|Typenex                          |  | $ | 893,347   |  |  | $
|Vista                            |  |   | 195,506   |  |  |  
|Redwood                          |  |   | 850,439   |  |  |  
|                                 |  | $ | 1,939,292 |  |  | $



|Investor Notes Receivable           |  |      |           |  |      |  
|----------------------------------- |  | ---- | --------- |  | ---- | -
|                                    |  | 2014 |           |  | 2013 |  
|Typenex                             |  | $    | 255,260   |  |      | $
|Redwood                             |  |      | 1,920,000 |  |      |  
|Total Investor
    Notes Receivable |  | $    | 2,175,260 |  |      | $



Short
term convertible notes, net of discount



On
June 1, 2014, the Company entered into a subscription agreement with one accredited investor for the issuance of a convertible
promissory note in the aggregate principal amount of $400,000, which is convertible into shares of common stock of the Company
at $0.40 per share, and a warrant entitling the holder to purchase up to an aggregate of 50,000 of shares of common stock of the
Company at $0.40 per share. The warrant has a term of three years and vested immediately. The note bears interest at 12% for the
first ninety days of the term and then bears interest at 18% for the next nine months. The note is due in one year. In connection
with this transaction, a major shareholder and a related party (the “Pledgor”) signed a pledge and security agreement,
which grants a security interest in one million shares of the Company’s common stock owned by the Pledgor.



The
Company evaluated the embedded conversion features within the convertible debt under ASC 815 “Derivatives and Hedging”
and determined that neither the embedded conversion feature nor the warrants qualified for derivative accounting. Additionally,
the instruments were evaluated under ASC 470-20 “Debt with Conversion and Other Options” for consideration of any
beneficial conversion features. It was concluded that a beneficial conversion feature existed for the convertible debt due to
the relative fair value of the warrants issued with the debt.



The
total debt discount recorded on the note with the June 1, 2014 date of issuance was $400,000 (warrant relative fair value of approximately
$42,000 and the beneficial conversion feature was approximately $358,000) which are being amortized to interest expense over the
term of the note. The warrant and beneficial conversion feature was recorded as additional paid in capital.



On
June 1, 2013, the Company entered into subscriptions agreements with five accredited investors for the issuance of convertible
promissory notes in the aggregate principal amount of $550,000, which are convertible into shares of common stock of the Company
at $0.25 per share, and warrants entitling the holder to purchase up to an aggregate of 1,600,000 of shares of common stock of
the Company at $0.25 per share. The warrants have a term of three years and vested immediately. The notes bear interest at 8%
and are due in one year. Four notes with a value of $200,000 at December 31, 2013, were converted to stock in 2014 as disclosed
in Note 14. One note for $350,000 at December 31, 2013, was not repaid timely and went into default in 2014. The interest rate
on those note rose to 12% as a consequence.





The
Company evaluated the embedded conversion features within the convertible debt under ASC 815 “Derivatives and Hedging”
and determined that neither the embedded conversion feature nor the warrants qualified for derivative accounting. Additionally,
the instruments were evaluated under ASC 470-20 “Debt with Conversion and Other Options” for consideration of any
beneficial conversion features. It was concluded that a beneficial conversion feature existed for the convertible debt due to
the relative fair value of the warrants issued with the debt.



The
total debt discount recorded on the note with the June 1, 2013 date of issuance was $528,058 (warrant relative fair value of approximately
$253,000 and the beneficial conversion feature was approximately $275,000) which are being amortized to interest expense over
the term of the note.







F-18







WINDSTREAM
TECHNOLOGIES, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER
31, 2014 AND 2013



The
unamortized debt discount balance at December 31, 2014 and December 31, 2013 was approximately $167,000 and $220,000, respectively
and is being netted against the total convertible promissory notes principal amount of $1,160,000 and $550,000, respectively,
for presentation in the accompanying consolidated balance sheets.



For
the years ended December 31, 2014 and 2013, the Company amortized approximately $453,000 (including approximately $64,000 of debt
discount related to notes converted to common stock, see below) in 2014 and $308,000 in 2013 to interest expense.



Interest
expense incurred and accrued on all of the above convertible notes payable was approximately $67,000 and $25,000, respectively
for the years ended December 31, 2014 and 2013.



In
connection with one of the five debt issuances, in 2013, the Company paid finder’s fees of approximately $42,000 as well
as 140,000 common stock warrants at $0.05 per share. The warrants vest immediately and have a three years term. The fair value
of the warrants was determined to be approximately $48,000. Based on the Black Scholes option pricing model using the same assumption
as those used for the warrants above, except the exercise prices was $0.05 per share. The combined value of the warrants and cash
amounted to approximately $90,000, which was capitalized as a deferred financing cost and is being amortized to interest expense
over the life of the notes.



As
of December 31, 2014 and 2013, the deferred financing costs had an unamortized balance of approximately $0 and $38,000. Amortization
of deferred financing costs, which has been included interest expense, for the year ended December 31, 2014 and 2013, was approximately
$38,000 and $52,000, respectively.



Convertible
Note Payable to Typenex Co-Investment, LLC



On
September 26, 2014 (the “Effective Date”), the Company entered into a Securities Purchase Agreement with Typenex Co-Investment,
LLC (“Investor” or “Lender”) whereby it sold in a private placement a 10% Collateralized Convertible Promissory
note with a $550,000 principal amount, which was issued at a $50,000 discount from the face amount (the “OID”), and
three warrants to purchase the Company’s Common Stock at an exercise price of $.80 per share, exercisable at various dates
(the “Investor Warrants”), in exchange for $250,000 cash and two 8% Investor Notes (“Investor Note #1 and “Investor
Note #2”) with principal balances of $125,000 each. The note is collateralized by the Investor Notes.



The
note is separated into three Conversion Eligible Tranches (discussed under Lender Conversion below) of the following amounts:



|Initial Tranche           |  | $ | 275,000 | 
|------------------------- |  | - | ------- | 
|First Subsequent Tranche  |  |   | 137,500 | 
|Second Subsequent Tranche |  |   | 137,500 | 
|                          |  | $ | 550,000 | 



The
note accrues interest at 10%, and is repayable in eight monthly installments beginning March 26, 2015, until the Maturity Date
of October 26, 2015 (“Installment Dates”). At each of the Installment Dates, the Company is required to pay to the
Lender the applicable “Installment Amount” due on such date. Installment Amount means $68,750 ($550,000 ÷ 8),
plus the sum of any accrued and unpaid interest that has been added to the lowest-numbered then-current Conversion Eligible Tranche
as of the applicable Installment Date and accrued, and unpaid late charges that have been added to the lowest-numbered then current
Conversion Eligible Tranche, if any, under the note as of the applicable Installment Date, and any other amounts accruing or owing
to Lender under the note as of such Installment Date; provided, however, that, if the remaining amount owing under all then-existing
Conversion Eligible Tranches or otherwise with respect to the note as of the applicable Installment Date is less than the Installment
Amount set forth above, then the Installment Amount for such Installment Date (and only such Installment Amount) will be reduced
by the amount necessary to cause such Installment Amount to equal such outstanding amount.





F-19









WINDSTREAM
TECHNOLOGIES, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER
31, 2014 AND 2013



Installment
Conversions



At
the option of the Company or the Lender, payments of each Installment Amount may be made (a) in cash, or (b) by converting such
Installment Amount into a number of shares of Common Stock (“Installment Conversion Shares”) derived by dividing the
portion of the applicable Installment Amount being converted by the Installment Conversion Price) an “Installment Conversion”),
or (c) by any combination of the foregoing, so long as the cash is delivered to the Lender on the applicable Installment Date
and the Installment Conversion Shares are delivered to the Lender on or before the applicable delivery date.



The
Installment Conversion Price is the lesser of (i) the Lender Conversion Price (defined under Lender Conversion below),
and (ii) 70% (the “Conversion Factor”) of the average of the three (3) lowest Closing Bid Prices in the twenty (20)
Trading Days immediately preceding the applicable Conversion (the “Market Price”), provided that if at any time the
average of the three (3) lowest Closing Bid Prices in the twenty (20) Trading Days immediately preceding any date of measurement
is below $0.40, then the then-current Conversion Factor will be reduced to 65% for all future conversions (subject to other reductions).
Additionally, if at any time after the Effective Date, Borrower is not DWAC Eligible, then the then-current Conversion Factor
will automatically be reduced by 5% for all future Conversions. If at any time after the Effective Date, the Conversion Shares
are not OTC Eligible, then the then-current Conversion Factor will automatically be reduced by an additional 5% for all future
conversions.



On
the date that is twenty (20) trading days (a “True-Up Date”) from each date Borrower delivers Free Trading (as defined
below) Installment Conversion Shares to the Lender, there will be a true-up where the Company will deliver to the Lender additional
Installment Conversion Shares (“True-Up Shares”) if the Installment Conversion Price as of the True-Up Date is less
than the Installment Conversion Price used in the applicable Installment Notice. In such event, the Company must deliver to the
Lender within three (3) trading days of the True-Up Date (the “True-Up Share Delivery Date”) a number of True-Up Shares
equal to the difference between the number of Installment Conversion Shares that would have been delivered to the Lender on the
True-Up Date based on the Installment Conversion Price as of the True-Up Date and the number of Installment Conversion Shares
originally delivered to the Lender pursuant to the applicable Installment Notice.



The
Company evaluated the note under the requirements of ASC 480 “Distinguishing Liabilities From Equity” and concluded
that the note does not fall within the scope of ASC 480. The Company evaluated the Installment Conversion feature under the requirements
of ASC 815 “Derivatives and Hedging”. Due to the existence of the antidilution provision which reduces the Lender
Conversion Price in the event of subsequent Dilutive Issuances by the Company (see Lender Conversion below), the Installment
Conversion feature does not meet the definition of “indexed to” the Company’s stock, and the scope exception
to ASC 815’s derivative accounting provisions does not apply.



