See accompanying notes to unaudited condensed
consolidated financial statements.
See accompanying notes to unaudited condensed
consolidated financial statements.
See accompanying notes to unaudited condensed
consolidated financial statements.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 – DESCRIPTION OF BUSINESS
Premier Holding Corporation
(“Premier”) is in the business of establishing energy services companies. Premier was organized under the laws of the
State of Nevada on October 18, 1971 under the name of Mr. Nevada, Inc. On November 13, 2008, Premier filed a Certificate of Amendment
to Articles of Incorporation with the State of Nevada Secretary of State to change its name from OVM International Holding Corporation
to Premier Holding Corporation. These businesses, which were started during 2012, are primarily focused on providing small and
large-scale commercial companies with energy solutions to reduce the costs of utilities through consultations as well as product
sales to complete those installations. Premier is organized with a holding
company structure such that Premier provides financial and management expertise, which includes access to capital, financing, legal,
insurance, mergers, acquisitions, joint ventures and management strategies.
Premier’s wholly
owned subsidiary Energy Efficiency Experts (“E3”) is a U.S. energy service company based in the Chicago area of Illinois
offering energy efficiency products and services to commercial middle market companies, Fortune 500 brands, developers and management
companies of large scale residential developments as well as the general public so long as the product and the solutions fit the
market segment.. E3’s business is focused as an integrator of clean technology solutions in the U.S., with strategic expansion
plans in Latin America, Asia and Europe. E3’s core business expects to deliver green solutions, branded specifically as E3,
which include best-of-class alternative energy technology portfolio, and energy reduction technologies in smart lighting controls,
LED lighting, battery storage power plants, energy and power control management systems, and other clean technologies specific
to its market.
On February 28, 2013,
Premier acquired an 80% interest in The Power Company USA, LLC (“TPC”) for 30,000,000 shares of Premier’s common
stock valued at $4,500,000. TPC is a deregulated power broker which was originally formed as an Illinois limited liability company
on November 29, 2010. TPC brokers power to both residential and commercial users in 12 states that allow the distribution of
deregulated power.
NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of Presentation
The unaudited
condensed consolidated financial statements as of March 31, 2014 reflect all adjustments which, in the opinion of
management, are necessary to fairly state the Company’s financial position and the results of its operations for the
periods presented in accordance with the accounting principles generally accepted in the United States of America. All
adjustments are of a normal recurring nature.
The unaudited condensed
consolidated financial statements include the accounts of Premier Holding Corporation, E3 and The Power Company, LLC as of and
for the three months ended March 31, 2014. All significant intercompany transactions have been eliminated in consolidation.
The
information included in this Form 10-Q should be read in conjunction with information included in the Company’s annual
report on Form 10-K for the fiscal year ended December 31, 2013 filed with the U.S. Securities and Exchange Commission on
April 15, 2014. The operating results for the interim periods are not necessarily indicative of financial results for the
full year.
Use of Estimates
The preparation of
the unaudited condensed consolidated financial statements in conformity with U. S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue
Recognition
The Company’s
wholly owned subsidiary, Energy Efficiency Experts, Inc., and The Power Company USA, LLC., offer deregulated power and energy
efficiency products and services to commercial middle market companies, as well as residential customers. In accordance with the
requirements of ASC 605-10-599, the Company recognizes revenue when (1) persuasive evidence of an arrangement exists (contracts);
(2) delivery has occurred; (3) the seller’s price is fixed or determinable (per the customer’s contract); and/or (4)
collectability is reasonably assured (based upon its credit policy). When consultations are provided to customers, the revenue
is recognized at the completion of the service when collectability is reasonably assured. For products sold to customers revenue
is recognized when title has passed to the customer and collectability is reasonably assured; and no further efforts are required.
For contracts provide services, the commission revenue is recognized when the contract is signed, and the performance is completed,
with an appropriate allowance for estimated cancellation.
Our general terms for collection
are Net 30 days. In certain instances we will provide our customers different terms to accommodate specific business requirements.
