SUMMER ENERGY HOLDINGS INC - Quarter Report: 2014 September (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 001-35496
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SUMMER ENERGY HOLDINGS, INC.
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(Exact name of registrant as specified in charter)
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Nevada
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20-2722022
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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800 Bering Drive, Suite 260, Houston, Texas
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77057
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(Address of principal executive offices)
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(Zip Code)
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(713) 375-2790
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(Issuer’s telephone number, including area code)
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N/A
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(Former name, former address, and former fiscal year, if changed since last report)
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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 o
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 o
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
Indicate by check mark whether the registrant is a shell company (as defined by Section 12b-2 of the Exchange Act). Yes o No þ
The number of shares of the issuer’s common stock, $0.001 par value, outstanding as of November 14, 2014 was 14,775,809.
FORM 10-Q
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FOR THE QUARTER ENDED SEPTEMBER 30, 2014
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INDEX
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PART I – FINANCIAL INFORMATION
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Page
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| 16 | ||
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PART II – OTHER INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
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SUMMER ENERGY HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2014 AND DECEMBER 31, 2013
(UNAUDITED)
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September 30, 2014
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December 31, 2013
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ASSETS
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Current Assets
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Cash
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$ | 576,407 | $ | 739,966 | ||||
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Restricted cash
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684,256 | 367,385 | ||||||
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Accounts receivable, net
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8,745,060 | 3,875,745 | ||||||
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Prepaid and other current assets
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698,391 | 755,299 | ||||||
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Total current assets
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10,704,114 | 5,738,395 | ||||||
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Property and Equipment, net
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483,465 | 437,984 | ||||||
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Certificates of Deposit – Restricted
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15,044 | 15,025 | ||||||
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Deferred Financing Costs, net
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11,095 | 785,389 | ||||||
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Total assets
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$ | 11,213,718 | $ | 6,976,793 | ||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
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Current Liabilities
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Accounts payable
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$ | 254,268 | $ | 57,731 | ||||
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Accrued wholesale power purchased
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5,854,298 | 4,127,420 | ||||||
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Accrued expenses
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4,443,011 | 2,015,205 | ||||||
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Advances related party
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70,000 | - | ||||||
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Note payable
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1,160,000 | - | ||||||
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Total current liabilities
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11,781,577 | 6,200,356 | ||||||
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Commitments
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Stockholders' Equity (Deficit)
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Series A Preferred Stock - $.001 par value, 2,000,000 authorized, 0 shares and
826,000 shares issued and outstanding at September 30, 2014 and December 31,
2013, respectively
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- | 826 | ||||||
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Series B Preferred Stock - $.001 par value, 3,000,000 authorized, 1,900,000 and
0 shares issued and outstanding at September 30, 2014 and December 31, 2013,
respectively
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1,900 | - | ||||||
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Common Stock - $.001 par value, 100,000,000 shares authorized, 14,591,839 shares
and 13,963,445 shares issued and outstanding at September 30, 2014 and December
31, 2013, respectively
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14,591 | 13,963 | ||||||
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Subscription receivable
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(52,000 | ) | (52,000 | ) | ||||
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Additional paid in capital
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7,777,532 | 5,229,153 | ||||||
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Accumulated deficit
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(8,309,882 | ) | (4,415,505 | ) | ||||
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Total stockholders’ equity (deficit)
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(567,859 | ) | 776,437 | |||||
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Total liabilities and stockholders' equity (deficit)
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$ | 11,213,718 | $ | 6,976,793 | ||||
See accompanying notes to the consolidated financial statements.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
(UNAUDITED)
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For the Three Months Ended September 30, 2014
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For the Three Months Ended September 30, 2013
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For the Nine Months Ended September 30, 2014
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For the Nine Months Ended September 30, 2013
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Electricity Revenue
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$ | 17,665,118 | $ | 10,476,187 | $ | 34,707,850 | $ | 18,893,140 | ||||||||
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Cost of Goods Sold
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Power purchases and balancing/ancillary
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9,872,079 | 6,030,695 | 18,710,814 | 10,162,319 | ||||||||||||
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Transportation and distribution providers charge
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6,626,792 | 3,968,392 | 13,189,459 | 7,238,894 | ||||||||||||
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Total cost of goods sold
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16,498,871 | 9,999,087 | 31,900,273 | 17,401,213 | ||||||||||||
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Gross Profit
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1,166,247 | 477,100 | 2,807,577 | 1,491,927 | ||||||||||||
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General and Administrative
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2,210,591 | 1,403,945 | 5,134,939 | 3,319,091 | ||||||||||||
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Operating Loss
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(1,044,344 | ) | (926,845 | ) | (2,327,362 | ) | (1,827,164 | ) | ||||||||
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Other Income (Expense)
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Financing costs
