NOTE 2 – GOING CONCERN AND MANAGEMENT’S
LIQUIDITY PLANS
As of March 31, 2016, the Company had an
accumulated deficit of $24,965,978. For the three months ended March 31, 2016 and 2015, the Company incurred operating losses of
$1,038,350 and $529,882, respectively, and used cash in operating activities of $963,573 and $661,928, respectively. These conditions
raise substantial doubt about the Company’s ability to continue as a going concern. The Company recognizes it will need to
raise additional capital in order to fund operations, meet its payment obligations and execute its business plan. There is no assurance
that additional financing will be available when needed or that management will be able to obtain financing on terms acceptable
to the Company and whether the Company will generate revenues, become profitable and generate positive operating cash flow. If
the Company is unable to raise sufficient additional funds on favorable terms, it will have to develop and implement a plan to
further extend payables and to raise capital through the issuance of debt or equity on less favorable terms until sufficient additional
capital is raised to support further operations. There can be no assurance that such a plan will be successful. If the Company
is unable to obtain financing on a timely basis, the Company could be forced to sell its assets, discontinue its operations and/or
pursue other strategic avenues to commercialize its technology.
Accordingly, the accompanying consolidated
financial statements have been prepared in conformity with U.S. GAAP, which contemplates continuation of the Company as a going
concern and the realization of assets and the satisfaction of liabilities in the normal course of business. The carrying amounts
of assets and liabilities presented in the consolidated financial statements do not necessarily represent realizable or settlement
values. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 3 – ACQUISITIONS & GOODWILL
The following table presents details of the Company’s
Goodwill as of March 31, 2016 and December 31, 2015:
|
|
|
The Power Company
USA, LLC
|
|
|
Balances at January 1, 2015:
|
|
$
|
4,000,000
|
|
|
Aggregate goodwill acquired
|
|
|
–
|
|
|
Impairment losses
|
|
|
–
|
|
|
Balances at December 31, 2015:
|
|
$
|
4,000,000
|
|
|
Aggregate goodwill acquired
|
|
|
–
|
|
|
Impairment losses
|
|
|
–
|
|
|
Balances at March 31, 2016:
|
|
$
|
4,000,000
|
|
The Power Company USA, LLC Share Exchange
On February 28, 2013, the Company acquired
80% of the outstanding membership units of TPC, a deregulated power broker in Illinois for thirty million 30,000,000 shares of
Premier’s common stock valued at $4,500,000. The total purchase price for TPC was allocated as follows:
|
Goodwill
|
|
$
|
4,500,000
|
|
|
Total assets acquired
|
|
|
4,500,000
|
|
|
The purchase price consists of the following:
|
|
|
|
|
|
Common Stock
|
|
|
4,500,000
|
|
|
Total purchase price
|
|
$
|
4,500,000
|
|
The total amount of goodwill that is expected
to be deductible for tax purposes is $4,500,000 and is amortized over 15 years. The total amortization expense for tax purposes
for the three months ended March 31, 2016 is $75,000.
NOTE 4 – CONVERTIBLE NOTES PAYABLE
Between July 15, 2014 and December 21,
2015, the Company entered into convertible notes with third-parties for use as operating capital for a total of $1,358,500. The
convertible notes payable agreements require the Company to repay the principal, together with 10 - 18% annual interest by the
agreements’ expiration dates ranging between July 15, 2019 and August 6, 2020. The notes are secured by assets of the
Company and mature five years from the issuance date and automatically convert into share of common stock at a conversion price
of 80% of the closing market price on the last day of the month upon which the maturity dates fall, unless an election is made
for repayment in cash. One year from the contract date, the holders may elect to convert the note in whole or in part into
shares of common stock at a conversion price of 80% of the average closing market price over the prior 30 days of trading.
The Company analyzed the conversion option
of the notes for derivative accounting consideration under ASC 815-15,
Derivatives and Hedging,
and determined that the
instrument should be classified as a liability once the conversion option becomes effective after one year due to there being no
explicit limit to the number of shares to be delivered upon settlement of the above conversion options for the notes issued (see
Note 6).
Between March 9, 2015 and March 30, 2016,
the Company entered into convertible notes with third-parties for use as operating capital for a total of $2,064,800. The convertible
notes payable agreements require the Company to repay the principal, together with 12% annual interest by the agreements’
expiration dates ranging between March 9, 2017 and March 30, 2019. The notes are secured by assets of the Company and mature three
years from the issuance date. Six months from the contract date, the holders may elect to convert the note in whole or in part
into shares of common stock at $0.15. Two warrants were issued along with each note including (1) a warrant to purchase an amount
of equal to 50% of face value of the note at an exercise price $0.15 for a period of three years following the note issuance date
and (2) a warrant to purchase an amount of equal to 83.33% of face value of the note at an exercise price $0.25 for a period of
three years following the note issuance date. The Company recorded an aggregate debt discount of $684,371 for the fair value of
these warrants through March 31, 2016, which is being amortized over the term of the notes, and is included in convertible notes
on the Company’s balance sheet at an unamortized remaining balance of $522,953. The total debt discount recorded during the
three months ended March 31, 2016 and 2015 was $68,233 and $97,428, respectively. Interest expense related to the amortization
of this debt discount for the three months ended March 31, 2016 and 2015 was $55,591 and $1,162, respectively.
During the three months ended March 31,
2016 and 2015, the Company recorded interest expense of $410,176 and $41,681, respectively.
