NOTE 2 – GOING CONCERN AND MANAGEMENT’S
LIQUIDITY PLANS
As of June 30, 2018,
the Company had an accumulated deficit of approximately $42 million. For the six months ended June 30, 2018 and 2017, the Company
incurred operating losses of $1,918,424 and $4,534,127, respectively, and used cash in operating activities of $1,073,620 and $1,422,910,
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 June 30, 2018 and December 31, 2017:
|
|
|
The Power Company
USA, LLC
|
|
|
Balances at January 1, 2017:
|
|
$
|
4,000,000
|
|
|
Aggregate goodwill acquired
|
|
|
–
|
|
|
Impairment losses
|
|
|
(4,000,000
|
)
|
|
Balances at December 31, 2017:
|
|
|
–
|
|
|
Aggregate goodwill acquired
|
|
|
–
|
|
|
Impairment losses
|
|
|
–
|
|
|
Balances at June 30, 2018:
|
|
$
|
–
|
|
The Power Company USA, LLC Share Exchange
On February 28, 2013,
the Company acquired 80% of the outstanding membership units of TPC, a deregulated power broker in Illinois for thirty million
30,000,000 shares of Premier’s common stock valued at $4,500,000. The total purchase price for TPC was allocated as follows:
|
Goodwill
|
|
$
|
4,500,000
|
|
|
Total assets acquired
|
|
|
4,500,000
|
|
|
The purchase price consists of the following:
|
|
|
|
|
|
Common Stock
|
|
|
4,500,000
|
|
|
Total purchase price
|
|
$
|
4,500,000
|
|
The total amount of
goodwill that is expected to be deductible for tax purposes is $4,500,000 and is amortized over 15 years. The total amortization
expense for tax purposes for the six months ended June 30, 2018 is $75,000.
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 year ended December 31, 2017 and impaired the goodwill
by $4,000,000.
NOTE 4 – CONVERTIBLE NOTES PAYABLE
AND NOTES PAYABLE
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 six months ended June 30, 2018, a total of $40,000 of these notes were converted into shares
of common stock, with a total of $775,000 of these notes remaining as of June 30, 2018.
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 June 30, 2018, 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 $6,659. The total debt discount recorded during the
six months ended June 30, 2018 and 2017 was $0 and $0, respectively. Interest expense related to the amortization of this debt
discount for the six months ended June 30, 2018 and 2017 was $56,261 and $70,626, respectively. During the six months ended June
30, 2018, a total of $40,000 of these notes were converted into shares of common stock, with a total of $952,300 of these notes
remaining as of June 30, 2018.
During the six months
ended June 30, 2018, the total of all notes converted was $80,000. The net balance of all notes as of June 30, 2018 of $1,334,258
reflects total notes of $1,727,300, net of debt discounts of $6,659 related to the warrants and $335,585 related to the derivative
liability (see Note 5).
Notes Payable
During the six months
ended June 30, 2018, the Company’s subsidiary, TPC, entered into five fundings agreements for aggregate net proceeds of approximately
$187,000, requiring repayments ranging from approximately $300 to $1200 per business day until repaid. Total repayments under these
agreements was approximately $60,000 for the six months ended June 30, 2018, leaving an aggregate balance of $127,268 which is
included in notes payable as of June 30, 2018. Additionally, TPC, borrowed approximately $100,000 for the purchase of a vehicle
with interest at 6%. Total repayments for all vehicle loans was approximately $14,000 for the six months ended June 30, 2018 leaving
an aggregate balance of $201,554 which is included in notes payable as of June 30, 2018.
During the six months
ended June 30, 2018 and 2017, the Company recorded interest expense of $303,449 and $366,476, 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 $478,600
for the fair value of the convertible feature included in the Company’s convertible debt instruments as of June 30, 2018.
