NOTE 2 – GOING CONCERN AND MANAGEMENT’S
LIQUIDITY PLANS
As of September 30, 2017,
the Company had an accumulated deficit of approximately $37 million. For the nine months ended September 30, 2017 and 2016, the
Company incurred operating losses of $7,544,869 and $3,887,113, respectively, and used cash in operating activities of $2,733,066
and $2,976,879, 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
which may be 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
The following table presents details of the
Company’s goodwill as of September 30, 2017 and December 31, 2015:
|
|
The Power Company
USA, LLC
|
|
Balances at January 1, 2016:
|
|
$
|
4,000,000
|
|
Aggregate goodwill acquired
|
|
|
–
|
|
Impairment losses
|
|
|
–
|
|
Balances at December 31, 2016:
|
|
|
4,000,000
|
|
Aggregate goodwill acquired
|
|
|
–
|
|
Impairment losses
|
|
|
(2,085,000
|
)
|
Balances at September 30, 2017:
|
|
$
|
1,915,000
|
|
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 nine months ended September 30, 2017 is $225,000.
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, a 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,
along 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.
The
Company used a blend of the discounted cash flow method and the guideline company transactions method for the impairment testing
as of September 30, 2017. The Company performed discounted cash flow analysis projected over 5 years to estimate the fair value
of the reporting unit, using management’s best judgement as to revenue growth rates and expense projections. This analysis
indicated cash flows (and discounted cash flows) less than the $4 million book value of goodwill. This analysis factored the recent
reduction in residential revenue at TPC, which was due primarily to the sales agent attrition of approximately 25% of the door-to-door
sales force. The average number of agents in the field fell from 80 in September of 2016 to 60 in September 2017. The drop in the
number of agents was due primarily to an outside sales organization who recruited these agents. Since then, TPC has settled a suit
that TPC initiated against this firm in which, along with a monetary penalty, the firm agreed to not solicit TPC agents in
the future. TPC is actively recruiting to replace this sales force. Also, sales were impacted due to the transitioning of resources
to call center and online residential sales in preparation for transitioning to selling our own alternative supplier. The Company
determined these were indicators of impairment in goodwill for TPC during the three months ended September 30, 2017 and impaired
the goodwill by $2,085,000.
NOTE 4 – CONVERTIBLE NOTES PAYABLE
Between July 15, 2014 and
December 21, 2015, the Company entered into convertible notes with third-parties for use as operating capital for a total of $1,358,500.
The convertible notes payable agreements require the Company to repay the principal, together with 10 - 18% annual interest by
the agreements’ expiration dates ranging between July 15, 2019 and August 6, 2020. The notes are secured by assets of the
Company and mature five years from the issuance date and automatically convert into 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 date falls, unless an election is made
for repayment in cash one year from the contract date. In the event such an election is made, the holders may 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 nine months ended September 30, 2017, a total of $12,000 of these notes were converted into shares
of common stock, with a total of $815,000 of these notes remaining as of September 30, 2017.
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 5).
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, 2018 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 September 30, 2017, 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 $93,707. The total debt discount recorded during
the nine months ended September 30, 2017 and 2016 was $0 and $70,398, respectively. Interest expense related to the amortization
of this debt discount for the nine months ended September 30, 2017 and 2016 was $101,414 and $156,426, respectively. During the
nine months ended September 30, 2017, a total of $311,500 of these notes were converted into shares of common stock, with a total
of $992,300 of these notes remaining as of September 30, 2017.
During the nine months
ended September 30, 2017, the total of all notes converted was $323,500, with the holders receiving an aggregate of 8,087,500 shares
of common stock. The net balance of all notes as of September 30, 2017 of $1,225,614 reflects total notes of $1,807,300, net of
debt discounts of $93,707 related to the warrants and $487,979 related to the derivative liability (see Note 5).
During the nine months
ended September 30, 2017 and 2016, the Company recorded interest expense of $511,201 and $1,769,083, 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 $387,000 for the fair
value of the convertible feature included in the Company’s convertible debt instruments as of September 30, 2017. 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 at September
30, 2017 with an unamortized balance of $487,979. Interest expense related to the amortization of this debt discount for the nine
months ended September 30, 2017, was $153,268. Additionally, $0 of debt discount was charged to interest expense during the nine
months ended September 30, 2017, representing the amount of debt discount in excess of the convertible debt. A total of $0 of the
debt discount was charged to interest expense during the nine months ended September 30, 2017 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 ranging from 109.4% – 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 September 30, 2017:
·
|
The value of a share of Company stock on September 30, 2017, the measurement date - $0.0547 (per the over-the-counter market quotes);
|
·
|
Conversion price - $0.0424, based on 80% of the average quoted market price for the Company’s common stock for the 30-day period ended September 30, 2017; and
|
·
|
Number of shares into which Notes would convert - face value of Notes divided by $0.0424.