NOTE 5 – DERIVATIVE LIABILITY
The embedded conversion feature in the
convertible debt instruments (the “Notes”) that the Company issued beginning in July 2014 (See Note 4), and became
convertible beginning in July 2015, qualified it as a derivative instrument since the number of shares issuable under the note
is indeterminate based on guidance under ASC 815,
Derivatives and Hedging
. The conversion feature of these convertible promissory
notes has been characterized as a derivative liability beginning in July 2015 to be re-measured at the end of every reporting period
with the change in value reported in the statement of operations.
The valuation of the derivative liability
attached to the convertible debt was determined by management using a binomial pricing model that values the derivative liability
within the notes. Using the results from the model, the Company recorded a derivative liability of $1,627,000 for the fair value
of the convertible feature included in the Company’s convertible debt instruments as of March 31, 2016. The derivative liability
recorded for the convertible feature created a debt discount of $1,127,000, which is being amortized over the remaining term of
the notes using the effective interest rate method and is included in convertible notes on the balance sheet. Interest expense
related to the amortization of this debt discount for the three months ended March 31, 2016, was $64,827. Additionally, $173,000
of debt discount was charged to interest expense during the three months ended March 31, 2016 , representing the amount of
debt discount in excess of the convertible debt.
Key inputs and assumptions used to value
the embedded conversion feature in the month the Notes became convertible were as follows:
|
|
·
|
The value of a share of Company stock on March 31, 2016, the measurement date - $0.052 (per the
over-the-counter market quotes);
|
|
|
·
|
The average conversion price of all Notes issued in their month of issuance, with such conversion
price determined based on 80% of the average over-the-counter market price for the 30 days preceding the one-year anniversary of
all Notes in that month’s pool;
|
|
|
·
|
The number of shares into which Notes in pool would convert - face amount of the Notes in that
month’s pool divided by the average conversion price for Notes included in that month’s pool;
|
|
|
·
|
Assumed annual volatility of Company stock – 128.8%; and
|
|
|
·
|
The Company would be unable to repay the notes within their term.
|
Additional key inputs and assumptions used
to value the embedded conversion feature as of March 31, 2016:
|
|
·
|
Conversion price - $0.0476, based on 80% of the average quoted market price for the Company’s
common stock for the 30-day period ended March 31, 2016; and
|
|
|
·
|
Number of shares into which Notes would convert - face value of Notes divided by $0.0476.
|
The following table summarizes the derivative
liability included in the consolidated balance sheet:
|
Derivative liability as of December 31, 2015
|
|
$
|
1,484,000
|
|
|
Change in fair value of derivative liability
|
|
|
(265,000
|
)
|
|
Derivative on new loans
|
|
|
408,000
|
|
|
|
|
|
|
|
|
Derivative liability as of March 31, 2016
|
|
$
|
1,627,000
|
|
NOTE 6 – STOCKHOLDERS’ EQUITY
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 December 31, 2015, there were 200,000 Series A Non-Voting
Convertible Stock shares and 250,000 Series B Voting Convertible Preferred Stock shares issued and 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 Preferred Stock”).
On April 1, 2014, the Company filed a Certificate of Designation for the Company’s Series A Preferred Stock in Nevada of
which the Company is authorized to issue up to 7,000,000 shares with a par value of $0.0001 per share. In general, each share of
Series A Preferred Stock has no voting or dividend rights, a stated value of $1.00 per share (the “Stated Value”),
and is convertible nine months after issuance into common stock at the conversion price equal to one-tenth (1/10) of the Stated
Value, or at $0.10 per common share.
On December 11, 2015, the Board of Directors
of the Company approved the creation of the Corporation’s Series B Voting Convertible Preferred Stock (“Series
B Preferred Stock”). On December 16, 2015, the Corporation filed a Certificate of Designation for the Series B Preferred
Stock in Nevada of which the Company is authorized to issue up to 250,000 shares with a par value of $0.0001 per share. Holders
of Series B Preferred Stock shall be entitled to 1,000 votes for each share of Series B Preferred Stock. Votes of shares of Series
B Preferred Stock shall be added to votes of shares of common stock of the Company at any meeting of stockholders of the Company
at which stockholders have the right to vote. Series B Preferred Stock shall have voting rights for a period of three years from
the date of issuance. On the third anniversary of the issuance of shares of Series B Preferred Stock, each share of Series B Preferred
Stock shall be converted into four shares of common stock without further action of the Board of Directors. Series B Preferred
Stock shall have the same dividends per share and, except as provided above, the same powers, designations, preferences and relative
rights, qualifications, limitations or restrictions as those of shares of Series A Preferred Stock of the Company.
Common Stock
During the three months ended March 31,
2016, the Company entered into a series of stock purchase agreements with accredited investors for the sale of 9,455,000 shares
of its common stock in amount of $804,400. Additionally, 7,377,084 shares of common stock were issued for consulting services valued
at $0.052 to $0.070 per share, based upon the fair value of the common stock on the measurement date totaling $440,608, which was
recognized immediately as general and administrative expense.
Unless otherwise set forth above, the securities
described above were not registered under the Securities Act of 1933, as amended (the “Securities Act”), or the securities
laws of any state, and were offered and sold in reliance on the exemption from registration afforded by Section 4(a)(2) under the
Securities Act and Regulation D promulgated thereunder and corresponding provisions of state securities laws, which exempt transactions
by an issuer not involving any public offering.