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 June 30, 2018 with an unamortized balance of $335,585. Interest expense related to the amortization of this debt discount for
the six months ended June 30, 2018, was $101,038. Additionally, $0 of debt discount was charged to interest expense during the
six months ended June 30, 2018, 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 six months ended June 30, 2018 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 $0.026 - $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 June 30, 2018:
|
·
|
The value of a share of Company stock on June 30, 2018, the measurement date - $0.0200 (per the over-the-counter market quotes);
|
|
·
|
Conversion price - $0.0145, based on 80% of the average quoted market price for the Company’s common stock for the 30-day period ended June 30, 2018; and
|
|
·
|
Number of shares into which Notes would convert - face value of Notes divided by $0.0145.
|
The following table
summarizes the derivative liability included in the consolidated balance sheet:
|
Derivative liability as of December 31, 2017
|
|
$
|
226,000
|
|
|
Change in fair value of derivative liability
|
|
|
252,600
|
|
|
Derivative on new loans
|
|
|
–
|
|
|
Reduction due to debt conversions
|
|
|
–
|
|
|
Derivative liability as of June 30, 2018
|
|
$
|
478,600
|
|
NOTE 6 – STOCKHOLDERS’ EQUITY
Preferred Stock
On June 3, 2013, the
Company filed a Certificate of Amendment of Articles of Incorporation with the State of Nevada Secretary of State giving it the
authority to issue 50,000,000 shares of preferred stock with a par value of $0.0001 per share. As of June 30, 2018, 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 June 30, 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 six months
ended June 30, 2018, the Company entered into a series of stock purchase agreements with accredited investors for the sale of 27,482,363
shares of its common stock in amount of $461,570. Additionally, 14,046,137 shares of common stock were issued for consulting services
valued at prices ranging from $0.025 to $0.030 per share, based upon the fair value of the common stock on the measurement date
totaling $718,619, which was recognized immediately as general and administrative expense.
Unless otherwise set
forth above, the securities described above were not registered under the Securities Act of 1933, as amended (the “Securities
Act”), or the securities laws of any state, and were offered and sold in reliance on the exemption from registration afforded
by Section 4(a)(2) under the Securities Act and Regulation D promulgated thereunder and corresponding provisions of state securities
laws, which exempt transactions by an issuer not involving any public offering.
Options for Common Stock
A summary of option activity as of June
30, 2018 is presented below:
|
|
|
Number
Outstanding
|
|
|
Weighted-Average
Exercise Price
Per Share
|
|
|
Weighted-Average
Remaining
Contractual Life
(Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2017
|
|
|
1,650,000
|
|
|
$
|
0.04
|
|
|
|
4.53
|
|
|
$
|
–
|
|
|
Granted
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Canceled/forfeited/expired
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Outstanding at December 31, 2017
|
|
|
1,650,000
|
|
|
|
0.04
|
|
|
|
3.52
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Canceled/forfeited/expired
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Outstanding at June 30, 2018
|
|
|
1,650,000
|
|
|
|
0.04
|
|
|
|
2.03
|
|
|
$
|
21,000
|
|
|
Options vested and exercisable at June 30, 2018
|
|
|
1,650,000
|
|
|
$
|
0.04
|
|
|
|
2.03
|
|
|
$
|
21,000
|
|
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 June
30, 2018 is presented below:
|
|
|
Number
Outstanding
|
|
|
Weighted-Average
Exercise Price
Per Share
|
|
|
Weighted-Average
Remaining
Contractual Life
(Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2017
|
|
|
227,271,136
|
|
|
$
|
0.089
|
|
|
|
1.44
|
|
|
$
|
–
|
|
|
Granted
|
|
|
78,395,012
|
|
|
|
0.080
|
|
|
|
0.76
|
|
|
|
–
|
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Canceled/forfeited/expired
|
|
|
(158,166,661
|
)
|
|
|
0.085
|
|
|
|
–
|
|
|
|
–
|
|
|
Warrants vested and exercisable at December 31, 2017
|
|
|
147,499,487
|
|
|
|
0.089
|
|
|
|
1.50
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
35,184,000
|
|
|
|
0.070
|
|
|
|
0.82
|
|
|
|
–
|
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Canceled/forfeited/expired
|
|
|
(30,648,331
|
)
|
|
|
0.101
|
|
|
|
–
|
|
|
|
–
|
|
|
Outstanding at June 30, 2018
|
|
|
152,035,156
|
|
|
|
0.082
|
|
|
|
1.19
|
|
|
|
–
|
|
|
Warrants vested and exercisable at June 30, 2018
|
|
|
152,035,156
|
|
|
$
|
0.082
|
|
|
|
1.19
|
|
|
$
|
–
|
|
During the six months
ended June 30, 2018, the Company issued 35,184,000 warrants included with certain stock purchases from accredited investors, with
exercise prices ranging from $0.07 to $0.10, and expiration dates ranging from 1 to 2 years. There was no expense resulting from
these warrants.