The
Company evaluated the embedded derivative criteria in ASC 815, and concluded that because the Common Stock that would be delivered
by the Company if an Installment Conversion is elected (including True-Up Shares) would be readily convertible to cash by the
Investor, the Installment Conversion feature meets the definition of an embedded derivative that should be separated from the
note and accounted for as a derivative liability.





F-20









WINDSTREAM
TECHNOLOGIES, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER
31, 2014 AND 2013



Lender
Conversion



The
Lender has the right at any time after the Effective Date until the outstanding balance of the note has been paid in full, including
without limitation (i) until any Optional Prepayment Date or at any time thereafter with respect to any amount that is not prepaid,
and (ii) during or after any Fundamental Default Measuring Period, at its election, to convert (each instance of conversion is
referred to as a “Lender Conversion”) all or any part of the outstanding balance into shares (“Lender Conversion
Shares”) of the Company’s Common Stock, of the portion of the outstanding balance being converted (the “Conversion
Amount”) divided by the “Lender Conversion Price” of $.80, subject to potential future adjustments described
below.



The
conversion by the Lender of any portion of the outstanding balance is only exercisable in three (3) tranches (each, a “Tranche”),
consisting of (i) an initial Tranche in an amount equal to $275,000 and any interest, costs, fees or charges accrued thereon or
added thereto under the terms of the note and the other Transaction Documents (as defined in the Securities Purchase Agreement)
(the “Initial Tranche”), and (ii) two (2) additional Tranches, each in the amount of $137,500, plus any interest,
costs, fees or charges accrued thereon or added thereto under the terms of the note and the other Transaction Documents (each,
a “Subsequent Tranche”).



The
Initial Tranche corresponds to the initial cash proceeds of $250,000 plus $25,000 of the OID, and may be converted any time subsequent
to the Effective Date. The first Subsequent Tranche corresponds to Investor Note #1 plus $12,500 of the OID, and the second Subsequent
Tranche corresponds to Investor Note #2 plus $12,500 of the OID. The Lender’s right to convert any portion of any of the
Subsequent Tranches is conditioned upon the Lender’s payment in full of the Investor Note corresponding to such Subsequent
Tranche (upon the satisfaction of such condition, such Subsequent Tranche becomes a “Conversion Eligible Tranche”).
The Initial Tranche was immediately a Conversion Eligible Tranche at the Effective Date.



The
Company evaluated the note under the requirements of ASC 815 “Derivatives and Hedging”. Due to the existence of the
anti-dilution provision which reduces the Lender Conversion Price in the event of subsequent dilutive issuances by the Company
described above, the Lender Conversion feature does not meet the definition of “indexed to” the Company’s stock,
and the scope exception to ASC 815’s derivative accounting provisions does not apply. The Company also evaluated the embedded
derivative criteria in ASC 815, and concluded that the default and remedy provisions of the note (see Default Provisions
below) cause the Lender Conversion feature to meet the net settlement criterion in ASC 815. Based on the Lender Conversion feature
meeting all the embedded derivative criteria in ASC 815, the Lender Conversion feature meets the definition of an embedded derivative
that should be separated from the note and accounted for as a derivative liability.



The
Company evaluated the Company’s option to settle the Lender Conversion in cash in the event the Lender elects to convert
subsequent to the occurrence of an Event of Default under the requirements of ASC 815, and included that it meets the definition
of an embedded derivative that should be separated from the note and accounted for as a derivative liability.



The
Company evaluated the Lender Conversion Delay provision under the requirements of ASC 815 and concluded it meets the definition
of an embedded derivative that should be separated from the note and accounted for as a derivative liability.



As
of December 31, 2014, the Conversion Eligible Outstanding Balance of the note was convertible into approximately 312,500 shares
of the Company’s Common Stock. If the total outstanding balance of the note were convertible as of December 31, 2014, the
note would have been convertible into 687,500 shares of the Company’s common stock.



The
Company evaluated the embedded derivative criteria in ASC 815, and concluded that because certain of the Events of Default under
the note are factors that are unrelated to a deterioration of the creditworthiness of the Company, the Events of Default and Default
Interest provisions of the note are not considered clearly and closely related to the characteristics of debt. Based on meeting
all the criteria in the definition, the Company concluded that the Events of Default and Default Interest provisions each meet
the definition of an embedded derivative that should be separated from the note and accounted for as a derivative liability.





F-21









WINDSTREAM
TECHNOLOGIES, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER
31, 2014 AND 2013



Company
Prepayment Option



So
long as no Event of Default has occurred subsequent to the Effective Date, the Company may at any time up to the Maturity Date
optionally prepay, in full, the outstanding balance of the note at a price of 125% of the aggregate principal amount of the note,
plus accrued and unpaid interest, if any, at the date of prepayment (“Optional Prepayment Amount”).



The
Company evaluated the embedded derivative criteria in ASC 815, and concluded that the Company’s prepayment option is not
the type of call option that meets the definition of an embedded derivative. However, the Optional Prepayment Liquidated Damages
clause does meet the definition of an embedded derivative that should be separated from the note and accounted for as a derivative
liability.



Investor
Warrants



The
Investor Warrants allow the Investor to purchase the number of shares of Common Stock (“Warrant Shares”) equal to
the purchase price allocated to each Investor Warrant divided by the Market Price of the Company’s Common Stock immediately
preceding the date each Investor Warrant first becomes exercisable, as such number may be adjusted from time to time pursuant
to the antidilution provisions of the Investor Warrant.



The
Purchase Price allocated to each Investor Warrant is at inception was:



|Investor Warrant #1: |  | $ | 275,000 | 
|-------------------- |  | - | ------- | 
|Investor Warrant #2: |  |   | 137,500 | 
|Investor Warrant #3: |  |   | 137,500 | 
|                     |  | $ | 550,000 | 



The
Market Price applicable to Investor Warrant #1, determined as of the Effective Date, was $.65 per share. Accordingly as of September
30, 2014, the maximum number of shares of the Company’s Common Stock Investor Warrant # 1 is exercisable into is 423,076
shares. The Market Price applicable to Investor Warrants #2 and #3 will be determined as of the related Investor Warrant’s
“Exercisable Date” (defined below), so the number of shares into which Investor Warrants #2 and #3 are exercisable
is not determinable as of December 31, 2014. Had all of the Investor Warrants been Exercisable as of December 31, 2014, the maximum
number of shares of the Company’s Common Stock the Investor Warrants could be exercised into, based on the $.65 per share
Market Price on that date, would be 846,153, which may ultimately be higher or lower.



The
term of each Investor Warrant began on September 27, 2014 and expires on the fifth anniversary from each Investor Warrant becomes
exercisable (the “Exercisable Date”). Investor Warrant #1 is exercisable at any time from September 27, 2014, and
it expires September 27, 2019. The Exercisable Dates for Investor Warrant #2 and Investor Warrant #3 occur once the full outstanding
balance of Investor Note #1 and Investor Note #2, respectively, has been paid to Company, and they expire on the fifth anniversary
of their respective Exercisable Date.



The
exercise price of the Investor Warrants is $.80 per share of the Company’s Common Stock, as may be adjusted from time to
time pursuant to the antidilution provisions of the Warrants.



The
Investor Warrants are exercisable by the Investor in whole or in part, as either a cash exercise or as a “cashless”
exercise.



The
Company evaluated the Warrants under ASC 480 “Distinguishing Liabilities From Equity” and ASC 815 “Derivatives
and Hedging”. Due to the existence of the antidilution provision, which reduces the Exercise Price and Conversion Price
in the event of subsequent Dilutive Issuances, the Investor Warrants are not indexed to the Company’s Common Stock, and
the Company determined that the Warrants meet the definition of a derivative under ASC 815. Accordingly, the Warrants were recorded
as derivative liabilities in the Consolidated Balance Sheet at their fair value of approximately $183,000 at the date of issuance.
The fair value of the Warrants is measured in accordance with ASC 820 “Fair Value Measurement”, using “monte
carlo simulation” modeling, incorporating the following inputs:



The
fair value of the Warrants as of December 31, 2014 was approximately $0. At each subsequent reporting date, the fair value of
the Warrants will be remeasured and changes in the fair value will be reported in the Consolidated Statements of Operations.





F-22









WINDSTREAM
TECHNOLOGIES, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER
31, 2014 AND 2013



The
Company has not elected to initially and subsequently measure the note as a hybrid instrument in its entirety at fair value. Therefore,
in accordance with ASC 815, the Company is accounting for all the embedded derivatives identified in the note as a single compound
embedded derivative. The compound embedded derivative was recorded as a derivative liability on the Consolidated Balance Sheet
at its fair value of approximately $279,000 at the date of issuance of the note. The fair value of the embedded derivative liability
is measured in accordance with ASC 820 “Fair Value Measurement”, using “monte carlo simulation” modeling
incorporating the following inputs:



The
fair value of the compound embedded derivative liability as of December 31, 2014 was approximately $893,347. At each subsequent
reporting date, the fair value of the embedded derivative liability will be remeasured and changes in the fair value will be recorded
in the Consolidated Statements of Operations.



Both
the warrant derivative and embedded derivative liabilities are classified as noncurrent liabilities in the Consolidated Balance
Sheet, and changes in their fair value are reported as a separate line item in the Consolidated Statements of Operations. The
change in fair value of the warrant and embedded derivative liabilities for the twelve months ended December 31, 2014 was $617,318
which was recorded as a separate line item, loss on change in fair value of derivative liabilities on the consolidated statement
of operations.



