Table of Contents

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 September 30, 2017

 

or

 

¨       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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

       
Large accelerated filer ¨ Accelerated filer ¨
       
Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company þ
       
    Emerging Growth Company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act: ¨

 

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 November 20, 2017, there were 443,328,083 shares of registrant’s common stock outstanding.

 

 

 

   

 

 

 

PREMIER HOLDING CORPORATION

FORM 10-Q

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017

 

TABLE OF CONTENTS

 

  Page
   
PART I.  FINANCIAL INFORMATION 3
     
ITEM 1 Financial Statements 3
     
  Condensed Consolidated Balance Sheets as of September 30, 2017 (unaudited) and December 31, 2016 3
     
  Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2017 and 2016 (unaudited) 4
     
  Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016 (unaudited) 5
     
  Notes to Condensed Consolidated Financial Statements (unaudited) 6
     
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 14
     
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 21
     
ITEM 4. Controls and Procedures 21
     
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 23

 

 

 

 2 

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

PREMIER HOLDING CORPORATION

Condensed Consolidated Balance Sheets

 

 

   September 30, 2017   December 31, 2016 
   (Unaudited)     
ASSETS
         
CURRENT ASSETS:          
Cash  $1,186,861   $1,811,503 
Accounts receivable, net   408,832    458,140 
Prepaid expenses   211,439    148,774 
Inventory   29,191    20,546 
Related party receivable - managing director   52,429    67,879 
Total current assets   1,888,752    2,506,842 
           
Equipment, net   134,093    168,647 
Goodwill   1,915,000    4,000,000 
Intangible asset, net   125,000    188,652 
Total assets  $4,062,845   $6,864,141 
           
LIABILITIES AND STOCKHOLDERS' EQUITY
           
CURRENT LIABILITIES:          
Accounts payable and accrued liabilities  $410,831   $404,545 
Accounts payable - related party   90,500    121,967 
Convertible note, net   1,225,614    1,252,887 
Notes payable   122,853    143,557 
Derivative liability   387,000    918,000 
Total liabilities   2,236,798    2,840,956 
           
           
COMMITMENTS AND CONTINGENCIES (Note 8)          
           
STOCKHOLDERS' EQUITY:          
Preferred stock - undesignated, $0.0001 par value, 42,750,000 shares authorized; none issued and outstanding as of September 30, 2017 and December 31, 2016, respectively        
Series A Preferred stock, $0.0001 par value, 7,000,000 shares authorized; 200,000 issued and outstanding as of September 30, 2017 and December 31, 2016, respectively   20    20 
Series B Preferred stock, $0.0001 par value, 250,000 shares authorized; 250,000 issued and outstanding as of September 30, 2017 and December 31, 2016 , respectively   25    25 
Common stock, $0.0001 par value, 450,000,000 shares authorized; 433,208,487 and 358,840,221 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively   43,321    35,884 
           
Common stock to be issued   613,933    4,000 
Treasury stock   (869,000)   (869,000)
Additional paid-in capital   39,419,219    34,708,657 
Accumulated deficit   (36,851,715)   (29,392,022)
Total Premier Holding Corporation stockholders' equity   2,355,803    4,487,564 
Non-controlling interest   (529,756)   (464,379)
Total stockholders' equity   1,826,047    4,023,185 
Total liabilities and stockholders' equity  $4,062,845   $6,864,141 

 

The accompanying footnotes are an integral part of these condensed consolidated financial statements.

 

 

 

 3 

 

 

PREMIER HOLDING CORPORATION

Condensed Consolidated STATEMENTS OF OPERATIONS

(Unaudited)

 

 

   For the Three Months Ended September 30,   For the Nine Months Ended September 30, 
   2017   2016   2017   2016 
                 
REVENUE:                    
TPC commission revenue  $618,800   $984,676   $2,033,353   $3,279,690 
Product revenue   2,527    145,730    5,042    369,451 
Total revenue   621,327    1,130,406    2,038,395    3,649,141 
                     
COST OF REVENUE       100,457    3,364    339,742 
                     
GROSS PROFIT   621,327    1,029,949    2,035,031    3,309,399 
                     
OPERATING EXPENSES:                    
Selling, general and administrative   1,547,069    2,511,042    7,494,900    7,196,512 
Impairment loss - goodwill   2,085,000        2,085,000     
                     
Total operating expenses   3,632,069    2,511,042    9,579,900    7,196,512 
                     
OPERATING LOSS   (3,010,742)   (1,481,093)   (7,544,869)   (3,887,113)
                     
OTHER INCOME (EXPENSE):                    
Interest expense   (144,725)   (952,157)   (511,201)   (1,769,083)
Gain on change in fair value of derivative liability   157,000    462,000    531,000    658,000 
Total other expense, net   12,275    (490,157)   19,799    (1,111,083)
                     
LOSS  BEFORE INCOME TAXES AND NON-CONTROLLING INTEREST   (2,998,467)   (1,971,250)   (7,525,070)   (4,998,196)
                     
Income taxes                
                     
LOSS BEFORE NON-CONTROLLING INTEREST   (2,998,467)   (1,971,250)   (7,525,070)   (4,998,196)
                     
NET LOSS  $(2,998,467)  $(1,971,250)  $(7,525,070)  $(4,998,196)
                     
NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST  $35,135   $39,709   $65,377   $82,558 
                     
NET LOSS ATTRIBUTABLE TO PREMIER HOLDING CORPORATION  $(2,963,332)  $(1,931,541)  $(7,459,693)  $(4,915,638)
                     
                     
Net loss Attributable to Premier Holding Corporation per share - basic and diluted  $(0.01)  $(0.01)  $(0.02)  $(0.02)
                     
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - Basic and diluted   420,697,273    254,064,890    396,634,976    231,090,242 

 

The accompanying footnotes are an integral part of these condensed consolidated financial statements.