|
The following table summarizes
the derivative liability included in the consolidated balance sheet:
Derivative liability as of December 31, 2016
|
|
$
|
918,000
|
|
Change in fair value of derivative liability
|
|
|
(531,000
|
)
|
Derivative on new loans
|
|
|
–
|
|
Reduction due to debt conversions
|
|
|
–
|
|
Derivative liability as of September 30, 2017
|
|
$
|
387,000
|
|
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 September 30, 2017, 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 three 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
On
June 22, 2017, the Board of Directors of the Company approved, and recommended to the holders of a majority of the total voting
power of all issued and outstanding voting capital of the Company (the “Majority Stockholders”) that they approve an
increase in the total number of authorized shares of the Company’s common stock from 450,000,000 to 1,400,000,000. On June
23, 2017, the Company received written consent in lieu of a meeting from the Majority Stockholders, amending the Company's Certificate
of Incorporation, as amended, to this increase in authorized shares. The Company filed the amendment with the State of Nevada on
August 14, 2017.
During the nine months
ended September 30, 2017, the Company entered into a series of stock purchase agreements with accredited investors for the sale
of 40,519,135 shares of its common stock in amount of $1,536,875. Additionally, 29,811,631 shares of common stock were issued for
consulting services valued at prices ranging from $0.055 to $0.074 per share, based upon the fair value of the common stock on
the measurement date totaling $2,049,267, which was recognized immediately as general and administrative expense. The Company issued
8,087,500 shares of common stock for the conversion of convertible notes totaling $323,500.
On August 4, 2017, 4,050,000
shares of the Company’s common stock were cancelled and returned to the Company.
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 September
30, 2017 is presented below:
|
|
Number
Outstanding
|
|
|
Weighted-Average
Exercise Price
Per Share
|
|
|
Weighted-Average
Remaining
Contractual Life
(Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2016
|
|
|
1,650,000
|
|
|
$
|
0.04
|
|
|
|
4.53
|
|
|
$
|
–
|
|
Granted
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Canceled/forfeited/expired
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Outstanding at December 31, 2016
|
|
|
1,650,000
|
|
|
|
0.04
|
|
|
|
3.52
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Canceled/forfeited/expired
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Outstanding at September 30, 2017
|
|
|
1,650,000
|
|
|
|
0.04
|
|
|
|
2.78
|
|
|
|
–
|
|
Options vested and exercisable at September 30, 2017
|
|
|
1,650,000
|
|
|
$
|
0.04
|
|
|
|
2.78
|
|
|
$
|
–
|
|
On September 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 for
5,000,000 shares vesting over 2 years at an initial exercise price per share equal to $.0025 per share. Stock options have vested
at the following rate:
·
|
1,000,000 (one million) shares of common stock on the Commencement Date (January 1, 2014);
|
·
|
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. 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 September
30, 2017 is presented below:
|
|
Number
Outstanding
|
|
|
Weighted-Average
Exercise Price
Per Share
|
|
|
Weighted-Average
Remaining
Contractual Life
(Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2016
|
|
|
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
|
|
|
|
–
|
|
Warrants vested and exercisable at December 31, 2016
|
|
|
227,271,136
|
|
|
|
0.089
|
|
|
|
1.44
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
78,395,012
|
|
|
|
0.080
|
|
|
|
0.76
|
|
|
|
–
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Canceled/forfeited/expired
|
|
|
(132,896,661
|
)
|
|
|
0.086
|
|
|
|
–
|
|
|
|
–
|
|
Outstanding at September 30, 2017
|
|
|
172,769,487
|
|
|
$
|
0.088
|
|
|
|
1.52
|
|
|
$
|
–
|
|
Warrants vested and exercisable at September 30, 2017
|
|
|
172,769,487
|
|
|
$
|
0.088
|
|
|
|
1.52
|
|
|
$
|
–
|
|
During the nine months
ended September 30, 2017, the Company issued 49,850,252 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.
During the nine months
ended September 30, 2017, the Company issued 28,544,760 warrants to consultants for services, with exercise prices ranging from
$0.07 to $0.10, and an expiration date of one year. The Company recorded expense of $808,356 related to these warrants which is
included in selling, general and administrative expense for the nine months ended September 30, 2017.