At
inception, the total proceeds $500,000 total proceeds received by the Company for the note and Investor Warrants, was allocated
first to the Investor Warrant and embedded derivative liabilities at their initial fair values determined at the issuance date.
The residual proceeds after that allocation was then applied to the note.



Accordingly,
the initial carrying amount of the note is approximately $39,000, derived as follows:



|Face amount of note               |  | $ | 550,000  |  
|--------------------------------- |  | - | -------- | -
|Original issuance discount        |  |   | (50,000  | )
|Allocation to Investor Warrants   |  |   | (182,000 | )
|Allocated to embedded derivatives |  |   | (279,000 | )
|                                  |  | $ | 39,000   |  



At
December 31, 2014, the carrying value of the note is as follows:



|Face amount of note              |  | $ | 342,000   | 
|-------------------------------- |  | - | --------- | 
|Derivative and warrant liability |  |   | 893,347   | 
|                                 |  | $ | 1,235,347 | 



The
net carrying amount of the note as of December 31, 2014 was $1,235,347. Interest expense on the note recognized in the consolidated
statements of operations for twelve months ended December 31, 2014 was approximately $9,200.



Investor
Notes



The
Company issued two Investor Notes on September 26, 2014. The principal of each Investor Note is $125,000. Interest accrues on
the unpaid principal balance under the Investor Notes at a rate of eight percent (8%) per annum until the full amount of the principal
and fees has been paid. The entire unpaid principal balance and all accrued and unpaid interest under each Investor Note, is due
and payable thirteen (13) months from the date the Investor Note was entered into, which is October 26, 2015. However, the Investor
may elect, in its sole discretion, to extend the maturity dates for up to thirty (30) days by delivering written notice of such
election to Company at any time prior to the maturity date. The Investor may, with Company’s consent, prepay, without penalty,
all or any portion of the outstanding balance of each Investor Note along with any accrued but unpaid interest at any time prior
to the maturity date.



The
Investor Notes contain certain default provisions of the Investor Notes generally such as the Investor’s failure to make
any payment when due and payable, its failure to observe or perform any other covenant, obligation, condition or agreement contained
in the Investor Note; or upon involuntary bankruptcy by the Investor, and such petition is not dismissed within sixty (60) days,
or a receiver, trustee, liquidator, assignee, custodian, sequestrator or other similar official is appointed to take possession
of any of the assets or properties of Investor.





F-23









WINDSTREAM
TECHNOLOGIES, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER
31, 2014 AND 2013



The
Investor Notes are recorded as a current asset at cost, together with accrued interest thereon, in the Consolidated Balance Sheet.
Interest income on the Investor Notes reported in the Consolidated Statements of Operations for the twelve months ended December
31, 2014 was $5,680.



Convertible
Note Payable to Vista Capital Investments, LLC



On
October 9, 2014, the Company entered into a Securities Purchase Agreement with Vista Capital Investments, LLC, (“Investor”,
“Holder” or “Lender”) an accredited investor for the issuance of a convertible note in the aggregate principal
amount of $200,000, in exchange for $100,000 in cash at closing, additional amounts due to the Company at the investor’s
discretion and $20,000 of original issue discount interest.



The
note is separated into three Conversion Eligible Tranches (discussed under Lender Conversion below) of the following amounts:



|Initial Consideration    |  | $ | 100,000 | 
|------------------------ |  | - | ------- | 
|Subsequent Consideration |  |   | 100,000 | 
|                         |  | $ | 200,000 | 



The
note bears interest at 10% per annum and the unpaid principal and interest is on the initial consideration is due in full in one
year from October 9, 2014 and the unpaid principal and interest on the Subsequent Consideration is due in full one year from the
date the Subsequent Consideration is paid to the Company.



Lender
Conversion



At
the option of the Holder, at any time or times on or after the Issuance Date payments, the lender shall be entitled to convert
any portion of the outstanding and unpaid Conversion Amount into fully paid and non-assessable shares of the common stock of the
Company at the Conversion Price. The Conversion amount means the original principal amount and unpaid interest to be converted
at the date of conversion.



The
Conversion Price is the lesser of (i) $.80 or (ii) 70% (the “Conversion Factor”) of the average of the three (3) lowest
Closing Bid Prices in the twenty (20) consecutive Trading Days immediately preceding the applicable Conversion Date on which the
Holder elects to convert all or part of this Note. If the average of the three (3) lowest Closing Bid Prices in the twenty (20)
Trading Days immediately preceding the applicable Conversion Date on which the Holder elects to is less than $0.40, the Conversion
price shall be the lesser of (a) $0.80 or (b) 65% of the average of the 3 lowest closing bid prices for the twenty (20) consecutive
Trading days immediately preceding the applicable Conversion Date on which the Holder elects to convert all or part of this Note.



The
Company evaluated the note under the requirements of ASC 815 “Derivatives and Hedging”. Due to the existence of the
antidilution provision which reduces the Lender Conversion Price in the event of subsequent Dilutive Issuances by the Company
described above, the Lender Conversion feature does not meet the definition of “indexed to” the Company’s stock,
and the scope exception to ASC 815’s derivative accounting provisions does not apply. The Company also evaluated the embedded
derivative criteria in ASC 815, and concluded that the default and remedy provisions of the note (see Default Provisions
below) cause the Lender Conversion feature to meet the net settlement criterion in ASC 815. Based on the Lender Conversion feature
meeting all the embedded derivative criteria in ASC 815, the Lender Conversion feature meets the definition of an embedded derivative
that should be separated from the note and accounted for as a derivative liability.



The
Company evaluated the Company’s option to settle the Lender Conversion in cash in the event the Lender elects to convert
subsequent to the occurrence of an Event of Default under the requirements of ASC 815, and included that it meets the definition
of an embedded derivative that should be separated from the note and accounted for as a derivative liability.



The
Company evaluated the Lender Conversion Delay provision under the requirements of ASC 815 and concluded it meets the definition
of an embedded derivative that should be separated from the note and accounted for as a derivative liability.





F-24









WINDSTREAM
TECHNOLOGIES, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER
31, 2014 AND 2013



As
of December 31, 2014, the Conversion Eligible Outstanding Balance of the note was convertible into approximately 1,350,000 shares
of the Company’s Common Stock. If the total outstanding balance of the note were convertible as of December 31, 2014, the
note would have been convertible into approximately 2,700,000 shares of the Company’s Common Stock.



The
Company evaluated the embedded derivative criteria in ASC 815, and concluded that because certain of the Events of Default under
the note are factors that are unrelated to a deterioration of the creditworthiness of the Company, the Events of Default and Default
Interest provisions of the note are not considered clearly and closely related to the characteristics of debt. Based on meeting
all the criteria in the definition, the Company concluded that the Events of Default and Default Interest provisions each meet
the definition of an embedded derivative that should be separated from the note and accounted for as a derivative liability.



Company
Prepayment Option



At
any time within the 180 day period immediately following the Issuance Date, the Company shall have the option, upon 10 business
days’ notice to the Holder, to prepay the entire remaining outstanding principal amount of this Note in cash, provided,
that (i) the Company shall pay Holder 125% of the Outstanding Balance, (ii) such amount must be paid in cash on the next business
day following such 10 business day notice period, and (iii) the Holder may still convert this Note pursuant to the terms hereof
at all times until such prepayment amount has been received in full.



The
Company evaluated the embedded derivative criteria in ASC 815, and concluded that the Company’s prepayment option is not
the type of call option that meets the definition of an embedded derivative. However, the Optional Prepayment Liquidated Damages
clause does meet the definition of an embedded derivative that should be separated from the note and accounted for as a derivative
liability.



Investor
Warrants



In
addition, warrants entitling the investor to purchase 199,396 shares of the Company’s common stock at a price driven by
the market price of the Company’s stock at the date of conversion. The warrants have a term of five years and vest immediately.



The
exercise price of the Investor Warrants is $.80 per share of the Company’s Common Stock, as may be adjusted from time to
time pursuant to the antidilution provisions of the Warrants.



The
Investor Warrants are exercisable by the Investor in whole or in part, as either a cash exercise or as a “cashless”
exercise.



The
Company evaluated the Warrants under ASC 480 “Distinguishing Liabilities from Equity” and ASC 815 “Derivatives
and Hedging”. Due to the existence of the antidilution provision, which reduces the Exercise Price and Conversion Price
in the event of subsequent Dilutive Issuances, the Investor Warrants are not indexed to the Company’s Common Stock, and
the Company determined that the Warrants meet the definition of a derivative under ASC 815. Accordingly, the Warrants were recorded
as derivative liabilities in the Consolidated Balance Sheet at their fair value of approximately $183,000 at the date of issuance.
The fair value of the Warrants is measured in accordance with ASC 820 “Fair Value Measurement”, using “monte
carlo simulation” modeling, incorporating various inputs.



The
fair value of the Warrants as of December 31, 2014 was approximately $0. At each subsequent reporting date, the fair value of
the Warrants will be remeasured and changes in the fair value will be reported in the Consolidated Statements of Operations.



The
Company has not elected to initially and subsequently measure the note as a hybrid instrument in its entirety at fair value. Therefore,
in accordance with ASC 815, the Company is accounting for all the embedded derivatives identified in the note as a single compound
embedded derivative.





F-25









WINDSTREAM
TECHNOLOGIES, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER
31, 2014 AND 2013



The
fair value of the compound embedded derivative liability as of December 31, 2014 was approximately $195,906. At each subsequent
reporting date, the fair value of the embedded derivative liability will be remeasured and changes in the fair value will be recorded
in the Consolidated Statements of Operations.



Both
the warrant derivative and embedded derivative liabilities are classified as current liabilities in the Consolidated Balance Sheet,
and changes in their fair value are reported in general and administrative expense in the Consolidated Statements of Operations.
The change in fair value of the warrant and embedded derivative liabilities for the twelve months ended December 31, 2014 was
$227,506 which was recorded as a separate line item, loss on change in fair value of derivative liability on the consolidated
statement of operations.



