See accompanying notes which are an integral part of these consolidated financial statements.
See accompanying notes which are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS
Premier Holding Corporation (the “Company”)
is an energy services holding company. The Company provides an array of energy services through its subsidiary companies, Efficiency
Experts, Inc. (“E3”) and The Power Company USA, LLC (“TPC”). The Company provides solutions that enable
customers to reduce their energy consumption, lower their operating and maintenance costs, and realize environmental benefits.
The Company’s comprehensive set of services includes competitive electricity plans and upgrades to a facility’s energy
infrastructure.
The Company was organized under the laws
of the State of Nevada on October 18, 1971 under the name of Mr. Nevada, Inc. On November 13, 2008, the Company filed a Certificate
of Amendment to its Articles of Incorporation with the State of Nevada Secretary of State to change its name from OVM International
Holding Corporation to Premier Holding Corporation. The Company is organized with a holding company structure such that the Company
provides financial and management expertise, which includes access to capital, financing, legal, insurance, mergers, acquisitions,
joint ventures and management strategies for its subsidiaries.
In 2012, the Company 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 first quarter of 2013, the Company
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. The Company expects 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.
On October 22, 2014, the Company entered
into a Membership Purchase Agreement (“Agreement”) to acquire 85% of the membership interests of Lexington Power &
Light, LLC (“LP&L”) from its owners. LP&L was incorporated under the laws of the State of New York on July
8, 2010 as a Limited Liability Company. LP&L markets and sells electricity and natural gas to both commercial and residential
customers located primarily in five boroughs of New York City and on Long Island. The Company purchases electricity and natural
gas on a wholesale basis pursuant to a combined supply and credit facility agreement. Under the Agreement, the Company was to acquire
85% of LP&L on the closing date for 7,500,000 shares of common stock and $500,000 in Promissory Notes, plus earn-out payments
based upon EBITDA milestones during the 12 months following the closing date. Under the terms of the Agreement, the Company had
a contingent funding obligation of $1,000,000 of which $500,000 will be used as working capital for LP&L, had the option to
acquire the remaining 15% of LP&L until December 31, 2018 for $20,000,000 payable 1/2 in cash and 1/2 in common stock and was
to limit its board of directors to five persons, with the members of LP&L having the right to appoint one board member. On
April 7, 2015, the Agreement was terminated as per our default on our purchase obligations for the acquisition due to the non-performance
of LP&L under the terms of the Agreement.
On May 6, 2016, 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. Consummation of the acquisition
of AIC is subject to FERC approval, which was granted in February 2017. 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. The Company
has reflected the $125,000 payment and additional $62,873 costs towards the acquisition as a deposit of $187,873 on the balance
sheet as of December 31, 2016.
NOTE 2 - BASIS OF PRESENTATION AND SIGNIFICANT
ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial
statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of
America (“U.S. GAAP”).
Principles of Consolidation
The consolidated financial statements include
the accounts of Premier Holding Corporation, E3 and TPC as of and for the years ended December 31, 2016 and 2015. All significant
intercompany transactions have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial
statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and
the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Significant estimates made in connection
with the accompanying consolidated financial statements include the estimate of doubtful accounts receivable, valuation of stock-based
compensation, valuation of derivative liabilities, fair values in connection with the analysis of goodwill and long-lived assets
for impairment, valuation allowances against net deferred tax assets and estimated useful lives for intangible assets and property
and equipment.
Revenue Recognition and Cost of Sales
E3 offers energy efficiency products and
services to commercial middle market companies, as well as residential customers. In accordance with the requirements of
ASC
605 Revenue Recognition
the Company recognizes revenue when (1) persuasive evidence of an arrangement exists (contracts); (2)
delivery has occurred; and (3) collectability is reasonably assured (based upon its credit policy). When consultations are provided
to customers, the revenue is recognized at the completion of the service when collectability is reasonably assured. For products
sold to customers, revenue is recognized when title has passed to the customer and collectability is reasonably assure and no further
efforts are required. For sales related to Southern California Edison rebate program, the company is authorized and pre-approved
to submit rebates on behalf of its clients. Upon product delivery, only sales tax is collected from the customer directly, and
the total amount of the revenue becomes collectable through submission of rebate application to Southern California Edison, and
then the rebate is assigned and delivered directly to the Company. Therefore, revenue is recognized when the product is delivered
and rebate application is submitted to Southern California Edison.