Options for Common Stock
A summary of option activity for the three months ended March
31, 2016 is presented below:
|
|
|
Number
Outstanding
|
|
|
Weighted-Average
Exercise Price
Per Share
|
|
|
Weighted-Average
Remaining
Contractual Life
(Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2015
|
|
|
1,650,000
|
|
|
$
|
0.04
|
|
|
|
4.53
|
|
|
$
|
–
|
|
|
Granted
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Exercised
|
|
|
(4,000,000
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Canceled/forfeited/expired
|
|
|
(350,000
|
)
|
|
|
0.06
|
|
|
|
–
|
|
|
|
–
|
|
|
Outstanding at December 31, 2015
|
|
|
1,650,000
|
|
|
|
0.04
|
|
|
|
4.53
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Canceled/forfeited/expired
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Outstanding at March 31, 2016
|
|
|
1,650,000
|
|
|
|
0.04
|
|
|
|
4.28
|
|
|
|
–
|
|
|
Options vested and exercisable at March 31, 2016
|
|
|
1,650,000
|
|
|
$
|
0.04
|
|
|
|
4.28
|
|
|
$
|
–
|
|
On June 30, 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”). The Employment Agreement has a retroactive 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. 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 Company 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. The Company recorded $355,725 and $516,591 as his stock based compensation related to the
stock options for the years ended December 31, 2015 and 2014, respectively. As of December 31, 2015, $872,316 had been recorded
as his stock based compensation related to the stock options, with $0 unrecognized cost related to the stock options remaining.
On October 8, 2015, Mr. Letcavage exercised 4,000,000 options for common stock at an aggregate price of $10,000, which was paid
through the reduction of accounts payable owed Mr. Letcavage.
On December 31, 2014, the Board of Directors
of the Company granted 150,000 stock options to each of its three board members with vesting immediately at an initial exercise
price per share equal to $.15 per share.
The Company valued the options using the
Black-Scholes option pricing model with the following assumptions: dividend yield of zero, years to maturity of between 0.5 and
5 years, risk free rates of between 1.65 and 1.73 percent, and annualized volatility of between 108% and 217%.
Warrants for Common Stock
A summary of warrant activity as of March 31, 2016 is presented
below:
|
|
|
Number
Outstanding
|
|
|
Weighted-Average
Exercise Price
Per Share
|
|
|
Weighted-Average
Remaining
Contractual Life
(Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2015
|
|
|
2,793,694
|
|
|
$
|
0.157
|
|
|
|
1.10
|
|
|
$
|
–
|
|
|
Granted
|
|
|
12,428,629
|
|
|
|
0.194
|
|
|
|
2.58
|
|
|
|
–
|
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Canceled/forfeited/expired
|
|
|
(2,793,694
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Warrants vested and exercisable at December 31, 2015
|
|
|
12,428,629
|
|
|
|
0.194
|
|
|
|
2.58
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,899,986
|
|
|
|
0.200
|
|
|
|
2.86
|
|
|
|
–
|
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Canceled/forfeited/expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
–
|
|
|
Outstanding at March 31, 2016
|
|
|
14,328,615
|
|
|
|
0.195
|
|
|
|
2.40
|
|
|
|
–
|
|
|
Warrants vested and exercisable at March 31, 2016
|
|
|
14,328,615
|
|
|
$
|
0.195
|
|
|
|
2.40
|
|
|
$
|
–
|
|
During the three months ended March 31,
2016, the Company issued 1,899,986 warrants included with certain convertible notes payable (see Note 4) with a value of $68,232.
The Company valued the warrants using the
Black-Scholes option-pricing model with the following assumptions: dividend yield of zero, years to maturity of 3 years, risk free
rates of between 0.85 and 1.32 percent, and annualized volatility of between 126% and 133%.
NOTE 7 – DISCONTINUED OPERATION
The Company acquired assets from LP&L
on October 22, 2014. Due to the default of the purchase agreement between the Company and LP&L on April 7, 2015, the Company
lost control over LP&L. Based on the requirements of ASC 810
, Consolidation
, the Company will no longer present assets
and liabilities retained as of the date of deconsolidation. To accomplish this, the results of LP&L’s operations are
reported in discontinued operations in accordance with ASC 205
, Presentation of Financial Statements
.
Summarized operating results for the discontinuation
of operations is as follows:
|
Fair value of consideration
|
|
$
|
629,668
|
|
|
Fair value of retained non-controlling investment
|
|
|
–
|
|
|
Carrying value of non-controlling interest
|
|
|
(215,861
|
)
|
|
|
|
|
413,807
|
|
|
Less: carrying value of former subsidiary's net assets
|
|
|
(1,439,077
|
)
|
|
Gain on disposal of LP&L's interest and retained non-controlling investment
|
|
|
1,852,884
|
|
|
Loss from discontinued operation from January 1, 2015 to April 7, 2015
|
|
$
|
(278,463
|
)
|
As of the date of deconsolidation, in accordance
with ASC 810
, Consolidation
, we recognized a gain of $1,852,884 related to this event during the second quarter of 2015.