The
total proceeds $100,000 total proceeds received by the Company for the note and Investor Warrants, was allocated first to the
Investor Warrant and embedded derivative liabilities at their initial fair values determined at the issuance date. The residual
proceeds after that allocation was then applied to the note.



Accordingly,
the carrying amount of the note at inception is approximately $100,000, derived as follows:



|Face amount of note               |  | $ | 100,000 |  
|--------------------------------- |  | - | ------- | -
|Allocated to embedded derivatives |  |   | (0      | )
|                                  |  | $ | 100,000 |  



At
December 31, 2014, the carrying value of the note is as follows:



|Face amount of note              |  | $ | 132,000 | 
|-------------------------------- |  | - | ------- | 
|Derivative and warrant liability |  |   | 195,506 | 
|                                 |  | $ | 327,506 | 



The
net carrying amount of the note as of December 31, 2014 was $327,506. Interest expense on the note recognized in the Consolidated
Statements of Operations for twelve months ended December 31, 2014 was $2,137.



Convertible
Note Payable to the Redwood Group of Investors



On
October 17, 2014, the Company entered into a Securities Purchase Agreement with Redwood Management LLC, Redwood Fund II LLC and
Redwood Fund III, LLC, (“Redwood Group of Investors”), all accredited investors, for the issuance of original issue
discount senior secured convertible debentures in the aggregate principal amount of $3,520,000, in exchange for $3,520,000 in
secured investor notes payable to the Company, less the initial subscription amount of $712,500 which resulted in initial cash
at closing of $622,500 to the Company. The debentures include a 5% original issue discount and bear interest at 12% per annum.
The secured investor notes payable to the Company are secured by equity interests in one of the Redwood Group of Investors held
by members thereof pursuant to a security agreement.



The
Company will pay aggregate commissions to an investment advisor under the terms of an agreement disclosed in note 18 in connection
with the placement described herein in the amount of $253,000 payable as funds are received by the Company under the terms of
the agreement.



Principal
Payments



Principal
payments (“Amortization Amount”) on the notes are due starting approximately six months from the date of the note,
on April 15, 2015, in various amounts as contained in the notes and can be paid in cash, with a 30% premium over payments made
in shares of the Company’s common stock, or, in issuances of the Company common stock. The final payment is due on October
17, 2016.



Amortization
Payment Conversions



Each
Amortization Payment shall, be made at the option of the Company, be made in cash or in the common stock of the Company pursuant
to the Amortization Conversion Rate.



The
Amortization Conversion Rate means the lower of the Conversion Price, $0.4634, or 65% of the lowest VWAP (“Volume Weight
Average Price”) for the 20 consecutive Trading Days ending on the Trading Day that is immediately prior to the applicable
Amortization Payment Date.





F-26









WINDSTREAM
TECHNOLOGIES, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER
31, 2014 AND 2013



The
Company evaluated the note under the requirements of ASC 480 “Distinguishing Liabilities from Equity” and concluded
that the note does not fall within the scope of ASC 480. The Company evaluated the Installment Conversion feature under the requirements
of ASC 815 “Derivatives and Hedging”. Due to the existence of the antidilution provision which reduces the Lender
Conversion Price in the event of subsequent Dilutive Issuances by the Company (see Lender Conversion below), the Installment
Conversion feature does not meet the definition of “indexed to” the Company’s stock, and the scope exception
to ASC 815’s derivative accounting provisions does not apply. The Company evaluated the embedded derivative criteria in
ASC 815, and concluded that because the Common Stock that would be delivered by the Company if an Installment Conversion is elected
(including True-Up Shares) would be readily convertible to cash by the Investor, the Installment Conversion feature meets the
definition of an embedded derivative that should be separated from the note and accounted for as a derivative liability.



Lender
Conversion



The
Redwood Group of Investors has the right at any time after the Issue Date until the outstanding balance of the note has been paid
in full, at its election, to convert (each instance of conversion is referred to as a “Lender Conversion”) all or
any part of the outstanding balance into shares (“Conversion Shares”) of the Company’s Common Stock, of the
portion of the outstanding balance being converted (the “Conversion Amount”) divided by the “Lender Conversion
Price” of $0.4634, subject to potential future adjustments described below.



The
Company evaluated the note under the requirements of ASC 815 “Derivatives and Hedging”. Due to the existence of the
antidilution provision which reduces the Lender Conversion Price in the event of subsequent Dilutive Issuances by the Company
described above, the Lender Conversion feature does not meet the definition of “indexed to” the Company’s stock,
and the scope exception to ASC 815’s derivative accounting provisions does not apply. The Company also evaluated the embedded
derivative criteria in ASC 815, and concluded that the default and remedy provisions of the note (see Default Provisions
below) cause the Lender Conversion feature to meet the net settlement criterion in ASC 815. Based on the Lender Conversion feature
meeting all the embedded derivative criteria in ASC 815, the Lender Conversion feature meets the definition of an embedded derivative
that should be separated from the note and accounted for as a derivative liability.



The
Company evaluated the Lender Conversion Delay provision under the requirements of ASC 815 and concluded it meets the definition
of an embedded derivative that should be separated from the note and accounted for as a derivative liability.



As
of December 31, 2014, the Conversion Eligible Outstanding Balance of the note was convertible into approximately 16,636,000 shares
of the Company’s Common Stock. If the total outstanding balance of the note were convertible as of December 31, 2014, the
note would have been convertible into 36,598,000 of the Company’s common stock.



The
Company evaluated the embedded derivative criteria in ASC 815, and concluded that because certain of the Events of Default under
the note are factors that are unrelated to a deterioration of the creditworthiness of the Company, the Events of Default and Default
Interest provisions of the note are not considered clearly and closely related to the characteristics of debt. Based on meeting
all the criteria in the definition, the Company concluded that the Events of Default and Default Interest provisions each meet
the definition of an embedded derivative that should be separated from the note and accounted for as a derivative liability.



Company
Prepayment Option



At
any time upon ten (10) days written notice to the Redwood Group of Investors, the Company may prepay any portion of the principal
amount of this Debenture any accrued or unpaid interest. If the Company exercises its right to prepay the Debenture, the Company
shall make payment to the Redwood Group of Investors of an amount in cash equal to the sum of the then outstanding principal amount
of this Debenture and accrued interest multiplied by 130%. The Redwood Group of Investors may continue to convert the Debenture
from the date notice of the prepayment is given until the date of the prepayment.



The
Company evaluated the embedded derivative criteria in ASC 815, and concluded that the Company’s prepayment option is not
the type of call option that meets the definition of an embedded derivative. However, the Optional Prepayment Liquidated Damages
clause does meet the definition of an embedded derivative that should be separated from the note and accounted for as a derivative
liability.



At
December 31, 2014, the carrying value of the note is as follows:



|Face amount of note              |  | $ | 2,184,000 | 
|-------------------------------- |  | - | --------- | 
|Derivative and warrant liability |  |   | 850,439   | 
|                                 |  | $ | 3,034,439 | 





F-27









WINDSTREAM
TECHNOLOGIES, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER
31, 2014 AND 2013



The
fair value of the compound embedded derivative liability as of December 31, 2014 was approximately $850,439. At each subsequent
reporting date, the fair value of the embedded derivative liability will be remeasured and changes in the fair value will be recorded
in the Consolidated Statements of Operations.



The
embedded derivative liability is classified as current liability in the Consolidated Balance Sheet, and changes in their fair
value are reported in general and administrative expense in the Consolidated Statements of Operations. The change in fair value
of the embedded derivative liability for the twelve months ended December 31, 2014 was $420,753.



Purchaser
Notes



The
Company issued three Purchaser Notes on October 17, 2014. The total principal of the Purchaser Notes is $2,631,503. The note will
not bear interest for the benefit of the Company. The entire unpaid principal balance under each Purchaser Note is due and payable
thirteen (11) months from the date the Purchaser Note was entered into, which is September 17, 2015. However, the Redwood Group
of Investors may elect, in their sole discretion, to extend the maturity dates for up to thirty (30) days by delivering written
notice of such election to Company at any time prior to the maturity date. The Redwood Group of Investors may, with Company’s
consent, prepay, without penalty, all or any portion of the outstanding balance of each Purchaser Note at any time prior to the
maturity date.



The
Purchaser Notes contain certain default provisions of the Purchaser Notes generally such as the Redwood Group of Investors failure
to make any payment when due and payable, its failure to observe or perform any other covenant, obligation, condition or agreement
contained in the Purchaser Note; or upon involuntary bankruptcy by the Investor, and such petition is not dismissed within sixty
(60) days, or a receiver, trustee, liquidator, assignee, custodian, sequestrator or other similar official is appointed to take
possession of any of the assets or properties of Investor.



The
Purchaser shall be entitled to deduct and offset any amount owing by the Company under the Debenture from any amount owed by the
Redwood Group of Investors under the Purchaser notes.



The
Purchaser Notes are recorded as current investments, under Investor Notes Receivable at cost in the Consolidated Balance Sheet.
As stated above, there is no interest income on the Purchaser Notes for the twelve months ended December 31, 2014.



Fair
Value Measurement



As
discussed above, the convertible notes discussed above contain conversion features, warrants and default provisions that result
in embedded derivatives. The Company has recorded the fair value of each derivative as described above and is included in the
derivatives liabilities included in the current liabilities in the consolidated balance sheet as of December 31, 2014. The change
in fair value was recorded in the consolidated statement of operations for the year ended December 31, 2014.



In
arriving at fair-value estimates, the Company utilizes the most observable inputs available for the valuation technique employed.
If a fair-value measurement reflects inputs at multiple levels within the fair value hierarchy, the fair-value measurement is
characterized based upon the lowest level input. For the Company, recurring fair-value measurements are performed for the derivative
liability.