The terms of the sale of our E-Series product by included terms that require a payment of 30% at the time of sale, and then monthly
payments over a period of 11 months which include accrued interest on the outstanding balance of approximately 6%.
Stock Based
Compensation
We periodically issue stock
options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. We
account for stock option and warrant grants issued and vesting to employees based on Financial Accounting Standards Board (FASB)
ASC Topic 718, “Compensation – Stock Compensation”, whereas the award is measured at its fair value at the date
of grant and is amortized ratably over the vesting period. We account for stock option and warrant grants issued and vesting to
non-employees in accordance with ASC Topic 505, “Equity”, whereas the value of the stock compensation is based upon
the measurement date as determined at either (a) the date at which a performance commitment is reached, or (b) at the date at which
the necessary performance to earn the equity instruments is complete.
Goodwill
and Other Intangible Assets
The
Company periodically reviews the carrying value of intangible assets not subject to amortization, including goodwill, to determine
whether impairment may exist. Goodwill and certain intangible assets are assessed annually, or when certain triggering events
occur, for impairment using fair value measurement techniques. These events could include a significant change in the business
climate, legal factors, a decline in operating performance, competition, sale or disposition of a significant portion of the business,
or other factors. Specifically, goodwill impairment is determined using a two-step process. The first step of the goodwill
impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount,
including goodwill. Premier uses level 3 inputs and a discounted cash flow methodology to estimate the fair value of a reporting
unit. A discounted cash flow analysis requires one to make various judgmental assumptions including assumptions about future cash
flows, growth rates, and discount rates. The assumptions about future cash flows and growth rates are based on the Company’s
budget and long-term plans. Discount rate assumptions are based on an assessment of the risk inherent in the respective reporting
units. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired
and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value,
the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step
of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount
of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill,
an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same
manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated
to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had
been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting
unit.
Non-controlling
Interest
Non-controlling
interests in our subsidiary is recorded as a component of our equity, separate from the parent’s equity. Purchase or sales
of equity interests that do not result in a change of control are accounted for as equity transactions. Results of operations attributable
to the non-controlling interest are included in our consolidated results of operations and, upon loss of control, the interest
sold, as well as interest retained, if any, will be reported at fair value with any gain or loss recognized in earnings.
Gain From Discontinued Operations
Gain from discontinued
operations of $985,138 for the three months ended March 31, 2013 consists of the sale of both intangible assets in the form of
sales opportunities and leads, and the assumption of liabilities from the discontinued operations to WePower ECO Corp (an unrelated
company). The gain is based upon the estimated value of the $5,000,000 note received in the transaction. During the period ended
March 31, 2014 both parties agreed to return a total of 7,500,000 shares in exchange for an underlying promissory
note in the amount of $5,000,000, but valued at $869,000.
RECENTLY ISSUED AND ADOPTED ACCOUNTING
PRONOUNCEMENTS
In February 2013,
the FASB issued ASU No. 2013-04, “Liabilities (Topic 405): Obligations Resulting from Joint and Several
Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date.” The amendments in
ASU 2013-04 provide guidance for the recognition, measurement, and disclosure of obligations resulting from joint and
several liability arrangements for which the total amount of the obligation within the scope of this Update is fixed at the
reporting date, except for obligations addressed within existing guidance in U.S. GAAP. The guidance requires an entity to
measure those obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among
its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The guidance in
this Update also requires an entity to disclose the nature and amount of the obligation as well as other information about
those obligations. The amendments in this standard are effective retrospectively for fiscal years, and interim periods
within those years, beginning after December 15, 2013. The adoption of this update did not have a material impact on
the condensed consolidated financial statements.
In April 2013,
the FASB issued ASU No. 2013-07, “Presentation of Financial Statements (Top 205): Liquidation Basis of
Accounting.” The objective of ASU No. 2013-07 is to clarify when an entity should apply the liquidation basis of
accounting and to provide principles for the measurement of assets and liabilities under the liquidation basis of accounting,
as well as any required disclosures. The amendments in this standard is effective prospectively for entities that determine
liquidation is imminent during annual reporting periods beginning after December 15, 2013, and interim reporting periods
therein. The adoption of this update did not have a material impact on the condensed consolidated financial statements.
