UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q

[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2016


[   ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission file number 001-35496

   
SUMMER ENERGY HOLDINGS, INC.
(Exact name of registrant as specified in charter)
 
 
Nevada
20-2722022
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
800 Bering Drive, Suite 260, Houston, Texas
77057
(Address of principal executive offices)
(Zip Code)
 
 
(713) 375-2790
(Issuer's telephone number, including area code)
 
 
N/A
(Former name, former address, and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☑ No .

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes ☑ No .

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐
 
Accelerated filer                   ☐
Non-accelerated filer   ☐
 
Smaller reporting company  ☑

Indicate by check mark whether the registrant is a shell company (as defined by Section 12b-2 of the Exchange Act). Yes ☐  No ☑ .

The number of shares of the issuer's common stock, $0.001 par value, outstanding as of November 13, 2016 was 22,463,424.

Summer Energy Holdings, Inc.
FORM 10-Q

 
FOR THE QUARTER ENDED SEPTEMBER 30, 2016
 
 
 
 
 
INDEX
 
 
 
 
PART I – FINANCIAL INFORMATION
Page
 
 
 
Item 1.
Unaudited Consolidated Financial Statements
3
 
 
 
Consolidated Balance Sheets
3
Consolidated Statements of Operations
4
Consolidated Statements of Cash Flows
5
Notes to Consolidated Financial Statements
6
 
 
 
Item 2 .
Management's Discussion and Analysis of Financial Condition and Results of Operations
13
 
 
 
Item 3 .
Quantitative and Qualitative Disclosures About Market Risk
16
 
 
 
Item 4 .
Controls and Procedures
16
 
 
 
PART II – OTHER INFORMATION
17
 
 
 
Item 1A
Risk Factors
17
     
Item 6 .
Exhibits
18
 
 
 
SIGNATURES
19

2

PART I – FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS
SUMMER ENERGY HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2016 AND DECEMBER 31, 2015
(UNAUDITED)
 
 
 
September 30, 2016
   
December 31, 2015
 
             
 ASSETS
           
  Current Assets
           
    Cash
 
$
3,293,505
   
$
382,490
 
    Restricted cash
   
2,059,993
     
632,868
 
    Accounts receivable, net
   
19,090,161
     
12,737,133
 
    Prepaid and other current assets
   
226,733
     
107,364
 
                 
        Total current assets
   
24,670,392
     
13,859,855
 
 
               
    Property and equipment, net
   
284,224
     
372,512
 
 
               
     Deferred financing, net
   
157,402
     
-
 
 
               
                     Total assets
 
$
25,112,018
   
$
14,232,367
 
 
               
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
         
  Current Liabilities
               
    Accounts payable
 
$
491,254
   
$
357,501
 
    Accrued wholesale power purchased
   
7,851,165
     
4,730,703
 
    Accrued expenses
   
5,849,118
     
3,894,748
 
    Advance to loan amount note
   
-
     
111,057
 
    Short-term debt, net of debt discount
   
-
     
3,000,000
 
 
               
        Total current liabilities
   
14,191,537
     
12,094,009
 
 
               
Long-Term Liabilities                
Long-term debt, net of debt discount
   
2,500,000
     
-
 
          Total long-term liabilities
   
2,500,000
     
-
 
                     Total liabilities
   
16,691,537
     
12,094,009
 
                 
  Stockholders' Equity (Deficit)
               
Series B Preferred Stock - $.001 par value, 3,000,000 authorized, 0 shares and 1,900,000 shares issued and outstanding at September 30, 2016 and December 31, 2015 respectively
   
-
     
1,900
 
    Common Stock - $.001 par value, 100,000,000 shares authorized, 22,463,424 and
   16,216,619 shares issued and outstanding at September 30, 2016 and December 31, 2015,
    respectively
   
22,463
     
16,216
 
    Subscription receivable
   
(52,000
)
   
(52,000
)
    Additional paid in capital
   
14,288,924
     
9,492,454
 
    Accumulated deficit
   
(5,838,906
)
   
(7,320,212
)
 
               
         Total stockholders' equity (deficit)
   
8,420,481
     
2,138,358
 
 
               
                    Total liabilities and stockholders' equity (deficit)
 
$
25,112,018
   
$
14,232,367
 


See accompanying notes to the consolidated financial statements.
3

SUMMER ENERGY HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
 
   
For the Three Months Ended September 30, 2016
   
For the Three Months Ended September 30, 2015
   
For the Nine Months Ended September 30, 2016
   
For the Nine Months Ended September 30, 2015
 
                         
 Electricity Revenue
 
$
28,060,468
   
$
25,551,126
   
$
70,449,308
   
$
62,416,285
 
 
                               
 Cost of Goods Sold
                               
    Power purchases and balancing/ancillary
   
12,937,763
     
12,342,503
     
30,616,394
     
28,004,319
 
    Transportation and distribution providers charge
   
11,072,847
     
8,103,843
     
27,459,864
     
22,226,565
 
 
                               
        Total cost of goods sold
   
24,010,610
     
20,446,346
     
58,076,258
     
50,230,884
 
 
                               
 Gross Profit
   
4,049,858
     
5,104,780
     
12,373,050
     
12,185,401
 
 
                               
 General and Administrative
   
3,574,276
     
3,106,175
     
9,790,775
     
8,792,037
 
 
                               
 Operating Income
   
475,582
     
1,998,605
     
2,582,275
     
3,393,364
 
 
                               
 Other Income (Expense)
                               
    Financing costs
   
(22,486
)
   
(234,884
)
   
(555,473
)
   
(749,445
)
    Interest expense, net
   
(114,888
)
   
(159,322
)
   
(424,346
)
   
(457,010
)
 
                               
        Total other expense
   
(137,374
)
   
(394,206
)
   
(979,819
)
   
(1,206,455
)
 
                               
  Net Income Before Income Taxes
   
338,208
     
1,604,399
     
1,602,456
     
2,186,909
 
 
                               
 Income Taxes
   
-
     
-
     
(11,210
)
   
-
 
 
                               
  Net Income
 
$
338,208
   
$
1,604,399
   
$
1,591,246
   
$
2,186,909
 
 
                               
Series B Preferred shares dividend
   
-
     
(57,470
)
   
(109,940
)
   
(170,535
)
                                 
  Net Income applicable to common shareholders
 
$
338,208
   
$
1,546,929
   
$
1,481,306
   
$
2,016,374
 
 Net income per common share:                                
Basic
 
$
0.02
   
$
0.10
   
$
0.08
   
$
0.13
 
                                             Dilutive
  $ 0.02     $ 0.10    
$
0.08
   
$
0.13
 
 Weighted average number of shares:                                
Basic
   
21,327,337
     
15,671,201
     
18,392,364
     
15,611,650
 
                                             Dilutive
   
22,299,604
     
15,771,745
     
18,692,566
     
15,659,853
 

See accompanying notes to the consolidated financial statements.
 