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(295,067 | ) | (30,435 | ) | (1,287,737 | ) | (63,772 | ) | ||||||||
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Interest expense
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(15,961 | ) | - | (118,303 | ) | - | ||||||||||
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Interest income
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47 | 44 | 153 | 648 | ||||||||||||
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Total other income (expense)
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(310,981 | ) | (30,391 | ) | (1,405,887 | ) | (63,124 | ) | ||||||||
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Net Loss Before Income Taxes
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(1,355,325 | ) | (957,236 | ) | (3,733,249 | ) | (1,890,288 | ) | ||||||||
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Income Taxes
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- | - | - | - | ||||||||||||
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Net Loss
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$ | (1,355,325 | ) | $ | (957,236 | ) | $ | (3,733,249 | ) | $ | (1,890,288 | ) | ||||
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Series A and Series B Preferred shares dividends
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(53,221 | ) | - | (161,128 | ) | - | ||||||||||
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Net Loss applicable to common stockholders
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$ | (1,408,546 | ) | $ | (957,236 | ) | $ | (3,894,377 | ) | $ | (1,890,288 | ) | ||||
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Basic and diluted loss per share available to common
stockholders
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$ | (0.10 | ) | $ | (0.07 | ) | $ | (0.27 | ) | $ | (0.14 | ) | ||||
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Weighted average number of shares-Basic and Diluted
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14,445,106 | 13,185,211 | 14,197,394 | 13,115,368 | ||||||||||||
See accompanying notes to the consolidated financial statements.
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AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014
AND SEPTEMBER 30, 2013
(UNAUDITED)
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For the Nine Months Ended September 30, 2014
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For the Nine Months Ended September 30, 2013
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Cash Flows from Operating Activities
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Net loss
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$ | (3,733,249 | ) | $ | (1,890,288 | ) | ||
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Adjustments to reconcile net loss to net cash used in operating activities:
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Common stock for services
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- | 29,587 | ||||||
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Common stock for interest
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513,444 | - | ||||||
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Stock compensation expense
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22,685 | - | ||||||
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Interest earned on restricted cash
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(19 | ) | (605 | ) | ||||
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Depreciation of property and equipment
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173,649 | 118,422 | ||||||
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Amortization of deferred financing costs
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774,294 | 63,772 | ||||||
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Bad debt expense
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522,370 | 495,318 | ||||||
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Changes in operating assets and liabilities:
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Accounts receivable
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(5,391,683 | ) | (3,962,957 | ) | ||||
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Prepaid and other current assets
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56,908 | (404,632 | ) | |||||
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Accounts payable
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196,537 | 11,932 | ||||||
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Accrued wholesale power purchases
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1,726,878 | 3,702,693 | ||||||
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Accrued expenses
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2,363,511 | 2,086,242 | ||||||
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Net cash (used in) provided by operating activities
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(2,774,675 | ) | 249,484 | |||||
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Cash Flows from Investing Activities
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Purchase of restricted cash
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(316,871 | ) | (272,883 | ) | ||||
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Proceeds from certificate of deposit – restricted
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- | 503,281 | ||||||
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Purchase of property and equipment
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(219,130 | ) | (380,793 | ) | ||||
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Net cash used in investing activities
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(536,001 | ) | (150,395 | ) | ||||
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Cash Flows from Financing Activity
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Proceeds from note payable
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1,500,000 | - | ||||||
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Repayment on note payable
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(340,000 | ) | - | |||||
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Advances related party, net
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70,000 | - | ||||||
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Dividends on Series A Preferred stock
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- | (8,690 | ) | |||||
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Payment of dividends in cash on Series B Preferred stock
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(22,883 | ) | - | |||||
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Proceeds from issuance of Series B Preferred stock
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1,900,000 | - | ||||||
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Proceeds from issuance of units in a private placement offering
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40,000 | 520,000 | ||||||
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Net cash provided by financing activities
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3,147,117 | 511,310 | ||||||
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Net Change in Cash
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(163,559 | ) | 610,399 | |||||
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Cash at Beginning of Period
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739,966 | 281,269 | ||||||
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Cash at End of Period
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$ | 576,407 | $ | 891,668 | ||||
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Supplemental Disclosure of Cash Flow Information:
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Income taxes paid
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$ | - | $ | - | ||||
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Interest paid
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$ | 118,303 | $ | 1,544 | ||||
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Non-Cash Transactions
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Preferred stock issued for deferred financing costs
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$ | - | $ | 826,000 | ||||
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Common shares issued for Series A dividends
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$ | 80,108 | $ | - | ||||
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Series A Preferred stock called
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$ | 826 | $ | - | ||||
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Series B Preferred stock dividends
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$ | 104,029 | $ | - | ||||
See accompanying notes to the consolidated financial statements.