The
derivative liability is recognized in the balance sheet at fair value. Changes in the fair value of the derivative liability are
reported in the consolidated statement of operations. The Company does not have any liabilities that reduce risk associated with
hedging exposure and has not designated the derivative liability as a hedge instrument.



The
Company did not have any derivatives valued using Level 1 and Level 2 inputs as of December 31, 2014. The fair values and corresponding
classifications under the appropriate levels of the fair value hierarchy of the outstanding derivative liability recorded as recurring
liabilities in the consolidated balance sheet consisted of the following:



|                                                      |  | Level |   |  | December
    31, 2014 |   |           | December
    31, 2013 | 
|----------------------------------------------------- |  | ----- | - |  | --------------------- | - | --------- | --------------------- | 
|                                                      |  |       |   |  |                       |   |           |                       | 
|Included in current liabilities: Derivative Liability |  |       | 3 |  |                       | $ | 1,045,945 |                       | 



|                                 |  |                   |           |  |  | Valuation |                           |  |  | Unobservable |                                                                       
|-------------------------------- |  | ----------------- | --------- |  |  | --------- | ------------------------- |  |  | ------------ | ----------------------------------------------------------------------
|                                 |  | December 31, 2014 |           |  |  | Technique |                           |  |  | Input        |                                                                       
|                                 |  |                   |           |  |  |           |                           |  |  |              |                                                                       
|Included in current liabilities: |  |                   |           |  |  |           |                           |  |  |              |                                                                       
|Derivative Liability             |  | $                 | 1,045,945 |  |  |           | Monte Carlo Pricing Model |  |  |              | Prevailing interest rates Company’s stock volatility
    Expected term



There have
been no transfers between Level 1, Level 2, or Level 3 categories.



NOTE
12 – NOTE PAYABLE



In
July 2011, the Company entered into a $1,400,000 note agreement with the City of North Vernon, Indiana. Interest accrues at 5.5%
and the note matures on August 1, 2016. As of December 31, 2014 and 2013, the note had an outstanding balance of $1,325,000 and
$1,400,000, respectively.



The
Company was unable to pay the interest and principal payments due on August 1, 2012 and was in default of such payment. The Company
was able to negotiate payment terms with the City of North Vernon, Indiana, which allowed the Company to delay scheduled repayments
of the loan.



During
the twelve months ended December 31, 2014 and 2013, the Company made $75,000 and $125,000, respectively, in payments to the City
of North Vernon for principal (2014) and accrued interest in 2014 and 2013.



F-28







WINDSTREAM
TECHNOLOGIES, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER
31, 2014 AND 2013



Principal
and interest payments are expected to be paid in each fiscal year as follows:





|     |  |  | Principal |           |  | Interest |   |         | Total | 
|---- |  |  | --------- | --------- |  | -------- | - | ------- | ----- | 
|2015 |  |  | $         | 107,838   |  |          | $ | 177,259 |       | 
|2016 |  |  |           | 1,217,162 |  |          |   | 114,276 |       | 
|     |  |  | $         | 1,325,000 |  |          | $ | 291,535 |       | 



Interest
expense incurred and accrued on the note payable was approximately $122,000 and $95,000 for the years ended December 31, 2014
and 2013, respectively.



NOTE
13 –RELATED PARTY TRANSACTIONS



Expenses
Paid by President



From
time to time, the President of the Company will pay for expenses on behalf of the Company, which are recorded as expenses in the
accompanying consolidated statement of operations and as a liability to the President of the Company under accounts payable -
related parties in the accompanying consolidated balance sheet.



As
of December 31, 2014 and 2013, the Company owed $0 to the Company president for expenses incurred on behalf of the Company. These
amounts are non-interest bearing, unsecured and due on demand.



During
the twelve months ended December 31, 2014 and 2013, the Company president advanced $0 to the Company to fund operations and the
Company repaid $0 and $41,705, respectively, of the total amount advanced during the years ended December 31, 2014 and 2013, respectively.



Short
Term Debt - Related Parties



During
the twelve months ended December 31, 2014 and 2013, the Company’s President advanced $88,500 and $62,000, respectively,
to the Company to fund operations and the Company repaid such advances of $55,000 and $27,500 in 2014 and 2013, respectively.



As of December 31, 2014 and 2013, the outstanding
balance of short-term debt – related parties was $221,000 and $187,500 respectively. Included in the 2013 year-end balance,
is $100,000 loaned to the Company to fund operations by a Board member, and no repayments were made by the Company while the individual
was a Board member. This Board member resigned in 2013, and upon his resignation, the outstanding amounts were reclassified from
short term debt – related parties to short term debt – third parties.



The amounts accrue interest at 10% and are
due on demand. Interest expense incurred and accrued on Short Term Debt – Related Parties was approximately $15,000 and
$10,000 for the twelve months ended December 31, 2014 and 2013, respectively.



Chief
Operating Officer and the City of North Vernon



The Company’s Chief Operating Officer
is a relative of the mayor of North Vernon. The City of North Vernon loaned the Company $1,400,000 as described in Note 12. The
terms of the loan are at fair market value and were presented to and approved by the city council. The related party officer is
an employee under the terms of an employment contract and his continued employment is based solely on performance. Management
believes all compensation paid to the Chief Operating Officer is based on market value comparisons and is not impacted at all
by the related party officer’s relationship with the mayor of the lender.



During 2013, the Company advanced $65,000
to the Chief Operating Officer, of which $22,369 represented back wages that had not been paid. The remaining $42,631, was not
repaid as of December 31, 2013. This transaction violated Section 402 (A) of the Sarbanes-Oxley Act of 2002, as amended in the
Securities Exchange Act of 1934. As a result, the Company and the Chief Operating Officer agreed that the remaining amount was
not an advance, was not going to be repaid, would be treated as compensation expense for 2013 and was included in general and
administrative expenses within the accompanying consolidated statement of operations as of December 31, 2013.





F-29







WINDSTREAM
TECHNOLOGIES, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER
31, 2014 AND 2013



NOTE
14 - COMMON STOCK



Common
and Preferred Stock



As
described in Note 4, the Company entered into a Share Exchange Agreement with WindStream Technologies, Inc., a California corporation,
pursuant to which, the Company agreed to exchange the outstanding common and preferred stock of WindStream held by the WindStream
Shareholders for shares of common stock of the Company on a 1:25.808 basis.



At
the Closing, there were approximately 955,000 shares of WindStream common stock and 581,961 shares of WindStream preferred stock
outstanding.



Pursuant
to the Share Exchange Agreement, the shares of WindStream common stock and preferred stock were exchanged for 39,665,899 (24,646,646
for the Windstream common shares and 15,019,253 for the Windstream preferred shares) new shares of the Company’s common
stock, par value of $0.001 per share.



At
the closing of the agreement, Windaus Global Energy, Inc. had approximately 24,000,000 shares of common stock issued outstanding
and no preferred stock.



The
Company’s Articles of Incorporation and Bylaws permit the Company to issue, without any further vote or action by the stockholders,
shares of preferred stock in one or more series and, with respect to each series, to fix the number of shares constituting the
series and the designation of the series, the voting powers (if any) of the shares of the series, and the preferences and relative,
participating, optional, and other special rights, if any, and any qualifications, limitations, or restrictions of the shares
of the series. As well, our Articles of Incorporation and Wyoming law allow the Company to issue an unlimited number of shares
of equity stock, both common and preferred. During 2014 and in 2013 after the date of the share Agreement discussed above, May
13, 2013, the Company has issued no preferred shares and has not sought the approval of the Board of Directors to issue any preferred
shares.



During
the twelve months ended December 31, 2014, the Company entered into subscription agreements with accredited investors for the
issuance of an aggregate of 3,740,757 shares of common stock at prices ranging from $0.35 to $0.50 per share, for an aggregate
purchase price of $1,887,401, less commissions paid of $79,183. One investor also received warrants to purchase 100,000 shares
of common stock exercisable at $0.80 per share. The warrants vested immediately and have a term of three years.



During
the twelve months ended December 31, 2014, four investors converted their notes payable of $200,000 in aggregate plus accrued
interest of approximately $7,500 into shares of common stock at the conversion price of $0.25 per share, resulting in the Company
issuing 829,689 shares of common stock.



During
the twelve months ended December 31, 2014, holders of the Company’s warrants exercised warrants, on a cashless exercise
basis pursuant to an agreement with the Company, and the Company issued approximately 136,000 shares of common stock in a non-cash
transaction.



On
July 3, 2013, the Company entered into a subscription agreement with an accredited investor for the issuance of 5,000,000 shares
of common stock at $0.05 per share, with an aggregate purchase price of $250,000.



From
July 4, 2013 through December 31, 2013, the Company entered in subscription agreements with approximately thirty-three accredited
investors for the issuance of an aggregate of 10,436,000 shares of common stock at prices ranging from $0.25 to $.40 per share
together with warrants to purchase 6,266,000 shares of common stock exercisable at $0.50 per share, for an aggregate purchase
price of $2,984,000 (net of offering costs of approximately $109,000). The warrants vested immediately and have a term of three
years.



NOTE
15 – STOCK OPTIONS



Stock
based compensation



During
the twelve months ended December 31, 2014, the Company issued options to employees and outside consultants, which allowed the
employees and outside consultants to purchase an aggregate of 16,100,000 shares of the common stock exercisable at prices ranging
from $0.05 to $0.25 per share. The options vested immediately and have a term of three years. These options have a fair value
of approximately $5,000,000, which was calculated using the Black-Scholes option pricing model, and has been included as a separate
line item in the accompanying consolidated statement of operations for the twelve months ended December 31, 2014.