 
4

 
SUMMER ENERGY HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016
AND SEPTEMBER 30, 2015
(UNAUDITED)
 
 
 
For the Nine Months Ended September 30, 2016
   
For the Nine Months Ended September 30, 2015
 
             
 Cash Flows from Operating Activities
           
    Net income
 
$
1,591,246
   
$
2,186,909
 
    Adjustments to reconcile net income to net cash used in operating activities:
               
        Common stock issued for financing costs
   
532,988
     
724,995
 
        Stock compensation expense
   
16,234
     
74,547
 
        Depreciation of property and equipment
   
158,502
     
212,188
 
        Bad debt expense
   
1,572,679
     
1,178,915
 
        Changes in operating assets and liabilities:
               
             Accounts receivable
   
(7,925,707
)
   
(7,972,009
)
             Prepaid and other current assets
   
(119,369
)
   
692,451
 
             Accounts payable
   
133,753
     
38,209
 
             Accrued wholesale power purchases
   
3,120,462
     
(464,199
)
             Accrued expenses
   
1,954,370
     
1,247,145
 
                 
                  Net cash (used in) provided by operating activities
   
1,035,158
     
(2,080,849
)
 
               
 Cash Flows from Investing Activities
               
    Sale (Purchase) of restricted cash
   
(168,725
)
   
(193,559
)
    Proceeds from certificate of deposit – restricted
   
-
     
15,044
 
    Cash restricted as collateral on letters of credit
   
(1,258,400
)
       
    Purchase of property and equipment
   
(70,214
)
   
(91,344
)
                 
                  Net cash used in investing activities
   
(1,497,339
)
   
(269,859
)
 
               
 Cash Flows from Financing Activity
               
    Deferred financing costs, net
   
(157,402
)
   
-
 
     Proceeds from long term note payable
   
2,500,000
     
3,100,000
 
    Repayment on long term notes payable
   
(3,000,000
)
   
-
 
    Proceeds from advance from loan note
   
356,600
     
-
 
    Repayment from advance from loan note
   
(467,657
)
   
(740,843
)
    Payment of dividends in cash on Series B Preferred stock
   
(86,795
)
   
(143,606
)
     Proceeds from issuance of units in a private placement offering
   
4,228,450
     
130,000
 
     
,
         
                 Net cash provided by financing activities
   
3,373,196
     
2,345,551
 
                 
 Net Change in Cash
   
2,911,015
     
(5,157
)
 
               
 Cash at Beginning of Period
   
382,490
     
550,342
 
 
               
 Cash at End of Period
 
$
3,293,505
   
$
545,185
 
 
               
 Supplemental Disclosure of Cash Flow Information:
               
    Income taxes paid
 
$
11,210
   
$
-
 
    Interest paid, net
 
$
424,551
   
$
457,073
 
                 
  Non-Cash Transactions
               
    Conversion of Series B Preferred stock to common stock
 
$
1,900,000
   
$
-
 
Series B Preferred stock dividends
 
$
23,145
   
$
26,929
 

See accompanying notes to the consolidated financial statements.
5


 
 
SUMMER ENERGY HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015
 (UNAUDITED)


NOTE 1 – ORGANIZATION

The consolidated financial statements include the accounts of Summer Energy Holdings, Inc. and its wholly-owned subsidiaries Summer Energy, LLC ("Summer LLC"), Summer EM Marketing, LLC ("Marketing LLC") and Summer Energy of Ohio, LLC ("Summer Ohio") (collectively referred to as the "Company," "we," "us," or "our").  All significant intercompany transactions and balances have been eliminated in these consolidated financial statements.

Summer LLC is a retail electric provider in the State of Texas under a license with the Public Utility Commission of Texas ("PUCT").  Summer LLC procures wholesale energy and resells it to commercial and residential customers.  Summer LLC was organized on April 6, 2011, under the laws of the state of Texas.  The operations of Summer LLC are the Company's sole line of business.  

Marketing LLC was formed in the state of Texas on November 6, 2012, to provide certain marketing services to Summer LLC.

Summer Ohio was formed in the State of Ohio on December 16, 2013 to procure and sell electricity in the State of Ohio.   The Public Utilities Commission of Ohio ("PUCO") issued a certificate as a Retail Electric Service Provider to Summer Ohio on June 16, 2015.   At this time, there is no business activity in the State of Ohio.

NOTE 2 - BASIS OF PRESENTATION

The accompanying financial statements have been prepared in accordance with generally accepted accounting principles of the United States of America ("GAAP") for interim financial statements pursuant to the rules and regulations of the Securities and Exchange Commission.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine month period ended September 30, 2016, are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.  These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, as filed with the Securities and Exchange Commission ("SEC") on March 30, 2016.
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amount of revenues and expenses during the reporting period.  Actual results may differ from these estimates.

NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

Our electricity revenue is recognized by our Company upon delivery of electricity to a customer's meter.  This method of revenue recognition is commonly referred to as the flow method.  The flow method of revenue relies upon Electric Reliability Council of Texas ("ERCOT") settlement statements to determine the estimated revenue for a given month. Supply delivered to customers for the month, measured on a daily basis, provides the basis for revenues.  Electricity revenue consists of proceeds from energy sales, including, pass through charges from the Transmission and Distribution Providers ("TDSPs") billed to the customer at cost.
 
6
 
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

Unbilled Revenue and Accounts Receivable

Electric services not billed by month-end are accrued based upon estimated deliveries to customers as tracked and recorded by ERCOT multiplied by our average billing rate per kilowatt hour ("kWh") in effect at the time.  At the end of each calendar month, revenue is accrued to unbilled receivables based on the estimated amount of power delivered to customers using the flow technique.  Unbilled revenue also includes accruals for estimated TDSP charges and monthly service charges applicable to the estimated electricity usage for the period.  All charges that were physically billed to customers in the calendar month are recorded from the unbilled account to the customer receivable account.  Unbilled accounts as of September 30, 2016, were estimated at $13,003,866.

