NOTE 2 – GOING CONCERN AND MANAGEMENT’S
LIQUIDITY PLANS
As of June 30, 2016, the Company had an accumulated
deficit of $26,780,115. For the six months ended June 30, 2016 and 2015, the Company incurred operating losses of $2,406,020 and
$1,315,779, respectively, and used cash in operating activities of $1,631,810 and $1,545,183, 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 condensed consolidated
financial statements have been prepared in conformity with U.S. GAAP for interim financial statements, 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 & INTANGIBLE ASSETS
The following table presents details of the Company’s Goodwill
as of June 30, 2016 and December 31, 2015:
|
|
The Power Company USA, LLC
|
|
Balances at January 1, 2015:
|
|
$
|
4,000,000
|
|
Intangible assets acquired
|
|
|
–
|
|
Impairment losses
|
|
|
–
|
|
Balances at December 31, 2015:
|
|
|
4,000,000
|
|
Intangible assets acquired
|
|
|
–
|
|
Impairment losses
|
|
|
–
|
|
Balances at June 30, 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 six months ended June 30, 2016 is $150,000.
American Illuminating Company, LLC Acquisition
On May 5, 2016, the Company acquired 100%
of the outstanding membership interests of AIC, a FERC-licensed supplier of deregulated energy, for $125,000. The total
purchase price was allocated to intangible assets for the value of the license. The initial accounting for the acquisition is
not yet complete because the evaluations necessary to assess the fair value of the assets acquired are still in process.
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 shares 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 since there is 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 May 11, 2016, the
Company entered into convertible notes with third parties for use as operating capital for a total of $2,074,800. 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 May 11, 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 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 $686,536 for the fair value of
these warrants through June 30, 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 $467,091. The total debt discount recorded for new
notes issued during the six months ended June 30, 2016 and 2015 was $70,398 and $410,963, respectively. Interest expense related
to the amortization of this debt discount for the three months ended June 30, 2016 and 2015 was $113,618 and $15,046, respectively.
During the six months ended June 30, 2016 and
2015, the Company recorded interest expense of $816,926 and $110,759, 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 $2,015,000 for the fair value of the
convertible feature included in the Company’s convertible debt instruments as of June 30, 2016. The derivative liability
recorded for the convertible feature created a debt discount of $1,292,000, 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 six months ended June 30, 2016, was $138,239. Additionally, $327,000
of debt discount was charged to interest expense during the six months ended June 30, 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 average value of a share of Company stock in the month the Notes became convertible, the measurement date – ranging from $0.0756 - $0.1172 (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 – 131.7%; 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 June 30, 2016:
·
|
The value of a share of Company stock on June 30, 2016, the measurement date - $0.0735 (per the
over-the-counter market quotes);
|
·
|
Conversion price - $0.0617, based on 80% of the average quoted market price for the Company’s common stock for the 30-day period ended June 30, 2016; and
|
·
|
Number of shares into which Notes would convert - face value of Notes divided by $0.0617.
|
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
|
|
|
(196,000
|
)
|
Derivative on new loans
|
|
|
727,000
|
|
|
|
|
|
|
Derivative liability as of June 30, 2016
|
|
$
|
2,015,000
|
|
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 June 30, 2016, 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 six months ended June 30, 2016,
the Company entered into a series of stock purchase agreements with accredited investors for the sale of 27,280,000 shares of its
common stock in amount of $1,517,400. Additionally, 14,892,858 shares of common stock were issued for consulting services valued
at $0.052 to $0.077 per share, based upon the fair value of the common stock on the measurement date totaling $959,099, which was
recognized immediately as general and administrative expense. Additionally, approximately 1,000,000 shares of common stock were
cancelled and returned to the treasury.