During
the twelve months ended December 31, 2014, three option holders exercised their options to purchase 448,993 shares of the Company’s
common stock in a non-cash transaction and received approximately 448,993 shares of the Company’s common stock.



F-30







WINDSTREAM
TECHNOLOGIES, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER
31, 2014 AND 2013



During
the twelve months ended 2013, the Company issued 4,820,000 options to purchase common stock to various employees for services
rendered. These options were granted with an exercise price of $0.05, have a contract term of three years and vested immediately.
The options have a fair value of $238,761, which was calculated using the Black-Scholes option pricing model, and has been shown
as a separate line item in the accompanying consolidated statement of operations for the twelve months ended December 31, 2013.





Stock
option activity is presented in the table below:



|                                     |  |  | Number
    ofShares |            |   | WeightedaverageExercise Price |   |       | Weight
    averageContractualTerm (years) |  |  | AggregateIntrinsic Value |  
|------------------------------------ |  |  | ------------------- | ---------- | - | ----------------------------- | - | ----- | ----------------------------------------- |  |  | ------------------------ | -
|                                     |  |  |                     |            |   |                               |   |       |                                           |  |  |                          |  
|Outstanding
    at December 31, 2012 |  |  |                     | 5,290,640  |   |                               | $ | 0.03  |                                           |  |  | 7.95                     |  
|                                     |  |  |                     |            |   |                               |   |       |                                           |  |  |                          |  
|Granted                              |  |  |                     | 4,820,000  |   |                               |   | 0.05  |                                           |  |  | 3.00                     |  
|                                     |  |  |                     |            |   |                               |   |       |                                           |  |  |                          |  
|Outstanding
    at December 31, 2013 |  |  |                     | 10,110,640 |   |                               |   | .08   |                                           |  |  | 2.75                     |  
|                                     |  |  |                     |            |   |                               |   |       |                                           |  |  |                          |  
|Granted                              |  |  |                     | 16,100,000 |   |                               |   | 0.15  |                                           |  |  | 10.00                    |  
|Exercised                            |  |  |                     | (448,993   | ) |                               |   | (0.05 |                                           |  |  | (3.00                    | )
|                                     |  |  |                     |            |   |                               |   |       |                                           |  |  |                          |  
|Outstanding
    at December 31, 2014 |  |  |                     | 25,761,647 |   |                               | $ | 0.09  |                                           |  |  | 6.20                     |  



The
Company recognized stock compensation expense as follows:



|Year
    endedDecember 31, 2014 |           |  | Year
    endedDecember 31, 2013 |  
|------------------------------- | --------- |  | ------------------------------- | -
|$                               | 5,224,258 |  |                                 | $



The
total remainder of stock compensation expense to be recognized through the vesting period of the above options, at December 31,
2014, was approximately $385,000.



The
fair value of the options granted during the various periods was estimated at the date of grant using the Black-Scholes option-pricing
model and the following assumptions:



|                                        |  | 2014 |                                                    |   | 2013 |  
|--------------------------------------- |  | ---- | -------------------------------------------------- | - | ---- | -
|Year
    Options were granted           |  |      |                                                    |   |      |  
|Market
    value of stock on grant date |  | $    | .30
                                         - .35 |   |      | $
|Risk-free
    interest rate             |  |      | .61                                                | % |      |  
|Dividend
    Yield                      |  |      | 0                                                  | % |      |  
|Volatility
    Factor                   |  |      | 300                                                | % |      |  
|Weighted average
    expected life      |  |      | 10
                                         years  |   |      |  
|Expected
    forfeiture rate            |  |      | 0                                                  | % |      |  



The
total number of options vested as of December 31, 2014 was 22,684,292 and the total options expected to vest, as of December 31,
2014, was 25,761,647.



Stock
Incentive Plan



On
November 11, 2014, the Company adopted the 2014 Stock Incentive Plan. The plan provides for Options,
Stock Appreciation Rights, Dividend Equivalent Rights Restricted Stock, Restricted Stock Units or other rights or benefits under
the Plan.The maximum aggregate number of Shares which may be issued pursuant to all Awards
(including Incentive Stock Options) is five million (5,000,000) Shares. The Shares may be authorized, but unissued, or reacquired
Common Stock. In addition, Dividend Equivalent Rights shall be payable solely in cash and
therefore the issuance of Dividend Equivalent Rights shall not be deemed to reduce the maximum aggregate number of Shares which
may be issued under the Plan. The plan has a term of ten years.





Under
the terms of this plan, shares vest as follows: 25% of the shares subject to the Option shall vest twelve (12) months after the
Vesting Commencement Date, and 1/48 of the Shares subject to the Option shall vest on each monthly anniversary of the Vesting
Commencement Date thereafter. From November 11, 2014 to December 31, 2014, a minor number of shares vested.



F-31







WINDSTREAM
TECHNOLOGIES, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER
31, 2014 AND 2013



Stock
option under the Incentive Stock Option Plan activity is presented in the table below:



|                                     |  |  | Number
    of Shares |         |  | Weighted
    average Exercise Price |   |      | Weight
    average ContractualTerm (years) | 
|------------------------------------ |  |  | -------------------- | ------- |  | ----------------------------------- | - | ---- | ------------------------------------------ | 
|                                     |  |  |                      |         |  |                                     |   |      |                                            | 
|Outstanding
    at December 31, 2012 |  |  |                      | —       |  |                                     | $ | —    |                                            | 
|                                     |  |  |                      |         |  |                                     |   |      |                                            | 
|Granted                              |  |  |                      |         |  |                                     |   |      |                                            | 
|                                     |  |  |                      |         |  |                                     |   |      |                                            | 
|Outstanding
    at December 31, 2013 |  |  |                      | —       |  |                                     | $ | —    |                                            | 
|                                     |  |  |                      |         |  |                                     |   |      |                                            | 
|Granted                              |  |  |                      | 700,000 |  |                                     |   | 0.15 |                                            | 
|                                     |  |  |                      |         |  |                                     |   |      |                                            | 
|Outstanding
    at December 31, 2014 |  |  |                      | 700,000 |  |                                     | $ | 0.15 |                                            | 



None
of the above options were exercised or forfeited in 2014.



NOTE
16 – WARRANTS



On
February 2, 2014, the Company issued warrants in an investor in the Company’s common stock as more fully discussed in footnote
14. These warrants allowed the investor to purchase 100,000 share of common stock at $.80 per share. The warrants vest immediately
and have a term of three years.



On
June 25, 2014, two investors in the Company’s common stock converted their warrants to common stock in a cashless conversion.
The warrants were converted in 136,000 shares of common stock at $.05 per share.



On
September 26, 2014, the Company issued warrants to investors for them to purchase 423,076 shares of common stock at $.65 per share
which vest immediately and have a five year term, and on October 7, 2014, the Company issued warrants to purchase 199,396 shares
of common stock at a price to be determined at conversion in connection with the convertible debt discussed in footnote 11. These
warrants vest immediately and have a five year term.



On
July 23, 2013, the Company issued warrants to various investors in the Company’s stock to replace warrants previously issued
to these investors in 2012. These warrants allowed investors to purchase 1,100,000 shares of the common stock at $.25 per share.
The warrants vest immediately and have a term of three years. Because the original warrants issued in 2012 had zero value unless
a financing transaction was completed, which it was not completed in time, the replacement warrants issued for the original warrants
did not have such a restriction, and therefore, the new warrants have a fair value of $54,000, which was calculated using the
Black-Scholes option pricing model. The $54,000 has been recorded as compensation expense during the year ended December 31, 2013
and has been included as a separate line item in the accompanying consolidated statement of operations for the year ended December
31, 2013.



On
June 1, 2013, the Company issued 1,740,000 warrants in connection with the convertible debt discussed in footnote 11.



From
July 30, 2013 to November 15, 2013, the Company issued warrants to various investors in the Company’s stock as more fully
described in footnote 14. These warrants allowed the investors to purchase 6,266,000 shares of common stock at $.50 per share.
The warrants vest immediately and have a term of three years.



Fair
value is generally based on independent sources such as quoted market prices or dealer price quotations. To the extent certain
financial instruments trade infrequently or are non-marketable securities, they may not have readily determinable fair values.
The Company estimated the fair value of the warrants using a Black-Scholes option pricing model and available information that
management deems most relevant. The stock price is the closing price of the Company’s stock on the valuation date; the risk
free interest rate is based on the U.S. Government Securities average rate for 1 and 2 year maturities on the date of issuance;
the volatility is a statistical measure (standard deviation) of the tendency of the Company’s stock price to change over
time; the exercise price is the price at which the Warrants can be purchased by exercising prior to its expiration; the dividend
yield is not applicable due to the Company not intending to declare dividends; the contractual life is based on the average exercise
period of the Warrants; and the fair market value is value of the warrants based on the Black-Scholes model on the valuation date.