NOTE 7 – RELATED PARTY TRANSACTIONS
During the nine months
ended September 30, 2017 and 2016, Mr. Letcavage (directly or through related entities) earned $295,020 and $180,000, 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, a managing director of TPC
|
Mason Ventures and Sebo Services
|
|
Companies owned by Shadie Kalkas, a managing director of TPC
|
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
Amounts due to related parties
|
|
|
|
|
|
|
|
|
iCapital Advisory – consulting fees
|
|
$
|
–
|
|
|
$
|
31,467
|
|
Jamp Promotion – commissions
|
|
|
90,500
|
|
|
|
90,500
|
|
|
|
$
|
90,500
|
|
|
$
|
121,967
|
|
|
|
|
|
|
|
|
|
|
Related party receivable - Mason Ventures and Sebo Services
|
|
$
|
52,429
|
|
|
$
|
67,879
|
|
During the nine months
ended September 30, 2017, the Company received loans from Mason Ventures of approximately $15,450 and repaid $0. 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) for the nine months ended
September 30, 2017, it would not be absorbed by Premier Holding Corporation.
NOTE 8 – 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
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.
NOTE 9 – SUBSEQUENT EVENTS
From October through
November 20, 2017, the Company issued 9,538,346 common shares to accredited investors for aggregate proceeds of approximately $600,000.
In October 2017, the
Company issued 581,250 common shares for services to a consultant for services at $0.0547 per share.
ITEM 2. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This
Quarterly Report on Form 10-Q 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.
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 Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the
Securities and Exchange Commission on March 31, 2017, 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. Some of those risks and uncertainties include,
but are not limited to, the following:
|
·
|
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;
|
|
·
|
our plans to identify and acquire products that we believe will be prospective for acquisition
and development;
|
|
·
|
Our ability to adequately fund our power supplier, AIC;
|
|
·
|
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 legislation 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.
|
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. 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 current 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 Quarterly
Report on Form 10-Q 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 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.
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 and through 2012, we reorganized as a holding
company that provides financial and management expertise, which includes access to capital, financing, legal, insurance, mergers,
acquisitions, joint ventures and management strategies to our subsidiaries. Our common stock is quoted on the OTC Markets Group
Inc., QB tier (“OTCQB”), under the symbol “PRHL”.
In August of 2012, we acquired
a unique marquee technology for energy efficient lighting, the E-Series controller developed by Active ES. This patented technology
provides an upgrade for existing HID lamps for high-bay indoor and outdoor applications. In the fourth quarter of 2012, the Company
performed additional research and development to the products from Active ES adding two new products for mass production, the 480-volt
version of the controller, suitable for ports and other large facilities, and a 240-volt version of the LiteOwl for Streetlights,
vastly increasing the applicable market.
In the 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 was adding between 1,000 and 3,000 clients per month. By 2015 and 2016, TPC added an average of 3,000 clients
per month, and 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.
As a result of our acquisitions,
today we provide an array of energy services through E3 and TPC. In addition to organic growth, we expect that strategic acquisitions
of complementary businesses and assets will remain an important part of our growth plan to enable us to broaden our service offerings
and expand our geographical reach.
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 as an intangible asset on the balance sheet as of September
30, 2017.
Business Overview
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
conservation technologies 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 are focused on providing business customers with best-in-class demand management
solutions such as lighting (LED), HVAC, Commercial Refrigeration and Water Sub-Metering.
The sales, design and implementation
process for energy efficiency projects can take from several months to several years. Existing and potential customers generally
follow extended budgeting and procurement processes and sometimes must engage in regulatory approval processes. This extended sales
process requires the dedication of significant time by sales and management personnel of the Company and the use of significant
financial resources, with no certainty of success or recovery of related expenses.
To date, E3 and its growing
reseller base have prospected a large number of qualified potential installations and is developing strategic partners including
energy auditors, suppliers, installers, sales organizations and funding sources. These suppliers exponentially increased the number
of the product offerings mostly in the LED and other efficiency fields. The installers not only bring a technical expertise in
implementing solutions E3 provides its customers, but they also bring their list of clients and the various funding sources that
can provide every sort of financing to meet any client’s needs from short-term loans, leases, on-bill financing, to PACE
funding.