Accounts receivable are customer obligations billed at the customer's monthly meter read date for that period's electricity usage and due within 16 days of the date of the invoice.  Balances past due are subject to a late fee that is assessed on that billing.
 
The Company determines the allowance based upon a review of outstanding receivables, historical write-off experience and existing economic conditions. Receivables past due over 90 days are considered delinquent and reviewed individually for collectability.
 
During the quarter ended September 30, 2016, the Company adjusted the allowance to equal all billed accounts receivables over 90 days plus a percentage for unbilled account receivables based upon the historical collection experience.  The change in the estimate to the allowance had an impact to increase net income $261,000 for the quarter and for the nine months ended September 30, 2016 (77% and by 16%, respectively).  Management has determined that the allowance for doubtful accounts as of September 30, 2016 at $1,324,715.

Cost Recognition

Direct energy costs are recorded when the electricity is delivered to the customer's meter.

Cost of Goods Sold ("COGS") include electric power purchased and pass through charges from the TDSP's in the areas serviced by the Company.  TDSP charges are costs for metering services and maintenance of the electric grid.  TDSP charges are established by regulation of the PUCT.

The energy portion of our COGS is comprised of two components:  bilateral wholesale costs and balancing/ancillary costs.  These two cost components are incurred and recognized differently as follows:

Bilateral wholesale costs are incurred through contractual arrangements with wholesale power suppliers for firm delivery of power at a fixed volume and fixed price.  We are invoiced for these wholesale volumes at the end of each calendar month for the volumes purchased for delivery during the month, with payment due 20 days after the end of the month.

Balancing/ancillary costs are based on the customer load and are determined by ERCOT through a multiple step settlement process.  Balancing costs/revenues are related to the differential between supply that we provided through our bilateral wholesale supply and the supply required to serve our customer load.  The Company endeavors to minimize the amount of balancing/ancillary costs through our load forecasting and forward purchasing programs.

NOTE 4 –SERIES B PREFERRED SHARES

On February 19, 2014, the Company filed a Certificate of Designation of Rights, Preferences, Privileges and Restrictions (the "Series B Designation") with respect to a class of preferred stock designated as Series B Preferred Stock (the "Series B Preferred"). 
 
The Series B Preferred is convertible into common stock at the election of the holder, with an initial conversion price of $1.00 per share.  The Certificate of Designation provides certain adjustments to the conversion price to adjust for stock splits, adjustments, and issuance of additional shares of stock.   Mandatory Conversion .  Additionally, the Series B Preferred will automatically be converted upon the earlier to occur of (A) the affirmative election of the holders of fifty percent (50%) of the outstanding shares of Series B Preferred, voting as a separate class, or (B) the affirmative vote of the board of directors upon the closing of a firmly underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, which values the Company at least $50 million and in which the gross proceeds to the Company (after underwriting discounts, commissions and fees) are at least $10 million.
 
On June 24, 2016, the Series B Stockholders affirmatively elected to convert all outstanding Series B Shares into shares of Common Stock.
 
7

NOTE 4 –SERIES B PREFERRED SHARES - (CONTINUED)
 
During the nine months ended September 30, 2016, the Company had paid $109,940 of cumulative monthly dividends on Series B Preferred Stock. Certain shareholders elected to be paid in shares of the Company's common stock valued at $23,145 and the remaining holders were paid a total of $86,795 in cash.

NOTE 5 - LETTERS OF CREDIT

As of September 30, 2016, the Company had nine secured irrevocable stand-by letters of credit totaling $1,188,200 with a financial institution for the benefit of the Transmission and Distribution Providers ("TDSPs") that provide transition services to the Company.   The nine letters of credit renewed during the third quarter of 2016 and are subject to automatic extension and renewal provisions until the third quarter of 2017.  
 
As of September 30, 2016, none of the letters of credit issued on behalf of the Company were drawn upon.

NOTE 6 - ADVANCE TO LOAN AMOUNT NOTE

On April 18, 2014, the Company signed an Advance to Loan Amount Note with Comerica Bank in the amount of $1,500,000.  The Note had an original maturity date of December 22, 2014, which was extended through February 22, 2015. On February 22, 2015, the Advance to Loan Amount Note was increased from $1,500,000 to $1,700,000 and extended again to November 4, 2016, with interest thereon at a per annum rate equal to the "Prime Referenced Rate" plus the "Applicable Margin."   The "Prime Referenced Rate" means, for any day, a per annum interest rate which is equal to the "Prime Rate" in effect on such day, but in no event and at no time shall the "Prime Reference Rate" be less than the sum of the Daily Adjusting LIBOR Rate for such day plus two and one-half percent (2.5%) per annum.   "Prime Rate" means the per annum rate established by Comerica Bank as its prime rate for its borrowers at any such time.  "Applicable Margin" means 2% per annum.   Accrued and unpaid interest on the unpaid principal balance outstanding shall be payable monthly, in arrears, on the first Business Day of each month.
 
Guaranty of the Advance to Loan Amount Note was made by four members of the Company's board of directors ("Guarantors").  The Company agreed to issue the four Guarantors a total of 120,000 shares of the Company's common stock per month (30,000 shares of common stock per month per Guarantor) reduced accordingly as the loan is reduced for agreeing to act as a Guarantor of the Advance to Loan Amount .
 
In May 2016, the Company released the Guarantors from the obligation to guaranty the Advance to Loan Amount Note and stock payments for such guaranty were discontinued as of May 31, 2016.   The balance of the Advance to Loan Amount was zero as of September 30, 2016.
 
During the nine months ended September 30, 2016, the Company issued 482,158 shares of common stock to the Guarantors and recognized $532,987 in financing cost.

NOTE 7 – 2012 STOCK OPTION AND STOCK AWARD PLAN

On August 3, 2016, the Company granted stock options to purchase up to 2,500 shares of the Company's common stock to a key employee. The options covering a total of 2,500 shares vest one year after the date of grant.  The stock options have an exercise price of $2.00 per share and will expire ten (10) years from the date of grant.  The fair value of the options of $5,344 was determined using the Black-Scholes option-pricing model.  The assumptions used to calculate the fair market value are as follows: (i) risk-free interest rate of 1.07% (ii) estimated volatility of 172% (iii) dividend yield of 0.00% and (iv) expected life of the options of ten years.
 
