XZERES preferred equity financing should drive sequential revenue growth

October 26, 2012

By Steven Ralston, CFA

Last week, on October 19th, XZERES (OTC Markets:XPWR) entered into a Subscription Agreement with a private investor, Ronald Elvidge, for a private offering of 1,428,571 units for $1,500,000. The units consist of Series A Convertible Preferred Stock and five-year warrants exercisable at $0.385 per share to purchase of 2,875,143 common shares. Each share of Series A Convertible Preferred Stock is convertible into three common shares. Mr. Elvidge also has the option to purchase up to an additional 238,091 units under the agreement.

The preferred equity offering is significant in that the company has been hampered by working capital constraints, which have delayed the shipping of orders for small wind systems. XZERES dramatically benefited from the working capital injections provided by two recent financing facilities, specifically the $510,000 purchase order debt financing agreement signed in late May and the $1.5 million financing facility announced in early August. The recently reported results for the second fiscal quarter (for the period ending August 31st) revealed that quarterly revenues impressively increased 82.7% sequentially due to the injections of working capital.

Due to management's implementation of a multiple channel distribution business model, the company’s backlog has continued to grow, driven primarily by the UK market. As of July 12, 2012, backlog was at a record high, exceeding $3.9 million. XZERES continues to receive additional orders, including more multiple system orders per customer.

Since revenue traction has been demonstrated following the company’s access to the working capital from the debt financing facilities, we are more confident that the company’s sales profile should continue to experience sequential growth now that additional capital has been provided by this private offering of convertible preferred stock and warrants. With management having lowered operating expenses, as demonstrated in the last reported quarter, XZERES has a better chance of achieving management's goal of reaching profitability sometime during fiscal 2013.

We reiterate our recently upgraded Outperform rating and our recently increased price target of $0.60.

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