UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the Quarterly Period Ended June 30, 2016

 

or

 

o   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: 000-53824

 

PREMIER HOLDING CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

Nevada		88-0344135
(State or other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

 

1382 Valencia, Unit F Tustin, CA		92780
(Address of Principal Executive Offices)		(Zip Code)

 

(949) 260-8070

(Registrant’s Telephone Number, Including Area Code)

 

N/A

(Former Name or Former Address, 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 þ 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 (§ 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 þ 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	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	þ
(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ.

 

As of August 15, 2016, there were 246,059,401 shares of registrant’s common stock outstanding.

 

 

PREMIER HOLDING CORPORATION

FORM 10-Q

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016

 

TABLE OF CONTENTS

 

		Page
PART I. FINANCIAL INFORMATION
ITEM 1	Financial Statements
	Condensed Consolidated Balance Sheets as of June 30, 2016 (unaudited) and December 31, 2015	3
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2016 and 2015 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2016 and 2015 (unaudited)	5
	Notes to Condensed Consolidated Financial Statements (unaudited)	6
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	22
ITEM 4.	Controls and Procedures	22
PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings	23
ITEM 1A.	Risk Factors	23
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
ITEM 3.	Defaults Upon Senior Securities	23
ITEM 4.	Mine Safety Disclosures	23
ITEM 5.	Other Information	23
ITEM 6.	Exhibits	23
SIGNATURES		24

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

PREMIER HOLDING CORPORATION

Condensed Consolidated Balance Sheets

 

		June 30, 2016				December 31, 2015
		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash		$	342,313			$	395,726
Accounts receivable, net			416,584				444,843
Prepaid expenses			115,121				102,418
Inventory			20,102				82,533
Related party receivable			81,762				–
Total current assets			975,882				1,025,520
Equipment, net			122,317				134,745
Goodwill			4,000,000				4,000,000
Intangible assets			125,000				–
Total assets		$	5,223,199			$	5,160,265
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities		$	465,348			$	508,083
Accounts payable - related party			156,767				171,081
Convertible note, net			1,856,941				1,780,482
Notes payable			84,240				98,668
Lawsuit liability			8,000				26,000
Derivative liability			2,015,000				1,484,000
Total liabilities			4,586,296				4,068,314
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY:
Preferred stock - undesignated, $0.0001 par value, 42,750,000 shares authorized; none issued and outstanding as of June 30, 2016 and December 31, 2015, respectively			–				–
Series A Preferred stock, $0.0001 par value, 7,000,000 shares authorized; 200,000 issued and outstanding as of June 30, 2016 and December 31, 2015, respectively			20				20
Series B Preferred stock, $0.0001 par value, 250,000 shares authorized; 250,000 issued and outstanding as of June 30, 2016 and December 31, 2015, respectively			25				25
Common stock, $0.0001 par value, 450,000,000 shares authorized; 245,559,401 and 204,400,850 shares issued and outstanding as of June 30, 2016 and December 31, 2015, respectively			24,556				20,440
Common stock to be issued			29,000				4,000
Treasury stock			(869,000	)			(869,000	)
Additional paid-in capital			28,651,128				26,108,346
Accumulated deficit			(26,780,115	)			(23,796,018	)
Total Premier Holding Corporation stockholders' equity			1,055,614				1,467,813
Non-controlling interest			(418,711	)			(375,862	)
Total stockholders' equity			636,903				1,091,951
Total liabilities and stockholders' equity		$	5,223,199			$	5,160,265

 

See accompanying notes which are an integral part of these unaudited condensed consolidated financial statements.

 

 

PREMIER HOLDING CORPORATION

Condensed Consolidated STATEMENTS OF OPERATIONS

(Unaudited)

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2016				2015				2016				2015
REVENUE:
TPC commission revenue		$	1,202,322			$	1,074,463			$	2,295,014			$	2,163,548
Product revenue			151,412				189,469				223,721				228,943
Total revenue			1,353,734				1,263,932				2,518,735				2,392,491
COST OF SALES			187,797				128,775				239,285				160,027
GROSS PROFIT			1,165,937				1,135,157				2,279,450				2,232,464
OPERATING EXPENSES:
Selling, general and administrative			2,533,607				1,921,055				4,685,470				3,548,243
Total operating expenses			2,533,607				1,921,055				4,685,470				3,548,243
OPERATING LOSS			(1,367,670	)			(785,898	)			(2,406,020	)			(1,315,779	)
OTHER INCOME (EXPENSE):
Interest expense			(406,750	)			(69,078	)			(816,926	)			(110,759	)
Gain on change in fair value of derivative liability			(69,000	)			–				196,000				–
Total other expense			(475,750	)			(69,078	)			(620,926	)			(110,759	)
LOSS BEFORE INCOME TAXES, NON-CONTROLLING INTEREST AND DISCONTINUED OPERATIONS			(1,843,420	)			(854,976	)			(3,026,946	)			(1,426,538	)
Income taxes			–				–				–				–
LOSS BEFORE NON-CONTROLLING INTEREST AND DISCONTINUED OPERATIONS			(1,843,420	)			(854,976	)			(3,026,946	)			(1,426,538	)
DISCONTINUED OPERATIONS:
Loss from discontinued operations			–				(278,463	)			–				(278,463	)
Gain on disposal of LP&L			–				1,852,884				–				1,852,884
INCOME FROM DISCONTINUED OPERATIONS			–				1,574,421				–				1,574,421
NET LOSS		$	(1,843,420	)		$	719,445			$	(3,026,946	)		$	147,883
NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST		$	375,862			$	8,071			$	42,849			$	51,188
NET LOSS ATTRIBUTABLE TO PREMIER HOLDING CORPORATION		$	(1,467,558	)		$	727,516			$	(2,984,097	)		$	199,071
Net loss Attributable to Premier Holding Corporation per share - basic and diluted
Loss attributable to continuing operations		$	(1,467,558	)		$	(846,905	)		$	(2,984,097	)		$	(1,375,350	)
Net loss per common share - basic and diluted		$	(0.01	)		$	(0.00	)		$	(0.01	)		$	(0.01	)
Net loss attributable to Premier Holding Corporation per share - basic and diluted
Loss from discontinued operations						$	(278,463	)						$	(278,463	)
Net loss per common share from discontinued operations - basic and diluted						$	(0.00	)						$	(0.00	)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - Basic and diluted			226,835,109				188,069,601				219,496,464				185,730,404

 

See accompanying notes which are an integral part of these unaudited condensed consolidated financial statements.

 

 

PREMIER HOLDING CORPORATION

Condensed Consolidated STATEMENTS OF CASH FLOWS

(Unaudited)

 

		For the Six Months Ended June 30,
		2016				2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(3,026,946	)		$	147,883
Adjustments to reconcile net loss to net cash used in operating activities:
Gain on disposal of LP&L			–				(1,852,883	)
Shares based payments issued for services			959,099				77,500
Gain on change in fair value of derivative liability			(196,000	)			–
Warrants and options issued for services			–				224,555
Depreciation and amortization expense			17,928				4,846
Amortization of debt discounts			578,857				–
Changes in operating assets and liabilities:
Accounts receivable			28,259				(217,362	)
Prepaid expenses			(12,703	)			5,992
Inventory			62,431				–
Accounts payable and accrued liabilities			(42,735	)			(351,006	)
Net cash used by discontinued operations			–				415,292
Net cash used in operating activities			(1,631,810	)			(1,545,183	)
CASH USED IN INVESTING ACTIVITIES:
Purchase of equipment			(5,500	)			(67,163	)
Purchase of subsidiary - AIC, LLC			(125,000	)			–
Net cash provided by discontinued operations			–				57,526
Net cash used in investing activities			(130,500	)			(9,637	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net advances from related party			(96,076	)			(37,395	)
Proceeds (payment) for notes payable			(14,428	)			51,663
Proceeds from common stock payable			25,000				97,640
Proceeds from sale of common stock			1,517,401				110,566
Proceeds from convertible notes payable			295,000				1,439,250
Payment of lawsuit liability			(18,000	)			–
Net cash provided by financing activities			1,708,897				1,661,724
NET CHANGE IN CASH			(53,413	)			106,904
CASH AT BEGINNING OF PERIOD			395,726				673,092
CASH AT END OF PERIOD		$	342,313			$	779,996
SUPPLEMENTAL INFORMATION:
Cash paid during the period for:
Interest		$	286,545			$	84,122
Income taxes		$	–			$	–
Non-cash investing and financing activities:
Debt discount due to warrants included with convertible notes		$	70,398			$	410,963
Debt discount due to derivative liabilities		$	400,000			$	–
Debt discount in excess of debt charged to interest expense		$	327,000			$	–
Common stock returned to treasury		$	101			$	–

 

See accompanying notes which are an integral part of these unaudited condensed consolidated financial statements.