8

NOTE 7 – 2012 STOCK OPTION AND STOCK AWARD PLAN (CONTINUED)

As of September 30, 2016, 783,000 securities have been awarded, net of forfeitures, from the 2012 Stock Option and Stock Award Plan with a remaining unissued balance of 2,000 securities.

During the nine months ended September 30, 2016, the Company recorded stock compensation expense of $922 for vesting options issued from the 2012 plan.
 
NOTE 8 – 2015 STOCK OPTION AND STOCK AWARD PLAN

On March 31, 2016, the Company granted a total of 31,250 stock options to non-employee members of the Company's Board of Directors under the 2015 Stock Option and Stock Award Plan as compensation for service on the Company's Board. The director stock options were fully vested on the date of grant, have an exercise price of $1.50 per share, will expire ten (10) years from the date of the grant and are estimated to have a fair value of approximately $6,533 on the date of grant determined using the Black-Scholes option-pricing model.  The assumptions used to calculate the fair market value are as follows: (i) risk-free interest rate of 0.87% (ii) estimated volatility of 17% (iii) dividend yield of 0.00% and (iv) expected life of the options of ten years.

On May 16, 2016, the Company granted a total of 31,250 stock options to non-employee members of the Company's Board of Directors under the 2015 Stock Option and Stock Award Plan as compensation for service on the Company's Board. The director stock options were fully vested on the date of grant, have an exercise price of $1.50 per share, will expire ten (10) years from the date of the grant and are estimated to have a fair value of approximately $5,284 on the date of grant determined using the Black-Scholes option-pricing model.  The assumptions used to calculate the fair market value are as follows: (i) risk-free interest rate of 0.87% (ii) estimated volatility of 17% (iii) dividend yield of 0.00% and (iv) expected life of the options of ten years.
 
On June 24, 2016, the Company granted stock options to purchase up to 2,500 shares of the Company's common stock to a key employee. The options covering a total of 2,500 shares vest one year after the date of grant.  The stock options have an exercise price of $2.00 per share and will expire ten (10) years from the date of grant.  The fair value of the options of $584 was determined using the Black-Scholes option-pricing model.  The assumptions used to calculate the fair market value are as follows: (i) risk-free interest rate of 0.87% (ii) estimated volatility of 17% (iii) dividend yield of 0.00% and (iv) expected life of the options of ten years.

On September 2, 2016, the Company granted stock options to purchase up to 2,500 shares of the Company's common stock to a key employee. The options covering a total of 2,500 shares vest one year after the date of grant.  The stock options have an exercise price of $2.00 per share and will expire ten (10) years from the date of grant.  The fair value of the options of $4,595 was determined using the Black-Scholes option-pricing model.  The assumptions used to calculate the fair market value are as follows: (i) risk-free interest rate of 1.6% (ii) estimated volatility of 171% (iii) dividend yield of 0.00% and (iv) expected life of the options of ten years.

As of September 30, 2016, 703,500 securities have been awarded, net of forfeitures, from the 2015 Stock Option and Stock Award Plan with a remaining unissued balance of 796,500 securities.

During the nine months ended September 30, 2016, the Company recorded stock compensation expense of $15,312 for vesting options issued from the 2015 plan.

NOTE 9 – PRIVATE PLACEMENT

On April 25, 2016, the Company entered into a Securities Purchase Agreement with an investor for such investor to purchase from the Company 227,273 shares of the Company's common stock for an aggregate purchase price of $250,000.

On May 4, 2016, the Company entered into a Securities Purchase Agreement with an investor for such investor to purchase from the Company 227,273 shares of the Company's common stock for an aggregate purchase price of $250,000.

On May 18, 2016, the Company entered into a Securities Purchase Agreement with an investor for such investor to purchase from the Company 909,901 shares of the Company's common stock for an aggregate purchase price of $1,000,000.

On May 19, 2016, the Company entered into a Securities Purchase Agreement with an investor for such investor to purchase from the Company 181,818 shares of the Company's common stock for an aggregate purchase price of $200,000.
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NOTE 9 – PRIVATE PLACEMENT (CONTINUED)

On July 29, 2016, the Company entered into a Securities Purchase Agreement with an investor for such investor to purchase from the Company 136,364 shares of the Company's common stock for an aggregate purchase price of $150,000.

On July 29, 2016, the Company entered into a Securities Purchase Agreement with an investor for such investor to purchase from the Company 272,727 shares of the Company's common stock for an aggregate purchase price of $300,000.

On August 15, 2016, the Company entered into a Securities Purchase Agreement with an investor for such investor to purchase from the Company 49,500 shares of the Company's common stock for an aggregate purchase price of $54,450.

On August 17, 2016, the Company entered into a Securities Purchase Agreement with an investor for such investor to purchase from the Company 1,818,812 shares of the Company's common stock for an aggregate purchase price of $2,000,000.

On September 9, 2016, the Company entered into a Securities Purchase Agreement with an investor for such investor to purchase from the Company 21,818 shares of the Company's common stock for an aggregate purchase price of $24,000.

The Company intends to use the proceeds from these investments for general corporate and working capital purposes.

NOTE 10 - FINANCING FROM BLACK INK ENERGY LLC

On March 2, 2015, Summer Energy, LLC (the "Borrower"), a wholly owned subsidiary of Summer Energy Holdings, Inc. ("SEH"), entered into a Second Lien Term Loan Agreement (the "Agreement") with Black Ink Energy, LLC ("BIE").  Pursuant to the Agreement, BIE agreed to provide a term loan (the "Term Loan") to the Borrower, and the Borrower agreed to borrow and repay funds loaned by BIE.

The amount of the Term Loan was Three Million Dollars ($3,000,000), and the loan is not revolving in nature.  Pursuant to the Agreement, any amounts prepaid or repaid may not be re-borrowed by the Borrower.  The maturity date of the loan was September 2, 2016.  The Term Loan bears interest at a rate of 15% per annum, except in the occurrence of an event of default, at which point the default interest rate will be 18%.  Interest is payable in arrears on the last day of each month and on the maturity date of the loan. The Term Loan was not evidenced by a promissory note.

Pursuant to the Agreement, the Borrower had the option to prepay the loan amount in whole by providing prior notice to BIE and by paying a pre-payment premium of $300,000.

Additionally, the Borrower agreed to pay to BIE a facility fee.  The facility fee in the amount of $24,450 was expensed immediately as fees occurred to obtain financial resource.