NOTE 7 – RELATED PARTY TRANSACTIONS
During the six months
ended June 30, 2018 and 2017, Mr. Letcavage (directly or through related entities) earned $159,720 and $215,160, 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
|
|
Amounts due to related parties
|
|
June 30,
2018
|
|
|
December 31,
2017
|
|
|
iCapital Advisory – consulting fees and expenses
|
|
$
|
169,785
|
|
|
$
|
110,656
|
|
|
Jamp Promotion – commissions
|
|
|
90,500
|
|
|
|
90,500
|
|
|
|
|
$
|
260,285
|
|
|
$
|
201,156
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party receivable - Mason Ventures and Sebo Services
|
|
$
|
52,429
|
|
|
$
|
52,429
|
|
During the six months
ended June 30, 2018, the Company received loans from Mason Ventures of approximately $0 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 six months ended
June 30, 2018, 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
Securities and Exchange Commission v.
Premier Holding Corporation, et. al. (the “SEC Litigation”).
The SEC Litigation, set in the U.S. District
Court for the Central District of California, alleges that:
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·
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Premier is liable for violating Section 17(a) of the Securities Act, Sections 10(b), 13(a), 13(b)(2)(A),
and 13(b)(2)(b) of the Exchange Act, and Rules 10b-5, 13a-1, 13a-11, and 13a-13 thereunder; and
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·
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Letcavage (our CEO and President) is liable for: (i) violating Securities Act Section 17(a) and
Exchange Act Section 10(b) and Rule 10b-5 thereunder, Exchange Act Sections 13(a) and 13(b)(5) and Rules 13a-14 and 13b2-1 thereunder;
(ii) as a control person under Exchange Act Section 20(a) for Premier’s violations of the Exchange Act; and (iii) under Exchange
Act Section 20(e) and Securities Act Section 15(b) for aiding and abetting Premier’s violations of Securities Act Sections
17(a)(2) and 17(a)(3), Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B), and Rules 13a-1, 13a-11, and 13a-13 thereunder.
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The SEC Litigation
seeks permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest thereon, and civil monetary penalties
as to Premier and Letcavage, as well as a penny stock bar and an officer-and-director bar against Mr. Letcavage. The SEC Litigation
is currently being set for trial. The Company and Mr. Letcavage are currently vigorously contesting the SEC Litigation. Settlement
discussions to date have not been productive. At this time, an estimate of the outcome of this matter cannot be determined.
Shao Shu Zhang, et al. v. Premier Holding
Corporation, et al.
On June 18, 2018, Shao
Shu Zhang and others filed a complaint against the Company and others in the Los Angeles Superior Court. The Company filed a general
denial to the complaint on September 26, 2018. It is currently too early in the litigation to evaluate the likelihood of an unfavorable
outcome or any estimate of the amount or range of potential loss.