Other recent accounting
pronouncements issued by the FASB (including its Emerging Issues Task Force) and the United States Securities and Exchange Commission
did not or are not believed by management to have a material impact on the Company’s present or future financial statements.
NOTE 3 – GOING CONCERN
The
Company has sustained operating losses of $14,164,264 since inception. The Company’s continuation as a going concern is
dependent on management’s ability to develop profitable operations, and / or obtain additional financing from its stockholders
and / or other third parties.
The
accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as
a going concern; however, the above conditions raise substantial doubt about the Company’s ability to do so. The unaudited
condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability
and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to
continue as a going concern.
If management projections
are not met, the Company may have to reduce its operating expenses and to seek additional funding through debt and/or equity offerings.
NOTE 4 – ACQUISITIONS & GOODWILL
Active ES Lighting Controls, Inc.
Acquisition
On
July 25, 2012, Premier acquired the assets of the Active ES Lighting Controls, Inc. (“AES”) business by
completing the transactions contemplated under an asset purchase agreement dated July 25, 2012 (the “Agreement”)
with AES. In accordance with the terms of the Agreement, the purchase price for the acquisition consisted of the following
components: (i) 750,000 shares of Premier’s common stock issued at closing; (ii) $30,000 in cash paid at closing; (iii)
a payable, due December 31, 2012, of Premier in the principal amount of $15,000; (v) contingent shares payable (payable 12
months after closing of the transaction) of a number of shares of common stock of Premier, which resulted in the issuance of
875,000 shares on September 12, 2013. As of March 31, 2014, the remaining balance in Goodwill related to this transaction was
$138,000.
The Power Company USA, LLC Share
Exchange
On February 28, 2013
Premier acquired 80% of the outstanding membership units of the The Power Company USA, LLC, an Illinois limited liability company
(“TPC” or “The Power Company”), a deregulated power broker in Illinois for thirty million 30,000,000 shares
of Premier’s common stock valued at $4,500,000. The Power Company currently has over 40,000 residential and commercial customers.
NOTE 5 – INTANGIBLES ASSETS, NET
The following
table presents details of the Company’s total purchased intangible assets as of March 31, 2014:
For
the three months ended March 31, 2014 and March 31, 2013, the Company’s recorded amortization expense related to the purchased
intangibles of $17,154 and $17,154, respectively.
|
|
Balance 12/31/2013
|
|
|
Additions
|
|
|
Amortization
|
|
|
Impairment
|
|
|
Balance
3/31/2014
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IP/Technology – Patents
|
|
$
|
120,092
|
|
|
$
|
–
|
|
|
$
|
(8,379
|
)
|
|
$
|
–
|
|
|
$
|
11,714
|
|
Non-compete Agreement
|
|
|
65,232
|
|
|
|
–
|
|
|
|
(1,900
|
)
|
|
|
–
|
|
|
|
63,332
|
|
Trademarks & Service Marks
|
|
|
16,042
|
|
|
|
–
|
|
|
|
(6,875
|
)
|
|
|
–
|
|
|
|
9,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
201,366
|
|
|
$
|
–
|
|
|
$
|
(17,154
|
)
|
|
$
|
–
|
|
|
$
|
84,213
|
|
NOTE 6 – CAPITAL STOCK TRANSACTIONS
Preferred Stock
On June 3, 2013, the
Company filed a Certificate of Amendment of Articles of Incorporation with the State of Nevada Secretary of State giving it the
authority to issue 50,000,000 shares of preferred stock with a par value of $0.0001 per share. As of March 31, 2014 there were
no Preferred shares issued or outstanding.