TPC offers deregulated power and energy
efficiency products and services to commercial middle market companies, as well as residential customers. In accordance with the
requirements of
ASC 605 Revenue Recognition
, the Company recognizes revenue when (1) persuasive evidence of an arrangement
exists (contracts); (2) delivery has occurred; (3) the seller’s price is fixed or determinable (per the customer’s
contract); and/or (4) collectability is reasonably assured (based upon its credit policy). When consultations are provided to customers,
the revenue is recognized at the completion of the service when collectability is reasonably assured. For products sold to customers,
revenue is recognized when title has passed to the customer and collectability is reasonably assured and no further efforts are
required. For residential service contracts, the commission revenue is recognized when the contract is signed and payment is received.
For commercial service contracts, the commission revenue is recognized when the contract is signed and the performance is completed,
with an appropriate allowance for estimated cancellation.
Cash
The Company considers all highly liquid investments with an
original maturity of three months or less when purchased to be cash equivalents. As of December 31, 2016 and 2015, the Company
does not have any cash equivalents.
Accounts Receivable
All accounts receivable are due thirty
(30) days from the date billed. If the funds are not received within thirty (30) days, the customer is contacted for payment. The
Company uses the allowance method to account for uncollectable accounts receivable. As of December 31, 2016, and 2015, the balance
of allowance for bad debts was $100,000 and $51,000, respectively.
Inventory
Inventory is stated at the lower of cost
or market. At December 31, 2016, inventory consists of raw materials.
Equipment
Equipment consists of a vehicles and computer
equipment and is recorded at cost less accumulated depreciation. The Company’s equipment is amortized on a straight-line
basis over its estimated life, generally three to five years.
Non-controlling Interest
Non-controlling interests in TPC is recorded
as a component of our equity, separate from the parent’s equity. Purchase or sales of equity interests that do not result
in a change of control are accounted for as equity transactions. Results of operations attributable to the non-controlling interest
are included in our consolidated results of operations and, upon loss of control, the interest sold, as well as interest retained,
if any, will be reported at fair value with any gain or loss recognized in earnings. The Company maintains an 80% limited interest
in TPC and the remaining 20% non-controlling interest is held by TPC’s members. Due to the termination of the LP&L Agreement,
Premier disposed the 15% original non-controlling interest from LP&L in the amount of $215,861 which is included in gain on
disposal of LP&L.
Net Loss Per Share of Common Stock
The Company has adopted
ASC Topic 260
Earnings per Share
, which provides for calculation of “basic” and “diluted” earnings (loss) per share.
Basic earnings (loss) per share includes no dilution and is computed by dividing net income (loss) available to common shareholders
by the weighted average common shares outstanding for the period. Diluted earnings (loss) per share reflect the potential dilution
of securities that could share in the earnings of an entity similar to fully diluted earnings (loss) per share. The Company excludes
equity instruments from the calculation of diluted earnings per share if the effect of including such instruments is anti-dilutive.
As of December 31, 2016, the Company has 1,650,000 stock options outstanding and 227,271,136 warrants outstanding. As of December
31, 2015, the Company had 1,650,000 stock options outstanding and 12,428,629 warrants outstanding.
As of December 31, 2016 and 2015, the Company
had 450,000 and 450,000 shares of Preferred Stock outstanding, respectively. Net convertible debt as of December 31, 2016 and 2015
was $1,252,887 and $1,780,482, respectively, and is convertible between three months to one year from the original loan agreement
date.
Income Taxes
Deferred income tax is provided for differences
between the bases of assets and liabilities for financial and income tax reporting. A deferred tax asset, subject to a valuation
allowance, is recognized for estimated future tax benefits of tax-basis operating losses being carried forward. Income taxes are
provided based upon the liability method of accounting pursuant to the
ASC Topic 740 Income Taxes
. Under this approach,
deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets
and liabilities and their financial reporting amounts at each year-end. A valuation allowance is recorded against the deferred
tax asset if management does not believe the Company has met the “more likely than not” standard to allow recognition
of such an asset.