We have no carried value of assets related to our retained investment in LP&L, but retain a non-controlling equity interest,
which is 1.56% of LP&L interest with fair value amount of $0. The Company analyzed the carrying value of LP&L’s net
assets on the deconsolidation date and determined the amount to be $1,439,077 including the following,
|
Cash
|
|
$
|
37,294
|
|
|
Accounts receivable
|
|
|
804,137
|
|
|
Inventory
|
|
|
14,802
|
|
|
Collateral Postings
|
|
|
136,997
|
|
|
Accrued Revenue
|
|
|
414,683
|
|
|
Fixed assets
|
|
|
29,475
|
|
|
Collateral Deposit
|
|
|
200,000
|
|
|
Accounts payable and accrued liabilities
|
|
|
(1,658,957
|
)
|
|
Note Payable-related party
|
|
|
(117,124
|
)
|
|
Note payable
|
|
|
(837,040
|
)
|
|
Due to Premier
|
|
|
(463,344
|
)
|
|
Carrying value of former subsidiary's net assets
|
|
$
|
(1,439,077
|
)
|
The Company had no involvement with the
management of LP&L after the date of deconsolidation and confirms that this transaction was not with a related party and that
LP&L will not be a related party going forward after the deconsolidation.
Major assets and liabilities of the discontinued
operation of LP&L are as follows as of December 31, 2014:
|
|
|
December 31, 2014
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
23,698
|
|
|
Accounts receivable
|
|
|
810,446
|
|
|
Inventory
|
|
|
42,319
|
|
|
Collateral Postings
|
|
|
286,997
|
|
|
Accrued Revenue
|
|
|
479,406
|
|
|
Fixed assets
|
|
|
33,928
|
|
|
Collateral Deposit
|
|
|
200,000
|
|
|
Assets of discontinued operations
|
|
$
|
1,876,694
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
1,209,359
|
|
|
Note Payable-related party
|
|
|
141,860
|
|
|
Note payable
|
|
|
991,400
|
|
|
Current liabilities of discontinued operations
|
|
$
|
2,342,619
|
|
Major line items constituting net loss
of the discontinued operations of LP&L are as follows for the periods from January 1, 2015 through April 7, 2015 (deconsolidation):
|
|
|
2015
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
2,287,851
|
|
|
Cost of sales
|
|
|
2,144,747
|
|
|
Gross profit
|
|
|
143,104
|
|
|
Selling, general and administrative expenses
|
|
|
421,567
|
|
|
|
|
|
|
|
|
Loss on discontinued operations
|
|
$
|
(278,463
|
)
|
NOTE 8 – RELATED PARTY TRANSACTIONS
During the three months ended March 31,
2016 and 2015, Mr. Letcavage (directly or through related entities) recorded $60,000 and $60,000, respectively as compensation
for his role as our CEO and CFO. The following tables outline the related parties associated with the Company and amounts due or
receivable for each period indicated.
|
Name of Related Party
|
|
Relationship with the Company
|
|
iCapital Advisory
|
|
Consultant company owned by the CEO of the Company
|
|
Jamp Promotion
|
|
Company owned by Patrick Farah, the managing director of TPC
|
|
Mason Ventures and Sebo Services
|
|
Companies owned by Shadie Kalkas, the managing director of TPC
|
|
Amounts due to related parties
|
|
March 31,
2016
|
|
|
December 31
2015
|
|
|
iCapital Advisory – consulting fees
|
|
$
|
75,650
|
|
|
$
|
75,543
|
|
|
Jamp Promotion – commissions
|
|
|
90,500
|
|
|
|
90,500
|
|
|
Mason Ventures and Sebo Services – net loans
|
|
|
–
|
|
|
|
5,038
|
|
|
|
|
$
|
166,150
|
|
|
$
|
171,081
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party receivable - Mason Ventures and Sebo Services
|
|
$
|
6,537
|
|
|
$
|
–
|
|
During the three months ended March 31,
2016, the Company received loans from Mason Ventures of approximately $330,000 and repaid approximately $342,000. The loans are
unsecured and non-interest bearing.
Additionally, we have also reviewed the
facts and circumstance of our relationship with Nexalin Technology and iCapital Advisory, both of which are affiliated companies
of our CEO, and have assessed whether these two companies are variable interest entities (VIEs). Based on the guidance provided
in
ASC 810, Consolidation
, these two companies are not considered VIEs. The Company is not the primary beneficiary of Nexalin
Technology and iCapital Advisory and, whether those two companies have any income (losses) as of the three months ended March 31,
2016, it would not be absorbed by Premier Holding Corporation.
NOTE 9 – COMMITMENTS AND CONTINGENCIES
Operating lease
For the operations of TPC, the Company
leases 4,260 square feet of office space at 1165 N. Clark Street, Chicago, Illinois under a 65 month operating lease through March
2019. The monthly base rent is approximately $9,415 per month and increases each year during the term of the lease.
Legal Proceedings
Whitaker Energy, LLC
In 2013, Whitaker Energy, LLC (“Whitaker”)
filed a civil action the Superior Court of Dekalb County, State of Georgia, Case No. 13-CV8610-6, against TPC and the Company alleging
that TPC is in default under its obligations to Whitaker under a promissory note pursuant to which Whitaker loaned TPC $150,000
in 2012 concurrent with Whitaker’s purchase of a membership interest in TPC. Under the terms of the loan between TPC and
Whitaker, TPC owes a monthly payment to Whitaker, 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 Whitaker dispute the number of contracts entered into by TPC
after certain adjustments and charge-backs from cancellation of contracts by consumers. Under the complaint, Whitaker 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, Whitaker seeks an order from the court for access to TPC’s books and records.
TPC and the Company dispute the claim by Whitaker that TPC is in default under the loan between TPE and Whitaker. 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 Whitaker of $4,000 in payment of the principal and accrued interest. Under the terms of the settlement, Whitaker will recover
a total of $110,000 plus interest on unpaid amounts. As of March 31, 2016, the Company has made payments totaling $92,000, of which
the balance of $18,000 is recorded on the balance sheet at March 31, 2016.