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 as of June 30, 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
|
|
|
6,000,000
|
|
|
$
|
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 June 30, 2016
|
|
|
1,650,000
|
|
|
|
0.04
|
|
|
|
4.03
|
|
|
|
–
|
|
Options vested and exercisable at June 30, 2016
|
|
|
1,650,000
|
|
|
$
|
0.04
|
|
|
|
4.03
|
|
|
$
|
–
|
|
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 June 30, 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
|
|
|
1,966,650
|
|
|
|
0.200
|
|
|
|
2.62
|
|
|
|
–
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Canceled/forfeited/expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
–
|
|
Outstanding at June 30, 2016
|
|
|
14,395,279
|
|
|
|
0.195
|
|
|
|
2.15
|
|
|
|
–
|
|
Warrants vested and exercisable at June 30, 2016
|
|
|
14,395,279
|
|
|
$
|
0.195
|
|
|
|
2.15
|
|
|
$
|
–
|
|
During the six months ended June 30, 2016,
the Company issued 1,966,650 warrants included with certain convertible notes payable (see Note 4) with a value of $70,397.
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 1.31 percent, and annualized volatility of between 124% and 130%.
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
|
|
|
33,828
|
|
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 June 30, 2016
and 2015, Mr. Letcavage (directly or through related entities) recorded $120,000 and $120,000, 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
|
|
June 30,
2016
|
|
|
December 31
2015
|
|
iCapital Advisory – consulting fees
|
|
$
|
66,267
|
|
|
$
|
75,543
|
|
Jamp Promotion – commissions
|
|
|
90,500
|
|
|
|
90,500
|
|
Mason Ventures and Sebo Services – net loans
|
|
|
–
|
|
|
|
5,038
|
|
|
|
$
|
156,767
|
|
|
$
|
171,081
|
|
|
|
|
|
|
|
|
|
|
Related party receivable - Mason Ventures and Sebo Services
|
|
$
|
81,762
|
|
|
$
|
–
|
|
During the three months ended June 30, 2016,
the Company received loans from Mason Ventures of approximately $633,570 and repaid approximately $720,370. 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 June 30, 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 owed 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 June 30, 2016, the Company has made payments totaling $102,000, with
the remaining balance of $8,000 recorded on the balance sheet at June 30, 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 expired on February
28, 2016. The annual rental payments required under these operating lease agreements for 2015 and 2016 were $46,867 and $7,849,
respectively. Due to the default of the acquisition note payable, the acquisition of LP&L was terminated on April 7, 2015,
thus the Company is no longer obligated to this operating lease effective 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 had determined it appropriate under the circumstances to recognize and accrue this loss contingency. Due
to the default of the acquisition note payable, the acquisition of LP&L was terminated on April 7, 2015, thus the Company is
no longer obligated to this loss contingency effective April 7, 2015.
NOTE 10 – SUBSEQUENT
EVENTS
In July of 2016, the Company issued 500,000
shares of the Company’s common stock to an accredited investor for total proceeds of $20,000.
In July and August of 2016, the Company received proceeds of $1,371,200
from accredited investors for 34,280,000 common shares not yet issued as of August 15, 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;
|
|
·
|
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;
|
|
·
|
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;
|
|
·
|
our expectation that the demand for our products services will eventually increase; and
|
|
·
|
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 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”),
The Power Company USA, LLC (“TPC”) and American Illuminating Company, LLC (“AIC”). Unless otherwise specified,
all dollar amounts are expressed in United States dollars.
Corporate 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 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, we 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 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. Over 1,000 of these clients have commercial/industrial facilities such as small
businesses, warehouses and distribution centers, which we believe 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 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 etc.), HVAC, Commercial Refrigeration and Water Sub-Metering and Smart Building technology.
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 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 in a manner attractive
to business. 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. At that time, a few, sometimes only one utility in each state 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 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.
AIC’s Business
On May 6, 2016, the we entered into a definitive
agreement with WWCD, LLC, a company incorporated in the State of Illinois (“WWCD”), to acquire for $125,000 all membership
units, including all licenses and contracts held, of American Illuminating Company, a Connecticut limited liability company (“AIC”),
a company owned by WWCD. AIC is a FERC-licensed supplier of deregulated energy. After final notifications and filings with regulatory
agencies are complete, AIC is expected to 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.
Corporate Developments During 2016
Since
the commencement of the year through June 30, 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 resellers of deregulated power
on behalf of the newly acquired supplier.