 

 

 

 4 

 

 

PREMIER HOLDING CORPORATION

Condensed Consolidated STATEMENTS OF CASH FLOWS

(Unaudited)

 

   For the Nine Months Ended September 30, 
   2017   2016 
         
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss  $(7,525,070)  $(4,998,196)
Adjustments to reconcile net loss to net cash used in operating activities:          
Loss from discontinued operations        
Shares based payments issued for services   2,049,267    992,799 
Impairment loss - goodwill   2,085,000      
Impairment loss - intangibles         
Gain on change in fair value of derivative liability   (531,000)   (658,000)
Change in fair value of contingent liability         
Warrants and options issued for services   808,356     
Depreciation and amortization expense   36,217    30,378 
Amortization of debt discounts   296,227    1,448,355 
Loss (gain) on extinguishment of debt        
Changes in operating assets and liabilities:          
Accounts receivable   49,308    (32,999)
Prepaid expenses   (62,665)   (23,020)
Inventory   (8,645)   62,431 
Accounts payable and accrued liabilities   69,939    201,373 
Net cash used in operating activities   (2,733,066)   (2,976,879)
           
CASH USED IN INVESTING ACTIVITIES:          
Purchase of equipment   (1,663)   (76,699)
Purchase of subsidiary - AIC, LLC       (125,000)
Net cash used in investing activities   (1,663)   (201,699)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Net advances to related party   (16,017)   (131,993)
Payments for notes payable   (20,704)   (34,486)
Proceeds from common stock payable   609,933    580,000 
Proceeds from sale of common stock   1,536,875    4,014,823 
Proceeds from convertible notes payable       295,000 
Payment of lawsuit liability       (26,000)
           
Net cash provided by financing activities   2,110,087    4,697,344 
           
NET CHANGE IN CASH   (624,642)   1,518,766 
CASH AT BEGINNING OF PERIOD   1,811,503    395,726 
CASH AT END OF PERIOD  $1,186,861   $1,914,492 
           
SUPPLEMENTAL INFORMATION:          
Cash paid during the period for:          
Interest  $207,221   $286,545 
Income taxes  $   $ 
Non-cash investing and financing activities:          
Debt discount due to warrants included with convertible notes  $   $70,398 
Debt discount due to derivative liabilities  $   $545,000 
Debt discount in excess of debt charged to interest expense  $   $444,000 
Resolution of derivative liabilities to due debt conversions  $   $514,067 
Common stock issued for conversion of debt  $323,500   $1,302,500 
Common stock returned to treasury  $   $101 

 

The accompanying footnotes are an integral part of these condensed consolidated financial statements.

 

 

 

 5 

 

 

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, E3 and TPC. It provides solutions that enable customers to reduce their energy consumption, lower their operating and maintenance costs, and realize environmental benefits. The Company’s comprehensive set of services includes competitive electricity plans and upgrades to a facility’s energy infrastructure.

 

The Company was incorporated in Nevada on October 18, 1971 under the name of Mr. Nevada, Inc., and following the completion of a limited public offering in April 1972, it commenced limited operations which were discontinued in 1990. Thereafter and through 2012, the Company reorganized as a holding company that provides financial and management expertise, which includes access to capital, financing, legal, insurance, mergers, acquisitions, joint ventures and management strategies to our subsidiaries. Its common stock is quoted on the OTC Markets Group Inc., QB tier (“OTCQB”), under the symbol “PRHL”.

 

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

 

In the first quarter of 2013, the Company acquired an 80% stake in The Power Company USA, LLC (“TPC”), a deregulated power broker in Illinois. By the end of that quarter, TPC had over 11,000 clients and was adding between 1,000 and 3,000 clients per month. By 2015 and 2016, TPC added an average of 3,000 clients per month, and the Company expects this to continue for the foreseeable future. Over 1,000 of these clients have commercial/industrial facilities such as small businesses, warehouses and distribution centers, which are candidates for E3.

 

As a result of our acquisitions, today the Company provides an array of energy services through E3 and TPC. In addition to organic growth, it expects that strategic acquisitions of complementary businesses and assets will remain an important part of its growth plan to enable it to broaden its service offerings and expand its geographical reach.

 

On May 6, 2016, the Company entered into a definitive agreement with WWCD, LLC, a company incorporated in the State of Illinois (“WWCD”), to acquire for $125,000 all membership units, including all licenses and contracts held, of American Illuminating Company, LLC, a Connecticut limited liability company (“AIC”), a company owned by WWCD. AIC is a FERC-licensed supplier of deregulated energy. Consummation of the acquisition of AIC is subject to FERC approval, which was granted in February 2017. After final notifications and filings with regulatory agencies are complete, AIC is expected to begin supplying power immediately to the Company’s customers, will recruit additional resellers of deregulated power and provide them with its sales tools to streamline sales efforts, enforce compliance, and increase productivity. The Company has reflected the $125,000 payment as an intangible asset on the balance sheet as of September 30, 2017.

 

As used in the notes to these financials in this quarterly report and unless otherwise indicated, the terms “we,” “our,” “us,” or the “Company” refer 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, 2016 (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).

 

 

 

 6 

 

 

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, 2016 (including the notes thereto) set forth on Form 10-K.

 

In January 2017, the FASB issued Accounting Standards Update No. 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”. Under the amendments, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, but the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The FASB also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment, and if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. The same impairment test will therefore apply to all reporting units, and an entity will be required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. SEC filers are required to adopt the new standard for annual or any interim goodwill impairment tests in fiscal years beginning after Dec. 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates on or after Jan. 1, 2017. The Company elected to early adopt this new standard effective September 30, 2017.