The Company believes that
E3 is finding success in the sale and installation of LED lighting both as direct sales to mid- and large-sized customers and in
utilizing rebate programs from power providers (SCE, etc.). E3 continues to recruit LED resellers whose clients have declined an
LED sale and is going back to those clients and offering the E-Series technology as a solution for their existing (and preferred)
HID lighting. This includes, but is not limited to, end users such as auto dealerships, warehouses, and parking structures.
In 2016 E3 signed an agreement
with Sustainability Partners (“SP”) to generate leads for SP’s unique “Sustainability-as-a-Services”
business model. The model involves SP providing all technology, labor and maintenance at no up-front costs, and the agreement is
to place pre-agreed rate onto the existing utility bill. If there is no consumption, there is no bill, and all maintenance is the
responsibility of SP. This appears as a month-to-month fee, with no long-term obligation. There are additional features and conditions.
This is very different from the ESCO (typically “shared savings” for an extended time, sometimes in perpetuity), lease,
and PACE (costs placed on property taxes over time) programs, with less risk and more benefits to the client. In this agreement,
E3 receives a commission on the entire sustainability project, which can be much larger than a lighting project, and the majority
of the work is performed by SP. E3 expects that the volume of sales could increase due to the reduced efforts required by E3 on
each sale. E3 is building a network of lead generators in support of this program.
TPC’s Business
TPC provides competitive
energy pricing delivered with no change in services provided by a customer’s local utility provider. There are currently
16 states that have deregulated their electrical energy markets. While many consumers have already benefitted from deregulated
energy, there are millions more that have not taken advantage of this opportunity. It is estimated that federally requested energy
deregulation will be enacted in some form in more of the 50 states by 2020. The deregulation industry is estimated at 7 to 11 times
larger than when the telecom industry deregulated. Today and as this market broadens, the Company expects TPC to continue to leverage
its strength in these emerging markets.
Prior to deregulation,
the utility market in each state was monopolized. One utility provided all components of energy services: supply and distribution.
In 1992, Congress passed the National Energy Policy Act, allowing consumers in deregulated states the power to choose their energy
supplier. TPC is an experienced energy consulting firm in the deregulation space that utilizes its market standing and its large,
well-established network of energy suppliers to compete for its clients’ business. With no cost to, or obligation by its
clients, TPC serves as its clients’ energy advocate 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% or more 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 TPC 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 its 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, which is a sophisticated energy portal enabling 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 prospective client. 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 a 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
The primary value that
AIC will add to the Company is that it enables customers to recognize immediate savings via lowering their electricity bills by
supplying energy marketing firms with a more competitive platform to access electricity contracts and support. Through the Company’s
ownership of TPC, this creates a built-in strategic partnership for the states that TPC is already reselling power to, including
Connecticut, District of Columbia, Delaware, Illinois, Maine, Massachusetts, Maryland, New Hampshire, New Jersey, New York, Ohio,
Pennsylvania, Rhode Island and Texas. AIC will have to obtain state, local, utility and other approvals in order to supply power
in these several states, but pending such approvals, AIC may benefit from TPCs existing database of over 200,000 current and past
clients to “jumpstart” its progress. We anticipate that half of all contracts written by TPC could be supplied by AIC.
Through this relationship
to establish a large wholesale broker sales network, AIC plans to achieve operating and sales velocity more quickly in order to
form a strong foundation to establish positive cash flows. We believe that TPC can direct a material portion of its customers to
AIC. We believe this presents a major opportunity for AIC to scale quickly through its strong relationship with TPC. In addition
to contract sales generated by TPC, we expect that AIC will expand its offerings to consumers through other energy brokers in order
to expand revenue.
Corporate Developments During the Period
Covered by this Report
On August 14, 2017, we
filed a Certificate of Amendment to our Amended Articles of Incorporation (the “Articles of Amendment”) with the Secretary
of State of Nevada effecting an increase in the authorized shares of common stock from 400,000,000 to 1,400,000,000 (the “Corporate
Action”). The number of authorized preferred shares remained unchanged by the Corporate Action at 50,000,000. The Corporate
Action and the Articles of Amendment became effective on August 14, 2017, following expiration of a 20-day waiting period following
mailing of notification to shareholders of the actions taken by written consent.