 

 

PREMIER HOLDING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 1 – NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

 

Company Overview

 

Premier Holding Corporation (the “Company”) is an energy services holding company. The Company provides an array of energy services through its subsidiary companies, Energy Efficiency Experts, Inc. (“E3”), The Power Company USA, LLC (“TPC”) and American Illuminating Company, LLC (“AIC”). The Company provides solutions that enable customers to lower their electricity rates, reduce their energy consumption, lower their operating and maintenance costs, and realize environmental benefits. The Company’s comprehensive set of services includes competitive electricity plans and upgrades to a facility’s energy infrastructure.

 

The Company was organized under the laws of the State of Nevada on October 18, 1971 under the name of Mr. Nevada, Inc. On November 13, 2008, the Company filed a Certificate of Amendment to its Articles of Incorporation with the State of Nevada Secretary of State to change its name from OVM International Holding Corporation to Premier Holding Corporation. The Company is organized with a holding company structure such that the Company provides financial and management expertise, which includes access to capital, financing, legal, insurance, mergers, acquisitions, joint ventures and management strategies for its subsidiaries.

 

In 2012, the Company acquired a unique marquee technology for energy efficient lighting, the E-Series controller developed by Active ES. This patented technology provides an upgrade for existing HID lamps for high-bay indoor and outdoor applications where the other then current options for efficiency were new and untested, and expensive. This technology is being marketed by E3.

 

In the first quarter of 2013, the Company acquired an 80% stake in TPC, a deregulated power broker in Illinois. By the end of that quarter, TPC had over 11,000 clients and has been adding between 1,000 and 3,000 clients per month. The Company now has sold well over 200,000 residential-equivalent contracts and typically closes over 5,000 contracts per month. Over 1,000 of these clients have commercial/industrial facilities such as small businesses, warehouses and distribution centers, which are candidates for E3.

 

On October 22, 2014, the Company entered into a Membership Purchase Agreement (“Agreement”) to acquire 85% of the membership interests of Lexington Power & Light, LLC (“LP&L”) from its owners. LP&L was incorporated under the laws of the State of New York on July 8, 2010 as a Limited Liability Company. LP&L marketed and sold electricity and natural gas to both commercial and residential customers located primarily in five boroughs of New York City and on Long Island. The Company purchased electricity and natural gas on a wholesale basis pursuant to a combined supply and credit facility agreement. Under the Agreement, the Company was to acquire 85% of LP&L on the closing date for 7,500,000 shares of common stock and $500,000 in Promissory Notes, plus earn-out payments based upon EBITDA milestones during the 12 months following the closing date. Under the terms of the Agreement, the Company had a contingent funding obligation of $1,000,000 of which $500,000 will be used as working capital for LP&L, had the option to acquire the remaining 15% of LP&L until December 31, 2018 for $20,000,000 payable 1/2 in cash and 1/2 in common stock and was to limit its board of directors to five persons, with the members of LP&L having the right to appoint one board member. On April 7, 2015, the Agreement was terminated as per our default on our purchase obligations for the acquisition due to the non-performance of LP&L under the terms of the Agreement.

 

On May 6, 2016, we entered into a definitive agreement with WWCD, LLC, a company incorporated in the State of Illinois (“WWCD”), to acquire for $125,000 all membership units, including all licenses and contracts held, of American Illuminating Company, LLC, a Connecticut limited liability company (“AIC”), a company owned by WWCD. AIC is a FERC-licensed supplier of deregulated energy. After final notifications and filings with regulatory agencies are complete, AIC is expected to begin supplying power immediately to our customers, will recruit additional resellers of deregulated power and provide them with our sales tools to streamline sales efforts, enforce compliance, and increase productivity.

 

The Company has three subsidiaries including E3 and AIC that are wholly owned and TPC that is 80% owned (the “Subsidiaries”).

 

As used in this report and unless otherwise indicated, the term “Company” refers to Premier Holding Corporation and the Company’s Subsidiaries. Unless otherwise specified, all dollar amounts are expressed in United States dollars.

 

 

Basis of Presentation

 

The condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been omitted. However, in the opinion of management, all adjustments (which include only normal recurring adjustments, unless otherwise indicated) necessary to present fairly the financial position and results of operations for the periods presented have been made. The results for interim periods are not necessarily indicative of trends or of results to be expected for the full year. These financial statements should be read in conjunction with the financial statements of the Company for the year ended December 31, 2015 (including the notes thereto) set forth on Form 10-K. The Company uses as guidance Accounting Standard Codification (ASC) as established by the Financial Accounting Standards Board (FASB).

 

Significant Accounting Policies

 

For reference to a complete list of significant accounting policies, these financial statements should be read in conjunction with the financial statements of the Company for the year ended December 31, 2015 (including the notes thereto) set forth on Form 10-K.

 

During the six months ended June 30, 2016, there were several new accounting pronouncements issued by the Financial Accounting Standards Board. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s consolidated financial statements.

 

NOTE 2 – GOING CONCERN AND MANAGEMENT’S LIQUIDITY PLANS

 

As of June 30, 2016, the Company had an accumulated deficit of $26,780,115. For the six months ended June 30, 2016 and 2015, the Company incurred operating losses of $2,406,020 and $1,315,779, respectively, and used cash in operating activities of $1,631,810 and $1,545,183, respectively. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company recognizes it will need to raise additional capital in order to fund operations, meet its payment obligations and execute its business plan. There is no assurance that additional financing will be available when needed or that management will be able to obtain financing on terms acceptable to the Company and whether the Company will generate revenues, become profitable and generate positive operating cash flow. If the Company is unable to raise sufficient additional funds on favorable terms, it will have to develop and implement a plan to further extend payables and to raise capital through the issuance of debt or equity on less favorable terms until sufficient additional capital is raised to support further operations. There can be no assurance that such a plan will be successful. If the Company is unable to obtain financing on a timely basis, the Company could be forced to sell its assets, discontinue its operations and/or pursue other strategic avenues to commercialize its technology.