Stock-Based Compensation
We periodically issue stock options and
warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. We account for
stock option and warrant grants issued and vesting to employees based on
ASC 718 Compensation—Stock Compensation
,
where the award is measured at its fair value at the date of grant and is amortized ratably over the service period. We account
for stock option and warrant grants issued and vesting to non-employees in accordance with
ASC 505 Equity
, where the value
of the stock compensation is based upon the measurement date as determined at either (a) the date at which a performance commitment
is reached, or (b) at the date at which the necessary performance to earn the equity instruments is complete.
Fair Value Measurements
On January 1, 2011, the Company adopted
guidance which defines fair value, establishes a framework for using fair value to measure financial assets and liabilities on
a recurring basis, and expands disclosures about fair value measurements. Beginning on January 1, 2011, the Company also applied
the guidance to non-financial assets and liabilities measured at fair value on a non-recurring basis, which includes goodwill and
intangible assets. The guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable
inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable
inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained
from sources independent sources. Unobservable inputs are inputs that reflect Premier’s assumptions of what market participants
would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy
is broken down into three levels based on the reliability of the inputs as follows:
Level 1 - Valuation is based upon unadjusted
quoted market prices for identical assets or liabilities in accessible active markets.
Level 2 - Valuation is based upon quoted
prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive
markets; or valuations based on models where the significant inputs are observable in the market.
Level 3 - Valuation is based on models
where significant inputs are not observable. The unobservable inputs reflect a company’s own assumptions about the inputs
that market participants would use.
The Company’s financial instruments
consist of cash, accounts receivable, notes receivable, accounts payable, notes payable, accrued liabilities and derivative liabilities.
The estimated fair value of cash, accounts receivable, notes receivable, accounts payable, notes payable and accrued liabilities
approximate their carrying amounts due to the short-term nature of these instruments.
Certain non-financial assets are measured
at fair value on a nonrecurring basis. Accordingly, these assets are not measured and adjusted to fair value on an ongoing basis
but are subject to periodic impairment tests. These items primarily include long-lived assets, goodwill and other intangible assets.
Our derivative liabilities have been valued as Level 3 instruments.
|
|
|
Level 1
|
|
|
|
Level 2
|
|
|
|
Level 3
|
|
|
|
Total
|
|
Fair value of convertible note derivative liability - December 31, 2015
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
1,484,000
|
|
|
$
|
1,484,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
|
Level 2
|
|
|
|
Level 3
|
|
|
|
Total
|
|
Fair value of convertible note derivative liability – December 31, 2016
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
918,000
|
|
|
$
|
918,000
|
|
Goodwill
The Company periodically reviews the carrying
value of intangible assets not subject to amortization, including goodwill, to determine whether impairment may exist. Goodwill
and certain intangible assets are assessed annually, or when certain triggering events occur, for impairment using fair value measurement
techniques. These events could include a significant change in the business climate, legal factors, a decline in operating performance,
competition, sale or disposition of a significant portion of the business, or other factors. Specifically, goodwill impairment
is determined using a two-step process. The first step of the goodwill impairment test is used to identify potential impairment
by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The Company uses level 3 inputs and
a discounted cash flow methodology to estimate the fair value of a reporting unit. A discounted cash flow analysis requires one
to make various judgmental assumptions including assumptions about future cash flows, growth rates, and discount rates. The assumptions
about future cash flows and growth rates are based on the Company’s budget and long-term plans. Discount rate assumptions
are based on an assessment of the risk inherent in the respective reporting units. If the fair value of a reporting unit exceeds
its carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary.
If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed
to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value
of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s
goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The
implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination.
That is, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized
intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit
was the purchase price paid to acquire the reporting unit.
The Company did not record an impairment
loss on goodwill for the years ended December 31, 2016 or 2015.
Concentrations of Credit Risk
The Company maintains deposits in a financial
institution which is insured by the Federal Deposit Insurance Corporation (“FDIC”). At various times, the Company has
deposits in this financial institution in excess of the amount insured by the FDIC. The Company has not experienced any losses
related to these balances and believes its credit risk to be minimal.