 

During the nine months ended September 30, 2017, there were several other 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 September 30, 2017, the Company had an accumulated deficit of approximately $37 million. For the nine months ended September 30, 2017 and 2016, the Company incurred operating losses of $7,544,869 and $3,887,113, respectively, and used cash in operating activities of $2,733,066 and $2,976,879, respectively. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company recognizes it will need to raise additional capital in order to fund operations, meet its payment obligations and execute its business plan. There is no assurance that additional financing will be available when needed or that management will be able to obtain financing on terms acceptable to the Company and whether the Company will generate revenues, become profitable and generate positive operating cash flow. If the Company is unable to raise sufficient additional funds on favorable terms, it will have to develop and implement a plan to further extend payables and to raise capital through the issuance of debt or equity which may be on less favorable terms, until sufficient additional capital is raised to support further operations. There can be no assurance that such a plan will be successful. If the Company is unable to obtain financing on a timely basis, the Company could be forced to sell its assets, discontinue its operations and/or pursue other strategic avenues to commercialize its technology.

 

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

 

NOTE 3 – ACQUISITIONS & GOODWILL

 

The following table presents details of the Company’s goodwill as of September 30, 2017 and December 31, 2015:

 

   The Power Company
USA, LLC
 
Balances at January 1, 2016:  $4,000,000 
Aggregate goodwill acquired    
Impairment losses    
Balances at December 31, 2016:   4,000,000 
Aggregate goodwill acquired    
Impairment losses   (2,085,000)
Balances at September 30, 2017:  $1,915,000 

 

 

 

 7 

 

 

The Power Company USA, LLC Share Exchange

 

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

 

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

 

The total amount of goodwill that is expected to be deductible for tax purposes is $4,500,000 and is amortized over 15 years. The total amortization expense for tax purposes for the nine months ended September 30, 2017 is $225,000.

 

The Company periodically reviews the carrying value of intangible assets not subject to amortization, including goodwill, to determine whether impairment may exist. Goodwill and certain intangible assets are assessed annually, or when certain triggering events occur, for impairment using fair value measurement techniques. These events could include a significant change in the business climate, legal factors, a decline in operating performance, competition, sale or disposition of a significant portion of the business, or other factors. Specifically, a goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The Company uses level 3 inputs and a discounted cash flow methodology, along to estimate the fair value of a reporting unit. A discounted cash flow analysis requires one to make various judgmental assumptions including assumptions about future cash flows, growth rates, and discount rates. The assumptions about future cash flows and growth rates are based on the Company’s budget and long-term plans. Discount rate assumptions are based on an assessment of the risk inherent in the respective reporting units.

 

The Company used a blend of the discounted cash flow method and the guideline company transactions method for the impairment testing as of September 30, 2017. The Company performed discounted cash flow analysis projected over 5 years to estimate the fair value of the reporting unit, using management’s best judgement as to revenue growth rates and expense projections. This analysis indicated cash flows (and discounted cash flows) less than the $4 million book value of goodwill. This analysis factored the recent reduction in residential revenue at TPC, which was due primarily to the sales agent attrition of approximately 25% of the door-to-door sales force. The average number of agents in the field fell from 80 in September of 2016 to 60 in September 2017. The drop in the number of agents was due primarily to an outside sales organization who recruited these agents. Since then, TPC has settled a suit that TPC initiated against this firm in which, along with a monetary penalty, the firm agreed to not solicit TPC agents in the future. TPC is actively recruiting to replace this sales force. Also, sales were impacted due to the transitioning of resources to call center and online residential sales in preparation for transitioning to selling our own alternative supplier. The Company determined these were indicators of impairment in goodwill for TPC during the three months ended September 30, 2017 and impaired the goodwill by $2,085,000.

 

NOTE 4 – CONVERTIBLE NOTES PAYABLE

 

Between July 15, 2014 and December 21, 2015, the Company entered into convertible notes with third-parties for use as operating capital for a total of $1,358,500. The convertible notes payable agreements require the Company to repay the principal, together with 10 - 18% annual interest by the agreements’ expiration dates ranging between July 15, 2019 and August 6, 2020. The notes are secured by assets of the Company and mature five years from the issuance date and automatically convert into shares of common stock at a conversion price of 80% of the closing market price on the last day of the month upon which the maturity date falls, unless an election is made for repayment in cash one year from the contract date. In the event such an election is made, the holders may convert the note in whole or in part into shares of common stock at a conversion price of 80% of the average closing market price over the prior 30 days of trading. During the nine months ended September 30, 2017, a total of $12,000 of these notes were converted into shares of common stock, with a total of $815,000 of these notes remaining as of September 30, 2017.

 

The Company analyzed the conversion option of the notes for derivative accounting consideration under ASC 815-15, Derivatives and Hedging and determined that the instrument should be classified as a liability once the conversion option becomes effective after one year due to there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options for the notes issued (see Note 5).

 

 

 

 8 

 

 

Between March 9, 2015 and May 11, 2016, the Company entered into convertible notes with third parties for use as operating capital for a total of $2,074,800. The convertible notes payable agreements require the Company to repay the principal, together with 12% annual interest by the agreements’ expiration dates ranging between March 9, 2018 and May 11, 2019. The notes are secured by assets of the Company and mature three years from the issuance date. Six months from the contract date, the holders may elect to convert the note in whole or in part into shares of common stock at $0.15. Two warrants were issued with each note including (1) a warrant to purchase an amount of equal to 50% of face value of the note at an exercise price $0.15 for a period of three years following the note issuance date and (2) a warrant to purchase an amount of equal to 83.33% of face value of the note at an exercise price $0.25 for a period of three years following the note issuance date. The Company recorded an aggregate debt discount of $686,536 for the fair value of these warrants through September 30, 2017, which is being amortized over the term of the notes, and is included in convertible notes on the Company’s balance sheet at an unamortized remaining balance of $93,707. The total debt discount recorded during the nine months ended September 30, 2017 and 2016 was $0 and $70,398, respectively. Interest expense related to the amortization of this debt discount for the nine months ended September 30, 2017 and 2016 was $101,414 and $156,426, respectively. During the nine months ended September 30, 2017, a total of $311,500 of these notes were converted into shares of common stock, with a total of $992,300 of these notes remaining as of September 30, 2017.