On March 31, 2014,
the Board of Directors of the Company
approved the creation of a Series A Non-Voting Convertible Preferred Stock (the
“Series A”). As of March 31, 2014, the Company filed a Certificate of Designation for the Company’s Series
A in Nevada. No shares of Series A have been issued, but the Company is authorized to issue up to 7,000,000 shares. In
general, each share of Series A Non-Voting Convertible Preferred Stock has no voting or dividend rights, a Stated Value of
$1.00 per share, and is convertible nine months after issuance into common stock at the conversion price equal to one-tenth
(1/10) of the Stated Value.
Common Stock
During the three months
ended March 31, 2014, the Company entered into a series of stock purchase agreements with accredited investors for the sale of
7,904,101 shares of its common stock, the sales closed and cash of $764,534 was received. Additionally, 100,000 shares of common
stock were issued for services valued at $14,200. There was no underwriter, no underwriting discounts or commissions, no general
solicitation, no advertisement, and resale restrictions were imposed by placing a Rule 144 legend on the certificates. The persons
who received securities have such knowledge in business and financial matters that he/she/it is capable of evaluating the merits
and risks of the transaction. This transaction was exempt from registration under the Securities Act of 1933, based upon Section
4(2) for transactions by the issuer not involving any public offering.
Common Stock Options
A summary of option
activity as of March 31, 2014 and changes during the three months ended is presented below:
|
|
Number Outstanding
|
|
|
Weighted-Average Exercise Price Per Share
|
|
|
Weighted-Average Remaining Contractual Life (Years)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2014
|
|
|
350,000
|
|
|
$
|
0.250
|
|
|
|
3.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
5,000,000
|
|
|
|
0.003
|
|
|
|
2.75
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Canceled/forfeited/expired
|
|
|
|
|
|
|
|
|
|
|
–
|
|
Outstanding at March 31, 2014
|
|
|
5,350,000
|
|
|
$
|
0.040
|
|
|
|
2.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options vested and exercisable at March 31, 2014
|
|
|
1,350,000
|
|
|
|
0.083
|
|
|
|
2.81
|
|
On January 1,
2014, the Board of Directors of the Company approved a new Employment Agreement with the Company’s Chief Executive
Officer, Randy Letcavage. The Employment Agreement has an effective date of January 1, 2014 and replaces all prior agreements
between the Company and Mr. Letcavage. The Employment Agreement provides for an annual base salary of $240,000, a
discretionary bonus of $50,000 over each 12-month period, expense reimbursement, and a grant of stock options on 5,000,000
shares vesting over 2 years at an initial exercise price per share equal to $.0025 per share, $161,544 has been recorded as
stock based compensation in Q1, 2014. Stock options are vesting at the following rate:
|
·
|
1,000,000 (one million) Shares of Common Stock on the Commencement Date;
|
|
·
|
1,000,000 (one million) Shares of Common Stock on the sixth (6th) month anniversary of the
Commencement Date;
|
|
·
|
1,000,000 (one million) Shares of Common Stock on the first anniversary of the Commencement
Date;
|
|
·
|
1,000,000 (one million) Shares of Common Stock on the 18th month anniversary of the Commencement
Date; and
|
|
·
|
1,000,000 (one million) Shares of Common Stock on the second anniversary of the Commencement
Date.
|
In addition the Corporation
agreed to indemnify Mr. Letcavage to the fullest extent permitted by law for claims related to Mr. Letcavage’s role as an
officer and director of the Company, or its subsidiaries.