NOTE 9 – SUBSEQUENT EVENTS
From July 2018 through
June 2019 the Company entered into a series of stock purchase agreements with accredited investors for the sale of 55,446,620 shares
of its common stock in the aggregate amount of $739,295.
From July 2018 through
June 2019, the Company issued an aggregate of 47,995,002 shares of its common stock for services with an aggregate fair value of
$511,085.
From July 2018 through
June 2019, the Company issued an aggregate of 41,553,332 shares of its common stock for the conversion of convertible notes payable
with an aggregate fair value of $523,300.
On August 31, 2018,
the Company received $162,500 from a warrant holder for the exercise of warrants at $0.01 per share for 16,250,000 shares of the
Company’s common stock.
On or about April 4,
2019, the Company’s Board of Directors set May 4, 2019 as the record date to determine which of the Company’s stockholders
are eligible to receive the pro rata stock distribution of 19,250,000 shares of AOTS common stock which the Company received pursuant
to the Share Exchange Agreement dated March 23, 2018.
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, 2017, as filed with the
Securities and Exchange Commission on October 9, 2018, 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:
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concentration of our customer base and fulfillment of existing customer contracts;
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our ability to maintain pricing;
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deterioration of the credit markets;
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increased vulnerability to adverse economic conditions due to indebtedness;
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competition within our industry;
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asset impairment and other charges;
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our identifying, making and integrating acquisitions;
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our plans to identify and acquire products that we believe will be prospective for acquisition
and development;
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loss of key executives;
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the ability to employ skilled and qualified workers;
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work stoppages and other labor matters;
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inadequacy of insurance coverage for certain losses or liabilities;
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federal legislation and state legislative and regulatory initiatives relating to the energy industry;
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costs and liabilities associated with environmental, health and safety laws, including any changes
in the interpretation or enforcement thereof;
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future legislative and regulatory developments;
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our beliefs regarding the future of our competitors;
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our expectation that the demand for our products services will eventually increase; and
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our expectation that we will be able to raise capital when we need it.
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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
Premier Holding Corporation
(“we”, “us”, “our”, or the “Company”) is an energy services holding company. The
Company provides an array of energy services through its 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. The Company’s
comprehensive set of services includes competitive electricity plans and upgrades to a facility’s energy infrastructure.
The Company was 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, it commenced limited operations which were discontinued in 1990. Thereafter and through 2012, the Company 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. Its common stock is quoted on the OTC Markets
Group Inc., QB tier (“OTCQB”), under the symbol “PRHL”.
In August of 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. 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, we acquired an 80% stake in TPC, a deregulated power broker in Illinois. The clients of TPC have commercial/industrial
facilities such as small businesses, warehouses and distribution centers, which are candidates for E3’s products and services.
During the period covered
by this report and prior to the transaction described below under the Share Exchange Agreement, we provided an array of energy
services through E3 and TPC. The Company provides 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.
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, the
Company 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 the Company’s
customers, will recruit additional resellers of deregulated power and provide them with its 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 March 31, 2018.
Business Overview
We bridge two industries
in the Energy field: TPC is engaged in the deregulated energy space (reselling power from suppliers, and also as a supplier) and
E3 is engaged in providing 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 of 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.
There are a number
of industry factors that affect our ESCO business which include the overall demand for LED lighting. Future growth depends significantly
on the adoption of LED lighting. The market for LED lighting has grown in recent years, as acceptance of LEDs for general lighting
increases, but it still faces significant challenges before widespread adoption. This indicates the large untapped potential market,
and as these challenges are successfully addressed it could signal increased sales opportunities. Demand also fluctuates based
on various market cycles, a continuously evolving LED industry supply chain and demand dynamics in the market. These uncertainties
make demand difficult to forecast. The competitive environment in the LED lighting industry is intense. Traditional lighting companies
and new entrants are investing in LED lighting products as LED adoption has gained momentum. Product pricing pressures exist as
market participants often undertake pricing strategies to gain or protect market share. To remain competitive, resellers of LED
lighting must continuously increase service and support, product performance (including a degree of product independence to be
free to move to other manufacturers with better products), and reduce costs.