 

During the nine months ended September 30, 2017, the total of all notes converted was $323,500, with the holders receiving an aggregate of 8,087,500 shares of common stock. The net balance of all notes as of September 30, 2017 of $1,225,614 reflects total notes of $1,807,300, net of debt discounts of $93,707 related to the warrants and $487,979 related to the derivative liability (see Note 5).

 

During the nine months ended September 30, 2017 and 2016, the Company recorded interest expense of $511,201 and $1,769,083, respectively.

  

NOTE 5 – DERIVATIVE LIABILITY

 

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

 

The valuation of the derivative liability attached to the convertible debt was determined by management using a binomial pricing model that values the derivative liability within the notes. Using the results from the model, the Company recorded a derivative liability of $387,000 for the fair value of the convertible feature included in the Company’s convertible debt instruments as of September 30, 2017. The derivative liability recorded for the convertible feature created a debt discount of $1,438,000, which is being amortized over the remaining term of the notes using the effective interest rate method and is included in convertible notes on the balance sheet at September 30, 2017 with an unamortized balance of $487,979. Interest expense related to the amortization of this debt discount for the nine months ended September 30, 2017, was $153,268. Additionally, $0 of debt discount was charged to interest expense during the nine months ended September 30, 2017, representing the amount of debt discount in excess of the convertible debt. A total of $0 of the debt discount was charged to interest expense during the nine months ended September 30, 2017 related to convertible debt converted during the year.

 

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

 

· The average value of a share of Company stock in the month the Notes became convertible, the measurement date - ranging from $0.051 - $0.077 (per the over-the-counter market quotes);
· The average conversion price of all Notes issued in their month of issuance, with such conversion price determined based on 80% of the average over-the-counter market price for the 30 days preceding the one-year anniversary of all Notes in that month’s pool;
· The number of shares into which Notes in pool would convert - face amount of the Notes in that month’s pool divided by the average conversion price for Notes included in that month’s pool;
· Risk free rate - 2.5%;
· Dividend yield - 0.0%;
· Assumed annual volatility of Company stock ranging from 109.4% – 131.7%; and
· The Company would be unable to repay the notes within their term.

 

 

 

 9 

 

 

Additional key inputs and assumptions used to value the embedded conversion feature as of September 30, 2017:

 

· The value of a share of Company stock on September 30, 2017, the measurement date - $0.0547 (per the over-the-counter market quotes);
· Conversion price - $0.0424, based on 80% of the average quoted market price for the Company’s common stock for the 30-day period ended September 30, 2017; and
· Number of shares into which Notes would convert - face value of Notes divided by $0.0424.

 

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

 

Derivative liability as of December 31, 2016  $918,000 
Change in fair value of derivative liability   (531,000)
Derivative on new loans    
Reduction due to debt conversions    
Derivative liability as of September 30, 2017  $387,000 

  

NOTE 6 – STOCKHOLDERS’ EQUITY

 

Preferred Stock

 

On June 3, 2013, the Company filed a Certificate of Amendment of Articles of Incorporation with the State of Nevada Secretary of State giving it the authority to issue 50,000,000 shares of preferred stock with a par value of $0.0001 per share. As of September 30, 2017, there were 200,000 Series A Non-Voting Convertible Stock shares and 250,000 Series B Voting Convertible Preferred Stock shares issued and outstanding.

 

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

 

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

 

Common Stock

 

On June 22, 2017, the Board of Directors of the Company approved, and recommended to the holders of a majority of the total voting power of all issued and outstanding voting capital of the Company (the “Majority Stockholders”) that they approve an increase in the total number of authorized shares of the Company’s common stock from 450,000,000 to 1,400,000,000. On June 23, 2017, the Company received written consent in lieu of a meeting from the Majority Stockholders, amending the Company's Certificate of Incorporation, as amended, to this increase in authorized shares. The Company filed the amendment with the State of Nevada on August 14, 2017.

 

 

 

 10 

 

 

During the nine months ended September 30, 2017, the Company entered into a series of stock purchase agreements with accredited investors for the sale of 40,519,135 shares of its common stock in amount of $1,536,875. Additionally, 29,811,631 shares of common stock were issued for consulting services valued at prices ranging from $0.055 to $0.074 per share, based upon the fair value of the common stock on the measurement date totaling $2,049,267, which was recognized immediately as general and administrative expense. The Company issued 8,087,500 shares of common stock for the conversion of convertible notes totaling $323,500.

 

On August 4, 2017, 4,050,000 shares of the Company’s common stock were cancelled and returned to the Company.

 

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

  

Options for Common Stock

 

A summary of option activity as of September 30, 2017 is presented below:

 

  

Number

Outstanding

  

Weighted-Average

Exercise Price

Per Share

  

Weighted-Average

Remaining

Contractual Life

(Years)

  

Aggregate

Intrinsic

Value

 
                 
Outstanding at January 1, 2016   1,650,000   $0.04    4.53   $ 
Granted                
Exercised                
Canceled/forfeited/expired                
Outstanding at December 31, 2016   1,650,000    0.04    3.52     
                     
Granted                
Exercised                
Canceled/forfeited/expired                
Outstanding at September 30, 2017   1,650,000    0.04    2.78     
Options vested and exercisable at September 30, 2017   1,650,000   $0.04    2.78   $ 

 

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

 

· 1,000,000 (one million) shares of common stock on the Commencement Date (January 1, 2014);
· 1,000,000 (one million) shares of common stock on the sixth (6th) month anniversary of the Commencement Date;
· 1,000,000 (one million) shares of common stock on the first anniversary of the Commencement Date;
· 1,000,000 (one million) shares of common stock on the 18th month anniversary of the Commencement Date; and
· 1,000,000 (one million) shares of common stock on the second anniversary of the Commencement Date.