In connection with the March 2, 2015 Agreement, the Borrower and BIE also entered into a Second Lien Security Agreement (the "Security Agreement"), and SEH and BIE entered into a Second Lien Membership Interest Pledge Agreement (the "Pledge Agreement").  SEH also issued a warrant (the "Warrant") to purchase up to 800,000 shares of SEH's common stock.

The foregoing description of the Term Loan is qualified in its entirety by reference to the Term Loan Agreement, the Security Agreement, the Pledge Agreement and Warrant, which are found as Exhibits 10.1 – 10.4, respectively, to our Form 8-K filed on March 5, 2015.

The Warrant has a term of ten (10) years, has an exercise price of $1.50 per share, and is subject to adjustment as set forth in the Warrant.  The Warrant also contains a cashless or net exercise provision, pursuant to which the holder of the Warrant may elect to convert all or a portion of the Warrant without the payment of additional consideration, byreceiving a net number of shares calculated pursuant to a formula set forth in the Warrant.  SEH agreed to reserve 120% of the number of shares issuable upon the exercise of the Warrant so long as the Warrant is exercisable and outstanding.  Additionally, SEH agreed to grant to the holder piggyback registration rights.

The Term Loan had a relative fair value of $2,967,535 and the warrant had a relative fair value of $32,465 at the date of issuance determined using the Black-Scholes option-pricing model.  The assumptions used to calculate the fair market value are as follows: (i) risk-free interest rate of 0.87% (ii) estimated volatility of 17% (iii) dividend yield of 0.00% and (iv) expected life of the options of five years.
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NOTE 10 - FINANCING FROM BLACK INK ENERGY LLC (CONTINUED)

During the nine months ended September 30, 2016, the Company paid interest expense in the amount of $227,500 to BIE.

The Term Loan to BIE in the amount $3,000,000 was paid in full during the second quarter of 2016 and the agreements between the Company and BIE were terminated.

NOTE 11 - FINANCING FROM BLUE WATER CAPITAL FUNDING LLC

On June 29, 2016, Summer Energy, LLC (the "Borrower"), a wholly-owned subsidiary of Summer Energy Holdings, Inc. ("SEH"), entered into a Loan Agreement (the "Agreement") with Blue Water Capital Funding, LLC ("Blue Water").  Pursuant to the Agreement, Blue Water agreed to provide a revolving loan (the "Loan") to the Borrower, and the Borrower agreed to borrow and repay funds loaned by Blue Water.

The amount of available credit under the Loan is Five Million Dollars ($5,000,000).  The Loan is revolving in nature and is evidenced by a Revolving Promissory Note (the "Note").  The maturity date of the Loan is June 30, 2018.  The Loan will bear interest at a rate of 11% per annum, with a minimum monthly financing fee of $22,500 per month.  Interest is payable on the tenth day of each month and on the maturity date of the Note. The loan balance as of September 30, 2016 is $2,500,000.

The proceeds of the Loan may be used by the Borrower to repay indebtedness owed to Black Ink Energy, LLC ("Black Ink"), and for other corporate purposes.  Simultaneous with the closing of the Loan, Borrower paid off all outstanding debt due and owing to Black Ink and Black Ink's security interest in and to the assets of the Borrower and to SEH's ownership interest in Borrower were terminated. (See Footnote 10)

In connection with the Agreement, the Borrower made certain customary representations and warranties, and agreed that while the Loan amount remains outstanding, it would not take certain actions, including that it will not incur certain debts (as defined in the Agreement); create, assume, or suffer to exist any lien on any property or asset of the Borrower, except those set forth in and allowed by the Agreement; consolidate or merge with any other entity; or sell, lease, or transfer all or substantially all of the assets of the Borrower.

In connection with the Agreement, the Borrower and Blue Water also entered into a Security Agreement (the "Security Agreement"), and SEH executed a Guaranty (the "Guaranty") in favor of Blue Water.

Security Agreement

Pursuant to the Security Agreement, the Borrower granted to Blue Water a second position security interest in and to the Borrower's collateral, as more fully defined in the Security Agreement, and which includes receivables, equipment, inventory, personal property, other intangibles, and proceeds from any of these, to secure the Borrower's payment of its obligations under the Loan.  The security interest granted to Blue Water is subordinate to a security interest granted to DTE Energy Trading, Inc. ("DTE") pursuant to a credit agreement between the Borrower and DTE dated April 1, 2014.

During the nine months ended September 30, 2016, the Company paid $71,806 in interest to Blue Water.

NOTE 12 – WARRANTS

The Company has issued warrants to purchase shares of the Company's common stock associated with certain agreements and has vested warrants from a previously terminated Master Marketing Agreement.

As of September 30, 2016, the outstanding number of warrants to purchase the Company's common stock was 1,891,000   of which 1,625,763 were vested.  No new warrants were issued or vested during the nine months ended September 30, 2016.

NOTE 13   -   WHOLESALE POWER PURCHASE AGREEMENT

On April 25, 2014, the Company closed a transaction with DTE Energy Trading, Inc. ("DTE"), with an effective date of April 1, 2014.  As part of the transaction, the Company and DTE entered into an Energy Marketing Agreement for Electric Power (the "Energy Marketing Agreement"). Pursuant to the terms of the Energy Marketing Agreement, the Company agreed to purchase its electric power and associated services requirements from DTE, and DTE agreed to provide the Company with certain credit facilities to assist the Company in the purchase of its electric power and associated service requirements.  The Company also agreed to pay DTE a fixed monthly fee, as well as certain fees based on megawatt hours purchased.  The terms of the Energy Marketing Agreement are governed by the ISDA 2002 Master Agreement, as well as a Schedule and Power
 
 
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NOTE 13   -   WHOLESALE POWER PURCHASE AGREEMENT (CONTINUED)

Annex thereto (the "2002 Master Agreement").    In conjunction therewith, the Company and DTE also entered into a Credit Agreement, a Security Agreement and a Membership Interest Pledge Agreement.