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 lowers the cost
of energy through competitive supplier bidding and creates comprehensive energy savings solutions through the implementation of
energy reduction projects. The mission of E3 is to help a customer select and implement the most cost-effective energy conservation
measures for its facilities. E3’s energy services division is focused on providing business customers with best-in-class
demand management solutions such as lighting (LED), 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.
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% to 30% on their energy bills by simply switching
suppliers, all while the enrollee still receives services from their local utility (the local utility continues to distribute the
power, read the meter, bill, and service any interruptions). TPC is different than several of its competitors in that 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 multiple 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 and Through June 27, 2019
On March 12, 2018,
the Company’s Board of Directors (the “Board”) approved a Membership Interest Exchange and Contribution Agreement,
as amended, (the “Share Exchange Agreement”) by and among the Company, the Company’s wholly-owned subsidiaries
The Power Company, an Illinois limited liability corporation (“TPC”) and American Illuminating Company, a Connecticut
limited liability corporation (“AIC”), and AOTS 42 (“AOTS”), a Delaware corporation. The Share Exchange
Agreement was subsequently executed on March 23, 2018.
Under the terms of
the Share Exchange Agreement, among other things, the Company will contribute all of its membership interests of its wholly-owned
subsidiaries TPC and AIC to AOTS, in exchange for 19,250,000 AOTS common stock shares, $0.0001 par value per share, representing
approximately 39.65% of the 48,550,000 issued and outstanding common shares of AOTS on a fully-diluted basis, after giving effect
to such issuance (the “Purchased Shares”). Performance of the Share Exchange Agreement is subject to customary regulatory
approvals for a transaction of this type, as well as certain other closing conditions.
The Company will not
be retaining ownership of any of the 19,250,000 AOTS shares it receives as a result of the Share Exchange Agreement. Instead, the
Company’s Board of Directors has approved the distribution of these AOTS shares to the Company’s common shareholders
upon consummation of the Share Exchange Agreement. Accordingly, on March 27th, 2018, the Board authorized the Company to make a
pro rata stock distribution to its common shareholders of the 19,250,000 AOTS common shares received by the Company pursuant to
the AOTS Share Exchange Agreement (the “AOTS Share Distribution”). Pursuant to the AOTS Share Distribution, holders
of Company common stock will receive a certain amount of shares of AOTS common stock for each share of Company Common Stock held
at the close of business on a record date to be determined by the Board as the record date for the AOTS Stock Dividend (the “Distribution
Record Date”), at a ratio to be determined by the Board (the “AOTS Share Distribution Ratio”). Consummation of
the AOTS Share Exchange Agreement, including the consummation of the contribution of the TPC membership interests to AOTS, is a
condition to the AOTS Share Distribution. Any such distribution of AOTS shares to Premier shareholders will result in Premier shareholders
holding restricted stock in a private company, and such shares will accordingly not be freely transferrable absent, among others,
registration with the SEC, or an exemption from registration.
The Share Exchange
Agreement the Company entered into with AOTS is part of a series of recent transactions by AOTS involving the acquisition of certain
assets from various entities in exchange for AOTS common stock (the “AOTS Transactions”). The AOTS Transactions consist
of : (1) The Company’s contribution of its wholly-owned TPC and AIC subsidiaries pursuant to the Share Exchange Agreement,
(2) A Membership Interest Exchange and Contribution Agreement dated March 16, 2018 between AOTS and Rescom Energy, L.L.C., a Connecticut
limited liability company (“Rescom”), as amended, (the “Rescom Agreement”), whereby 100% of Rescom’s
membership interests were contributed to AOTS in exchange for 10,000,000 AOTS common shares; (3) A Share Exchange Agreement dated
March 23, 2018 between AOTS and Advanced E Lighting, L.L.C., a Connecticut limited liability company (“Advanced”),
as amended, (the “Advanced Agreement”) whereby 100% of Advanced’s membership interests were contributed to AOTS
in exchange for 6,000,000 AOTS common shares; and (4) A Membership Interest Exchange and Contribution Agreement dated March 23,
2018 between AOTS and TPC Management Co., L.L.C., an Illinois limited company (TPCM”), as amended, (the “TPCM Agreement”)
whereby TPCM contributed certain intellectual property relating to an online client energy portal (the “Intellectual Property”)
to AOTS in exchange for 6,000,000 common shares of AOTS.