Reclassifications
Certain prior year amounts have been reclassified
to conform to the current year presentation. Such reclassifications had no impact on previously reported net loss.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued Accounting
Standards Update No. 2014-09, “Revenue from Contracts with Customers” (ASU 2014-09), which supersedes nearly all existing
revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or
services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for
those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment
and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. The standard is
effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition
methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option
to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09
recognized at the date of adoption (which includes additional footnote disclosures). Early adoption is not permitted. The Company
is currently evaluating the impact of the pending adoption of ASU 2014-09 on its consolidated financial statements and has not
yet determined the method by which it will adopt the standard beginning January 1, 2017.
In August 2014, the FASB issued ASU No.
2014-15, “Presentation of Financial Statements— Going Concern (Subtopic 205-40), Disclosure of Uncertainties about
an Entity’s Ability to Continue as a Going Concern”. Continuation of a reporting entity as a going concern is presumed
as the basis for preparing financial statements unless and until the entity’s liquidation becomes imminent. Preparation of
financial statements under this presumption is commonly referred to as the going concern basis of accounting. Currently, there
is no guidance under U.S. GAAP about management’s responsibility to evaluate whether there is substantial doubt about an
entity’s ability to continue as a going concern or to provide related footnote disclosures. The amendments in this Update
provide that guidance. In doing so, the amendments should reduce diversity in the timing and content of footnote disclosures. The
amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding
upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of
the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles
for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated
as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial
doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are
issued (or available to be issued). For the period ended December 31, 2016, management evaluated the Company’s ability to
continue as a going concern and concluded that substantial doubt has not been alleviated about the Company’s ability to continue
as a going concern. While the Company continues to explore further significant sources of financing, management’s assessment
was based on the uncertainty related to the amount and nature of such financing over the next twelve months. Management is currently
evaluating the impact of ASU No. 2014-15 on its consolidated financial statements.
In July 2015, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update No. 2015-11 (ASU 2015-11), Simplifying the Measurement
of Inventory. According to ASU 2015-11, an entity should measure inventory within the scope of this update at the lower of cost
and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably
predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using
LIFO or the retail inventory method. The amendments in ASU 2015-11 more closely align the measurement of inventory in GAAP with
the measurement of inventory in International Financial Reporting Standards (IFRS). The Board has amended some of the other guidance
in Topic 330 to more clearly articulate the requirements for the measurement and disclosure of inventory. However, the Board does
not intend for those clarifications to result in any changes in practice. Other than the change in the subsequent measurement guidance
from the lower of cost or market to the lower of cost and net realizable value for inventory within the scope of ASU 2015-11, there
are no other substantive changes to the guidance on measurement of inventory. For public business entities, the amendments in ASU
2015-11 are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years.
The amendments in ASU 2015-11 should be applied prospectively with earlier application permitted as of the beginning of an interim
or annual reporting period. The Company elected to early adopt the above. The adoption doesn’t have a significant impact
on the Company’s consolidated financial position or results of operations.
During November 2015, the FASB issued ASU
2015-17, Balance Sheet Classification of Deferred Taxes, which simplifies the presentation of deferred income taxes. ASU 2015-17
provides presentation requirements to classify deferred tax assets and liabilities as noncurrent in a classified statement of financial
position. The standard is effective for fiscal years beginning after December 15, 2016, including interim periods within that reporting
period. Early adoption is permitted for any interim and annual financial statements that have not yet been issued. We early adopted
ASU 2015-17 effective December 31, 2015 on a prospective basis. The adoption did not have a significant impact on the Company’s
consolidated financial position or results of operations.
In January 2016, the FASB issued ASU 2016-01,
Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. The pronouncement
requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation
of the investee) to be measured at fair value with changes in fair value recognized in net income. ASU 2016-01requires public business
entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires
separate presentation of financial assets and financial liabilities by measurement category and form of financial asset, and eliminates
the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value
that is required to be disclosed for financial instruments measured at amortized cost. These changes become effective for the Company's
fiscal year beginning January 1, 2018. The expected adoption method of ASU 2016-01 is being evaluated by the Company and the adoption
is not expected to have a significant impact on the Company’s consolidated financial position or results of operations.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842), which supersedes the existing guidance for lease accounting, Leases (Topic 840). ASU 2016-02 requires lessees
to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged. The amendments in this ASU are effective
for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early application is permitted
for all entities. ASU 2016-02 requires a modified retrospective approach for all leases existing at, or entered into after, the
date of initial application, with an option to elect to use certain transition relief. The Company is currently evaluating the
impact of this new standard on its consolidated financial statements.