 

Accordingly, the accompanying condensed consolidated financial statements have been prepared in conformity with U.S. GAAP for interim financial statements, which contemplates continuation of the Company as a going concern and the realization of assets and the satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the consolidated financial statements do not necessarily represent realizable or settlement values. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

NOTE 3 – ACQUISITIONS, GOODWILL & INTANGIBLE ASSETS

 

The following table presents details of the Company’s Goodwill as of June 30, 2016 and December 31, 2015:

 

		The Power Company USA, LLC
Balances at January 1, 2015:		$	4,000,000
Intangible assets acquired			–
Impairment losses			–
Balances at December 31, 2015:			4,000,000
Intangible assets acquired			–
Impairment losses			–
Balances at June 30, 2016:		$	4,000,000

 

 

The Power Company USA, LLC Share Exchange

 

On February 28, 2013, the Company acquired 80% of the outstanding membership units of TPC, a deregulated power broker in Illinois for thirty million 30,000,000 shares of Premier’s common stock valued at $4,500,000. The total purchase price for TPC was allocated as follows:

 

Goodwill		$	4,500,000
Total assets acquired			4,500,000
The purchase price consists of the following:
Common Stock			4,500,000
Total purchase price		$	4,500,000

 

The total amount of goodwill that is expected to be deductible for tax purposes is $4,500,000 and is amortized over 15 years. The total amortization expense for tax purposes for the six months ended June 30, 2016 is $150,000.

 

American Illuminating Company, LLC Acquisition

 

On May 5, 2016, the Company acquired 100% of the outstanding membership interests of AIC, a FERC-licensed supplier of deregulated energy, for $125,000. The total purchase price was allocated to intangible assets for the value of the license. The initial accounting for the acquisition is not yet complete because the evaluations necessary to assess the fair value of the assets acquired are still in process.

 

NOTE 4 – CONVERTIBLE NOTES PAYABLE

 

Between July 15, 2014 and December 21, 2015, the Company entered into convertible notes with third parties for use as operating capital for a total of $1,358,500. The convertible notes payable agreements require the Company to repay the principal, together with 10 - 18% annual interest by the agreements’ expiration dates ranging between July 15, 2019 and August 6, 2020. The notes are secured by assets of the Company and mature five years from the issuance date and automatically convert into shares of common stock at a conversion price of 80% of the closing market price on the last day of the month upon which the maturity dates fall, unless an election is made for repayment in cash. One year from the contract date, the holders may elect to convert the note in whole or in part into shares of common stock at a conversion price of 80% of the average closing market price over the prior 30 days of trading.

 

The Company analyzed the conversion option of the notes for derivative accounting consideration under ASC 815-15, Derivatives and Hedging, and determined that the instrument should be classified as a liability once the conversion option becomes effective after one year since there is no explicit limit to the number of shares to be delivered upon settlement of the above conversion options for the notes issued (see Note 6).

 

Between March 9, 2015 and May 11, 2016, the Company entered into convertible notes with third parties for use as operating capital for a total of $2,074,800. The convertible notes payable agreements require the Company to repay the principal, together with 12% annual interest by the agreements’ expiration dates ranging between March 9, 2017 and May 11, 2019. The notes are secured by assets of the Company and mature three years from the issuance date. Six months from the contract date, the holders may elect to convert the note in whole or in part into shares of common stock at $0.15. Two warrants were issued with each note including (1) a warrant to purchase an amount of equal to 50% of face value of the note at an exercise price $0.15 for a period of three years following the note issuance date and (2) a warrant to purchase an amount of equal to 83.33% of face value of the note at an exercise price $0.25 for a period of three years following the note issuance date. The Company recorded an aggregate debt discount of $686,536 for the fair value of these warrants through June 30, 2016, which is being amortized over the term of the notes, and is included in convertible notes on the Company’s balance sheet at an unamortized remaining balance of $467,091. The total debt discount recorded for new notes issued during the six months ended June 30, 2016 and 2015 was $70,398 and $410,963, respectively. Interest expense related to the amortization of this debt discount for the three months ended June 30, 2016 and 2015 was $113,618 and $15,046, respectively.

 

During the six months ended June 30, 2016 and 2015, the Company recorded interest expense of $816,926 and $110,759, respectively.

 

 

NOTE 5 – DERIVATIVE LIABILITY

 

The embedded conversion feature in the convertible debt instruments (the “Notes”) that the Company issued beginning in July 2014 (See Note 4), and became convertible beginning in July 2015, qualified it as a derivative instrument since the number of shares issuable under the note is indeterminate based on guidance under ASC 815, Derivatives and Hedging. The conversion feature of these convertible promissory notes has been characterized as a derivative liability beginning in July 2015 to be re-measured at the end of every reporting period with the change in value reported in the statement of operations.

 

The valuation of the derivative liability attached to the convertible debt was determined by management using a binomial pricing model that values the derivative liability within the notes. Using the results from the model, the Company recorded a derivative liability of $2,015,000 for the fair value of the convertible feature included in the Company’s convertible debt instruments as of June 30, 2016. The derivative liability recorded for the convertible feature created a debt discount of $1,292,000, which is being amortized over the remaining term of the notes using the effective interest rate method and is included in convertible notes on the balance sheet. Interest expense related to the amortization of this debt discount for the six months ended June 30, 2016, was $138,239. Additionally, $327,000 of debt discount was charged to interest expense during the six months ended June 30, 2016, representing the amount of debt discount in excess of the convertible debt.

 

Key inputs and assumptions used to value the embedded conversion feature in the month the Notes became convertible were as follows:

 

·	The average value of a share of Company stock in the month the Notes became convertible, the measurement date – ranging from $0.0756 - $0.1172 (per the over-the-counter market quotes);

 

·	The average conversion price of all Notes issued in their month of issuance, with such conversion price determined based on 80% of the average over-the-counter market price for the 30 days preceding the one-year anniversary of all Notes in that month’s pool;

 

·	The number of shares into which Notes in pool would convert - face amount of the Notes in that month’s pool divided by the average conversion price for Notes included in that month’s pool;

 

·	Risk free rate - 2.5%;

 

·	Dividend yield - 0.0%;

 

·	Assumed annual volatility of Company stock – 131.7%; and

 

·	The Company would be unable to repay the notes within their term.

 

Additional key inputs and assumptions used to value the embedded conversion feature as of June 30, 2016:

 

·	The value of a share of Company stock on June 30, 2016, the measurement date - $0.0735 (per the over-the-counter market quotes);

 

·	Conversion price - $0.0617, based on 80% of the average quoted market price for the Company’s common stock for the 30-day period ended June 30, 2016; and

 

·	Number of shares into which Notes would convert - face value of Notes divided by $0.0617.

 

The following table summarizes the derivative liability included in the consolidated balance sheet:

 

Derivative liability as of December 31, 2015		$	1,484,000
Change in fair value of derivative liability			(196,000	)
Derivative on new loans			727,000
Derivative liability as of June 30, 2016		$	2,015,000

 

NOTE 6 – STOCKHOLDERS’ EQUITY

 

Preferred Stock

 

On June 3, 2013, the Company filed a Certificate of Amendment of Articles of Incorporation with the State of Nevada Secretary of State giving it the authority to issue 50,000,000 shares of preferred stock with a par value of $0.0001 per share. As of June 30, 2016, there were 200,000 Series A Non-Voting Convertible Stock shares and 250,000 Series B Voting Convertible Preferred Stock shares issued and outstanding.

 

 

On March 31, 2014, the Board of Directors of the Company approved the creation of a Series A Non-Voting Convertible Preferred Stock (the “Series A Preferred Stock”). On April 1, 2014, the Company filed a Certificate of Designation for the Company’s Series A Preferred Stock in Nevada of which the Company is authorized to issue up to 7,000,000 shares with a par value of $0.0001 per share. In general, each share of Series A Preferred Stock has no voting or dividend rights, a stated value of $1.00 per share (the “Stated Value”), and is convertible nine months after issuance into common stock at the conversion price equal to one-tenth (1/10) of the Stated Value, or at $0.10 per common share.