Results of Operations
Comparison of the Three Months Ended September
30, 2017 to the Three Months Ended September 30, 2016
Revenue and Operating Expenses
The Company’s revenue
and operating expenses for the three months ended September 30, 2017 and 2016 are summarized as follows:
|
|
Three Months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Revenues
|
|
$
|
621,327
|
|
|
$
|
1,130,406
|
|
Cost of revenues
|
|
|
–
|
|
|
|
100,457
|
|
Gross profit
|
|
|
621,327
|
|
|
|
1,029,949
|
|
Selling, general and administrative expenses
|
|
|
1,547,069
|
|
|
|
2,511,042
|
|
Impairment loss – goodwill
|
|
|
2,085,000
|
|
|
|
–
|
|
Operating loss
|
|
$
|
(3,010,742
|
)
|
|
$
|
(1,481,093
|
)
|
The decrease in revenue
for the three months ended September 30, 2017, compared to the three months ended September 30, 2016 is due primarily to a reduction
in residential revenue at TPC, which was due primarily to the sales agent attrition of approximately 25% of the door-to-door sales
force. The average number of agents in the field fell from 80 in September of 2016 to 60 in September 2017. The drop in the number
of agents was due primarily to an outside sales organization who recruited these agents. Since then, TPC has settled a suit that
TPC initiated against this firm in which, along with a monetary penalty, the firm agreed to not solicit TPC agents in the future.
TPC is actively recruiting to replace this sales force. Also, sales were impacted due to the transitioning of resources to call
center and online residential sales in preparation for transitioning to selling our own alternative supplier.
The decrease in cost of
revenue for the three months ended September 30, 2017, compared to the three months ended September 30, 2016 is due to a reduction
in product revenue from our E3 subsidiary.
The decrease in selling,
general and administrative expenses for the three months ended September 30, 2017, compared to the three months ended September
30, 2016 is due primarily to a decrease in compensation paid to consultants related to strategic business and financial advisory
services and a decrease in commissions paid at our TPC subsidiary due to lower revenues at TPC.
The
impairment loss related to goodwill during the three months ended September 30, 2017 is a result of management’s determination
of impairment of the goodwill related to its 2013 acquisition of TPC. We used a blend of the discounted cash flow method and the
guideline company transactions method for the impairment testing as of September 30, 2017. The Company performed discounted cash
flow analysis projected over 5 years to estimate the fair value of the reporting unit, using management’s best judgement
as to revenue growth rates and expense projections. This analysis indicated cash flows (and discounted cash flows) less than the
$4 million book value of goodwill. This analysis also factored the recent reduction in residential revenue at TPC. We determined
these were indicators of impairment in goodwill for TPC during the three months ended September 30, 2017 and impaired the goodwill
by $2,085,000.
Other Income (Expense)
|
|
Three Months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Interest expense
|
|
$
|
(144,725
|
)
|
|
$
|
(952,157
|
)
|
Gain (loss) on change in fair value of derivative liability
|
|
|
157,000
|
|
|
|
462,000
|
|
Total
|
|
$
|
12,275
|
|
|
$
|
(490,157
|
)
|
The decrease in other expense
for the three months ended September 30, 2017, compared to the prior period is mainly attributable to the decrease in convertible
notes from conversions to common stock resulting in decreased interest expense and a decrease in the changes in the related derivative
liability.
Comparison of the Nine Months Ended September
30, 2017 to the Nine Months Ended September 30, 2016
Revenue and Operating Expenses
The Company’s revenue
and operating expenses for the nine months ended September 30, 2017 and 2016 are summarized as follows:
|
|
Nine months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Revenues
|
|
$
|
2,038,395
|
|
|
$
|
3,649,141
|
|
Cost of revenues
|
|
|
3,364
|
|
|
|
339,742
|
|
Gross profit
|
|
|
2,035,031
|
|
|
|
3,309,399
|
|
Selling, general and administrative expenses
|
|
|
7,494,900
|
|
|
|
7,196,512
|
|
Impairment loss – goodwill
|
|
|
2,085,000
|
|
|
|
–
|
|
Operating loss
|
|
$
|
(7,544,869
|
)
|
|
$
|
(3,887,113
|
)
|
The decrease in revenue
for the nine months ended September 30, 2017, compared to the six months ended September 30, 2016 is due primarily to a reduction
in residential revenue at TPC, which was due primarily to the sales agent attrition of approximately 25% of the door-to-door sales
force. The average number of agents in the field fell from 80 in September of 2016 to 60 in September 2017. The drop in the number
of agents was due primarily to an outside sales organization who recruited these agents. Since then, TPC has settled a suit that
TPC initiated against this firm in which, along with a monetary penalty, the firm agreed to not solicit TPC agents in the future.
TPC is actively recruiting to replace this sales force. Also, sales were impacted due to the transitioning of resources to call
center and online residential sales in preparation for transitioning to selling our own alternative supplier.