Pursuant to the Credit Agreement, among other things DTE agreed to (i) provide a guaranty (a "Credit Guaranty") to the Electric Reliability Council of Texas ("ERCOT") for the benefit of the Company, and (ii) provide commodity loans for the purchase of electricity ("Commodity Loans").  Each Commodity Loan and any Credit Guaranty shall bear interest on the outstanding principal amount thereof, from the date such Commodity Loan or Credit Guaranty is issued until it becomes due or is revoked, respectively, at a rate per annum equal to the Prime Rate (as reported by the Wall Street Journal) plus two percent (2%).  The Company covenanted not to, among other things, (a) merge or consolidate with any other person, (b) acquire all or substantially all of the capital stock or property of another person, (c) create, assume or suffer to exist any lien on any property now owned or hereafter acquired by the Company except for permitted liens (as set forth in the Credit
Agreement) or (d) become liable for any indebtedness (other than permitted indebtedness, as set forth in the Credit Agreement).  

In consideration of the services and credit support provided by DTE to the Company, and pursuant to the Security Agreement, the Company is required to, among other things (i) grant a priority security interest to DTE in all of its assets, equipment and inventory; (ii) require its customers to remit monthly payments into a lockbox account over which DTE has a security interest; and (iii) deliver monthly and annual forecasted and audited statements to DTE.

Pursuant to the Membership Interest Pledge Agreement, the Company pledged to DTE, and granted to DTE a security interest in all of the membership interests of Summer Energy, LLC owned by the Company, as well as all additional membership interests of Summer Energy, LLC from time to time acquired by the Company.

The foregoing description of the transaction with DTE is qualified in its entirety by reference to the transaction documents which are found as Exhibits 10.1 – 10.6 to our Form 10-Q filed on May 15, 2014.

NOTE 14 – RELATED PARTY

On July 22, 2016, the Company advanced $611,424 to a related party for purposes of short-term financing.  Such advances were paid back in full to the Company on August 9, 2016.

As of September 30, 2016, there were no outstanding balances due between the Company and such related party.

NOTE 15 – SUBSEQUENT EVENTS

On October 27, 2016, the Company posted an additional $116,836 cash collateral for the benefit of the Transmissions and Distribution Providers ("TDSPs") that provide transition services to the Company bringing the total cash deposited with the TDSPs to $190,119 and outstanding letters of credit in the amount of $1,188,200 (See Note 5).

On October 13, 2016, the Company granted stock options to purchase up to 100,000 shares of the Company's common stock to a key employee. The options covering a total of 100,000 shares vested immediately on the date of grant.  The stock options have an exercise price of $1.10 per share and will expire ten (10) years from the date of grant.  The fair value of the options of $174,089 was determined using the Black-Scholes option-pricing model.  The assumptions used to calculate the fair market value are as follows: (i) risk-free interest rate of 1.27% (ii) estimated volatility of 171% (iii) dividend yield of 0.00% and (iv) expected life of the options of ten years.

On October 13, 2016, the Company granted stock options to purchase up to 5,000 shares of the Company's common stock to two key employees. The options covering a total of 5,000 shares vest two year after the date of grant.  The stock options have an exercise price of $2.50 per share and will expire ten (10) years from the date of grant.  The fair value of the options of $8,682 was determined using the Black-Scholes option-pricing model.  The assumptions used to calculate the fair market value are as follows: (i) risk-free interest rate of 1.27% (ii) estimated volatility of 171% (iii) dividend yield of 0.00% and (iv) expected life of the options of ten years.
 
On October 28, the Company granted a total of 45,000 stock options to non-employee members of the Company's Board of Directors under the 2015 Stock Option and Stock Award Plan as compensation for service on the Company's Board. The director stock options were fully vested on the date of grant, have an exercise price of $2.25 per share, will expire ten (10) years from the date of the grant and are estimated to have a fair value of approximately $77,708 on the date of grant determined using the Black-Scholes option-pricing model.  The assumptions used to calculate the fair market value are as follows: (i) risk-free interest rate of 1.33% (ii) estimated volatility of 171% (iii) dividend yield of 0.00% and (iv) expected life of the options of ten years.
 
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion of our financial condition and results of operations should be read in conjunction with the unaudited consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q.  This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Section 27A of the Securities Act, and is subject to the safe harbors created by those sections.  Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," "may," "will" and variations of these words or similar expressions are intended to identify forward-looking statements.  In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements.  These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict.  Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors.  We undertake no obligation to revise or publicly release the results of any revisions to these forward-looking statements.

Due to possible uncertainties and risks, readers are cautioned not to place undue reliance on the forward-looking statements contained in this Quarterly Report, which speak only as of the date of this Quarterly Report, or to make predictions about future performance based solely on historical financial performance.  We disclaim any obligation to update forward-looking statements contained in this Quarterly Report.

Readers should carefully review the risk factors described below under the heading "Risk Factors"  and in other documents we file from time to time with the SEC, including our Form 10-K for the fiscal year ended December 31, 2015.  Our filings with the SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those filings, pursuant to Sections 13(a) and 15(d) of the Exchange Act, are available free of charge at www.summerenergy.com, when such reports are available via the EDGAR system maintained by the SEC at www.sec.gov.

Recent Developments

The unaudited consolidated financial statements include the accounts of Summer Energy Holdings, Inc., a Nevada corporation and its wholly-owned subsidiaries Summer Energy, LLC, a Texas limited liability company ("Summer LLC"), Summer EM Marketing, LLC ("Marketing LLC") and Summer Energy of Ohio, LLC ("Summer Ohio") (collectively referred to as the "Company," "we," "our," or "us").

On March 27, 2012, Summer LLC became a wholly-owned subsidiary of Summer Energy Holdings, Inc. (formerly known as Castwell Precast Corporation) through a reverse acquisition transaction, which resulted in the former members of Summer LLC owning approximately 92.3% of the Summer Energy Holdings, Inc. outstanding common stock.  Our sole operations are conducted through Summer LLC.

Marketing LLC was formed in the state of Texas on November 6, 2012 to provide marketing services to Summer LLC.

Plan of Operation

Our wholly owned subsidiary, Summer LLC, is a licensed Retail Electricity Provider (REP) in the State of Texas.  In general, Texas regulatory structure permits REPs, such as Summer LLC, to procure and sell electricity at unregulated prices.  REPs pay the local transmission and distribution utilities a regulated tariff rate for delivering electricity to their customers.  As a REP, we sell electricity and provide the related billing, customer service, collections and remittance services to residential and commercial customers.  We offer retail electricity to commercial and residential customers in designated target markets within the State of Texas.  In the commercial market, the primary target is small to medium-sized customers (less than one megawatt of peak usage), but we will also selectively pursue larger commercial customers through management's existing, historical relationships.  Residential customers are a secondary target market.  We anticipate that a majority of our customers will be located in the Houston and Dallas-Fort Worth metropolitan areas; although, we anticipate a growing number will be located in a variety of other metropolitan and rural areas within Texas.