 

On December 11, 2015, the Board of Directors of the Company approved the creation of the Corporation’s Series B Voting Convertible Preferred Stock (“Series B Preferred Stock”). On December 16, 2015, the Corporation filed a Certificate of Designation for the Series B Preferred Stock in Nevada of which the Company is authorized to issue up to 250,000 shares with a par value of $0.0001 per share. Holders of Series B Preferred Stock shall be entitled to 1,000 votes for each share of Series B Preferred Stock. Votes of shares of Series B Preferred Stock shall be added to votes of shares of common stock of the Company at any meeting of stockholders of the Company at which stockholders have the right to vote. Series B Preferred Stock shall have voting rights for a period of three years from the date of issuance. On the third anniversary of the issuance of shares of Series B Preferred Stock, each share of Series B Preferred Stock shall be converted into four shares of common stock without further action of the Board of Directors. Series B Preferred Stock shall have the same dividends per share and, except as provided above, the same powers, designations, preferences and relative rights, qualifications, limitations or restrictions as those of shares of Series A Preferred Stock of the Company.

 

Common Stock

 

During the six months ended June 30, 2016, the Company entered into a series of stock purchase agreements with accredited investors for the sale of 27,280,000 shares of its common stock in amount of $1,517,400. Additionally, 14,892,858 shares of common stock were issued for consulting services valued at $0.052 to $0.077 per share, based upon the fair value of the common stock on the measurement date totaling $959,099, which was recognized immediately as general and administrative expense. Additionally, approximately 1,000,000 shares of common stock were cancelled and returned to the treasury.

 

Unless otherwise set forth above, the securities described above were not registered under the Securities Act of 1933, as amended (the “Securities Act”), or the securities laws of any state, and were offered and sold in reliance on the exemption from registration afforded by Section 4(a)(2) under the Securities Act and Regulation D promulgated thereunder and corresponding provisions of state securities laws, which exempt transactions by an issuer not involving any public offering.

 

Options for Common Stock

 

A summary of option activity as of June 30, 2016 is presented below:

 

Number Outstanding

Weighted-Average Exercise Price Per Share

Weighted-Average Remaining Contractual Life (Years)

Aggregate Intrinsic Value

Outstanding at January 1, 2015

6,000,000

$

0.04

4.53

$

–

Granted

–

–

–

–

Exercised

(4,000,000

)

–

–

–

Canceled/forfeited/expired

(350,000

)

0.06

–

–

Outstanding at December 31, 2015

1,650,000

0.04

4.53

–

Granted

–

–

–

–

Exercised

–

–

–

–

Canceled/forfeited/expired

–

–

–

–

Outstanding at June 30, 2016

1,650,000

0.04

4.03

–

Options vested and exercisable at June 30, 2016

1,650,000

$

0.04

4.03

$

–

 

 

On June 30, 2014, the Board of Directors of the Company approved a new employment agreement with the Company’s Chief Executive Officer, Randy Letcavage (the “Employment Agreement”). The Employment Agreement has a retroactive effective date of January 1, 2014 and replaces all prior agreements between the Company and Mr. Letcavage. The Employment Agreement provides for an annual base salary of $240,000, a discretionary bonus of $50,000 over each 12-month period, expense reimbursement, and a grant of stock options on 5,000,000 shares vesting over 2 years at an initial exercise price per share equal to $.0025 per share. Stock options are vesting at the following rate:

 

·

1,000,000 (one million) shares of common stock on the Commencement Date;

·

1,000,000 (one million) shares of common stock on the sixth (6th) month anniversary of the Commencement Date;

·

1,000,000 (one million) shares of common stock on the first anniversary of the Commencement Date;

·

1,000,000 (one million) shares of common stock on the 18th month anniversary of the Commencement Date; and

·

1,000,000 (one million) shares of common stock on the second anniversary of the Commencement Date.

 

In addition, the Company agreed to indemnify Mr. Letcavage to the fullest extent permitted by law for claims related to Mr. Letcavage’s role as an officer and director of the Company, or its subsidiaries. The Company recorded $355,725 and $516,591 as his stock based compensation related to the stock options for the years ended December 31, 2015 and 2014, respectively. As of December 31, 2015, $872,316 had been recorded as his stock based compensation related to the stock options, with $0 unrecognized cost related to the stock options remaining. On October 8, 2015, Mr. Letcavage exercised 4,000,000 options for common stock at an aggregate price of $10,000, which was paid through the reduction of accounts payable owed Mr. Letcavage.

 

On December 31, 2014, the Board of Directors of the Company granted 150,000 stock options to each of its three board members with vesting immediately at an initial exercise price per share equal to $.15 per share.

 

The Company valued the options using the Black-Scholes option pricing model with the following assumptions: dividend yield of zero, years to maturity of between 0.5 and 5 years, risk free rates of between 1.65 and 1.73 percent, and annualized volatility of between 108% and 217%.

 

Warrants for Common Stock

 

A summary of warrant activity as of June 30, 2016 is presented below:

 

		Number Outstanding				Weighted-Average Exercise Price Per Share				Weighted-Average Remaining Contractual Life (Years)				Aggregate Intrinsic Value
Outstanding at January 1, 2015			2,793,694			$	0.157				1.10			$	–
Granted			12,428,629				0.194				2.58				–
Exercised			–				–				–				–
Canceled/forfeited/expired			(2,793,694	)			–				–				–
Warrants vested and exercisable at December 31, 2015			12,428,629				0.194				2.58				–
Granted			1,966,650				0.200				2.62				–
Exercised			–				–				–				–
Canceled/forfeited/expired															–
Outstanding at June 30, 2016			14,395,279				0.195				2.15				–
Warrants vested and exercisable at June 30, 2016			14,395,279			$	0.195				2.15			$	–

 

During the six months ended June 30, 2016, the Company issued 1,966,650 warrants included with certain convertible notes payable (see Note 4) with a value of $70,397.

 

The Company valued the warrants using the Black-Scholes option-pricing model with the following assumptions: dividend yield of zero, years to maturity of 3 years, risk free rates of between 0.85 and 1.31 percent, and annualized volatility of between 124% and 130%.

 

 

NOTE 7 – DISCONTINUED OPERATION

 

The Company acquired assets from LP&L on October 22, 2014. Due to the default of the purchase agreement between the Company and LP&L on April 7, 2015, the Company lost control over LP&L. Based on the requirements of ASC 810, Consolidation, the Company will no longer present assets and liabilities retained as of the date of deconsolidation. To accomplish this, the results of LP&L’s operations are reported in discontinued operations in accordance with ASC 205, Presentation of Financial Statements.

 

Summarized operating results for the discontinuation of operations is as follows:

 

Fair value of consideration		$	629,668
Fair value of retained non-controlling investment			–
Carrying value of non-controlling interest			(215,861	)
			413,807
Less: carrying value of former subsidiary's net assets			(1,439,077	)
Gain on disposal of LP&L's interest and retained non-controlling investment			1,852,884
Loss from discontinued operation from January 1, 2015 to April 7, 2015		$	(278,463	)

 

As of the date of deconsolidation, in accordance with ASC 810, Consolidation, we recognized a gain of $1,852,884 related to this event during the second quarter of 2015. We have no carried value of assets related to our retained investment in LP&L, but retain a non-controlling equity interest, which is 1.56% of LP&L interest with fair value amount of $0. The Company analyzed the carrying value of LP&L’s net assets on the deconsolidation date and determined the amount to be $1,439,077 including the following,

 

Cash		$	37,294
Accounts receivable			804,137
Inventory			14,802
Collateral Postings			136,997
Accrued Revenue			414,683
Fixed assets			29,475
Collateral Deposit			200,000
Accounts payable and accrued liabilities			(1,658,957	)
Note Payable-related party			(117,124	)
Note payable			(837,040	)
Due to Premier			(463,344	)
Carrying value of former subsidiary's net assets		$	(1,439,077	)

 

The Company had no involvement with the management of LP&L after the date of deconsolidation and confirms that this transaction was not with a related party and that LP&L will not be a related party going forward after the deconsolidation.