Hi-Tech Specialists, Inc.
Prior to its acquisition by TPC, Hi-Tech
Specialists, Inc. (“Hi-Tech”) filed suit against U.S.E.C. LLC d/b/a/ US Energy Consultants and Michail Skachko concerning
the parties’ agreement seeking damages in an amount in excess of $789,077. The nature of the litigation relates to a contract
between the parties wherein Hi-Tech was to solicit service agreements on behalf of U.S.E.C. LLC. The suit is ongoing and TPC is
aggressively pursuing its claim against the parties named.
Lexington Power & Light, LLC
LP&L rents office space under several
non-cancelable operating lease agreements in the same commercial building that commenced beginning in March 2014, all of which
expire February 28, 2016. The future annual rental payments required under these operating lease agreements for 2015 and 2016 are
$46,867 and $7,849, respectively. Due to the default of the acquisition note payable, acquisition of LP&L is terminated on
April 7, 2015, therefore, the Company is not obligated to this operating lease since April 7, 2015.
As of December 31, 2013, LP&L had a
contingent liability related to a complaint filed by a single commercial customer with the New York Public Service Commission seeking
a reimbursement of $40,000. The Company has determined it appropriate under the circumstances to recognize and record this loss
contingency, which has been included in accounts payable and accrued expenses for the period ended December 30, 2015. Due to the
default of the acquisition note payable, acquisition of LP&L is terminated on April 7, 2015, therefore, the Company is not
obligated to this loss contingency since April 7, 2015.
NOTE 10 - SUBSEQUENT EVENTS
In May of 2016, the Company issued an aggregate of 3,050,000
shares of the Company’s common stock for services with a total fair value of $186,550.
In May of 2016, the Company issued an
aggregate of 4,435,000 shares of the Company’s common stock to accredited investors for total proceeds of $177,400.
On May 9, 2016, the Company received proceeds of $8,000 from an accredited investor for 200,000 common shares not yet issued as of May 13, 2016.
ITEM 2. MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
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.
Forward-looking statements
are projections in respect of future events or our future financial performance. In some cases, you can identify forward-looking
statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”,
“believes”, “estimates”, “predicts”, “potential” or “continue” or the
negative of these terms or other comparable terminology.
Those statements include statements
regarding the intent, belief or current expectations of us and members of our 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.
Forward-looking statements made in this quarterly report on Form 10-Q includes statements about:
|
|
·
|
our plans to identify and acquire products that we believe will be prospective for acquisition
and development;
|
|
|
·
|
concentration of our customer base and fulfillment of existing customer contracts;
|
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|
·
|
our ability to maintain pricing;
|
|
|
·
|
deterioration of the credit markets;
|
|
|
·
|
increased vulnerability to adverse economic conditions due to indebtedness;
|
|
|
·
|
competition within our industry;
|
|
|
·
|
asset impairment and other charges;
|
|
|
·
|
our identifying, making and integrating acquisitions;
|
|
|
·
|
loss of key executives;
|
|
|
·
|
the ability to employ skilled and qualified workers;
|
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|
·
|
work stoppages and other labor matters;
|
|
|
·
|
inadequacy of insurance coverage for certain losses or liabilities;
|
|
|
·
|
federal and state legislative and regulatory initiatives relating to the energy industry;
|
|
|
·
|
costs and liabilities associated with environmental, health and safety laws, including any changes
in the interpretation or enforcement thereof;
|
|
|
·
|
future legislative and regulatory developments;
|
|
|
·
|
our beliefs regarding the future of our competitors;
|
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|
·
|
our expectation that the demand for our products services will eventually increase; and
|
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|
·
|
our expectation that we will be able to raise capital when we need it.
|
These statements are only predictions and
involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors”
set forth in our Form 10-K, as amended, as filed on April 14, 2016, any of which may cause our company’s or our industry’s
actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity,
performance or achievements expressed or implied by these forward-looking statements. These risks include, by way of example and
not in limitation:
|
|
·
|
general economic and business conditions;
|
|
|
·
|
substantial doubt about our ability to continue as a going concern;
|
|
|
·
|
our needs to raise additional funds in the future which may not be available on acceptable terms
or at all;
|
|
|
·
|
our inability to successfully recruit and retain qualified personnel in order to continue our operations;
|
|
|
·
|
our ability to successfully implement our business plan;
|
|
|
·
|
if we are unable to successfully acquire, develop or commercialize new products;
|
|
|
·
|
our expenditures not resulting in commercially successful products;
|
|
|
·
|
third parties claiming that we may be infringing their proprietary rights that may prevent us from
manufacturing and selling some of our products;
|
|
|
·
|
the impact of extensive industry regulation, and how that will continue to have a significant impact
on our business, especially our product development, manufacturing and distribution capabilities; and
|
|
|
·
|
other factors discussed under the section entitled “Risk Factors” set forth in our
Form 10-K, as amended, as filed on April 14, 2016.
|
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. The following Management’s Discussion and Analysis of Financial Condition and Results
of Operations of the Company should be read in conjunction with the Condensed Consolidated Financial Statements and notes related
thereto included in this Quarterly Report on Form 10-Q. 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 except
as required by law. We believe that our assumptions are based upon reasonable data derived from and known about our business and
operations. No assurances are made that actual results of operations or the results of our future activities will not differ materially
from our assumptions.