F-32







WINDSTREAM
TECHNOLOGIES, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER
31, 2014 AND 2013



The
following table provides the valuation inputs used to value the warrants issued in 2014 and 2013:



|                                     |  | 2014 |                                                     |   | 2013 |  
|------------------------------------ |  | ---- | --------------------------------------------------- | - | ---- | -
|Year Options were
    granted        |  |      |                                                     |   |      |  
|Stock price range                    |  | $    | .12
                                         - 1.25 |   |      | $
|Risk-free
    interest rate          |  |      | .61                                                 | % |      |  
|Volatility
    Factor                |  |      | 300                                                 | % |      |  
|Exercise Price                       |  | $    | .65
                                         to .80 |   |      | $
|Dividend
    Yield                   |  |      | 0                                                   | % |      |  
|Contractual
    life (years)         |  |      | 5
                                         years    |   |      |  
|Fair
    Market Value, approximately |  | $    | 681,000                                             |   |      | $



The
following represents a summary of the Warrants outstanding at December 31, 2014 and 2013 and changes during the years then ended:



|                                        |  | Warrants |           |   | WeightedAverageExercise Price |  
|--------------------------------------- |  | -------- | --------- | - | ----------------------------- | -
|Outstanding,
    December 31, 2012      |  |          | -         |   |                               | $
|Granted                                 |  |          | 9,106,000 |   |                               |  
|Outstanding,
    December 31, 2013      |  |          | 9,106,000 |   |                               | $
|Granted                                 |  |          | 722,472   |   |                               |  
|Warrants
    exchanged for common stock |  |          | (135,932  | ) |                               |  
|Outstanding,
    December 31, 2014      |  |          | 9,692,540 |   |                               | $



NOTE
17 - EARNINGS PER SHARE



FASB
ASC Topic 260, Earnings Per Share, requires a reconciliation of the numerator denominator of the basic and diluted earnings (loss)
per share (EPS) computations.



Basic
earnings (loss) per share are computed by dividing the net loss available to common shareholders by the weighted average number
of common shares outstanding during the period. Diluted loss per share is computed similar to basic loss per share except that
the denominator is increased to include the number of additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares are dilutive.



As
the Company has net losses, the Company had no potential dilutive securities for the years ended December 31, 2014 and 2013 as
they would be anti-dilutive. Therefore, there is no difference in the basic and dilutive earnings (loss) per share.



The
following table sets for the computation of basic and diluted net income (loss) per share:



|                                                                              |  | Year
    endedDecember 31, 2014 |             |   | Year
    endedDecember 31, 2013 |  
|----------------------------------------------------------------------------- |  | ------------------------------- | ----------- | - | ------------------------------- | -
|                                                                              |  |                                 |             |   |                                 |  
|Net
    loss attributable to common stockholders                              |  | $                               | (11,269,637 | ) |                                 | $
|                                                                              |  |                                 |             |   |                                 |  
|Basic
    weighted average outstanding shares of common stock                 |  |                                 | 86,696,836  |   |                                 |  
|                                                                              |  |                                 |             |   |                                 |  
|Dilutive
    effect of common stock equivalents                               |  |                                 |             |   |                                 |  
|                                                                              |  |                                 |             |   |                                 |  
|Dilutive
    weighted average common stock equivalents                        |  |                                 | 86,696,836  |   |                                 |  
|                                                                              |  |                                 |             |   |                                 |  
|Net
    loss per share of voting and nonvoting common stock Basic and Diluted |  | $                               | (0.13       | ) |                                 | $



F-33







WINDSTREAM
TECHNOLOGIES, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER
31, 2014 AND 2013



NOTE
18 – COMMITMENTS AND CONTINGENCIES



Legal



From
time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business.
However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time
to time that may harm our business. Except as disclosed below, we are currently not aware of any such legal proceedings or claims
that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial conditions or
operating results.



In
2013, we filed a lawsuit in theUnited States District Court for
the Southern District of Indianaagainst a prior vendor asserting causes of action for trademark
infringement, false designation of origin, breach of contract, and interference with contract. We contracted with certain of the
defendants to provide component parts and to act as our authorized dealer in specified territories. Those defendants have breached
the various agreements. Other defendants, in violation of the Lanham Act, have misappropriated our creations, are passing off
our products as their own, and are infringing our trademarks and trade dress. By the action, we seek damages (including treble
damages, punitive damages, and attorney’s fees) and injunctive relief under the Lanham Act and related statutory and common
law of the State of Indiana. At this point in the litigation, we have not yet quantified the precise amount of damages it seeks,
but we believe the damages to be in excess of $100,000.



The
defendant has asserted counter-claims against us. In the counter-claims, the defendant seeks against damages from us of at least
$29,246, plus interest, in connection with our handling of certain warranty claims, and an award of an unspecified number of TurboMill
windmills (or the monetary value of the windmills) in connection with an alleged loan made to us..



The
deposition of persons most knowledgeable for the defendants and other related parties was taken on May 19, 2014. The current status
of the case is that defendants have answered our amended complaint and we have answered their counterclaims, and the parties have
begun the discovery process. The case has a final Status Conference Hearing scheduled for May 8, 2015 with a trial date set for
October 13, 2015. While the parties have made significant progress in settling the case, our counsel is unable to provide a meaningful
evaluation of the likelihood of a favorable outcome or an estimate of the realistic range of damages should we prevail. If the
parties are unable to settle the matter, we intend to take the case to trial and seek damages and injunctive relief.



While incapable of estimation,
in the opinion of management, the individual regulatory and legal matters in which it might involve in the future are not expected
to have a material adverse effect on the Company’s financial position, results of operations, or cash flows.



Leases



The
Company leased various facilities under a non-cancelable operating lease which expired on September 30, 2013. That lease required
minimum monthly rental payments of $4,750 plus various expenses incidental to use of the property. The Company had an option to
extend the lease for one twelve month period.



Effective
on October 1, 2014, the Company entered into a new lease agreement for this facility with a term of twenty-four months with an
option for another twelve months. Rent in the first twenty-four months is $7,800 per month plus various expenses incidental to
use of the property. If the Company exercises its option for another twelve months, the rent during that period will be $8,500
per month plus various expenses incidental to use of the property.





In 2014,
the Company’s India subsidiary leased office, approximately 9,500 square feet and manufacturing space, approximately 50,000
square feet, in India in connection with expanding its operations. The office space lease is a month to month lease with annual
rent of approximately $24,000. The manufacturing facility lease is a six year lease with annual rent of approximately $120,000.
The lease commenced on April 1, 2015 when the Company’s subsidiary occupied the space.



The
Company also leased a research facility in New Albany, Indiana under a sixty-five month lease that was to expire on March
30, 2015. The Company evaluated the lease under FASB ASC Topic 840-20, Operating Leases, and noted that the lease
qualifies as an escalating lease. Therefore, rent expense was calculated on a straight-line basis, and was determined to be $3,124
per month. In May 2013, the landlord terminated the lease and the Company moved out of the related space. All past and future
rent unpaid obligations under the lease were forgiven.



Rent
expense was for the twelve months ended December 31, 2014 and 2013 was $82,045 and $45,229, respectively, after the write off
of the deferred rent liability of $48,426 during the twelve months ended December 31, 2013.



F-34







WINDSTREAM
TECHNOLOGIES, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER
31, 2014 AND 2013



Sales



During
the second quarter of 2014, the Company received two signed purchase orders from one customer, Jamaica’s national utility
company, Jamaica Public Service Co., for the delivery of the Company’s clean energy products as well as related energy storage,
back-up emergency power equipment and custom energy monitoring, data collection and system analysis over the next eighteen to
twenty four months. The purchase orders contain the Company’s customary terms regarding payment terms, return of products
and return of products and are consistent with the Company’s terms with other customers.



Sales
and Distribution Agreements



In
the ordinary course of business, the Company enters into sales and distribution agreements with various parties in defined geographic
areas around the world. The agreements are usually non-exclusive and contain general commercial terms, but no specific financial
terms. It is the Company’s practice that such agreements do not contain performance related terms or favorable payment terms.
These agreements are usually cancellable with written notice by either party and do not have terms greater than one year.



Investment
Advisory Services



Burnham
Securities, Inc.



On
April 1, 2014, the Company entered into an agreement with an investment banking firm, which will provide advisory services in
the area of corporate development, corporate finance and/or capital placement transactions. The agreement expires twenty-four
months from the date the agreement was signed or the mutual written agreement of the Company and the investment banker. The Agreement
specifies that all fees be on a “success” basis. If no debt or equity transaction is completed, the Company has no
obligation under the terms of this agreement.



In
the event of a successful transaction, the investment banking firm will earn fees based on a percentage of the aggregate consideration
for an equity transaction on a sliding scale starting at 5% for aggregate consideration of less than $10,000,000 to 1% for aggregate
consideration above $75,000,001.



In
2014 and subsequent periods, no debt or equity transaction has been completed by this investment banking firm.



WestPark
Capital Inc.



During
2014, the Company entered into multiple agreements with the same investment banking firm, as follows:





| | ● | Side
    letter agreement, dated May 1, 2014, which among other terms, for the first $2 million raised, required fees of 1.25% of fully
    diluted equity of the Company and for each $1.5 million raised thereafter, 500,000 shares of the Company’s common stock.
    No funds were raised under this side letter agreement;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ● | Engagement
    as non-Exclusive Placement Agent agreement, dated July 18, 2014, which among other terms, for a term of six months, required
    the completion of a private placement offering of $500,000 to $800,000, and if successful, the Company was to pay a fee in
    cash of 10% of the qualifying placements at closing as well as warrants equal to 10% of the stock and warrants sold in the
    private placement. The investment banker was successful and was paid fees of approximately $79,000 as a reduction of the proceeds
    from investors in 2014. The amount of warrants due the investment banker has not been agreed to by the two parties;                                                                                                                                                                                                                                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ● | Institutional
    Financing Engagement agreement, dated July 30, 2014, which among other terms, for a term of six months, required the completion
    of an institutional financing offering, and if successful, the Company was to pay a fee in cash of 10% of the qualifying investments
    at closing as well as issue warrants to the investment banking firm with a five year term equal to 10% amount raised in the
    institutional offering. No funds have been raised under the terms of this agreement; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ● | Investment
                                         Banking Engagement agreement, dated September 11, 2014, which among other terms, for
                                         a term of one year, with an option to terminate the agreement after six months, the investment
                                         banking firm will provide advisory services in the area of corporate development, corporate
                                         finance and/or capital placement transactions. The Agreement specifies that all fees
                                         be on a “success” basis. If no debt or equity transaction is completed, the
                                         Company has no obligation under the terms of this agreement other than a monthly fee
                                         of $10,000 per month. The value of the services and the amount due the investment banker
                                         under this agreement have not been agreed to by the two parties.