 

Major assets and liabilities of the discontinued operation of LP&L are as follows as of December 31, 2014:

 

		December 31, 2014
Cash		$	23,698
Accounts receivable			810,446
Inventory			42,319
Collateral Postings			286,997
Accrued Revenue			479,406
Fixed assets			33,828
Collateral Deposit			200,000
Assets of discontinued operations		$	1,876,694
Accounts payable and accrued liabilities			1,209,359
Note Payable-related party			141,860
Note payable			991,400
Current liabilities of discontinued operations		$	2,342,619

 

 

Major line items constituting net loss of the discontinued operations of LP&L are as follows for the periods from January 1, 2015 through April 7, 2015 (deconsolidation):

 

		2015
Revenues		$	2,287,851
Cost of sales			2,144,747
Gross profit			143,104
Selling, general and administrative expenses			421,567
Loss on discontinued operations		$	(278,463	)

 

NOTE 8 – RELATED PARTY TRANSACTIONS

 

During the three months ended June 30, 2016 and 2015, Mr. Letcavage (directly or through related entities) recorded $120,000 and $120,000, respectively as compensation for his role as our CEO and CFO. The following tables outline the related parties associated with the Company and amounts due or receivable for each period indicated.

 

Name of Related Party		Relationship with the Company
iCapital Advisory		Consultant company owned by the CEO of the Company
Jamp Promotion		Company owned by Patrick Farah, the managing director of TPC
Mason Ventures and Sebo Services		Companies owned by Shadie Kalkas, the managing director of TPC

 

Amounts due to related parties		June 30, 2016				December 31 2015
iCapital Advisory – consulting fees		$	66,267			$	75,543
Jamp Promotion – commissions			90,500				90,500
Mason Ventures and Sebo Services – net loans			–				5,038
		$	156,767			$	171,081
Related party receivable - Mason Ventures and Sebo Services		$	81,762			$	–

 

During the three months ended June 30, 2016, the Company received loans from Mason Ventures of approximately $633,570 and repaid approximately $720,370. The loans are unsecured and non-interest bearing.

 

Additionally, we have also reviewed the facts and circumstance of our relationship with Nexalin Technology and iCapital Advisory, both of which are affiliated companies of our CEO, and have assessed whether these two companies are variable interest entities (VIEs). Based on the guidance provided in ASC 810, Consolidation, these two companies are not considered VIEs. The Company is not the primary beneficiary of Nexalin Technology and iCapital Advisory and, whether those two companies have any income (losses) as of the three months ended June 30, 2016, it would not be absorbed by Premier Holding Corporation.

 

NOTE 9 – COMMITMENTS AND CONTINGENCIES

 

Operating lease

 

For the operations of TPC, the Company leases 4,260 square feet of office space at 1165 N. Clark Street, Chicago, Illinois under a 65 month operating lease through March 2019. The monthly base rent is approximately $9,415 per month and increases each year during the term of the lease.

 

 

Legal Proceedings

 

Whitaker Energy, LLC

 

In 2013, Whitaker Energy, LLC (“Whitaker”) filed a civil action the Superior Court of Dekalb County, State of Georgia, Case No. 13-CV8610-6, against TPC and the Company alleging that TPC is in default under its obligations to Whitaker under a promissory note pursuant to which Whitaker loaned TPC $150,000 in 2012 concurrent with Whitaker’s purchase of a membership interest in TPC. Under the terms of the loan between TPC and Whitaker, TPC owed a monthly payment to Whitaker, the amount of which varies each month and is based on the number of contracts TPC enters into from door-to-door sales and call centers. TPC and Whitaker dispute the number of contracts entered into by TPC after certain adjustments and charge-backs from cancellation of contracts by consumers. Under the complaint, Whitaker seeks to recover $93,080 of principal under the loan, plus prejudgment interest in the amount of $9,184 and reasonable attorneys’ fees and expenses of the litigation. Also, Whitaker seeks an order from the court for access to TPC’s books and records. TPC and the Company dispute the claim by Whitaker that TPC is in default under the loan between TPE and Whitaker. As of April 23, 2014, the parties to the litigation have negotiated a settlement of the litigation which would include a monthly payment by TPC to Whitaker of $4,000 in payment of the principal and accrued interest. Under the terms of the settlement, Whitaker will recover a total of $110,000 plus interest on unpaid amounts. As of June 30, 2016, the Company has made payments totaling $102,000, with the remaining balance of $8,000 recorded on the balance sheet at June 30, 2016.

 

Hi-Tech Specialists, Inc.

 

Prior to its acquisition by TPC, Hi-Tech Specialists, Inc. (“Hi-Tech”) filed suit against U.S.E.C. LLC d/b/a/ US Energy Consultants and Michail Skachko concerning the parties’ agreement seeking damages in an amount in excess of $789,077. The nature of the litigation relates to a contract between the parties wherein Hi-Tech was to solicit service agreements on behalf of U.S.E.C. LLC. The suit is ongoing and TPC is aggressively pursuing its claim against the parties named.

 

Lexington Power & Light, LLC

 

LP&L rents office space under several non-cancelable operating lease agreements in the same commercial building that commenced beginning in March 2014, all of which expired on February 28, 2016. The annual rental payments required under these operating lease agreements for 2015 and 2016 were $46,867 and $7,849, respectively. Due to the default of the acquisition note payable, the acquisition of LP&L was terminated on April 7, 2015, thus the Company is no longer obligated to this operating lease effective April 7, 2015.

 

As of December 31, 2013, LP&L had a contingent liability related to a complaint filed by a single commercial customer with the New York Public Service Commission seeking a reimbursement of $40,000. The Company had determined it appropriate under the circumstances to recognize and accrue this loss contingency. Due to the default of the acquisition note payable, the acquisition of LP&L was terminated on April 7, 2015, thus the Company is no longer obligated to this loss contingency effective April 7, 2015.

 

NOTE 10 – SUBSEQUENT EVENTS

 

In July of 2016, the Company issued 500,000 shares of the Company’s common stock to an accredited investor for total proceeds of $20,000.

 

In July and August of 2016, the Company received proceeds of $1,371,200 from accredited investors for 34,280,000 common shares not yet issued as of August 15, 2016.

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Forward-Looking Statements

 

This Management's Discussion and Analysis of Financial Condition and Results of Operations includes a number of forward-looking statements that reflect Management's current views with respect to future events and financial performance. Forward-looking statements are projections in respect of future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. Those statements include statements regarding the intent, belief or current expectations of us and members of our management team as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. Forward-looking statements made in this quarterly report on Form 10-Q includes statements about:

 

·

our plans to identify and acquire products that we believe will be prospective for acquisition and development;

·

concentration of our customer base and fulfillment of existing customer contracts;

·

our ability to maintain pricing;

·

deterioration of the credit markets;

·

increased vulnerability to adverse economic conditions due to indebtedness;

·

competition within our industry;

·

asset impairment and other charges;

·

our identifying, making and integrating acquisitions;

·

loss of key executives;

·

the ability to employ skilled and qualified workers;

·

work stoppages and other labor matters;

·

inadequacy of insurance coverage for certain losses or liabilities;

·

federal and state legislative and regulatory initiatives relating to the energy industry;

·

costs and liabilities associated with environmental, health and safety laws, including any changes in the interpretation or enforcement thereof;

·

future legislative and regulatory developments;

·

our beliefs regarding the future of our competitors;

·

our expectation that the demand for our products services will eventually increase; and

·

our expectation that we will be able to raise capital when we need it.