 

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

 

 

 

 11 

 

 

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

 

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

  

Warrants for Common Stock

 

A summary of warrant activity as of September 30, 2017 is presented below:

 

  

Number

Outstanding

  

Weighted-Average

Exercise Price

Per Share

  

Weighted-Average

Remaining

Contractual Life

(Years)

  

Aggregate

Intrinsic

Value

 
                 
Outstanding at January 1, 2016   12,428,629   $0.194    2.58   $ 
Granted   219,802,470    0.086    1.44     
Exercised                
Canceled/forfeited/expired   (4,959,963)   1.94    1.66     
Warrants vested and exercisable at December 31, 2016   227,271,136    0.089    1.44     
                     
Granted   78,395,012    0.080    0.76     
Exercised                
Canceled/forfeited/expired   (132,896,661)   0.086         
Outstanding at September 30, 2017   172,769,487   $0.088    1.52   $ 
Warrants vested and exercisable at September 30, 2017   172,769,487   $0.088    1.52   $ 

 

During the nine months ended September 30, 2017, the Company issued 49,850,252 warrants included with certain stock purchases from accredited investors, with exercise prices ranging from $0.07 to $0.10, and expiration dates ranging from 7 months to 5 years. There was no expense resulting from these warrants.

 

During the nine months ended September 30, 2017, the Company issued 28,544,760 warrants to consultants for services, with exercise prices ranging from $0.07 to $0.10, and an expiration date of one year. The Company recorded expense of $808,356 related to these warrants which is included in selling, general and administrative expense for the nine months ended September 30, 2017.

 

NOTE 7 – RELATED PARTY TRANSACTIONS

 

During the nine months ended September 30, 2017 and 2016, Mr. Letcavage (directly or through related entities) earned $295,020 and $180,000, respectively as compensation for his role as our CEO and CFO. The following tables outline the related parties associated with the Company and amounts due or receivable for each period indicated.

 

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

 

 

  

September 30,

2017

  

December 31,

2016

 
Amounts due to related parties          
iCapital Advisory – consulting fees  $   $31,467 
Jamp Promotion – commissions   90,500    90,500 
   $90,500   $121,967 
           
Related party receivable - Mason Ventures and Sebo Services  $52,429   $67,879 

 

 

 

 12 

 

 

During the nine months ended September 30, 2017, the Company received loans from Mason Ventures of approximately $15,450 and repaid $0. The loans are unsecured and non-interest bearing.

 

Additionally, we have also reviewed the facts and circumstance of our relationship with Nexalin Technology and iCapital Advisory, both of which are affiliated companies of our CEO, and have assessed whether these two companies are variable interest entities (VIEs). Based on the guidance provided in ASC 810, Consolidation, these two companies are not considered VIEs. The Company is not the primary beneficiary of Nexalin Technology and iCapital Advisory and, whether those two companies have any income (losses) for the nine months ended September 30, 2017, it would not be absorbed by Premier Holding Corporation.

 

NOTE 8 – COMMITMENTS AND CONTINGENCIES

 

Operating lease

 

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

 

Legal Proceedings

 

Hi-Tech Specialists, Inc.

 

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

 

NOTE 9 – SUBSEQUENT EVENTS

 

From October through November 20, 2017, the Company issued 9,538,346 common shares to accredited investors for aggregate proceeds of approximately $600,000.

 

In October 2017, the Company issued 581,250 common shares for services to a consultant for services at $0.0547 per share.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 13 

 

 

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

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q includes a number of forward-looking statements that reflect management's current views with respect to future events and financial performance. Forward-looking statements are projections in respect of future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. Those statements include statements regarding the intent, belief or current expectations of us and members of our management team as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” set forth in our Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the Securities and Exchange Commission on March 31, 2017, any of which may cause our company’s or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Some of those risks and uncertainties include, but are not limited to, the following:

 

·concentration of our customer base and fulfillment of existing customer contracts;
·our ability to maintain pricing;
·deterioration of the credit markets;
·increased vulnerability to adverse economic conditions due to indebtedness;
·competition within our industry;
·asset impairment and other charges;
·our identifying, making and integrating acquisitions;
·our plans to identify and acquire products that we believe will be prospective for acquisition and development;
·Our ability to adequately fund our power supplier, AIC;
·loss of key executives;
·the ability to employ skilled and qualified workers;
·work stoppages and other labor matters;
·inadequacy of insurance coverage for certain losses or liabilities;
·federal legislation and state legislative and regulatory initiatives relating to the energy industry;
·costs and liabilities associated with environmental, health and safety laws, including any changes in the interpretation or enforcement thereof;
·future legislative and regulatory developments;
·our beliefs regarding the future of our competitors;
·our expectation that the demand for our products services will eventually increase; and
·our expectation that we will be able to raise capital when we need it.

 

Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time except as required by law. We believe that our assumptions are based upon reasonable data derived from and known about our current business and operations. No assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions.

 

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

 

Corporate Overview

 

We are an energy services holding company. We provide an array of energy services through our subsidiary companies, E3 and TPC. We provide solutions that enable customers to reduce their energy consumption, lower their operating and maintenance costs, and realize environmental benefits. Our comprehensive set of services includes competitive electricity plans and upgrades to a facility’s energy infrastructure.

 

 

 

 14 

 

 

We were incorporated in Nevada on October 18, 1971 under the name of Mr. Nevada, Inc., and following the completion of a limited public offering in April 1972, we commenced limited operations which were discontinued in 1990. Thereafter and through 2012, we reorganized as a holding company that provides financial and management expertise, which includes access to capital, financing, legal, insurance, mergers, acquisitions, joint ventures and management strategies to our subsidiaries. Our common stock is quoted on the OTC Markets Group Inc., QB tier (“OTCQB”), under the symbol “PRHL”.

 

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

 

In the first quarter of 2013, the Company acquired an 80% stake in TPC, a deregulated power broker in Illinois. By the end of that quarter, TPC had over 11,000 clients and was adding between 1,000 and 3,000 clients per month. By 2015 and 2016, TPC added an average of 3,000 clients per month, and the Company expects this to continue for the foreseeable future. Over 1,000 of these clients have commercial/industrial facilities such as small businesses, warehouses and distribution centers, which are candidates for E3.