Membership Interest Purchase Agreement with
WWCD, LLC
On May 6, 2016, the we entered into a definitive
agreement with WWCD, LLC, a company incorporated in the State of Illinois (“WWCD”), to acquire for $125,000 all membership
units, including all licenses and contracts held, of American Illuminating Company, LLC, a Connecticut limited liability company
(“AIC”), a company owned by WWCD. AIC is a FERC-licensed supplier of deregulated energy. After final notifications
and filings with regulatory agencies are complete, AIC is expected to 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.
Formation of Advisory Committee
On June 20, 2016, our Board of Directors authorized
the creation of a company advisory committee (the “Advisory Committee”), which shall initially consist of William Rice,
Chris Lacy and Robert Seigler, all current shareholders of our company. Furthermore, the Board of Directors authorized the Advisory
Committee to create its own procedures for working with the company, with the mission to improve the company’s performance
in any area. The Advisory Committee is expected to telephonically as needed and to prepare a list of goals and objectives which
will be reviewed and accepted by the Board of Directors.
Formation of Audit Committee
On July 20, 2016, our Board of Directors authorized
the creation of an audit committee (the “Audit Committee”), which shall initially consist of Robert Baron, currently
a member of our Board of Directors, and Robert Seigler, a shareholder. The Board of Directors authorizes the Audit Committee to
create its own rules of procedure in working with the company’s outside accountants with the mission to ensure the company
is compliant with its internal control and corporate governance requirements and to take all steps necessary to ensure compliance
under the Securities Exchange Act of 1934.
Results of Operations
Comparison of the Three Months Ended June
30, 2016 to the Three Months Ended June 30, 2015
Revenue and Operating Expenses
The Company’s revenue and operating expenses
for the three months ended June 30, 2016 and 2015 are summarized as follows:
|
|
Three Months Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Revenues
|
|
$
|
1,353,734
|
|
|
$
|
1,263,932
|
|
Cost of revenues
|
|
|
187,797
|
|
|
|
128,775
|
|
Gross profit
|
|
|
1,165,937
|
|
|
|
1,135,157
|
|
Selling, general and administrative expenses
|
|
|
2,533,607
|
|
|
|
1,921,055
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
$
|
(1,367, 670)
|
|
|
$
|
(785,898)
|
|
The increase in revenue for the three months
ended June 30, 2016, compared to the three months ended June 30, 2015 is due primarily to increased call center revenue from our
TPC.
The increase in selling, general and administrative
expenses for the three months ended June 30, 2016, compared to the three months ended June 30, 2015 is due primarily to the increased
use of consultants.
Other Income (Expense)
|
|
Three Months Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Interest expense
|
|
$
|
(406,750
|
)
|
|
$
|
(69,078
|
)
|
Gain (loss) on change in fair value of derivative liability
|
|
|
(69,000
|
)
|
|
|
–
|
|
Total
|
|
$
|
(475,750
|
)
|
|
$
|
(69,078
|
)
|
The increase in other expense for the three
months ended June 30, 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.
Comparison of the Six Months Ended June
30, 2016 to the Six Months Ended June 30, 2015
Revenue and Operating Expenses
The Company’s revenue and operating expenses
for the six months ended June 30, 2016 and 2015 are summarized as follows:
|
|
Six Months Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Revenues
|
|
$
|
2,518,735
|
|
|
$
|
2,392,491
|
|
Cost of revenues
|
|
|
239,285
|
|
|
|
160,027
|
|
Gross profit
|
|
|
2,279,450
|
|
|
|
2,232,464
|
|
Selling, general and administrative expenses
|
|
|
4,685,470
|
|
|
|
3,548,243
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
$
|
(2,406,020
|
)
|
|
$
|
(1,315,779
|
)
|
The increase in revenue for the six months
ended June 30, 2016, compared to the six months ended June 30, 2015 is due primarily to increased commercial and call center revenue
from our TPC subsidiary.
The increase in selling, general and administrative
expenses for the six months ended June 30, 2016, compared to the six months ended June 30, 2015 is due primarily to the increased
use of consultants.