Results of Operations
Comparison of the Three Months Ended
June 30, 2018 to the Three Months Ended June 30, 2017
Revenue and Operating Expenses
The Company’s
revenue and operating expenses for the six months ended June 30, 2018 and 2017 are summarized as follows:
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Three Months Ended June 30,
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|
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2018
|
|
|
2017
|
|
|
Revenues
|
|
$
|
544,025
|
|
|
$
|
760,189
|
|
|
Cost of revenues
|
|
|
–
|
|
|
|
150
|
|
|
Gross profit
|
|
|
544,025
|
|
|
|
760,039
|
|
|
Selling, general and administrative expenses
|
|
|
1,013,735
|
|
|
|
1,637,636
|
|
|
Operating loss
|
|
$
|
(469,710
|
)
|
|
$
|
(877,597
|
)
|
The decrease in revenue
for the three months ended June 30, 2018, compared to the three months ended June 30, 2017 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 six months ended June 30, 2018, compared to the three months ended June 30, 2017 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 June 30, 2018, compared to the three months ended June 30, 2017
is due primarily to a decrease in stock and cash compensation paid to consultants related to strategic business and financial advisory
services, a decrease in the use of contract labor, and a decrease in bonuses paid.
Other Income (Expense)
|
|
|
Three Months Ended June 30,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Interest expense
|
|
$
|
(154,622
|
)
|
|
$
|
(159,203
|
)
|
|
Gain (loss) on change in fair value of derivative liability
|
|
|
(177,600
|
)
|
|
|
116,000
|
|
|
Total other income (expense)
|
|
$
|
(332,222
|
)
|
|
$
|
(43,203
|
)
|
The increase in other
income (expense) for the three months ended June 30, 2018, compared to the prior period is mainly attributable to an increase in
the loss on change of fair value of the derivative liability, partially offset by decreased interest expense as a result of the
decrease in convertible notes from conversions to common stock.
Comparison of the Six Months Ended June
30, 2018 to the Six Months Ended June 30, 2017
Revenue and Operating Expenses
The Company’s
revenue and operating expenses for the six months ended June 30, 2018 and 2017 are summarized as follows:
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Revenues
|
|
$
|
1,049,292
|
|
|
$
|
1,414,553
|
|
|
Cost of revenues
|
|
|
–
|
|
|
|
2,515
|
|
|
Gross profit
|
|
|
1,049,292
|
|
|
|
1,413,704
|
|
|
Selling, general and administrative expenses
|
|
|
2,967,716
|
|
|
|
5,947,831
|
|
|
Operating loss
|
|
$
|
(1,918,424
|
)
|
|
$
|
(4,534,127
|
)
|
The decrease in revenue
for the six months ended June 30, 2018, compared to the six months ended June 30, 2017 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 six months ended June 30, 2018, compared to the six months ended June 30, 2017 is due to a reduction in product
revenue from our E3 subsidiary.
The decrease in selling,
general and administrative expenses for the six months ended June 30, 2018, compared to the six months ended June 30, 2017 is due
primarily to a decrease in stock and cash compensation paid to consultants related to strategic business and financial advisory
services, a decrease in the use of contract labor, and a decrease in professional fees, travel and entertainment, and bonuses paid.