 

As a result of our acquisitions, today we provide an array of energy services through E3 and TPC. In addition to organic growth, we expect that strategic acquisitions of complementary businesses and assets will remain an important part of our growth plan to enable us to broaden our service offerings and expand our geographical reach.

 

On May 6, 2016, we entered into a definitive agreement with WWCD, LLC, a company incorporated in the State of Illinois (“WWCD”), to acquire for $125,000 all membership units, including all licenses and contracts held, of American Illuminating Company, LLC, a Connecticut limited liability company (“AIC”), a company owned by WWCD. AIC is a FERC-licensed supplier of deregulated energy. Consummation of the acquisition of AIC is subject to FERC approval, which was granted in February 2017. After final notifications and filings with regulatory agencies are complete, AIC is expected to begin supplying power immediately to our customers, will recruit additional resellers of deregulated power and provide them with our sales tools to streamline sales efforts, enforce compliance, and increase productivity. The Company has reflected the $125,000 payment as an intangible asset on the balance sheet as of September 30, 2017.

 

Business Overview

 

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

 

E3’s Business

 

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

 

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

 

 

 

 15 

 

 

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

 

The sales, design and implementation process for energy efficiency projects can take from several months to several years. Existing and potential customers generally follow extended budgeting and procurement processes and sometimes must engage in regulatory approval processes. This extended sales process requires the dedication of significant time by sales and management personnel of the Company and the use of significant financial resources, with no certainty of success or recovery of related expenses.

 

To date, E3 and its growing reseller base have prospected a large number of qualified potential installations and is developing strategic partners including energy auditors, suppliers, installers, sales organizations and funding sources. These suppliers exponentially increased the number of the product offerings mostly in the LED and other efficiency fields. The installers not only bring a technical expertise in implementing solutions E3 provides its customers, but they also bring their list of clients and the various funding sources that can provide every sort of financing to meet any client’s needs from short-term loans, leases, on-bill financing, to PACE funding.

 

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

 

In 2016 E3 signed an agreement with Sustainability Partners (“SP”) to generate leads for SP’s unique “Sustainability-as-a-Services” business model. The model involves SP providing all technology, labor and maintenance at no up-front costs, and the agreement is to place pre-agreed rate onto the existing utility bill. If there is no consumption, there is no bill, and all maintenance is the responsibility of SP. This appears as a month-to-month fee, with no long-term obligation. There are additional features and conditions. This is very different from the ESCO (typically “shared savings” for an extended time, sometimes in perpetuity), lease, and PACE (costs placed on property taxes over time) programs, with less risk and more benefits to the client. In this agreement, E3 receives a commission on the entire sustainability project, which can be much larger than a lighting project, and the majority of the work is performed by SP. E3 expects that the volume of sales could increase due to the reduced efforts required by E3 on each sale. E3 is building a network of lead generators in support of this program.

 

TPC’s Business

 

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

 

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

 

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

 

 

 

 16 

 

 

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

 

AIC’s Business

 

The primary value that AIC will add to the Company is that it enables customers to recognize immediate savings via lowering their electricity bills by supplying energy marketing firms with a more competitive platform to access electricity contracts and support. Through the Company’s ownership of TPC, this creates a built-in strategic partnership for the states that TPC is already reselling power to, including Connecticut, District of Columbia, Delaware, Illinois, Maine, Massachusetts, Maryland, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode Island and Texas. AIC will have to obtain state, local, utility and other approvals in order to supply power in these several states, but pending such approvals, AIC may benefit from TPCs existing database of over 200,000 current and past clients to “jumpstart” its progress. We anticipate that half of all contracts written by TPC could be supplied by AIC.

 

Through this relationship to establish a large wholesale broker sales network, AIC plans to achieve operating and sales velocity more quickly in order to form a strong foundation to establish positive cash flows. We believe that TPC can direct a material portion of its customers to AIC. We believe this presents a major opportunity for AIC to scale quickly through its strong relationship with TPC. In addition to contract sales generated by TPC, we expect that AIC will expand its offerings to consumers through other energy brokers in order to expand revenue.

 

Corporate Developments During the Period Covered by this Report

 

On August 14, 2017, we filed a Certificate of Amendment to our Amended Articles of Incorporation (the “Articles of Amendment”) with the Secretary of State of Nevada effecting an increase in the authorized shares of common stock from 400,000,000 to 1,400,000,000 (the “Corporate Action”). The number of authorized preferred shares remained unchanged by the Corporate Action at 50,000,000. The Corporate Action and the Articles of Amendment became effective on August 14, 2017, following expiration of a 20-day waiting period following mailing of notification to shareholders of the actions taken by written consent.

 

Results of Operations

 

Comparison of the Three Months Ended September 30, 2017 to the Three Months Ended September 30, 2016

 

Revenue and Operating Expenses

 

The Company’s revenue and operating expenses for the three months ended September 30, 2017 and 2016 are summarized as follows:

 

   Three Months Ended September 30, 
   2017   2016 
Revenues  $621,327   $1,130,406 
Cost of revenues       100,457 
Gross profit   621,327    1,029,949 
Selling, general and administrative expenses   1,547,069    2,511,042 
Impairment loss – goodwill   2,085,000     
Operating loss  $(3,010,742)  $(1,481,093)

 

 

 

 17 

 

 

The decrease in revenue for the three months ended September 30, 2017, compared to the three months ended September 30, 2016 is due primarily to a reduction in residential revenue at TPC, which was due primarily to the sales agent attrition of approximately 25% of the door-to-door sales force. The average number of agents in the field fell from 80 in September of 2016 to 60 in September 2017. The drop in the number of agents was due primarily to an outside sales organization who recruited these agents. Since then, TPC has settled a suit that TPC initiated against this firm in which, along with a monetary penalty, the firm agreed to not solicit TPC agents in the future. TPC is actively recruiting to replace this sales force. Also, sales were impacted due to the transitioning of resources to call center and online residential sales in preparation for transitioning to selling our own alternative supplier.