Other Income (Expense)
|
|
Six Months Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Interest expense
|
|
$
|
(816,926
|
)
|
|
$
|
(110,759
|
)
|
Gain (loss) on change in fair value of derivative liability
|
|
|
196,000
|
|
|
|
–
|
|
Total
|
|
$
|
(620,926
|
)
|
|
$
|
(110,759
|
)
|
The increase in other expense for the six months
ended June 30, 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 working capital as of
June 30, 2016 and December 31, 2015:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Current assets
|
|
$
|
975,882
|
|
|
$
|
1,025,520
|
|
Current liabilities
|
|
|
4,586,296
|
|
|
|
4,068,314
|
|
Working capital
|
|
$
|
(3,610,414
|
)
|
|
$
|
(3,042,794
|
)
|
The decrease in working capital is due primarily
from an increase in the convertible notes and derivative liability, partially offset by an increase in 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 six months ended June 30, 2016 and 2015:
|
|
Six Months Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Net cash used in operating activities
|
|
$
|
(1,631,810
|
)
|
|
$
|
(1,545,183
|
)
|
Net cash used in investing activities
|
|
|
(130,500
|
)
|
|
|
(9,637
|
)
|
Net cash provided by financing activities
|
|
|
1,708,897
|
|
|
|
1,661,724
|
|
Change in cash
|
|
$
|
(53,413
|
)
|
|
$
|
106,904
|
|
The increase in cash used in operating activities
was due primarily to an increase selling, general and administrative expenses for the six months ended June 30, 2016 as compared
to the same period in 2015.
The increase in cash used in investing activities
was due primarily the acquisition of AIC for cash of $125,000 in May of 2016.
The increase in cash from financing activities
was due primarily to increased proceeds from the sale of common stock for the six months ended June 30, 2016 as compared to the
same period in 2015.
Private Placement Offering
During the six months ended June 30, 2016,
the Company entered into a series of stock purchase agreements with accredited investors for the sale of 27,280,000 shares of its
common stock in amount of $1,517,400.
Short-Term Debt and Lines of Credit
The Company did not enter into any new short-term
debt or lines of credit with third parties during the six months ended June 30, 2016.
Convertible Notes Payable
During the six months ended June 30, 2016,
the Company entered into convertible notes with third parties for use as operating capital for total proceeds of $295,000.
Going Concern
The unaudited condensed consolidated financial
statements contained in this annual report on Form 10-Q 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 June 30, 2016, the Company had an accumulated deficit of $26,780,115. During the six months ended June 30,
2016, the Company incurred operating losses of $2,406,020 and used cash in operating activities of $1,631,810. These factors raise
substantial doubt about the Company’s ability to continue as a going concern. Management is in the process of evaluating
various financing alternatives in order to finance our research and development activities and general and administrative expenses.
These alternatives include raising funds through public or private equity markets and either through institutional or retail investors.
Although there is no assurance that the Company will be successful with our fund raising initiatives, management believes that
the Company will be able to secure the necessary financing as a result of ongoing financing discussions with third party investors
and existing shareholders.
The condensed consolidated financial statements
do not include any adjustments that may be necessary should the Company be unable to continue as a going concern. The Company’s
continuation as a going concern is dependent on its ability to obtain additional financing as may be required and ultimately to
attain profitability. If the Company raises additional funds through the issuance of equity, the percentage ownership of current
shareholders could be reduced, and such securities might have rights, preferences or privileges senior to its common stock. Additional
financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable
terms, the Company may not be able to take advantage of prospective business endeavors or opportunities, which could significantly
and materially restrict its future plans for developing its business and achieving commercial revenues. If the Company is unable
to obtain the necessary capital, the Company may have to cease operations.
Future Financing
We will require additional funds to implement
our growth strategy for our business. In addition, while we have received capital from various private placements and convertible
loans that have enabled us to fund our operations, these funds have been largely used to supplement our working capital, although
additional funds are needed for other corporate operational and working capital purposes. Therefore, we will need to raise an additional
$1.5 to $2.0 million to cover all of our operational expenses over the next 12 months. These funds may be raised through equity
financing, debt financing, or other sources, which may result in further dilution in the equity ownership of our shares. There
can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on
commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis should it be required, or
generate significant material revenues from operations, we will not be able to meet our other obligations as they become due and
we will be forced to scale down or perhaps even cease 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.
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 June 30, 2016 and in the notes to
our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2015.
Recently Issued Accounting Pronouncements
Any recently issued accounting pronouncements
are more fully described in Note 1 to our financial statements included herein for the quarter ended June 30, 2016.