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AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTERBER 30, 2014 AND 2013
(UNAUDITED)
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NOTE 1 - ORGANIZATION
The unaudited consolidated financial statements include the accounts of Summer Energy Holdings, Inc. and its wholly-owned subsidiaries Summer Energy, LLC (“Summer LLC”), and Summer EM Marketing, LLC (“Marketing LLC”) (collectively referred to as the “Company,” “we,” “us,” or “our”). All significant intercompany transactions and balances have been eliminated in these consolidated financial statements.
Summer LLC is a retail electric provider in the state of Texas under a license with the Public Utility Commission of Texas (“PUCT”). Summer LLC procures wholesale energy and resells it to commercial and residential customers. Summer LLC was organized on April 6, 2011, under the laws of the state of Texas. The operations of Summer LLC are the Company’s sole line of business.
Marketing LLC was formed in the state of Texas on November 6, 2012, to provide certain marketing services to Summer LLC.
NOTE 2 - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles of the United States of America (“GAAP”) for interim financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine-month period ended September 30, 2014, are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, as filed with the Securities and Exchange Commission (“SEC”) on April 15, 2014.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amount of revenues and expenses during the reporting period. Actual results may differ from these estimates.
Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation.
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Our electricity revenue is recognized by our Company upon delivery of electricity to a customer’s meter. This method of revenue recognition is commonly referred to as the flow method. The flow method of revenue relies upon Electric Reliability Council of Texas (“ERCOT”) settlement statements to determine the estimated revenue for a given month. Supply delivered to customers for the month, measured on a daily basis, provides the basis for revenues. Electricity revenue consists of proceeds from energy sales, including, pass through charges from the Transmission and Distribution Providers (“TDSPs”) billed to the customer at cost.
Unbilled Revenue and Accounts Receivable
Electric services not billed by month-end are accrued based upon estimated deliveries to customers as tracked and recorded by ERCOT multiplied by our average billing rate per kilowatt hour (“kWh”) in effect at the time. At the end of each calendar month, revenue is accrued to unbilled receivables based on the estimated amount of power delivered to customers using the flow technique.
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Unbilled revenue also includes accruals for estimated TDSP charges and monthly service charges applicable to the estimated electricity usage for the period. All charges that were physically billed to customers in the calendar month are recorded from the unbilled account to the customer receivable account. Unbilled accounts as of September 30, 2014, were estimated at $3,980,798.
Accounts receivable are customer obligations billed at the customer’s monthly meter read date for that period’s electricity usage and due within 16 days of the date of the invoice. Balances past due are subject to a late fee that is assessed on that billing.
Cost Recognition
Direct energy costs are recorded when the electricity is delivered to the customer’s meter.
Cost of Goods Sold (“COGS”) include electric power purchased and pass through charges from the TDSP’s in the areas serviced by the Company. TDSP charges are costs for metering services and maintenance of the electric grid. TDSP charges are established by regulation of the PUCT.
The energy portion of our COGS is comprised of two components: bilateral wholesale costs and balancing/ancillary costs. These two cost components are incurred and recognized differently as follows:
Bilateral wholesale costs are incurred through contractual arrangements with wholesale power suppliers for firm delivery of power at a fixed volume and fixed price. We are invoiced for these wholesale volumes at the end of each calendar month for the volumes purchased for delivery during the month, with payment due 20 days after the end of the month.
Balancing/ancillary costs are based on the customer load and are determined by ERCOT through a multiple step settlement process. Balancing costs/revenues are related to the differential between supply that we provided through our bilateral wholesale supply and the supply required to serve our customer load. The Company endeavors to minimize the amount of balancing/ancillary costs through our load forecasting and forward purchasing programs.