NOTE 3 – GOING CONCERN AND MANAGEMENT’S
LIQUIDITY PLANS
As of December 31, 2016, the Company had
an accumulated deficit of $29,392,022. During the years ended December 31, 2016 and 2015, the Company incurred operating losses
of $4,576,545 and $3,096,325, respectively, and used cash in operating activities of $4,002,955 and $3,388,878, 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 4 – ACQUISITIONS & GOODWILL
The following table presents details of the Company’s
Goodwill as of December 31, 2016 and 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 December 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 year ended December 31, 2016 is $300,000.
Lexington Power & Light, LLC
On October 22, 2014, Premier entered into
a Membership Purchase Agreement (“Agreement”) to acquire 85% of the membership interests of Lexington Power & Light,
LLC (“LP&L”) from its owners. LP&L was incorporated under the laws of the State of New York on July 8, 2010
as a Limited Liability Company. LP&L markets and sells electricity and natural gas to both commercial and residential customers
located primarily in five boroughs of New York City and on Long Island. The Company purchases electricity and natural gas on a
wholesale basis pursuant to a combined supply and credit facility agreement. Under the Agreement, Premier was to acquire 85% of
LP&L on the closing date for 7,500,000 shares of common stock and $500,000 in promissory notes, plus earn-out payments based
upon EBITDA milestones during the twelve months following the closing date. Under the terms of the Agreement, Premier had a contingent
funding obligation of $1,000,000 of which $500,000 will be used as working capital for LP&L, had the option to acquire the
remaining 15% of LP&L until December 31, 2018 for $20,000,000 payable 1/2 in cash and 1/2 in common stock and was to limit
its board of directors to five persons, with the members of LP&L having the right to appoint one board member.
The total purchase price for the Lexington
Power & Light, LLC acquisition was allocated as follows:
Cash
|
|
$
|
985,798
|
|
Accounts receivable
|
|
|
383,819
|
|
Inventory
|
|
|
55,020
|
|
Accrued revenue
|
|
|
337,522
|
|
Equipment
|
|
|
35,342
|
|
Goodwill
|
|
|
2,859,151
|
|
Other assets
|
|
|
527,176
|
|
Total assets acquired
|
|
|
5,183,828
|
|
Accounts payable and accrued liabilities
|
|
|
(1,960,176
|
)
|
Note payable
|
|
|
(1,175,268
|
|
Long term note payable
|
|
|
(200,000
|
|
Total liabilities assumed
|
|
|
(3,335,444
|
|
Non-Controlling interest
|
|
|
151,616
|
|
Net assets acquired
|
|
$
|
2,000,000
|
|
The purchase price consists of the following:
|
|
|
|
|
Note payable
|
|
$
|
500,000
|
|
Earn out payment
|
|
|
750,000
|
|
Common stock
|
|
|
750,000
|
|
Total purchase price
|
|
$
|
2,000,000
|
|
On April 7, 2015, the Agreement was terminated
due to Premier’s default on its purchase obligations for LP&L under the terms of the Agreement. The fair value of non-controlling
interest as of acquisition date was $(151,616). Also, there were earn-out payments to the members of LP&L for the company achieving
an EBITDA of at least $2,500,000 for the most recent completed 12 fiscal months from the preceding year, where the Company was
to be entitled to $500,000 cash and 2,500,000 shares of restricted common stock. In addition, in the event the purchaser or any
subsidiary thereof did not direct customer referrals resulting in gross revenues for the Company of at least $50,000,000 on an
annual basis during the earn out period, the members were to be entitled to $500,000 and 2,500,000 shares of restricted common
stock.
NOTE 5 – 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 date 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. During the year ended December
31, 2016, a total of $612,000 of these notes were converted into shares of common stock, with a total of $746,500 of these notes
remaining as of December 31, 2016.
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 7).