The decrease in cost of
revenue for the nine months ended September 30, 2017, compared to the six months ended September 30, 2016 is due to a reduction
in product revenue from our E3 subsidiary.
The increase in selling,
general and administrative expenses for the nine months ended September 30, 2017, compared to the nine months ended September
30, 2016 is due primarily to an increase in stock based compensation paid to consultants for services during the first quarter
of 2017. These services included advisory services related to strategic planning, equity and debt financings, restructuring for
a potential listing onto a major exchange and assisting the Company in obtaining qualified persons to serve as senior management
and directors.
The impairment loss related
to goodwill during the three months ended September 30, 2017 is a result of management’s determination of impairment of the
goodwill related to its 2013 acquisition of TPC. We used a blend of the discounted cash flow method and the guideline company transactions
method for the impairment testing as of September 30, 2017. The Company performed discounted cash flow analysis projected over
5 years to estimate the fair value of the reporting unit, using management’s best judgement as to revenue growth rates and
expense projections. This analysis indicated cash flows (and discounted cash flows) less than the $4 million book value of goodwill.
This analysis also factored the recent reduction in residential revenue at TPC. We determined these were indicators of impairment
in goodwill for TPC during the three months ended September 30, 2017 and impaired the goodwill by $2,085,000.
Other Income (Expense)
|
|
Nine months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Interest expense
|
|
$
|
(511,201
|
)
|
|
$
|
(1,769,083
|
)
|
Gain (loss) on change in fair value of derivative liability
|
|
|
531,000
|
|
|
|
658,000
|
|
Total
|
|
$
|
19,799
|
|
|
$
|
(1,111,083
|
)
|
The decrease in other expense
for the nine months ended September 30, 2017, compared to the prior period is mainly attributable to the decrease in convertible
notes from conversions to common stock resulting in decreased interest expense.
Liquidity and Capital Resources
Working Capital
The following table sets forth a summary of
working capital as of September 30, 2017 and December 31, 2016:
September 30,
|
|
December 31,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
Current assets
|
|
$
|
1,888,752
|
|
|
$
|
2,506,842
|
|
Current liabilities
|
|
|
2,236,798
|
|
|
|
2,840,956
|
|
Working capital
|
|
$
|
(348,046
|
)
|
|
$
|
(334,114
|
)
|
The decrease in working
capital is due primarily from the reduction cash balances, along with a decrease in the derivative liability related to convertible
notes.
Cash Flows
The following table sets forth a summary of
changes in cash flows for the nine months ended September 30, 2017 and 2016:
|
|
Nine months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Net cash used in operating activities
|
|
$
|
(2,733,066
|
)
|
|
$
|
(2,976,879
|
)
|
Net cash used in investing activities
|
|
|
(1,663
|
)
|
|
|
(201,699
|
)
|
Net cash provided by financing activities
|
|
|
2,110,087
|
|
|
|
4,697,344
|
|
Change in cash
|
|
$
|
(624,642
|
)
|
|
$
|
1,518,766
|
|
The decrease in cash used
in operating activities was due primarily to a decrease in revenues at TPC for the nine months ended September 30, 2017 as compared
to the same period in 2016.
The decrease in cash from
financing activities was due primarily to a decrease in proceeds from the sale of common stock and issuance of convertible notes
payable for the nine months ended September 30, 2017 as compared to the same period in 2016.
Private Placement Offering
During the nine months
ended September 30, 2017, the Company entered into a series of stock purchase agreements with accredited investors for the sale
of 40,519,135 shares of its common stock in amount of $1,536,875.
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 nine months ended September 30, 2017.
Convertible Notes Payable
During the nine months
ended September 30, 2017, the Company did not issue any new convertible notes.
During the nine months
ended September 30, 2017, the Company issued 8,087,500 shares of common stock for the conversion of convertible notes totaling
$323,500.
The unaudited condensed
consolidated financial statements contained in this quarterly 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 September 30, 2017, the Company had an accumulated deficit of approximately
$37 million. During the nine months ended September 30, 2017, the Company incurred operating losses of $7,544,869 and used cash
in operating activities of $2,733,066. 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 operations 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 increasing 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. At this time and at
our current burn rate, we have sufficient capital to fund our operations through the balance of this fiscal year. However, once
we begin operations at AIC, we expect to need additional capital to be able to purchase power and pay commissions. At this time,
we have not determined the amount that may be needed. 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 September 30,
2017 and in the notes to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December
31, 2016, as filed with the Securities and Exchange Commission on March 31, 2017.
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 September 30,
2017.