NOTE 4 – 2012 STOCK OPTION AND STOCK AWARD PLAN
During the nine months ended September 30, 2014, the Company granted stock options to purchase up to 25,000 shares of the Company’s common stock to a certain key officer. The options covering a total of 12,500 shares vested at the date of grant and 12,500 shares vested in August 2014. The stock options have an exercise price of $1.00 per share and will expire ten (10) years from the date of grant. The fair value of the options of $4,242 was determined using the Black-Scholes option-pricing model. The assumptions used to calculate the fair market value are as follows: (i) risk-free interest rate of 0.87% (ii) estimated volatility of 17% (iii) dividend yield of 0.00% and (iv) expected life of the options of 5 years. Approximately $4,242 was expensed during the nine months ended September 30, 2014 with regards to the aforementioned stock options.
In addition, the officer is eligible to receive a future grant of 25,000 options to purchase common stock of the Company upon reaching certain milestones related to the number of retail electricity customers and financial performance of the Company.
Also during the nine months ended September 30, 2014, the Company granted 5,500 employee stock options to other key employees. Options covering a total of 5,500 shares will vest over two years from the date of grant. The stock options have an exercise price of $1.50 per share and will expire ten (10) years from the date of grant. The options covering 4,000 shares that were granted during the three months ended March 31, 2014, are estimated to have had a value of approximately $164 on the date of grant and the 1,500 options that were granted during the three months ended September 30, 2014 are estimated to have had a value of approximately $62. The options vest ratably over the vesting period of two years and stock compensation expense of approximately $42 was expensed during the nine months ended September 30, 2014.
On April 30, 2014, the Company granted a total of 31,250 stock options to non-employee members of the Company’s Board of Directors under the 2012 Stock Option and Stock Award Plan as compensation for service on the Company’s Board. The director stock options were fully vested on the date of grant, have an exercise price of $1.50 per share, will expire ten (10) years from the date of the grant and are estimated to have a fair value of approximately $1,282 on the date of grant determined using the Black-Scholes option-pricing model. The assumptions used to calculate the fair market value are as follows: (i) risk-free interest rate of 0.87% (ii) estimated volatility of 17% (iii) dividend yield of 0.00% and (iv) expected life of the options of 5 years.
On September 23, 2014, the Company granted a total of 31,250 stock options to non-employee members of the Company’s Board of Directors under the 2012 Stock Option and Stock Award Plan as compensation for service on the Company’s Board. The director stock
NOTE 4 – 2012 STOCK OPTION AND STOCK AWARD PLAN (CONTINUED)
options were fully vested on the date of grant, have an exercise price of $1.50 per share, will expire ten (10) years from the date of the grant and are estimated to have a fair value of approximately $1,282 on the date of grant determined using the Black-Scholes option-pricing model. The assumptions used to calculate the fair market value are as follows: (i) risk-free interest rate of 0.87% (ii) estimated volatility of 17% (iii) dividend yield of 0.00% and (iv) expected life of the options of 5 years.
On September 9, 2014, the Company issued 1,000 shares of restricted common stock to a key employee of the company. These shares vest one year from the date of grant. The 1,000 restricted shares are estimated to have a value of $960 on the date of grant. The restricted shares vest ratably over the vesting period of one year.
During the nine months ended September 30, 2014 the Company recognized approximately $15,837 of stock compensation for stock options and restricted shares issued in prior year. There remains approximately $6,000 of remaining stock compensation to be recognized.
As of September 30, 2014, 599,000 securities have been awarded, net of forfeitures, from the 2012 Stock Option and Stock Award Plan with a remaining balance of 186,000 shares.
NOTE 5 - 2011 CREDIT FACILITY AGREEMENTS AND ADVANCES FROM RELATED PARTY
On November 30, 2011, the Company entered into separate Credit Facility Agreements (the “2011 Credit Facility Agreements”) with two individuals pursuant to which such individuals agreed to act as sureties in connection with a combined $500,000 line of credit from a financial institution and certain extensions of credit by critical vendors which are necessary for our business. Pursuant to such agreements, in consideration of the assisting parties’ extension of credit thereunder, we agreed to pay a total of $200,000 to the assisting parties or, at the assisting parties’ election, the assisting parties could each elect to receive 757,576 shares of common stock. The assisting parties agreed to make assistance available to us within 10 business days of our written request and provide a guaranty to a financial institution. On November 15, 2012, the two individuals irrevocably elected the option to receive payment in equity pursuant to the terms of the 2011 Credit Facility Agreements and on December 3, 2012, each such individual received 757,576 shares of our common stock. The Company recorded a $200,000 deferred financing cost that is being amortized over the three (3) year life of the agreements, and the balance net of amortization as of September 30, 2014 is $11,095.