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 December 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 $236,666. The total debt discount recorded during the
year ended December 31, 2016 and 2015 was $70,398 and $616,138, respectively. Interest expense related to the amortization of this
debt discount for the years ended December 31, 2016 and 2015 was $196,262 and $105,827, respectively. During the year ended December
31, 2016, a total of $690,500 of these notes were converted into shares of common stock, with a total of $1,384,300 of these notes
remaining as of December 31, 2016.
During the year ended December 31, 2016,
the total of all notes converted was $1,302,500, with the holders receiving an aggregate of 32,562,500 shares of common stock.
During the years ended December 31, 2016
and 2015, the Company recorded interest expense of $1,934,976 and $899,495, respectively.
NOTE 6 – NOTES PAYABLE
On October 22, 2014, the Company entered
into a note for the acquisition of 85% of Lexington in amount of $325,000. The note payable agreement requires the Company to repay
the principal, together with imputed federal rate for term of the note. This Promissory Note (this “Note”) shall be
payable as follows: (i) an initial payment of $40,625 payable within forty-five (45) days following the date hereof (the “Initial
Payment Date”); and (ii) seven (7) equal monthly installments of $40,625 commencing ninety (90) days following the Initial
Payment Date and each installment ninety (90) days thereafter (each an “Installment Date”). The Maker may prepay this
entire Note at any time without premium or penalty. Any prepayment will be applied first against accrued, but unpaid interest and
then against the outstanding principal balance. Due to the default of this note, the acquisition related to this note payable was
terminated on April 7, 2015; therefore, the Company is released for further payment because of the reversal of ownership interest
in Lexington (See Note 9).
On October 22, 2014, the Company also entered
into a note for the acquisition of 85% of Lexington in amount of $175,000. The note payable agreement requires the Company to repay
the principal, together with imputed federal rate for term of the note. This Promissory Note (this “Note”) shall be
payable as follows: (i) an initial payment of $21,875 payable within forty-five (45) days following the date hereof (the “Initial
Payment Date”); and (ii) seven (7) equal monthly installments of $21,875 commencing ninety (90) days following the Initial
Payment Date and each installment ninety (90) days thereafter (each an “Installment Date”). The Maker may prepay this
entire Note at any time without premium or penalty. Any prepayment will be applied first against accrued, but unpaid interest and
then against the outstanding principal balance. Due to the default of this note, the acquisition related to this note payable was
terminated on April 7, 2015; therefore, the Company is released for further payment because of the reversal of ownership interest
in Lexington.
During 2013, TPC entered into a line of
credit with Energy Me in amount of $50,000. This loan bears no interest, and shall be repaid $2,000 per month. As of December 31,
2015, this loan was fully repaid.
NOTE 7 – 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 $918,000 for the fair value
of the convertible feature included in the Company’s convertible debt instruments as of December 31, 2016. The derivative
liability recorded for the convertible feature created a debt discount of $1,438,000, 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 year ended December 31, 2016, was $238,194. Additionally, $444,000
of debt discount was charged to interest expense during the year ended December 31, 2016, representing the amount of debt discount
in excess of the convertible debt. A total of $514,067 of the debt discount was charged to interest expense during the year ended
December 31, 2016 related to convertible debt converted during the year.
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 $0.051 - $0.077 (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;
|
·
|
Risk free rate - 2.5%;
|
·
|
Dividend yield - 0.0%;
|
·
|
Assumed annual volatility of Company stock – 126.6%; 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 December 31, 2016:
·
|
The value of a share of Company stock on December 31, 2016, the measurement date - $0.0650 (per the over-the-counter market quotes);
|
·
|
Conversion price - $0.0495, based on 80% of the average quoted market price for the Company’s common stock for the 30-day
period ended December 31, 2016; and
|
·
|
Number of shares into which Notes would convert - face value of Notes divided by $0.0495.
|
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
|
|
|
(827,000
|
)
|
Derivative on new loans
|
|
|
990,000
|
|
Reduction due to debt conversions
|
|
|
(729,000
|
)
|
Derivative liability as of December 31, 2016
|
|
$
|
918,000
|
|
NOTE 8 – 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, 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.