 

The decrease in cost of revenue for the three months ended September 30, 2017, compared to the three months ended September 30, 2016 is due to a reduction in product revenue from our E3 subsidiary.

 

The decrease in selling, general and administrative expenses for the three months ended September 30, 2017, compared to the three months ended September 30, 2016 is due primarily to a decrease in compensation paid to consultants related to strategic business and financial advisory services and a decrease in commissions paid at our TPC subsidiary due to lower revenues at TPC.

 

The impairment loss related to goodwill during the three months ended September 30, 2017 is a result of management’s determination of impairment of the goodwill related to its 2013 acquisition of TPC. We used a blend of the discounted cash flow method and the guideline company transactions method for the impairment testing as of September 30, 2017. The Company performed discounted cash flow analysis projected over 5 years to estimate the fair value of the reporting unit, using management’s best judgement as to revenue growth rates and expense projections. This analysis indicated cash flows (and discounted cash flows) less than the $4 million book value of goodwill. This analysis also factored the recent reduction in residential revenue at TPC. We determined these were indicators of impairment in goodwill for TPC during the three months ended September 30, 2017 and impaired the goodwill by $2,085,000.

 

Other Income (Expense)

 

  Three Months Ended September 30, 
   2017   2016 
Interest expense  $(144,725)  $(952,157)
Gain (loss) on change in fair value of derivative liability   157,000    462,000 
Total  $12,275   $(490,157)

 

The decrease in other expense for the three months ended September 30, 2017, compared to the prior period is mainly attributable to the decrease in convertible notes from conversions to common stock resulting in decreased interest expense and a decrease in the changes in the related derivative liability.

 

Comparison of the Nine Months Ended September 30, 2017 to the Nine Months Ended September 30, 2016

 

Revenue and Operating Expenses

 

The Company’s revenue and operating expenses for the nine months ended September 30, 2017 and 2016 are summarized as follows:

 

   Nine months Ended September 30, 
   2017   2016 
Revenues  $2,038,395   $3,649,141 
Cost of revenues   3,364    339,742 
Gross profit   2,035,031    3,309,399 
Selling, general and administrative expenses   7,494,900    7,196,512 
Impairment loss – goodwill   2,085,000     
Operating loss  $(7,544,869)  $(3,887,113)

 

 

 

 18 

 

 

The decrease in revenue for the nine months ended September 30, 2017, compared to the six months ended September 30, 2016 is due primarily to a reduction in residential revenue at TPC, which was due primarily to the sales agent attrition of approximately 25% of the door-to-door sales force. The average number of agents in the field fell from 80 in September of 2016 to 60 in September 2017. The drop in the number of agents was due primarily to an outside sales organization who recruited these agents. Since then, TPC has settled a suit that TPC initiated against this firm in which, along with a monetary penalty, the firm agreed to not solicit TPC agents in the future. TPC is actively recruiting to replace this sales force. Also, sales were impacted due to the transitioning of resources to call center and online residential sales in preparation for transitioning to selling our own alternative supplier.

 

The decrease in cost of revenue for the nine months ended September 30, 2017, compared to the six months ended September 30, 2016 is due to a reduction in product revenue from our E3 subsidiary.

 

The increase in selling, general and administrative expenses for the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016 is due primarily to an increase in stock based compensation paid to consultants for services during the first quarter of 2017. These services included advisory services related to strategic planning, equity and debt financings, restructuring for a potential listing onto a major exchange and assisting the Company in obtaining qualified persons to serve as senior management and directors.

 

The impairment loss related to goodwill during the three months ended September 30, 2017 is a result of management’s determination of impairment of the goodwill related to its 2013 acquisition of TPC. We used a blend of the discounted cash flow method and the guideline company transactions method for the impairment testing as of September 30, 2017. The Company performed discounted cash flow analysis projected over 5 years to estimate the fair value of the reporting unit, using management’s best judgement as to revenue growth rates and expense projections. This analysis indicated cash flows (and discounted cash flows) less than the $4 million book value of goodwill. This analysis also factored the recent reduction in residential revenue at TPC. We determined these were indicators of impairment in goodwill for TPC during the three months ended September 30, 2017 and impaired the goodwill by $2,085,000.

 

Other Income (Expense)

 

  Nine months Ended September 30, 
   2017   2016 
Interest expense  $(511,201)  $(1,769,083)
Gain (loss) on change in fair value of derivative liability   531,000    658,000 
Total  $19,799   $(1,111,083)

 

The decrease in other expense for the nine months ended September 30, 2017, compared to the prior period is mainly attributable to the decrease in convertible notes from conversions to common stock resulting in decreased interest expense.

 

Liquidity and Capital Resources

 

Working Capital

 

The following table sets forth a summary of working capital as of September 30, 2017 and December 31, 2016:

 

September 30,  December 31,     
   2017   2016 
Current assets  $1,888,752   $2,506,842 
Current liabilities   2,236,798    2,840,956 
Working capital  $(348,046)  $(334,114)

 

The decrease in working capital is due primarily from the reduction cash balances, along with a decrease in the derivative liability related to convertible notes.

 

 

 

 19 

 

 

Cash Flows

 

The following table sets forth a summary of changes in cash flows for the nine months ended September 30, 2017 and 2016:

 

   Nine months Ended September 30, 
   2017   2016 
Net cash used in operating activities  $(2,733,066)  $(2,976,879)
Net cash used in investing activities   (1,663)   (201,699)
Net cash provided by financing activities   2,110,087    4,697,344 
Change in cash  $(624,642)  $1,518,766 

 

The decrease in cash used in operating activities was due primarily to a decrease in revenues at TPC for the nine months ended September 30, 2017 as compared to the same period in 2016.