During the nine months ended, Neil Leibman advanced the Company $652,751 as part of the 2011 Credit Facility Agreement. As of September 30, 2014, the balance due to Mr. Leibman by the Company relating to such advance is $70,000.
NOTE 6 – 2013 CREDIT FACILITY AGREEMENTS AND SERIES A PREFERRED SHARES
On August 29, 2013, the Company entered into two separate but identical Agreements to Assist with Credit Facility (each an “Agreement” and collectively the “Agreements”) with two directors of the Company, one of whom is also an officer of the Company, whereby these two individuals (each individual is referred to as an “Assisting Party” and, together as the “Assisting Parties”) agreed to act as sureties and personal guarantors with respect to $826,000 ($413,000 each) of the Company’s depository requirements, consisting of a line of credit from a financial institution and certain extensions of credit by critical vendors that are necessary for the Company to carry out its business (“2013 Credit Facility Agreements”).
The 2013 Credit Facility Agreements each have a term of five (5) years. Given that each of the Assisting Parties entering into the 2013 Credit Facility Agreements is a member of the Company’s board of directors, the transaction was approved by the disinterested members of the board of directors.
As consideration for each Assisting Party agreeing to act as surety and personal guarantor of $413,000 of the Company’s critical depository requirements, the Company agreed that each Assisting Party would be issued 413,000 shares of Series A Preferred Stock (the “Series A Preferred”).
Pursuant to the 2013 Credit Facility Agreements, upon the earliest to occur of the following: (i) five (5) years from the date of the 2013 Credit Facility Agreements, or (ii) at such time as the Assisting Party is fully released from its obligations under any credit facility obtained by the Company pursuant to the Assisting Party’s guarantee, the Company has the right to purchase (the “Call Right”) all outstanding shares of Series A Preferred held by such Assisting Party in exchange for the granting of a five (5) year option to purchase shares of the Company’s common stock at an exercise price of $1.50 per share. The number of shares is calculated on the basis of an option to purchase one (1) share of common stock for each 2.733 shares of Series A Preferred purchased by the Company.
NOTE 6 – 2013 CREDIT FACILITY AGREEMENTS AND SERIES A PREFERRED SHARES (CONTINUED)
On August 28, 2013, the Company filed a Certificate of Designation of Rights, Preferences, Privileges and Restrictions with respect to the Series A Preferred with the Nevada Secretary of State. The Series A Preferred was issued in association with the Agreements to Assist with Credit Facility dated August 29, 2013. Dividends due to holders of such Series A Preferred may be paid at the option of the Company in shares of the Company’s $0.001 par value common stock valued at the fair market value of such shares of common stock as determined in good faith by the Board of Directors on the record date of the dividend.
On January 10, 2014, the Company issued 22,947 shares of common stock to each of the Assisting Parties as payment of dividends relating to the Series A Preferred accrued through December 31, 2013.
On April 10, 2014, the Company issued 12,220 shares of common stock to each of the Assisting Parties as payment on dividends relating to the Series A Preferred accrued for the quarter ended March 31, 2014.
On May 6, 2014, the Company issued 4,888 shares of common stock to each of the Assisting Parties as payment on dividends relating to the Series A Preferred accrued from April 1, 2014 through May 6, 2014.
On May 6, 2014, the Company exercised the Call Right reflected within each Credit Facility Agreement and on May 13, 2014 granted a stock option to each of the Assisting Parties to purchase 151,115 shares of common stock at an exercise price of $1.50 per share.
The 2013 Credit Facility Agreements were previously recorded as a deferred financing asset in the amount of $826,000 to be amortized over the agreement period of the agreements. The deferred financing costs associated with the 2013 Credit Facility Agreements were fully expensed on May 6, 2014 when the Company exercised the Call Right reflected within each of the 2013 Credit Facility Agreements.
NOTE 7 – LETTER OF CREDIT
On February 26, 2014, the Company signed a Master Revolving Note with Comerica Bank in the amount of $500,000. The Master Revolving Note has a maturity date of August 25, 2014 with interest thereon at a per annum rate equal to the “Prime Referenced Rate” plus the “Applicable Margin”. The “Prime Referenced Rate” means, for any day, a per annum interest rate which is equal to the “Prime Rate” in effect on such day, but in no event and at no time shall the “Prime Referenced Rate” be less than the sum of the Daily Adjusting LIBOR Rate for such day plus two and one-half percent (2.5%) per annum. “Prime Rate” means the per annum rate established by Comerica Bank as its prime rate for its borrowers, as such rate may vary from time to time, which rate is not necessarily the lowest rate on loans made by Comerica Bank at any such time. “Applicable Margin” means 1% per annum. The Master Revolving Note is collateralized by $250,000 pledged in cash held in account with Comerica Bank and $250,000 of the Master Revolving Note is unsecured.