We began delivering electricity to customers in mid-February 2012.
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Results of Operations

Three Months Ended September 30, 2016, compared to the Three Months ended September 30, 2015

Revenue – For the quarter ended September 30, 2016, we generated $28,060,468 in electricity revenue primarily from commercial customers, and from various long and short-term residential customers.  The majority of our revenue comes from the flow of electricity to customers which includes revenues from contract cancellation fees, disconnection fees and late fees of $1,021,738.  Revenues for the quarter ended September 30, 2015 were $25,551,126 from electricity revenue which includes $2,148,215 from disconnection and late fees.

Cost of Goods Sold and Gross Profit – For the quarter ended September 30, 2016, cost of goods sold and gross profit totaled $24,010,610 and $4,049,858, respectively.  Cost of goods sold and gross profit recorded in the quarter ended September 30, 2015 were $20,446,346 and $5,104,780, respectively.

Operating expenses – Operating expenses for the quarter ended September 30, 2016 totaled $3,574,276 consisting primarily of general and administrative expenses of $2,067,999, stock compensation of $2,407, bank service fees of $183,338, professional fees of $47,434, outside commissions of $1,027,574 and $245,524 of billing fees.  Billing fees are primarily costs paid to third party Electronic Data Inter-Chain (EDI) provider to handle transactions between us, ERCOT and the TDSPs in order to produce customer bills.

Operating expenses for the quarter ended September 30, 2015 totaled $3,106,175, consisting primarily of general and administrative expenses of $1,858,717, stock compensation of $61,431, bank service fees of $152,953, professional fees of $38,136, outside commissions of $748,337 and $246,601 of billing fees.

Net Income/(Loss) – Net income for the quarter ended September, 2016 and 2015, totaled $338,208 and $1,604,399, respectively, relating primarily to operating expenses and cost of goods sold incurred in excess of revenue as we attempt to obtain economies of scale.
 
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The three months ended September 2016 compared to the three months ended September 2015 reflect a lower profit margin which is a result of compressed unit margin caused by the competitive pressures in the marketplace and the customer base for the Company has shifted towards a greater number of commercial accounts than residential accounts which yield lower unit margins.  In addition, weather significantly impacts our residential and small commercial customers and heating and cooling degree days can be used to evaluate the effect of weather on energy usage.  During the three months ended September 2016, revenues were negatively impacted by milder weather during August 2016 when compared to the three months ended September 2015.

Management plans to continue to execute on its sales and marketing program to solicit individual commercial as well as residential customers.   Management also plans to continue to acquire portfolios of commercial and residential customers when offered at reasonable prices.

Nine Months Ended September 30, 2016, compared to the Nine Months ended September 30, 2015

Revenue – For the nine months ended September 30, 2016, we generated $70,449,308 in electricity revenue primarily from commercial customers, and from the addition of various long and short-term residential customers.  The majority of our revenue comes from the flow of electricity to customers which includes revenues from contract cancellation fees, disconnection fees and late fees of $3,026,436.   For the nine months ended September 30, 2015, the Company generated $62,416,285 in electricity revenue which includes $3,470,536 from contract cancellation fees, disconnection fees and late fees.

Cost of Goods Sold and Gross Profit – For the nine months ended September 30, 2016, cost of goods sold and gross profit totaled $58,076,258 and $12,373,050, respectively.  Cost of goods sold and gross profit recorded in the nine months ended September 30, 2015 were $50,230,884 and $12,185,401, respectively.

Operating expenses – Operating expenses for the nine months ended September 30, 2016 totaled $9,790,775, consisting primarily of general and administrative expenses of $6,007,631, bank service fees of $ 484,662, professional fees of $202,176, outside commission expense of $2,336,481, collection fees/sales verification fees $41,466 and $718,359 of billing fees.  Billing fees are primarily costs paid to third party Electronic Data Inter-Chain (EDI) provider to handle transactions between us, ERCOT and the TDSPs in order to produce customer bills.

Operating expenses for the nine months ended September 30, 2015 totaled $8,792,037, consisting primarily of general and administrative expenses of $5,392,603 stock compensation of $74,547, bank service fees of $420,357, professional fees of $272,871, outside commission expense of $1,951,096 and $680,563 of billing fees.

Net Income/(Loss) – Net income for the nine months ended September 30, 2016 and 2015, totaled $1,591,246 and $2,186,909, respectively, relating primarily to operating expenses and cost of goods sold incurred in excess of revenue as we attempt to obtain economies of scale.

The nine months ended September 2016 compared to the nine months ended September 2015 reflect a lower profit margin which is a result of compressed unit margin  caused by the competitive pressures in the marketplace and the customer base for the Company has shifted towards a greater number of commercial accounts than residential accounts which yield lower unit margins.  In addition, weather significantly impacts our residential and small commercial customers and heating and cooling degree days can be used to evaluate the effect of weather on energy usage. During the nine months ended September 2016, revenues were negatively impacted by milder weather during August 2016 when compared to the nine months ended September 2015.

Management plans to continue to execute on its sales and marketing program to solicit individual commercial as well as residential customers.   Management also plans to continue to acquire portfolios of commercial and residential customers when offered at reasonable prices.

Liquidity and Capital Resources

At September 30, 2016 and December 31, 2015, our cash totaled $3,293,505 and $382,490, respectively.  Our principal cash requirements for the quarter ended September 30, 2016, were for operating expenses and cost of goods sold (including power purchases, employee cost, and customer acquisition), collateral for TDSPs and capital expenditures. During the nine months ended September 30, 2016, the primary source of cash was from electricity revenues, $4,228,450 of capital raised pursuant to private placements of common stock and $2,500,000 in financing.  During the quarter ended September 30, 2015, the primary source of cash was from electricity revenues. $130,000 of capital raised pursuant to private placements of common stock and warrants and $3,100,000 in financing.

General – The Company's increase in net cash flow during the first nine months of 2016 is attributable to $1,035,158 cash provided by operating activities, $1,497,339, cash used in investing activities which includes $70,214 for the purchase of property and equipment and $3,373,196 provided by financing activity.  In 2015, the Company's net cash decrease resulted from cash used by operations of $2,080,849, net cash used in investing activities of $269,859 which includes $91,344 for the purchase of property and equipment and $2,345,551 provided by financing activity.