On December 19, 2015, the Board of Directors
of the Company approved the sale of 250,000 shares of Series B Preferred Stock to Randall Letcavage for the sum of $70,000 or $.28
per share. This amount was paid by a reduction of the amount it owes to Randall Letcavage, Chief Executive Office and President,
and Chairman of the Board of Directors of the Corporation. Mr. Letcavage abstained from the Board decision to accept his offer.
1,000,000 shares of common stock of the Company were reserved for issuance to the holder of the Series B Preferred Stock when such
shares are converted into shares of common stock automatically three years after the date of issuance.
The Company determined that the fair value
of the 250,000 shares of Series B Stock was approximately $203,000, and recorded the excess amount of approximately $133,000 over
the purchase price of $70,000 as compensation expense for the year ended December 31, 2015.
Common Stock
During the year ended December 31, 2015,
the Company entered into a series of stock purchase agreements with accredited investors for the sale of 16,275,876 shares of its
common stock in the aggregate amount of $795,975.
During the year ended December 31, 2016,
the Company entered into a series of stock purchase agreements with accredited investors for the sale of 106,948,320 shares of
its common stock in amount of $5,486,407. The Company issued 32,562,500 shares of common stock for the conversion of convertible
notes totaling $1,302,500. 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.
During the year ended December 31, 2015,
2,557,889 shares of common stock were issued for certain consulting services. The shares were valued at $168,089, of which $77,500
was recognized as reduction of debt and $90,589 was recognized as expense. The shares were valued based upon the fair value of
the common stock on the measurement date. A summary of these share issuances are as follows:
Date of issuance
|
|
Shares Issued
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
February 12, 2015
(1)
|
|
|
375,000
|
|
|
$
|
26,250
|
|
February 12, 2015
(1)
|
|
|
325,000
|
|
|
|
22,750
|
|
February 12, 2015
(1)
|
|
|
200,000
|
|
|
|
14,000
|
|
February 12, 2015
(1)
|
|
|
100,000
|
|
|
|
7,000
|
|
May 6, 2015
(1)
|
|
|
150,000
|
|
|
|
7,500
|
|
August 7, 2015
|
|
|
82,889
|
|
|
|
5,389
|
|
August 7, 2015
|
|
|
300,000
|
|
|
|
15,000
|
|
September 16, 2015
|
|
|
715,000
|
|
|
|
50,050
|
|
October 6, 2015
|
|
|
25,000
|
|
|
|
1,625
|
|
November 3, 2015
|
|
|
250,000
|
|
|
|
16,250
|
|
December 27, 2015
|
|
|
35,000
|
|
|
|
2,275
|
|
Totals
|
|
|
2,557,889
|
|
|
$
|
168,089
|
|
(1)
Recognized as reduction
of debt.
During the year ended December 31, 2016, 15,942,858 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 $1,027,450, which was recognized immediately as general and administrative expense.
Options for Common Stock
A summary of option activity for the years ended December 31,
2016 and 2015 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
|
|
|
$
|
0.02
|
|
|
|
4.17
|
|
|
$
|
–
|
|
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 December 31, 2016
|
|
|
1,650,000
|
|
|
$
|
0.04
|
|
|
|
3.52
|
|
|
|
–
|
|
Options vested and exercisable at
December 31, 2016
|
|
|
1,650,000
|
|
|
$
|
0.04
|
|
|
|
3.52
|
|
|
|
–
|
|
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 $0 and $355,725 as his stock based compensation related to the stock
options for the years ended December 31, 2016 and 2015, 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 for the years ended December 31,
2016 and 2015 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
|
|
|
219,802,470
|
|
|
|
0.086
|
|
|
|
1.44
|
|
|
|
–
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Canceled/forfeited/expired
|
|
|
(4,959,963
|
)
|
|
|
1.94
|
|
|
|
1.66
|
|
|
|
–
|
|
Outstanding at December 31, 2016
|
|
|
227,271,136
|
|
|
$
|
0.089
|
|
|
|
1.44
|
|
|
|
–
|
|
Warrants vested and exercisable
at December 31, 2016
|
|
|
227,271,136
|
|
|
$
|
0.089
|
|
|
|
1.44
|
|
|
|
–
|
|
During the year ended December 31, 2015,
the Company issued 11,261,963 warrants included with certain convertible notes payable (see Note 5), and 1,166,666 warrants to
third-parties for services with a fair value of $75,286. 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 to 5 years, risk free rates of between 0.84
and 1.37 percent, and annualized volatility of between 130% and 216%.