The Master Revolving Note secures an irrevocable stand-by letter of credit in the amount of $500,000 with a financial institution for the benefit of the PUCT. The letter of credit was previously secured by the 2011 Credit Facility Agreements entered into by the Company on November 30, 2011 (see Note 5). The letter of credit was for the benefit of the PUCT.
On August 15, 2014, the PUCT approved the Company’s application to amend its REP certification for meeting the financial qualifications and for a guarantor with an investment-grade credit rating or tangible net worth greater than or equal to $100 million, a minimum current ratio capitalization of 1.0 and a debt to total capitalization ratio not greater than .60 to provide the financial requirements on behalf of the Company. Subsequent to the approval, the PUCT released the irrevocable stand-by letter of credit in the amount of $500,000 for the benefit of the PUCT and the Master Revolving Note with Comerica Bank in the amount of $500,000 was terminated.
Subsequent to the approval, the PUCT released the irrevocable stand-by letter of credit in the amount of $500,000 for the benefit of the PUCT and the Master Revolving Note with Comerica Bank in the amount of $500,000 was terminated.
NOTE 8 – PRIVATE PLACEMENT OF SERIES B PREFERRED SHARES
On February 19, 2014, the Company filed a Certificate of Designation of Rights, Preferences, Privileges and Restrictions (the “Series B Designation”) with respect to a class of preferred stock designated as Series B Preferred Stock (the “Series B Preferred”). The Series B Preferred entitles holders thereof to receive a dividend payable in cash or common stock, at the election of the holder, at an annual rate of 12% of the Deemed Original Issue Price. The “Deemed Original Issue Price” of the Series B Preferred for purposes of calculating the Series B Preferred dividend is $1.00 per share, which the board of directors of the Company determined represents the estimated fair market value as of the date of grant. The Series B Preferred dividends are payable in cash or by the issuance of common stock ten (10) days following the end of each month, or portion thereof. The number of shares to be paid as a dividend shall be determined based on the fair market value of the shares of common stock on the record date for the dividend. On February 21, 2014, the Company entered into Series B Preferred Stock Purchase Agreements (each an “Agreement” and collectively the “Agreements”) with several investors. Pursuant to the Agreements, the Company sold an aggregate of 1,900,000 shares of the Series B Preferred, for an aggregate purchase price of $1,900,000 as of September 30, 2014. Several members of the Company’s board of directors directly or indirectly participated in the offering.
Additional terms, conditions, rights, and privileges of the Series B Preferred include:
Voting: Each holder of Series B Preferred is entitled to the number of votes equal to the number of shares of the Company’s common stock into which such shares of Series B Preferred held by such holder could then be converted. The initial conversion price is $1.00 per share, and the per-share purchase price was $1.00. As such, the initial conversion ratio is 1-1.
Conversion: Optional Conversion. The Series B Preferred is convertible into common stock at the election of the holder, with an initial conversion price of $1.00 per share. The Certificate of Designation provides certain adjustments to the conversion price to adjust for stock splits, adjustments, and issuance of additional shares of stock. Mandatory Conversion. Additionally, the Series B Preferred will automatically be converted upon the earlier to occur of (A) the affirmative election of the holders of fifty percent (50%) of the outstanding shares of Series B Preferred, voting as a separate class, or (B) the affirmative vote of the board of directors upon the closing of a firmly underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as
amended, which values the Company at least $50 million and in which the gross proceeds to the Company (after underwriting discounts, commissions and fees) are at least $10 million.
Liquidation. Upon the occurrence of any “Liquidation Event” (including a liquidation of the Company or a sale of the Company), before any distribution or payment will be made to the holders of common stock, the holders of Series B Preferred will be entitled to be paid out of the assets of the Company an amount equal to the amount of cash paid for the shares of Series B Preferred and accumulated but unpaid dividends. The Series B Preferred ranks pari passu with the Series A Preferred Stock with regard to liquidation payments, as well as to any subsequent series of preferred stock.
Redemption. The Company may, at any time, redeem all or a portion of the Series B Preferred upon 20 days’ notice at a price of $1.20 per share.