The Company has no present agreements or commitments with respect to any material acquisitions of other businesses, products, product rights or technologies. However, we will continue to evaluate acquisitions of and/or investments in products, technologies, or companies that complement our business and may make such acquisitions and/or investments in the future. Accordingly, we may need to obtain additional sources of capital in the future to finance any such acquisitions and/or investments. We may not be able to obtain such financing on commercially reasonable terms, if at all.  If we are able to obtain additional financing, such financing may result in restrictions on our operations, in the case of debt financing, or substantial dilution for stockholders, in the case of equity financing.

Cash Outflows for Capital Assets, Customer Acquisition and Deposits

We expect to expend funds for   capital assets, customer acquisition and deposits in connection with the expansion of our business during the remainder of the current fiscal year.  The anticipated source of funds will be cash on hand and the capital raised through the year ended December 31, 2016.

Future Financing Needs

The Company did not commence operations and the generation of revenue until the middle of the three month period ended March 31, 2012.  Our cash position may not be significant enough to support daily operations.  Management believes that we have adequate liquidity to support operations during the short-term, but this belief is based upon many assumptions and is subject to numerous risks.

While we believe in the viability of our plan of operations and strategy to generate revenues and in our ability to obtain additional funds, there can be no assurances that our plan of operations or ability to raise capital will be successful.  The ability to grow is dependent upon our ability to further implement our business plan, generate revenues, and obtain additional financing, as needed.

Off-Balance Sheet Arrangements

Our existing wholesale power purchase agreement provides that we will provide additional credit support to cover mark-to-market risk in connection with the purchase of long term power.  A mark-to-market credit risk occurs when the price of previously purchased long term power is greater than the current market price for power purchased for the same term.  While we believe that the current environment of historically low power prices limits our exposure to risk, a collateral call, should it occur, could limit our working capital and, if we fail to meet the collateral call, could cause liquidation of power positions.

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ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

As a "smaller reporting company" as defined by Item 10 of Regulation S-K, we are not required to provide this information.

ITEM 4.  CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures, as of the end of the period covered by this Quarterly Report, were effective at the reasonable assurance level to ensure that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Changes in Internal Control over Financial Reporting

There have been no changes in internal control over financial reporting during the period of time covered by this Quarterly Report has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Our process for evaluating controls and procedures is continuous and encompasses constant improvement of the design and effectiveness of established controls and procedures and the remediation of any deficiencies which may be identified during this process.
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PART II – OTHER INFORMATION

ITEM 1A.  RISK FACTORS

As of the date of this filing, there have been no material changes to the Risk Factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, filed with the SEC on March 30, 2016 (the "2015 Form 10-K").  The Risk Factors set forth in the 2015 Form 10-K should be read carefully in connection with evaluating our business and in connection with the forward-looking statements contained in this Quarterly Report on Form 10-Q.  Any of the risks described in the 2015 Form 10-K could materially adversely affect our business, financial condition or future results and the actual outcome of matters as to which forward-looking statements are made.  These are not the only risks we face.  Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On September 9, 2016, the Company entered into a Securities Purchase Agreement with an investor for such investor to purchase from the Company 21,818 shares of the Company's common stock for an aggregate purchase price of $24,000.

The Company intends to use the proceeds from this investment for general corporate and working capital purposes.
 
The common stock was offered to the investors in reliance upon an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended (the "Securities Act"), and Regulation D promulgated thereunder.  
 
Our reliance on Regulation D under the Securities Act was based in part upon written representations made by each investor that: (a) the investor is acquiring the securities for his, her or its own account for investment and not for the account of any other person and not with a view to or for distribution, assignment or resale in connection with any distribution within the meaning of the Securities Act, (b) the investor agrees not to sell or otherwise transfer the securities unless they are registered under the Securities Act and any applicable state securities laws, or an exemption from such registration is available, (c) the investor has knowledge and experience in financial and business matters such that he, she or it is capable of evaluating the merits and risks of an investment in the Company, (d) the investor had access to all of our documents, records, and books pertaining to the investment and was provided the opportunity to ask questions and receive answers regarding the terms and conditions of the offering or issuance and to obtain any additional information which we possessed or were able to acquire without unreasonable effort and expense, and (e) the investor has no need for liquidity in its investment and could afford the complete loss of such investment.  In our reliance upon Rule 506(b) of Regulation D promulgated under the Securities Act, management made the determination, based upon written representations, that such investor was an "accredited investor" as defined in Rule 501 of Regulation D. In addition, there was no general solicitation or advertising for securities issued in reliance upon Regulation D.
 
Our reliance upon Section 4(a)(2) of the Securities Act of 1933 was based in part upon the following factors: (a) the issuance of the securities was in connection with isolated private transactions which did not involve any public offering; (b) there were a limited number of offerees; (c) there were no subsequent or contemporaneous public offerings of the securities by us; (d) the securities were not broken down into smaller denominations; and (e) the negotiations for the sale of the securities took place directly between the offeree and the Company.
 

17
 
ITEM 6.   EXHIBITS

No.
Item
31.1
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
31.2
Certification  of the Chief Financial Officer  pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
32.1*
Certification of the CEO and CFO pursuant to Rule 13a-14(b) and Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
101.INS**
XBRL Instance Document
101.SCH**
XBRL Taxonomy Extension Schema Document
101.CAL**
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF**
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB**
XBRL Taxonomy Extension Label Linkbase Document
101.PRE**
XBRL Taxonomy Extension Presentation Linkbase Document

* In accordance with Item 601(b)(32)(ii) of Regulation S-K, this exhibit shall not be deemed "filed" for the purposes of Section 18 of the Securities and Exchange Act of 1934 or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

** Pursuant to Rule 406T of Regulation S-T, this XBRL information will not be deemed "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liability of that section, nor will it be deemed filed or made a part of a registration statement or prospectus for purposes of Sections 11 and 12 of the Securities Act of 1933, or otherwise subject to liability under those sections.

18
 
SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this Quarterly Report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
   
SUMMER ENERGY HOLDINGS, INC.
       
       
Date:
November 14, 2016
By:
/s/ Neil M. Leibman
     
Neil M. Leibman
     
Chief Executive Officer
     
(Principal Executive Officer)


Date:
November 14, 2016
   
     
/s/ Jaleea P. George
     
Jaleea P. George
     
Chief Financial Officer
     
(Principal Accounting Officer)

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