Other Income (Expense)
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Interest expense
|
|
$
|
(303,449
|
)
|
|
$
|
(366,476
|
)
|
|
Gain (loss) on change in fair value of derivative liability
|
|
|
(252,600
|
)
|
|
|
374,000
|
|
|
Total other income (expense)
|
|
$
|
(556,049
|
)
|
|
$
|
7,524
|
|
The increase in other
income (expense) for the six months ended June 30, 2018, compared to the prior period is mainly attributable to an increase in
the loss on change of fair value of the derivative liability, partially offset by decreased interest expense as a result of the
decrease in convertible notes from conversions to common stock.
Liquidity and Capital Resources
Working Capital
The following table sets forth a summary
of working capital as of June 30, 2018 and December 31, 2017:
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Current assets
|
|
$
|
828,092
|
|
|
$
|
1,353,585
|
|
|
Current liabilities
|
|
|
3,046,895
|
|
|
|
2,284,142
|
|
|
Working capital
|
|
$
|
(2,218,803
|
)
|
|
$
|
(930,557
|
)
|
The decrease in working
capital is due primarily from the reduction cash balances and accounts receivable as a result of decrease revenues, along with
an increase in accounts payable and accrued liabilities, notes payable, and the derivative liability related to convertible notes.
Cash Flows
The following table sets forth a summary
of changes in cash flows for the six months ended June 30, 2018 and 2017:
|
|
|
Six months Ended June 30,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Net cash used in operating activities
|
|
$
|
(1,073,620
|
)
|
|
$
|
(1,422,910
|
)
|
|
Net cash used in investing activities
|
|
|
(100,999
|
)
|
|
|
–
|
|
|
Net cash provided by financing activities
|
|
|
734,135
|
|
|
|
1,167,933
|
|
|
Change in cash
|
|
$
|
(440,484
|
)
|
|
$
|
(254,977
|
)
|
The decrease in cash
used in operating activities was due primarily to a decrease in net loss, a decrease in accounts receivable, an increase in accounts
payable and accrued liabilities, and a decrease in cash paid for interest for the six months ended June 30, 2018 as compared to
the same period in 2017.
The decrease in cash
from financing activities was due primarily to a decrease in proceeds from the sale of common stock for the six months ended June
30, 2018 as compared to the same period in 2017.
Private Placement Offering
During the six months ended June 30, 2018,
the Company entered into a series of stock purchase agreements with accredited investors for the sale of 27,482,363 shares of its
common stock in amount of $461,570.
Short-Term Debt and Lines of Credit
During the six months
ended June 30, 2018, the Company’s subsidiary, TPC, entered into five fundings agreements for aggregate net proceeds of approximately
$187,000, requiring repayments ranging from approximately $300 to $1200 per business day until repaid. Total repayments under these
agreements was approximately $60,000 for the six months ended June 30, 2018, leaving an aggregate balance of $127,268 which is
included in notes payable as of June 30, 2018. Additionally, TPC, borrowed approximately $100,000 for the purchase of a vehicle.
Total repayments for all of vehicle loans was approximately $14,000 for the six months ended June 30, 2018 leaving an aggregate
balance of $201,554 which is included in notes payable as of June 30, 2018.
Convertible Notes Payable
During the six months
ended June 30, 2018, the Company did not issue any new convertible notes.
During the six months
ended June 30, 2018, the total of all notes converted was $80,000.
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 June 30, 2018, the Company had an accumulated deficit of approximately
$42 million. During the six months ended June 30, 2018, the Company incurred operating losses of $1,918,424 and used cash in operating
activities of $1,073,620. 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 June 30, 2018
and in the notes to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December
31, 2017, as filed with the Securities and Exchange Commission on October 9, 2018.
Recently Issued Accounting Pronouncements
Any recently issued
accounting pronouncements are more fully described in Note 1 to our financial statements included herein for the quarter ended
June 30, 2018.