As used in this Annual Report on Form 10-K
and unless otherwise indicated, the terms “Premier,” “we,” “us,” “our,” or the
“Company” refer to Premier Holding Corporation and its Subsidiaries, Energy Efficiency Experts, Inc. (“E3”)
and The Power Company USA, LLC (“TPC”). Unless otherwise specified, all dollar amounts are expressed in United States
dollars.
Overview
We are an energy services holding company.
We provide an array of energy services through our subsidiary companies, E3 and TPC. We provide solutions that enable customers
to reduce their electricity rates and energy consumption, lower their operating and maintenance costs, and realize environmental
benefits. Our comprehensive set of services includes competitive electricity plans and upgrades to a facility’s energy infrastructure.
Our stock is quoted on the OTC Markets under the symbol “PRHL”.
We were incorporated in Nevada on October
18, 1971 under the name of Mr. Nevada, Inc., and following the completion of a limited public offering in April 1972, we commenced
limited operations which were discontinued in 1990. Thereafter, we engaged in reorganization and, on several occasions, sought
to merge with or acquire certain active private companies or operations, all of which were terminated or resulted in discontinued
negotiations. In 2012, we discontinued our casket line of business, and began offering clean energy products and services. In December
2011, we acquired assets from WePower, LLC and Green Central Holdings, Inc. in order to start a second line of business unrelated
to the casket business. We also formed WePower Ecolutions Inc. (“Ecolutions”) as a wholly-owned subsidiary and began
to offer clean energy products and services to commercial markets and developers and management companies of large-scale residential
developments.
In October 2012, we divested our business
of certain underperforming product lines and prospects which were acquired by a newly formed entity known as WePowerEco Corp. and
negotiated the sale of the product line and prospects with WePowerEco Corp. in exchange for an unsecured promissory note in the
face amount of $5,000,000. Subsequently the note had been conservatively valued at approximately $869,000. In connection with the
sale of the product line and prospects, we agreed not to compete with WePower Eco Corp’s solar and wind products for a period
of two years following the sale. In addition, we agreed to the let the prior management team use the WePower name in a newly formed
company separate from the Company.
In 2012, we acquired a unique marquee technology
for energy efficient lighting, the E-Series controller developed by Active ES. This patented technology provides an upgrade for
existing HID lamps for high-bay indoor and outdoor applications where the other current options for efficiency are new and untested,
and expensive. This technology is being marketed by E3. In the fourth quarter of 2012, the Company performed additional research
and development to the products from Active ES adding two new products for mass production, the 480-volt version of the controller,
suitable for ports and other large facilities, and a 240-volt version of the LiteOwl for Streetlights, vastly increasing the applicable
market. In the fourth quarter of 2012, we formed a strategic alliance with Muni-Fed Energy who has strategic relationships with
municipalities, ports, and real estate investment trusts in the southern California and national market.
In the first quarter of 2013, we acquired
an 80% stake in TPC, a deregulated power broker in Illinois. By the end of that quarter, TPC had over 11,000 clients and has been
adding between 1,000 and 3,000 clients per month. We expect this to continue for the foreseeable future. Over 1,000 of these clients
have commercial/industrial facilities such as small businesses, warehouses and distribution centers, which are candidates for E3.
In addition to organic growth, strategic
acquisitions of complementary businesses and assets have been an important part of our historical development. Since inception,
the Company has completed numerous acquisitions, which have enabled us to broaden our service offerings and expand our geographical
reach.
We bridge two industries in the Energy
field: Deregulation (reselling power from suppliers, and also as a supplier) and energy efficiency technologies. Deregulated power
is expected to be one of the largest markets since the deregulation of telecom, only much larger. Energy efficiency companies,
sometimes referred to as energy services companies, or ESCOs, develop, install and arrange financing for projects designed to improve
the energy efficiency of client facilities. Typical products and services offered by energy efficiency companies include lighting
and lighting retrofits, HVAC upgrades, motor controls, equipment installations, load management, and can include power generation
including on-site cogeneration, renewable energy plants, etc. As we grow, we expect to be involved in all these opportunities.
Energy efficiency companies often offer their products and services through energy savings performance contracts, or ESPCs. Under
these contracts, energy efficiency companies assume certain responsibilities for the performance of the installed measures, under
assumed conditions, for a portion of the project’s economic lifetime. We operate as a deregulated power reseller and as an
ESCO.
E3’s Business
E3 is an Energy Services Company (ESCO)
formed by the Company to provide the best-of-breed energy reduction solutions for its clients. Through surveys and various analysis,
E3 prescribes the best solution for the unique circumstance of each client by providing the most current, fully-vetted solutions
in energy reduction technologies, as well as management tools which capture the client for future opportunities.
Many companies only provide stand-alone
solutions and only address one area of energy efficiency. E3 looks at its clients’ entire energy footprint and develops custom
solutions that fit their distinct requirements. E3 prescribes the most appropriate solutions for its clients’ facilities
and operations based on their budget. In addition, E3 facilitates the entire process from assessment of needs to planning and implementation
to ensure that all expectations for energy reduction and technology performance are met. E3 also provides financing through third-party
partners for its customers.
E3 lowers the cost of energy through competitive
supplier bidding and creates comprehensive energy savings solutions through the implementation of energy reduction projects. The
mission of E3 is to help a customer select and implement the most cost effective energy conservation measures for its facilities.
E3’s energy services division is focused on providing business customers with best-in-class demand management solutions such
as lighting (LED and Fluorescent), HVAC, Commercial Refrigeration and Water Sub-Metering.