 

These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” set forth in our Form 10-K, as amended, as filed on April 14, 2016, any of which may cause our company’s or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks include, by way of example and not in limitation:

 

·

general economic and business conditions;

·

substantial doubt about our ability to continue as a going concern;

·

our needs to raise additional funds in the future which may not be available on acceptable terms or at all;

·

our inability to successfully recruit and retain qualified personnel in order to continue our operations;

·

our ability to successfully implement our business plan;

·

if we are unable to successfully acquire, develop or commercialize new products;

·

our expenditures not resulting in commercially successful products;

·

third parties claiming that we may be infringing their proprietary rights that may prevent us from manufacturing and selling some of our products;

·

the impact of extensive industry regulation, and how that will continue to have a significant impact on our business, especially our product development, manufacturing and distribution capabilities; and

·

other factors discussed under the section entitled “Risk Factors” set forth in our Form 10-K, as filed on April 14, 2016.

 

 

Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company should be read in conjunction with the Condensed Consolidated Financial Statements and notes related thereto included in this quarterly report on Form 10-Q. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time except as required by law. We believe that our assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions.

 

As used in this Annual Report on Form 10-K and unless otherwise indicated, the terms “Premier,” “we,” “us,” “our,” or the “Company” refer to Premier Holding Corporation and its Subsidiaries, Energy Efficiency Experts, Inc. (“E3”), The Power Company USA, LLC (“TPC”) and American Illuminating Company, LLC (“AIC”). Unless otherwise specified, all dollar amounts are expressed in United States dollars.

 

Corporate Overview

 

We are an energy services holding company. We provide an array of energy services through our subsidiary companies, E3 and TPC. We provide solutions that enable customers to reduce their electricity rates and energy consumption, lower their operating and maintenance costs, and realize environmental benefits. Our comprehensive set of services includes competitive electricity plans and upgrades to a facility’s energy infrastructure. Our stock is quoted on the OTC Markets under the symbol “PRHL”.

 

We were incorporated in Nevada on October 18, 1971 under the name of Mr. Nevada, Inc., and following the completion of a limited public offering in April 1972, we commenced limited operations which were discontinued in 1990. Thereafter, we engaged in reorganization and, on several occasions, sought to merge with or acquire certain active private companies or operations, all of which were terminated or resulted in discontinued negotiations. In 2012, we discontinued our casket line of business, and began offering clean energy products and services. In December 2011, we acquired assets from WePower, LLC and Green Central Holdings, Inc. in order to start a second line of business unrelated to the casket business. We also formed WePower Ecolutions Inc. (“Ecolutions”) as a wholly-owned subsidiary and began to offer clean energy products and services to commercial markets and developers and management companies of large-scale residential developments.

 

In October 2012, we divested our business of certain underperforming product lines and prospects which were acquired by a newly formed entity known as WePowerEco Corp. and negotiated the sale of the product line and prospects with WePowerEco Corp. in exchange for an unsecured promissory note in the face amount of $5,000,000. Subsequently the note had been conservatively valued at approximately $869,000. In connection with the sale of the product line and prospects, we agreed not to compete with WePower Eco Corp’s solar and wind products for a period of two years following the sale. In addition, we agreed to the let the prior management team use the WePower name in a newly formed company separate from the Company.

 

In 2012, we acquired a technology for energy efficient lighting, the E-Series controller developed by Active ES. This patented technology provides an upgrade for existing HID lamps for high-bay indoor and outdoor applications where the other current options for efficiency are new and untested, and expensive. This technology is being marketed by E3. In the fourth quarter of 2012, we performed additional research and development to the products from Active ES adding two new products for mass production, the 480-volt version of the controller, suitable for ports and other large facilities, and a 240-volt version of the LiteOwl for Streetlights, vastly increasing the applicable market.

 

In the first quarter of 2013, we acquired an 80% stake in TPC, a deregulated power broker in Illinois. By the end of that quarter, TPC had over 11,000 clients and has been adding between 1,000 and 3,000 clients per month. Over 1,000 of these clients have commercial/industrial facilities such as small businesses, warehouses and distribution centers, which we believe are candidates for E3.

 

In addition to organic growth, strategic acquisitions of complementary businesses and assets have been an important part of our historical development. Since inception, the Company has completed numerous acquisitions, which have enabled us to broaden our service offerings and expand our geographical reach.

 

We bridge two industries in the Energy field: Deregulation (reselling power from suppliers) and energy efficiency technologies. Deregulated power is expected to be one of the largest markets since the deregulation of telecom, only much larger. Energy efficiency companies, sometimes referred to as energy services companies, or ESCOs, develop, install and arrange financing for projects designed to improve the energy efficiency of client facilities. Typical products and services offered by energy efficiency companies include lighting and lighting retrofits, HVAC upgrades, motor controls, equipment installations, load management, and can include power generation including on-site cogeneration, renewable energy plants, etc. As we grow, we expect to be involved in all these opportunities. Energy efficiency companies often offer their products and services through energy savings performance contracts, or ESPCs. Under these contracts, energy efficiency companies assume certain responsibilities for the performance of the installed measures, under assumed conditions, for a portion of the project’s economic lifetime. We operate as a deregulated power reseller and as an ESCO.

 

 

E3’s Business

 

E3 is an Energy Services Company (ESCO) formed by the Company to provide the best-of-breed energy reduction solutions for its clients. Through surveys and various analysis, E3 prescribes the best solution for the unique circumstance of each client by providing the most current, fully-vetted solutions in energy reduction technologies, as well as management tools which capture the client for future opportunities.

 

Many companies only provide stand-alone solutions and only address one area of energy efficiency. E3 looks at its clients’ entire energy footprint and develops custom solutions that fit their distinct requirements. E3 prescribes the most appropriate solutions for its clients’ facilities and operations based on their budget. In addition, E3 facilitates the entire process from assessment of needs to planning and implementation to ensure that all expectations for energy reduction and technology performance are met. E3 also provides financing through third-party partners for its customers.

 

E3 lowers the cost of energy through competitive supplier bidding and creates comprehensive energy savings solutions through the implementation of energy reduction projects. The mission of E3 is to help a customer select and implement the most cost effective energy conservation measures for its facilities. E3’s energy services division is focused on providing business customers with best-in-class demand management solutions such as lighting (LED etc.), HVAC, Commercial Refrigeration and Water Sub-Metering and Smart Building technology.

 

The Company believes that E3 is finding success in the sale and installation of LED lighting both as direct sales to mid- and large-sized customers and in utilizing rebate programs from power providers (SCE, etc.). E3 continues to recruit LED resellers whose clients have declined an LED sale and is going back to those clients and offering the E-Series technology as a solution for their existing HID lighting. This includes, but is not limited to, end users such as auto dealerships, warehouses, and parking structures.

 

TPC’s Business

 

TPC provides the most competitive energy pricing delivered with no change in service. There are currently 16 states that have deregulated their energy markets in a manner attractive to business. While many consumers have already benefitted from deregulated energy, there are millions more that have not taken advantage of this opportunity. It is estimated that federally requested energy deregulation will be enacted in some form in more of the 50 states by 2020. The deregulation industry is estimated at 7 to 11 times larger than when the telecom industry deregulated. Today and as this market broadens, the Company expects TPC to continue to leverage its strength in these emerging markets.

 

Prior to deregulation, the utility market in each state was monopolized. At that time, a few, sometimes only one utility in each state provided all components of energy services: supply and distribution. In 1992, Congress passed the National Energy Policy Act, allowing consumers in deregulated states the power to choose their energy supplier. TPC is an experienced energy consulting firm in the deregulation space that utilizes its market standing and its large, well-established network of energy suppliers to compete for its clients’ business. With no cost or obligation for its clients, TPC serves as its clients’ energy advocates and negotiates the most competitive pricing and options for its clientele. Because of TPC’s buying power, market expertise, and strong and diverse supplier relationships, TPC can achieve results and cost savings that are greater than most individuals and/or organizations can obtain on their own.