The foregoing is only a brief description of the material terms of the Series B Designation and the offering of the Series B Preferred, and does not purport to be a complete description of the rights and obligations of the parties thereunder and such descriptions are qualified in their entirety by reference to the full text of the Certificate of Designation which was filed as Exhibit 3.1 to our Form 8-K filed on February 24, 2014.
In accordance with the Series B Designation, dividends due to holders of Series B Preferred may be paid at the option of the holder in shares of the Company’s $0.001 par value common stock valued at the fair market value of such shares of common stock as determined in good faith by the Board of Directors on the record date of the dividend. On April 10, 2014, several holders of Series B Preferred opted to be paid dividends of common stock as opposed to cash, including members of the Company’s board of directors who had directly or indirectly participated in the Series B offering. Holders of Series B Preferred not electing to be paid dividends with shares of common stock were paid cash dividends.
The holders of outstanding shares of Series B Preferred are entitled to receive, out of funds legally available for the payment of dividends, cumulative monthly dividends at the annual rate of 12% of the Deemed Original Issue Price per share, in preference to and in priority over any dividends with respect to Common Stock. At the option of the holders of Series B Preferred Stock, dividends may
be paid to holders of Series B Preferred Stock in shares of the Company’s common stock valued at fair market value of such shares of common stock as determined in good faith by the board of directors.
NOTE 8 – PRIVATE PLACEMENT OF SERIES B PREFERRED SHARES (CONTINUED)
As of September 30, 2014, the Company had paid $109,521 of cumulative monthly dividends on Series B Preferred Stock. Four holders elected to be paid in shares of the Company’s common stock totaling 86,638 shares valued at $86,638 and the remaining holders were paid a total of $22,883 in cash.
As of September 30, 2014, the Company accrued $17,391 of Series B Preferred Stock payable, of which $3,828 is to be paid in common shares and $ 13,563 in cash.
NOTE 9 – MASTER MARKETING AGREEMENT AND ISSUANCE OF WARRANTS
On March 11, 2014, the Company entered into a Master Marketing Agreement with an entity which provides marketing services. The Marketer is in the business of using its multi-level marketing network to broker the services of electric providers to potential residential customers.
The Company issued a warrant to the Marketer to purchase up to 275,000 shares (“Warrant Shares”) of the Company’s common stock at an exercise price of $1.00 per share (the “Warrant”). The Warrant has a term of ten (10) years and vests as follows: (i) as to one Warrant Share for each customer introduced by the Marketer that enters into a relationship with Summer LLC in a one year contract; (ii) as to two (2) Warrant Shares for each customer introduced by the Marketer that enters into a contract with Summer LLC with a two (2) year term; and (iii) in the event that the Marketer meets certain other milestones related to the number of customers introduced to the Company by the Marketer, the Warrant becomes exercisable with respect to an additional 75,000 shares of the Company’s common stock.
The fair value of the warrants of $46,656 was determined using the Black-Scholes option-pricing model. The assumptions used to calculate the fair market value are as follows: (i) risk-free interest rate of 0.87% (ii) estimated volatility of 17% (iii) dividend yield of 0.00% and (iv) expected life of the warrant of 10 years.
NOTE 10 – WHOLESALE POWER PROVIDER AGREEMENT
On April 25, 2014, the Company closed a transaction with DTE Energy Trading, Inc. (“DTE”), with an effective date of April 1, 2014. As part of the transaction, the Company and DTE entered into an Energy Marketing Agreement for Electric Power (the “Energy Marketing Agreement”). Pursuant to the terms of the Energy Marketing Agreement, the Company agreed to purchase its electric power and associated services requirements from DTE, and DTE agreed to provide the Company with certain credit facilities to assist the Company in the purchase of its electric power and associated service requirements. The Company also agreed to pay DTE a fixed monthly fee, as well as certain fees based on megawatt hours purchased. The terms of the Energy Marketing Agreement are governed by the ISDA 2002 Master Agreement, as well as a Schedule and Power Annex thereto (the “2002 Master Agreement”). In conjunction therewith, the Company and DTE also entered into a Credit Agreement, a Security Agreement and a Membership Interest Pledge Agreement.