The Company believes that E3 is finding
success in the sale and installation of LED lighting both as direct sales to mid- and large-sized customers and in utilizing rebate
programs from power providers (SCE, etc.). E3 continues to recruit LED resellers whose clients have declined an LED sale and is
going back to those clients and offering the E-Series technology as a solution for their existing (and preferred) HID lighting.
This includes, but is not limited to, end users such as auto dealerships, warehouses, and parking structures.
TPC’s Business
TPC provides the most competitive energy
pricing delivered with no change in service. There are currently 16 states that have deregulated their energy markets. While many
consumers have already benefitted from deregulated energy, there are millions more that have not taken advantage of this opportunity.
It is estimated that federally requested energy deregulation will be enacted in some form in more of the 50 states by 2020. The
deregulation industry is estimated at 7 to 11 times larger than when the telecom industry deregulated. Today and as this market
broadens, the Company expects TPC to continue to leverage its strength in these emerging markets.
Prior to deregulation, the utility market
in each state was monopolized. One utility provided all components of energy services: supply and distribution. In 1992, Congress
passed the National Energy Policy Act, allowing consumers in deregulated states the power to choose their energy supplier. TPC
is an experienced energy consulting firm in the deregulation space that utilizes its market standing and its large, well-established
network of energy suppliers to compete for its clients’ business. With no cost or obligation for its clients, TPC serves
as its clients’ energy advocates and negotiates the most competitive pricing and options for its clientele. Because of TPC’s
buying power, market expertise, and strong and diverse supplier relationships, TPC can achieve results and cost savings that are
greater than most individuals and/or organizations can obtain on their own.
TPC’s business model is to enlist
commercial and residential clients who benefit from the law passed allowing for competition in the energy markets as a result of
deregulation of energy. In many cases TPC saves its clients 10% to 30% on their energy bills by simply switching suppliers, all
while the enrollee still receives services from their local utility (the local utility continues to distribute the power, read
the meter, bill, and service any interruptions). TPC is different than several of its competitors in that is has agreements with
multiple energy suppliers allowing TPC to leverage its standing in the marketplace to garner competitive pricing for its clients
by having its suppliers compete for their clients’ business. Currently, TPC has access to over 30 different suppliers and
has most of the agreements in place that allow for TPC to be paid for the life of the client’s tenure with the supplier.
TPC acquires its clients through strategic partnerships, trained in-house commercial and door-to-door residential agents and call
centers.
TPC utilizes its online client energy portal.
This sophisticated energy portal enables rapid, efficient and secure sales transactions of deregulated power. The energy portal
is designed to enable sales agents, whether from a computer terminal, a smart phone, or any web browser to access the pertinent
information on a particular prospect. Agents can view their clients’ energy profiles and quickly access the energy options
available to them. The transparency and ease of the energy portal allows TPC’s agents to select the best power provider for
their customers and process the paperwork online in real-time, which enables client acquisition in minutes. This sales portal enables
large-scale, rapid sales of deregulated power. The energy portal is built for scalability so that it can be monetized on its own,
meaning it can be offered to any deregulated power company as its sales tool. The technology also provides sales management, reporting,
verification, and compliance tracking which may be among the best in the industry.
Corporate Developments During 2015
Since
the commencement of the year through March 31, 2016, we experienced the following corporate developments:
Development of ESP
During the first quarter ended March 31,
2016, we began development of the next generation of the Energy Services Portal (“ESP”) V3.0. Formerly the National
Energy Services Transactor, or NEST, the name was changed to avoid confusion in the market with another product. This new version
is being developed to further expand its features and capabilities and to accommodate the needs of multiple reseller of deregulated
power on behalf of the newly acquired supplier.
Shareholders’ Meeting
On April 21, 2016, we held a shareholders’
meeting, where we elected Mr. Tim Webb to our board of directors. Mr. Webb is Managing Director at Mayfair Partners, LLC, a venture
capital fund with current positions in technology, the hospitality industry and real estate areas. Mr. Webb has over 40 years of
CEO, president, senior operational management, and board of directors’ experience. He has served as Chief Executive Officer,
President of UARCO Inc., a $700M printing and technology firm, as well as Senior Management positions with GBC Inc., a worldwide
office products manufacturer, and Standard Register Company. In addition, Mr. Webb has served on many corporate and institutional
boards, including UARCO Inc., Lemko Corporation and Rider University. Mr. Webb is a graduate of Rider University.
Letter of Intent with WWCD
On May 6, 2016, we completed the terms
of letter of intent to purchase a FERC-licensed supplier of deregulated energy from WWCD, an Illinois LLC. After final notifications
and filings with regulatory agencies are complete, the newly acquired supplier will begin supplying power immediately to our customers,
will recruit additional resellers of deregulated power and provide them with our sales tools to streamline sales efforts, enforce
compliance, and increase productivity.
Letter of Intent with Firefly Systematics
On May 11, 2016, we entered into a letter
of intent with Firefly Systematics to expand the territory of E3 and provide additional logistics, suppliers, and fulfillment resources
to support our business. This new sales organization increases the company’s stable of approved vendors as well as additional
international and back office resources to us. Through this relationship, we expect to be a more optimized combined entity that
will provide even greater service to our combined clients while adding more top level industry expertise.
Results of Operations
Comparison of the Three Months Months
Ended March 31, 2016 to the Three Months Ended March 31, 2015
Revenue
For the three months ended March 31, 2016
and the three months ended March 31, 2015, our total revenues were $1,165,001 and $1,128,559, respectively. The increase in revenue
is primarily due to increases in E3 product revenue.