 

TPC’s business model is to enlist commercial and residential clients who benefit from the law passed allowing for competition in the energy markets as a result of deregulation of energy. In many cases TPC saves its clients 10% to 30% on their energy bills by simply switching suppliers, all while the enrollee still receives services from their local utility (the local utility continues to distribute the power, read the meter, bill, and service any interruptions). TPC is different than several of its competitors in that is has agreements with multiple energy suppliers allowing TPC to leverage its standing in the marketplace to garner competitive pricing for its clients by having its suppliers compete for their clients’ business. Currently, TPC has access to over 30 different suppliers and has most of the agreements in place that allow for TPC to be paid for the life of the client’s tenure with the supplier. TPC acquires its clients through strategic partnerships, trained in-house commercial and door-to-door residential agents and call centers.

 

 

TPC utilizes its online client energy portal. This energy portal enables rapid, efficient and secure sales transactions of deregulated power. The energy portal is designed to enable sales agents, whether from a computer terminal, a smart phone, or any web browser to access the pertinent information on a particular prospect. Agents can view their clients’ energy profiles and quickly access the energy options available to them. The transparency and ease of the energy portal allows TPC’s agents to select the best power provider for their customers and process the paperwork online in real-time, which enables client acquisition in minutes. This sales portal enables large-scale, rapid sales of deregulated power. The energy portal is built for scalability so that it can be monetized on its own, meaning it can be offered to any deregulated power company as its sales tool. The technology also provides sales management, reporting, verification, and compliance tracking which may be among the best in the industry.

 

AIC’s Business

 

On May 6, 2016, the we entered into a definitive agreement with WWCD, LLC, a company incorporated in the State of Illinois (“WWCD”), to acquire for $125,000 all membership units, including all licenses and contracts held, of American Illuminating Company, a Connecticut limited liability company (“AIC”), a company owned by WWCD. AIC is a FERC-licensed supplier of deregulated energy. After final notifications and filings with regulatory agencies are complete, AIC is expected to begin supplying power immediately to our customers, will recruit additional resellers of deregulated power and provide them with our sales tools to streamline sales efforts, enforce compliance, and increase productivity.

 

Corporate Developments During 2016

 

Since the commencement of the year through June 30, 2016, we experienced the following corporate developments:

 

Development of ESP

 

During the first quarter ended March 31, 2016, we began development of the next generation of the Energy Services Portal (“ESP”) V3.0. Formerly the National Energy Services Transactor, or NEST, the name was changed to avoid confusion in the market with another product. This new version is being developed to further expand its features and capabilities and to accommodate the needs of multiple resellers of deregulated power on behalf of the newly acquired supplier.

 

Membership Interest Purchase Agreement with WWCD, LLC

 

On May 6, 2016, the we entered into a definitive agreement with WWCD, LLC, a company incorporated in the State of Illinois (“WWCD”), to acquire for $125,000 all membership units, including all licenses and contracts held, of American Illuminating Company, LLC, a Connecticut limited liability company (“AIC”), a company owned by WWCD. AIC is a FERC-licensed supplier of deregulated energy. After final notifications and filings with regulatory agencies are complete, AIC is expected to begin supplying power immediately to our customers, will recruit additional resellers of deregulated power and provide them with our sales tools to streamline sales efforts, enforce compliance, and increase productivity.

 

Formation of Advisory Committee

 

On June 20, 2016, our Board of Directors authorized the creation of a company advisory committee (the “Advisory Committee”), which shall initially consist of William Rice, Chris Lacy and Robert Seigler, all current shareholders of our company. Furthermore, the Board of Directors authorized the Advisory Committee to create its own procedures for working with the company, with the mission to improve the company’s performance in any area. The Advisory Committee is expected to telephonically as needed and to prepare a list of goals and objectives which will be reviewed and accepted by the Board of Directors.

 

Formation of Audit Committee

 

On July 20, 2016, our Board of Directors authorized the creation of an audit committee (the “Audit Committee”), which shall initially consist of Robert Baron, currently a member of our Board of Directors, and Robert Seigler, a shareholder. The Board of Directors authorizes the Audit Committee to create its own rules of procedure in working with the company’s outside accountants with the mission to ensure the company is compliant with its internal control and corporate governance requirements and to take all steps necessary to ensure compliance under the Securities Exchange Act of 1934.

 

 

Results of Operations

 

Comparison of the Three Months Ended June 30, 2016 to the Three Months Ended June 30, 2015

 

Revenue and Operating Expenses

 

The Company’s revenue and operating expenses for the three months ended June 30, 2016 and 2015 are summarized as follows:

 

		Three Months Ended June 30,
		2016				2015
Revenues		$	1,353,734			$	1,263,932
Cost of revenues			187,797				128,775
Gross profit			1,165,937				1,135,157
Selling, general and administrative expenses			2,533,607				1,921,055
Operating loss		$	(1,367, 670)			$	(785,898)

 

The increase in revenue for the three months ended June 30, 2016, compared to the three months ended June 30, 2015 is due primarily to increased call center revenue from our TPC.

 

The increase in selling, general and administrative expenses for the three months ended June 30, 2016, compared to the three months ended June 30, 2015 is due primarily to the increased use of consultants.

 

Other Income (Expense)

 

		Three Months Ended June 30,
		2016				2015
Interest expense		$	(406,750	)		$	(69,078	)
Gain (loss) on change in fair value of derivative liability			(69,000	)			–
Total		$	(475,750	)		$	(69,078	)

 

The increase in other expense for the three months ended June 30, 2016, compared to the prior period is mainly attributable to the increase is convertible notes payable and the derivative liability resulting in increased interest expense.

 

Comparison of the Six Months Ended June 30, 2016 to the Six Months Ended June 30, 2015

 

Revenue and Operating Expenses

 

The Company’s revenue and operating expenses for the six months ended June 30, 2016 and 2015 are summarized as follows:

 

		Six Months Ended June 30,
		2016				2015
Revenues		$	2,518,735			$	2,392,491
Cost of revenues			239,285				160,027
Gross profit			2,279,450				2,232,464
Selling, general and administrative expenses			4,685,470				3,548,243
Operating loss		$	(2,406,020	)		$	(1,315,779	)

 

The increase in revenue for the six months ended June 30, 2016, compared to the six months ended June 30, 2015 is due primarily to increased commercial and call center revenue from our TPC subsidiary.

 

The increase in selling, general and administrative expenses for the six months ended June 30, 2016, compared to the six months ended June 30, 2015 is due primarily to the increased use of consultants.

 

 

Other Income (Expense)

 

		Six Months Ended June 30,
		2016				2015
Interest expense		$	(816,926	)		$	(110,759	)
Gain (loss) on change in fair value of derivative liability			196,000				–
Total		$	(620,926	)		$	(110,759	)

 

The increase in other expense for the six months ended June 30, 2016, compared to the prior period is mainly attributable to the increase is convertible notes payable and the derivative liability resulting in increased interest expense.

 

Liquidity and Capital Resources

 

Working Capital

 

The following table sets forth a summary of working capital as of June 30, 2016 and December 31, 2015:

 

		June 30,				December 31,
		2016				2015
Current assets		$	975,882			$	1,025,520
Current liabilities			4,586,296				4,068,314
Working capital		$	(3,610,414	)		$	(3,042,794	)

 

The decrease in working capital is due primarily from an increase in the convertible notes and derivative liability, partially offset by an increase in prepaid expenses, as well as a decrease in accounts payable and accrued liabilities.