F-35







WINDSTREAM
TECHNOLOGIES, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER
31, 2014 AND 2013



Carter
Terry



On
August 18, 2014, the Company entered into a private placement offering agreement with an investment banking firm, which will provide
advisory services in the area of corporate development, corporate finance and/or capital placement transactions. The agreement,
was on an exclusive basis for sixty days from the date of the agreement and then reverted to a non-exclusive basis, expires one
year from the date the agreement was signed, with an option to extend the agreement after six months, or either party can terminate
in writing to the other party. The agreement specifies that all fees be on a “success” basis. If no debt or equity
transaction is completed, the Company has no obligation under the terms of this agreement.



In
the event of a successful transaction, the investment banking firm will earn fees, 8% of the amount of any equity or hybrid equity
raised up to $5 million and 6% over $5 million, payable when the Company receives proceeds from the transaction.



In
addition, the Company agreed to grant the investment banking firm warrants to purchase that number of shares of the Company’s
common stock equal to 6% of the value of value of successful common stock equity raised at 100% of the price at closing of a transaction
for a period of two years and/or grant investment banking firm warrants to purchase that number of shares of the Company’s
common stock equal to 6% of the value of a successful preferred stock, debt, hybrid debt of any kind (convertibles, warrants,
etc.) or debt and equity combination common stock equity raised at 100% of the price at closing of a transaction for a period
of two years. These stocks shall be delivered in cashless exercise and issuable from the investment closing date up to no more
than five years from the date and upon exercise shall be fully paid and non-assessable. The Company’s common stock obtainable
upon exercise of such warrants shall carry unlimited “piggyback” registration rights of the Company.



The
investment firm was successful in completing a debt transaction with the Company and will be paid a combination of cash and receive
warrants as the proceeds from the debt transaction are received by the Company. In connection with their successful completion
of a number of investment transactions, the investment banker was paid $15,000 in 2014. No warrants were issued during the twelve
months ended December 31, 2014 as the calculation of the amounts due had not yet been finalized between the parties.



Employment
Contracts



During
2014, the Company entered into employment contracts with three key executives with initial terms of between two and five years
and automatic renewals for successive one year terms. The contracts cover such items as compensation, salary deferrals, termination
for cause and change in control features. In addition, these contracts included the granting of 13,500,000 in options for the
three individuals to acquire the Company’s common stock which vested immediately upon the signing of the employment contracts.
See Note 15 for related options.



NOTE
19 – INCOME TAXES



The
Company uses the liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences
of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes.



During
the years ended December 31, 2014 and 2013, the Company incurred net losses, and, therefore, had no tax liability. The net deferred
asset generated by the loss carry-forward has been fully reserved. The cumulative net operating loss carry-forward is approximately
$14,791,000 and $8,694,000, respectively as of December 31, 2014 and 2013, and will expire in years 2020 through 2034.



Deferred
tax assets consist of the tax effect of NOL carry-forwards. The Company has provided a full valuation allowance on the deferred
tax assets because of the uncertainty regarding its realizability.



F-36







WINDSTREAM
TECHNOLOGIES, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER
31, 2014 AND 2013



Deferred
tax assets consisted of the following as of:



|                                      |  | December
    31, 2014 |            |   | December
    31, 2013 |  
|------------------------------------- |  | --------------------- | ---------- | - | --------------------- | -
|                                      |  |                       |            |   |                       |  
|Net
    operating loss carry forwards |  | $                     | 5,090,000  |   |                       | $
|Valuation
    allowance               |  |                       | (5,090,000 | ) |                       |  
|                                      |  | $                     | -          |   |                       | $



In
assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion
or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary differences become deductible. Management considers
the scheduled reversal of deferred tax liabilities (including the impact of available carry back and carry forward periods), projected
future taxable income, and tax-planning strategies in making this assessment. Based upon the level of historical taxable income
and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes
it is more likely than not that the Company will realize the benefits of these deductible differences. The amount of the deferred
tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carry
forward period are reduced.



The
reconciliation of the results of applying the Company’s effective statutory federal tax rate of 35% for the years ended
December 31, 2014 and 2013 to the Company’s provision for income taxes follows:



|                                  |  | December
    31, 2014 |        |   | December
    31, 2013 | 
|--------------------------------- |  | --------------------- | ------ | - | --------------------- | 
|Federal
    income tax rate       |  |                       | 31.8   | % |                       | 
|State
    income tax              |  |                       | 6.5    | % |                       | 
|Charge
    for deferred tax asset |  |                       | (38.3) | % |                       | 
|                                  |  |                       | -      | % |                       | 



The
Company’s income tax filings are subject to audit by various taxing authorities. For federal and state tax purposes, the
Company’s 2011 through 2014 tax years remain open for examination by the tax authorities under the normal three year statute
of limitations. See Note 21 for the disclosure of the Notice from the Internal Revenue Service to examine the Company’s
2011, 2012 and 2013 federal tax returns.



NOTE
20 – SEGMENT INFORMATION



The
Company’s operations are classified into the sales of products within the United States and outside the United States. We
determined our operating segments in accordance with FASB Topic 280, Segment Reporting.



Results
of the operating segments are as follows:



December
31, 2014:



|                               |  | Domestic |        |   | International |   |           | Total | 
|------------------------------ |  | -------- | ------ | - | ------------- | - | --------- | ----- | 
|                               |  |          |        |   |               |   |           |       | 
|Sales                          |  | $        | 31,761 |   |               | $ | 1,732,597 |       | 
|Cost
    of goods sold         |  |          | 39,304 |   |               |   | 2,292,403 |       | 
|Gross
    profit               |  | $        | (7,543 | ) |               | $ | (559,806  | )     | 
|                               |  |          |        |   |               |   |           |       | 
|Accounts
    receivable, gross |  | $        | 31,986 |   |               | $ | 1,013,938 |       | 



The
Company presents its financial statements in two segments as shown above. Except for the accounts receivable, as shown above,
which relate to the international business, all assets and liabilities are domiciled in the United States, and are therefore,
associated with the domestic business. While the gross margin information is shown above, allocated between the domestic and international
business based on sales, the majority of the expenses are paid in the United States, the domestic segment.



F-37







WINDSTREAM
TECHNOLOGIES, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER
31, 2014 AND 2013



December
31, 2013:



|                        |  | Domestic |         |   | International |   |           | Total | 
|----------------------- |  | -------- | ------- | - | ------------- | - | --------- | ----- | 
|                        |  |          |         |   |               |   |           |       | 
|Sales                   |  | $        | 34,746  |   |               | $ | 860,815   |       | 
|Cost
    of goods sold  |  |          | 57,854  |   |               |   | 1,433,312 |       | 
|Gross
    profit        |  | $        | (23,108 | ) |               | $ | (572,497  | )     | 
|                        |  |          |         |   |               |   |           |       | 
|Accounts
    receivable |  | $        | 22,354  |   |               | $ | 379,195   |       | 



The
Company presents its financial statements in two segments as shown above. Except for the accounts receivable, as shown above,
which relate to the international business, all assets and liabilities are domiciled in the United States and are therefore associated
with the domestic business. While the gross margin information is shown above allocated between the domestic and international
business based on sales, the majority of the expenses are paid in the United States, the domestic segment.



NOTE
21 – SUBSEQUENT EVENTS



Employment
Contracts



On
January 1, 2015, the Company entered into an employment contract with a key executive with an initial term of three years and
automatic renewals for successive one year terms. The contract covers such items as compensation, salary deferrals, termination
for cause and change in control features. In addition, this contract included the granting of 250,000 in options for the individuals
to acquire the Company’s common stock, which vested immediately upon the signing of the employment contracts.



Income
Taxes



On
February 27, 2015, the Company received a notice from the Internal Revenue Service (“IRS”) that the IRS intended to
audit the Company’s federal income tax returns for tax years 2011, 2012 and 2013. The Company believes that the tax returns
for the periods under examination were prepared appropriately and were filed correctly with the IRS. Any adjustments resulting
from these audits will not result in additional cash payments by the Company but merely decreases in the Company’s net operating
loss carry forwards as described in Note 19.



Convertible
Debt



In
March of 2015, the Company entered into agreements with six accredited investors for the issuance of convertible promissory notes
in the aggregate principal amount of $530,000 which are convertible into shares of the Company’s stock at prices at a discount
of 35-45% of the Company’s share price at the date of conversion or at an average price based on the price during 15-25
days closing prices prior to the date of conversion. The notes bear interest at rates of 8-12% per annum. Several of the notes
have Original Issue Discount interest at 10% of the principal advanced to the Company by the investor. The notes may be prepaid
within periods ranging from four months to the maturity date, with prepayment penalties of zero interest if repaid within ninety
days up to maturity date and amounts due expressed as percentages of the principal and interest outstanding ranging from 115%
to 150%. In addition, the Company instructed its transfer agent to reserve approximately75.7
million shares for the potential conversion of these notes. The Company incurred investment banking and legal fees of approximately
$58,000 in connection with these notes.



On
April 7, 2015, the Company received notice from its largest convertible debt holder of their intent to convert a portion of their
outstanding convertible debt, approximately $163,000, to shares of the Company’s common stock. Using the formula provided
for in the related convertible debt agreement, this lender will receive approximately 4,656,000 shares of the Company’s
common stock.



On
April 10, 2015, the Company received notice from another convertible debt holder of their intent to convert a portion of their
outstanding convertible debt, approximately $117,000, to shares of the Company’s common stock. Using the formula provided
for in the related convertible debt agreement, this lender will receive approximately 4,656,000 shares of the Company’s
common stock.



F-38