Expenses
The Company’s expenses for the three
months ended March 31, 2016 and 2015 are summarized as follows:
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Revenues
|
|
$
|
1,165,001
|
|
|
$
|
1,128,559
|
|
|
Cost of revenues
|
|
|
51,488
|
|
|
|
31,253
|
|
|
Gross profit
|
|
|
1,113,513
|
|
|
|
1,097,306
|
|
|
Selling, general and administrative expenses
|
|
|
2,151,863
|
|
|
|
1,627,188
|
|
|
Other expense
|
|
|
(145,176
|
)
|
|
|
(41,681
|
)
|
|
Loss before income taxes, non-controlling interest and discontinued operations
|
|
$
|
(1,183,526
|
)
|
|
$
|
(571,563
|
)
|
The increase in selling, general and administrative
expenses for the three months ended March 31, 2016, compared to the three months ended March 31, 2015 is due primarily to the increased
use of consultants.
Other Income (Expense)
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2016
|
|
|
|
2015
|
|
|
Interest expense
|
|
$
|
(410,176
|
)
|
|
$
|
(41,681
|
)
|
|
Gain (loss) on change in fair value of derivative liability
|
|
|
265,000
|
|
|
|
–
|
|
|
Total
|
|
$
|
(145,176
|
)
|
|
$
|
(41,681
|
)
|
The increase in other expense for the three
months ended March 31, 2016, compared to the prior period is mainly attributable to the increase is convertible notes payable and
the derivative liability resulting in increased interest expense.
Liquidity and Capital Resources
Working Capital
The following table sets forth a summary of changes in working
capital for the three months ended March 31, 2016:
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Current assets
|
|
$
|
1,292,642
|
|
|
$
|
1,025,520
|
|
|
Current liabilities
|
|
|
4,196,756
|
|
|
|
4,068,314
|
|
|
Working capital
|
|
$
|
(2,904,114
|
)
|
|
$
|
(3,042,794
|
)
|
The increase in working capital is due
primarily from an increase cash and prepaid expenses, as well as a decrease in accounts payable and accrued liabilities.
Cash Flows
The following table sets forth a summary of changes in cash
flows for the three months ended March 31, 2016 and 2015:
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Net cash used in operating activities
|
|
$
|
(963,573
|
)
|
|
$
|
(661,928
|
)
|
|
Net cash provided by (used in) investing activities
|
|
|
(1,056
|
)
|
|
|
–
|
|
|
Net cash provided by financing activities
|
|
|
1,062,239
|
|
|
|
591,883
|
|
|
Change in cash
|
|
$
|
97,610
|
|
|
$
|
(70,045
|
)
|
The increase in cash used in operating
activities was due primarily to an increase in gross profit and an increase in selling, general and administrative expenses for
the three months ended March 31, 2016 as compared to the same period in 2015.
The increase in cash from financing activities
was due primarily to increased proceeds from the sale of common stock for the three months ended March 31, 2016 as compared to
the same period in 2015.
Going Concern
The unaudited condensed consolidated financial
statements contained in this quarterly report have been prepared assuming that the Company will continue as a going concern. Since
inception, the Company has financed its operations primarily through proceeds from the issuance of common stock and convertible
notes payable. As of March 31, 2016, the Company had an accumulated deficit of $24,965,978. During the three months ended March
31, 2016, the Company incurred net losses of $1,183,526 and used cash in operating activities of $963,573. These conditions raise
substantial doubt about the Company’s ability to continue as a going concern. Presently, we do not have sufficient cash resources
to meet our plans for the next twelve months. These quarterly financial statements do not include any adjustments that may be necessary
should the Company be unable to continue as a going concern. Our continuation as a going concern is dependent on our ability to
obtain additional financing as may be required and ultimately to attain profitability.
Cash Requirements
We have not generated any profit from combined
operations since our inception. We expect that our operating expenses will increase over the next twelve months to continue our
development activities. Based on our average monthly expenses and current burn rate, we estimate that we will need to raise an
additional $3,000,000 to $3,500,000 over the next twelve months. This amount could increase if we encounter difficulties that we
cannot anticipate at this time or if we acquire other businesses. As of the date of this filing, we had cash and cash equivalents
of approximately $408,000. We do not expect to raise capital through debt financing from traditional lending sources since we are not
currently generating a profit from operations. Therefore, we only expect to raise money through equity financing via the sale of
our common stock or equity-linked securities such as convertible debt. There can be no assurance, however, that such financing
will be available or, if it is available, that we will be able to structure such financing on terms acceptable to us and that it
will be sufficient to fund our cash requirements until we can reach a level of profitable operations and positive cash flows. Further,
if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities
may have rights, preferences or privileges senior to those of existing holders of our shares of common stock or the debt securities
may cause us to be subject to restrictive covenants. Even if we are able to raise the funds required, it is possible that we could
incur unexpected costs and expenses or experience unexpected cash requirements that would force us to seek additional financing.
If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements
that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
Effects of Inflation
We do not believe that inflation has had
a material impact on our business, revenues or operating results during the periods presented.
Critical Accounting Policies and Estimates
Our significant accounting policies are
more fully described in the notes to our financial statements included herein for the quarter ended March 31, 2016.
Newly Issued Accounting Pronouncements
See Note 1 to our financial statements
included herein for the quarter ended March 31, 2016 for a discussion of Recently Issued Accounting Pronouncements.