 

Cash Flows

 

The following table sets forth a summary of changes in cash flows for the six months ended June 30, 2016 and 2015:

 

		Six Months Ended June 30,
		2016				2015
Net cash used in operating activities		$	(1,631,810	)		$	(1,545,183	)
Net cash used in investing activities			(130,500	)			(9,637	)
Net cash provided by financing activities			1,708,897				1,661,724
Change in cash		$	(53,413	)		$	106,904

 

The increase in cash used in operating activities was due primarily to an increase selling, general and administrative expenses for the six months ended June 30, 2016 as compared to the same period in 2015.

 

The increase in cash used in investing activities was due primarily the acquisition of AIC for cash of $125,000 in May of 2016.

 

The increase in cash from financing activities was due primarily to increased proceeds from the sale of common stock for the six months ended June 30, 2016 as compared to the same period in 2015.

 

Private Placement Offering

 

During the six months ended June 30, 2016, the Company entered into a series of stock purchase agreements with accredited investors for the sale of 27,280,000 shares of its common stock in amount of $1,517,400.

 

Short-Term Debt and Lines of Credit

 

The Company did not enter into any new short-term debt or lines of credit with third parties during the six months ended June 30, 2016.

 

 

Convertible Notes Payable

 

During the six months ended June 30, 2016, the Company entered into convertible notes with third parties for use as operating capital for total proceeds of $295,000.

 

Going Concern

 

The unaudited condensed consolidated financial statements contained in this annual report on Form 10-Q have been prepared assuming that the Company will continue as a going concern. Since inception, the Company has financed its operations primarily through proceeds from the issuance of common stock and convertible notes payable. As of June 30, 2016, the Company had an accumulated deficit of $26,780,115. During the six months ended June 30, 2016, the Company incurred operating losses of $2,406,020 and used cash in operating activities of $1,631,810. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management is in the process of evaluating various financing alternatives in order to finance our research and development activities and general and administrative expenses. These alternatives include raising funds through public or private equity markets and either through institutional or retail investors. Although there is no assurance that the Company will be successful with our fund raising initiatives, management believes that the Company will be able to secure the necessary financing as a result of ongoing financing discussions with third party investors and existing shareholders.

 

The condensed consolidated financial statements do not include any adjustments that may be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent on its ability to obtain additional financing as may be required and ultimately to attain profitability. If the Company raises additional funds through the issuance of equity, the percentage ownership of current shareholders could be reduced, and such securities might have rights, preferences or privileges senior to its common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, the Company may not be able to take advantage of prospective business endeavors or opportunities, which could significantly and materially restrict its future plans for developing its business and achieving commercial revenues. If the Company is unable to obtain the necessary capital, the Company may have to cease operations.

 

Future Financing

 

We will require additional funds to implement our growth strategy for our business. In addition, while we have received capital from various private placements and convertible loans that have enabled us to fund our operations, these funds have been largely used to supplement our working capital, although additional funds are needed for other corporate operational and working capital purposes. Therefore, we will need to raise an additional $1.5 to $2.0 million to cover all of our operational expenses over the next 12 months. These funds may be raised through equity financing, debt financing, or other sources, which may result in further dilution in the equity ownership of our shares. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis should it be required, or generate significant material revenues from operations, we will not be able to meet our other obligations as they become due and we will be forced to scale down or perhaps even cease our operations.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

 

Critical Accounting Policies and Estimates

 

Our significant accounting policies are more fully described in the notes to our financial statements included herein for the quarter ended June 30, 2016 and in the notes to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2015.

 

Recently Issued Accounting Pronouncements

 

Any recently issued accounting pronouncements are more fully described in Note 1 to our financial statements included herein for the quarter ended June 30, 2016.

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

As a smaller reporting company as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.

 

Item 4. Controls and Procedures

 

Disclosure Controls and Procedures

 

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed under the Securities Exchange Act of 1934, as amended, 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 the Company’s management, including the Company’s interim president and chief executive officer (who is the Company’s principal executive officer) and the Company’s chief financial officer, treasurer, and secretary (who is the Company’s principal financial officer and principal accounting officer) to allow for timely decisions regarding required disclosure. In designing and evaluating the Company’s disclosure controls and procedures, the Company’s management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and the Company’s management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

 

Management’s Report on Internal Control over Financial Reporting

 

Management is responsible for establishing and maintaining adequate internal control over the Company’s financial reporting. In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002, our management, with the participation of the Company’s principal executive officer and principal financial officer has conducted an assessment, including testing, using the criteria in Internal Control - Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) (2013). Our system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. This assessment included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Based on this evaluation, the Company’s management concluded its internal control over financial reporting was not effective as of June 30, 2016. The ineffectiveness of the Company’s internal control over financial reporting was due to the following material weaknesses which are indicative of many small companies with small staff:

 

(i)	inadequate segregation of duties consistent with control objectives; and
(ii)	ineffective controls over period end financial disclosure and reporting processes.

 

Our management feels the weaknesses identified above have not had any material effect on our financial results. However, we are currently reviewing our disclosure controls and procedures related to these material weaknesses and expect to implement changes in the next fiscal year, including identifying specific areas within our governance, accounting and financial reporting processes to add adequate resources to potentially mitigate these material weaknesses. Our management will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.

 

Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting during the three months ended June 30, 2016 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting. We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within any company have been detected.

 

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

The Company is not a party to any material pending legal proceedings and, to the best of its knowledge, no such action by or against the Company has been threatened, except as noted below:

 

Hi-Tech Specialists, Inc.

 

Prior to its acquisition by TPC, Hi-Tech Specialists, Inc. (“Hi-Tech”) filed suit against U.S.E.C. LLC d/b/a/ US Energy Consultants and Michail Skachko concerning the parties’ agreement seeking damages in an amount in excess of $789,077. The nature of the litigation relates to a contract between the parties wherein Hi-Tech was to solicit service agreements on behalf of U.S.E.C. LLC. The suit is ongoing and TPC is aggressively pursuing its claim against the parties named.

 

Lexington Power & Light, LLC

 

As of December 31, 2013, LP&L had a contingent liability related to a complaint filed by a single commercial customer with the New York Public Service Commission seeking a reimbursement of $40,000. The Company had determined it appropriate under the circumstances to recognize and accrue this loss contingency. Due to the default of the acquisition note payable, the acquisition of LP&L was terminated on April 7, 2015, thus the Company is no longer obligated to this loss contingency effective April 7, 2015.

 

Item 1A. Risk Factors

 

An investment in the Company’s common stock involves a number of very significant risks. You should carefully consider the risk factors included in the “Risk Factors” section of the Annual Report on Form 10-K for the year ended December 31, 2015 that was filed on April 14, 2016, in addition to other information contained in those reports and in this quarterly report in evaluating the Company and its business before purchasing shares of its common stock. The Company’s business, operating results and financial condition could be adversely affected due to any of those risks.

 

Item 2. Unregistered Sales of Equity Securities and Use Of Proceeds

 

During the six months ended June 30, 2016, the Company entered into a series of stock purchase agreements with accredited investors for the sale of 27,280,000 shares of its common stock in amount of $1,517,400. Additionally, 14,892,858 shares of common stock were issued for consulting services valued at $0.052 to $0.077 per share, based upon the fair value of the common stock on the measurement date totaling $959,099, which was recognized immediately as general and administrative expense.

 

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.

 

Item 3. Defaults upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not Applicable.

 

Item 5. Other Information

 

None.

 

Item 6. Exhibits

 

No.	Description
31.1*	Certification Statement of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification Statement of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Certification Statement of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*	Certification Statement of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101*	Financial statements formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations and Comprehensive Loss, (iii) the Condensed Consolidated Statements of Cash Flows and (v) the Notes to Condensed Consolidated Financial Statements tagged as blocks of text.

* Filed herewith

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

PREMIER HOLDING CORPORATION

 

By: /s/ Randall Letcavage

Randall Letcavage

President, Chief Executive Officer & Chief Financial Officer

(Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)

Date: August 15, 2016