Common Stock Warrants
A summary of non-employee
warrant activity during the three months ended as of March 31, 2014 is presented below:
|
|
Number Outstanding
|
|
|
Weighted-Average Exercise Price
Per Share
|
|
|
Weighted-Average Remaining Contractual Life (Years)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2014
|
|
|
2,143,694
|
|
|
$
|
0.175
|
|
|
|
1.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Canceled/forfeited/expired
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Outstanding at March 31, 2014
|
|
|
2,143,694
|
|
|
$
|
0.175
|
|
|
|
1.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants vested and exercisable at March 31, 2014
|
|
|
2,143,694
|
|
|
$
|
0.175
|
|
|
|
1.65
|
|
NOTE 7 – DISCONTINUED OPERATIONS
The Company
acquired assets from WePower LLC during 2011. WePower, Ecolutions Inc. was expected to offer clean energy products and
services to commercial markets, developers, and management companies of large-scale residential developments. In 2012,
WePower Ecolutions Inc was classified as held for sale under the requirements of ASC 360-10-45-9, and therefore, the result
of its operations are reported in discontinued operations in accordance with ASC 205-20-45-3. On January 7, 2013 the Company,
acting through its wholly owned subsidiary, WePower Ecolutions, Inc., completed the sale of assets under an Asset Purchase
Agreement with WePower Eco Corp., a newly formed entity, controlled by Kevin B. Donovan, the Company’s former CEO. The
Company sold certain assets related to solar energy, wind power projects, energy efficiency projects in real estate, and fuel
efficiency for diesel and gasoline engines for a note payable for $5,000,000, and WePower Eco Corp. assumed $116,138 in
liabilities, acquired three patents, six trademarks, and twenty eight contracts.
On March 4, 2014,
as part of an overall settlement, certain individuals associated with the transaction returned 5,000,000 common shares of the
Company previously issued related to the sale of TPC, and in exchange for the promissory note in the face amount of
$5,000,000 (and valued at 869,000 on the Company’s financial statements as of December 31, 2013), WePower, LLC had
returned an additional 2,500,000 common shares, for a total of 7,500,000 shares returned to the Company.
NOTE 8 – RELATED PARTY TRANSACTIONS
During the periods
ended March 31 2014 and March 31 2013, Mr. Letcavage (directly or through related entities) was paid $60,000 and $60,000 respectively
as compensation for his role as our CEO and CFO, and $143,058 and 130,182 respectively for contract labor, including payments
to Nexalin Technology specifically for the direct costs related to independent contractors performing sales lead generation (Nexalin
Technology is in an unrelated business to the Company, and Mr. Letcavage is its president and shareholder), which were not reported
as income. From December 31, 2013 to March 31, 2014 the accrued amounts payable related to these expenses increased by $19,404
from $86,138 to $105,542. As of March 31, 2014 and December 31, 2013, the Company has a related party payable of $61,305 and $40,305
to Jamp Promotions, a related company owned by the managing director of The Power Company.
Additionally, we have also reviewed the facts
and circumstance of our relationship with Nexalin Technology and iCapital Advisory and have assessed whether these two companies
are variable interest entities (VIE). Based on the guidance provided in ASC 810-10-50-5(a), these two companies are not considered
VIEs. The Company is not the primary beneficiary, whether those two companies have any income (losses) as of March 31 2014, it
would not be absorbed by Premier Holding Corporation.
NOTE 9 – LITIGATION LOSS
In 2013,
Whitaker Energy, LLC (“WE”) filed a civil action the Superior Court of Dekalb County, State of Georgia, Case
No. 13-CV8610-6, against The Power Company, USA, LLC and Premier Holding Company alleging that TPC is in default under
its obligations to WE under a promissory note pursuant to which WE loaned TPC $150,000 in 2012 concurrent with WE’s
purchase of a membership interest in TPC. Under the terms of the loan between TPC and WE, TPC owes a monthly payment to WE,
the amount of which varies each month and is based on the number of contracts TPC enters into from door-to-door sales and
call centers. TPC and WE dispute the number of contracts entered into by TPC after certain adjustments and charge-backs from
cancellation of contracts by consumers. Under the complaint, WE seeks to recover $93,080 of principal under the loan, plus
prejudgment interest in the amount of $9,184 and reasonable attorneys’ fees and expenses of the litigation. Also, WE
seeks an order from the court for access to TPC’s books and records. TPC and Premier Holding Corporation dispute the
claim by WE that TPC is in default under the loan between TPE and WE. As of April 23, 2014 the parties to the litigation have
negotiated a settlement of the litigation which would include a monthly payment by TPC to WE of $4,000 in payment of the
principal due and interest incurred by WE. Under the terms of the settlement, WE will recover a total of $110,000 plus
interest on unpaid amounts. The Company has accrued $110,000 in the accompanying balance sheet as a contingent liability.