During the year ended December 31,
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%.
During the year ended December 31,
2016, the Company issued 217,835,820 warrants included with certain stock purchases from accredited investors, with exercise prices
ranging from $0.07 to $0.10, and expiration dates ranging from 7 months to 5 years. There was no expense resulting from these warrants.
NOTE 9 – 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
, Premier 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 have recognized a gain of $1,852,884 related to this event. 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. We are presenting the gain on our statement of operations under the heading “Income from Disposal
of LP&L”. The Company analyzed the carrying value of LP&L’s net assets on the deconsolidation date, determined
amount is $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 anticipates that it will have
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 10 – RELATED PARTY TRANSACTIONS
During the year ended December 31, 2016
and 2015, Mr. Letcavage (directly or through related entities) recorded $292,000 and $290,000, respectively as compensation for
his role as our CEO and CFO in accordance with his Employment Agreement dated January 1, 2014. The following tables outline the
related parties associated with the Company and amounts due 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, a managing director of TPC
|
Mason Ventures and Sebo Services
|
Companies owned by Shadie Kalkas, a managing director of TPC
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
iCapital Advisory – Consulting fees
|
|
$
|
31,467
|
|
|
$
|
75,543
|
|
Jamp Promotion – Commissions
|
|
|
90,500
|
|
|
|
90,500
|
|
Mason Ventures and Sebo Services – Loans
|
|
|
–
|
|
|
|
5,038
|
|
|
|
$
|
121,967
|
|
|
$
|
171,081
|
|
Related party receivable - Mason Ventures and Sebo Services
|
|
$
|
67,879
|
|
|
|
–
|
|
During the year ended December 31, 2016,
we received loans from Mason Ventures of approximately $710,453 and repaid approximately $783,370. During the year ended December
31, 2015, we received loans from Mason Ventures of approximately $670,000 and repaid approximately $700,000. 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 December 31, 2016, it would not
be absorbed by Premier Holding Corporation.
NOTE 11 – 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. In addition, 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 December 31, 2016, the Company has made payments totaling $110,000,
with no remaining balance due at December 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
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 12 – INCOME TAXES
Net deferred tax assets consist of the
following:
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
11,880,000
|
|
|
|
10,310,000
|
|
Valuation allowance
|
|
|
(11,880,000
|
)
|
|
|
(10,310,000
|
)
|
Net deferred tax asset
|
|
$
|
–
|
|
|
$
|
–
|
|
Deferred tax assets consist primarily of
net operating loss carryforwards, stock options issued for services and impairment expense. Management has elected to provide a
deferred tax asset valuation allowance equal to the potential benefit due to our history of losses. If we demonstrate the ability
to generate future taxable income, management will re-evaluate the allowance. The increase in the valuation allowance of approximately
$1,700,000 during the year ended December 31, 2016 primarily represents the benefit of the change in net operating loss carry-forwards
and change of fair value of the derivative liability during the period. The increase in the valuation allowance of approximately
$400,000 during the year ended December 31, 2015 primarily represents the benefit of the change in net operating loss carry-forwards
during the period. As of December 31, 2016, our estimated net operating loss carry-forward is approximately $24,000,000 and will
expire beginning in 2032 through 2036. Internal Revenue Code Section 382 limits the ability to utilize net operating losses if
a 50% change in ownership occurs over a three-year period. Such limitation of the net operating losses may have occurred but we
have not analyzed it at this time as the deferred tax asset is fully reserved.
The Company’s predecessor operated
as an entity exempt from federal and state income taxes. The Company has not yet filed tax returns for 2013, 2014, 2015 and 2016,
which are subject to examination.
NOTE 13 - SUBSEQUENT EVENTS
From January through March 2017, the Company
entered into a series of stock purchase agreements with accredited investors for the sale of 12,472,502 shares of its common
stock in the aggregate amount of $643,700.
From January through March 2017, the Company received an aggregate of $820,134 from accredited investors for the sale of 12,734,471
shares of common stock of which shares have not yet been issued as of the date of this filing.