 

The decrease in cash from financing activities was due primarily to a decrease in proceeds from the sale of common stock and issuance of convertible notes payable for the nine months ended September 30, 2017 as compared to the same period in 2016.

 

Private Placement Offering

 

During the nine months ended September 30, 2017, the Company entered into a series of stock purchase agreements with accredited investors for the sale of 40,519,135 shares of its common stock in amount of $1,536,875.

 

Short-Term Debt and Lines of Credit

 

The Company did not enter into any new short-term debt or lines of credit with third parties during the nine months ended September 30, 2017.

 

Convertible Notes Payable

 

During the nine months ended September 30, 2017, the Company did not issue any new convertible notes.

 

During the nine months ended September 30, 2017, the Company issued 8,087,500 shares of common stock for the conversion of convertible notes totaling $323,500.

 

The unaudited condensed consolidated financial statements contained in this quarterly report on Form 10-Q have been prepared assuming that the Company will continue as a going concern. Since inception, the Company has financed its operations primarily through proceeds from the issuance of common stock and convertible notes payable. As of September 30, 2017, the Company had an accumulated deficit of approximately $37 million. During the nine months ended September 30, 2017, the Company incurred operating losses of $7,544,869 and used cash in operating activities of $2,733,066. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management is in the process of evaluating various financing alternatives in order to finance our operations and general and administrative expenses. These alternatives include raising funds through public or private equity markets and either through institutional or retail investors. Although there is no assurance that the Company will be successful with our fund-raising initiatives, management believes that the Company will be able to secure the necessary financing as a result of ongoing financing discussions with third party investors and existing shareholders.

 

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

 

 

 

 20 

 

 

Future Financing

 

We will require additional funds to implement our growth strategy for our business. In addition, while we have received capital from various private placements and convertible loans that have enabled us to fund our operations, these funds have been largely used to supplement our working capital, although additional funds are needed for other corporate operational and working capital purposes. At this time and at our current burn rate, we have sufficient capital to fund our operations through the balance of this fiscal year. However, once we begin operations at AIC, we expect to need additional capital to be able to purchase power and pay commissions. At this time, we have not determined the amount that may be needed. These funds may be raised through equity financing, debt financing, or other sources, which may result in further dilution in the equity ownership of our shares. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis should it be required, or generate significant material revenues from operations, we will not be able to meet our other obligations as they become due and we will be forced to scale down or perhaps even cease our operations.

 

Off-Balance Sheet Arrangements

 

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

 

Critical Accounting Policies and Estimates

 

Our significant accounting policies are more fully described in the notes to our financial statements included herein for the quarter ended September 30, 2017 and in the notes to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the Securities and Exchange Commission on March 31, 2017.

 

Recently Issued Accounting Pronouncements

 

Any recently issued accounting pronouncements are more fully described in Note 1 to our financial statements included herein for the quarter ended September 30, 2017.

 

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

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our 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 our management, including our chief executive officer (principal executive officer), who also serves as our chief financial officer (principal financial officer and principal accounting officer) to allow for timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

 

We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of period covered in this report, our disclosure controls and procedures were not effective. The ineffectiveness of the Company’s disclosure controls and procedures was due to material weaknesses identified in the Company’s internal control over financial reporting, described below.

 

 

 

 21 

 

 

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 control 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 September 30, 2017. 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)                 Lack of Formal Policies and Procedures. We utilize a third party independent contractor for the preparation of our financial statements. Although the financial statements and footnotes are reviewed by our management, we do not have a formal policy to review significant accounting transactions and the accounting treatment of such transactions. The third party independent contractor is not involved in the day-to-day operations of our Company and may not be provided information from management on a timely basis to allow for adequate reporting/consideration of certain transactions.

 

ii)               Audit Committee and Financial Expert. We do not have a formal audit committee with a financial expert, and thus we lack the board oversight role within the financial reporting process.

 

iii)              Insufficient Resources. We have insufficient quantity of dedicated resources and experienced personnel involved in reviewing and designing internal controls. As a result, a material misstatement of the interim and annual financial statements could occur and not be prevented or detected on a timely basis.

 

iv)              Entity Level Risk Assessment. We did not perform an entity level risk assessment to evaluate the implication of relevant risks on financial reporting, including the impact of potential fraud related risks and the risks related to non- routine transactions, if any, on internal control over financial reporting. Lack of an entity-level risk assessment constituted an internal control design deficiency which resulted in more than a remote likelihood that a material error would not have been prevented or detected, and constituted a material weakness.

 

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, as resources allow, 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 resources 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.

 

Management believes that despite our material weaknesses set forth above, our financial statements for the quarter ended September 30, 2017 are fairly stated, in all material respects, in accordance with U.S. GAAP.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2017 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.

 

 

 

 22 

 

 

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:

 

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, 2016, as filed on March 31, 2017, 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 nine months ended September 30, 2017, the Company entered into a series of stock purchase agreements with accredited investors for the sale of 40,519,135 shares of its common stock in amount of $1,536,875.

 

The Company issued 8,087,500 shares of common stock for the conversion of convertible notes totaling $323,500.

 

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.

 

 

 

 23 

 

 

Item 6. Exhibits

 

No. Description
(3) (i) Articles of Incorporation; and (ii) Bylaws
3.1 Articles of Incorporation (incorporated by reference to the Company’s Form 10 Amendment, filed on September 9, 2010)
3.2 Bylaws (incorporated by reference to the Company’s Form 10-K for the year ended December 31, 2016, as filed on March 31, 2017)
3.3 Amendment to Articles of Incorporation (incorporated by reference to the Company’s Current Report on Form 8-K, as filed on August 18, 2017)
(31) Rule 13a-14(a)/15d-14(a) Certification
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) Section 1350 Certification
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) Interactive Data Files
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

 

 

 

 

 24 

 

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: November 20, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 25