Pursuant to the Credit Agreement, among other things DTE agreed to (i) provide a guaranty (a “Credit Guaranty”) to the Electric Reliability Council of Texas (“ERCOT”) for the benefit of the Company, and (ii) provide commodity loans for the purchase of electricity (“Commodity Loans”). Each Commodity Loan and any Credit Guaranty shall bear interest on the outstanding principal amount thereof, from the date such Commodity Loan or Credit Guaranty is issued until it becomes due or is revoked, respectively, at a rate per annum equal to the Prime Rate (as reported by the Wall Street Journal) plus two percent (2%). The Company covenanted not to, among other things, (a) merge or consolidate with any other person, (b) acquire all or substantially all of the capital stock or property of another person, (c) create, assume or suffer to exist any lien on any property now owned or hereafter acquired by the Company except for permitted liens (as set forth in the Credit Agreement) or (d) become liable for any indebtedness (other than permitted indebtedness, as set forth in the Credit Agreement).
In consideration of the services and credit support provided by DTE to the Company, and pursuant to the Security Agreement, the Company is required to, among other things (i) grant a priority security interest to DTE in all of its assets, equipment and inventory; (ii) require its customers to remit monthly payments into a lockbox account over which DTE has a security interest; and (iii) deliver monthly and annual forecasted and audited statements to DTE.
Pursuant to the Membership Interest Pledge Agreement, the Company pledged to DTE, and granted to DTE a security interest in all of the membership interests of Summer Energy, LLC owned by the Company, as well as all additional membership interests of Summer Energy, LLC from time to time acquired by the Company.
As part of the transaction, the Company, DTE and BP Energy Company (the Company’s prior wholesale energy provider) entered into a Novation Agreement (the “Novation Agreement”), whereby the Company transferred by novation, with an effective novation date of
NOTE 10 – WHOLESALE POWER PROVIDER AGREEMENT (CONTINUED)
May 1, 2014, to DTE, and DTE accepted, the rights, liabilities, duties and obligations of the Company under and in respect of each transaction entered into pursuant to that certain Master Power Purchase and Sale Agreement dated as of August 9, 2011, between BP Energy Company and Summer Energy, LLC, thereby effectively terminating the BP Energy Company agreement as of May 1, 2014.
The foregoing is only a brief description of the material terms of the transaction with DTE and does not purport to be a complete description of the rights and obligations of the parties thereunder and such descriptions are qualified in their entirety by reference to the text of the Energy Marketing Agreement, the 2002 Master Agreement, the Credit Agreement, the Security Agreement, the Membership Interest Pledge Agreement and the Novation Agreement, which were filed as Exhibits 10.1-10.6, respectively, to our Form 10-Q filed on May 15, 2014.
NOTE 11 - ADVANCE TO LOAN AMOUNT NOTE
On April 18, 2014, the Company signed an Advance to Loan Amount Note with Comerica Bank in the amount of $1,500,000. The Note has a maturity date of December 22, 2014, with interest thereon at a per annum rate equal to the “Prime Referenced Rate” plus the “Applicable Margin”. The “Prime Referenced Rate” means, for any day, a per annum interest rate which is equal to the “Prime Rate” in effect on such day, but in no event and at no time shall the “Prime Reference Rate” be less than the sum of the Daily Adjusting LIBOR Rate for such day plus two and one-half percent (2.5%) per annum. “Prime Rate” means the per annum rate established by Comerica Bank as its prime rate for its borrowers at any such time. “Applicable Margin” means 2% per annum. Accrued and unpaid interest on the unpaid principal balance outstanding shall be payable monthly, in arrears, on the first Business Day of each month.
Guaranty of the Advance to Loan Amount Note has been made by four members of the Company’s board of directors (“Guarantors”). The Company shall issue the four Guarantors a total of 120,000 shares of the Company’s common stock per month (30,000 shares of common stock per month per Guarantor) reduced accordingly as the loan is reduced for agreeing to act as a Guarantor of the Advance to Loan Amount.
As of September 30, 2014, the Company issued 420,644 common shares and accrued 92,800 common shares to the Guarantors and recognized $513,444 in interest expense, the balance of the Advance to Loan Amount was $1,160,000 at period end.
NOTE 12 – EQUITY
On May 27, 2014, the Company sold two investment units for total cash proceeds of $40,000 to two individuals. Each unit consists of 20,000 common shares and a warrant to purchase 10,000 of the Company’s commons shares at $1.50 per share, and exercisable within five years. The common shares have a relative fair value of $39,673 and the warrants have a relative fair value of $327 at the date of issuance.
NOTE 13 – SUBSEQUENT EVENTS
On October 1, 2014, the Company issued 92,800 common shares relating to the Guarantors of the Advance to Loan Amount (See Footnote 11) for the amount of accrued and unpaid as of September 30, 2014.
On November 10, 2014, the Company issued 84,284 common shares relating to the Guarantors of the Advance to Loan Amount (See Footnote 11) for the amount of accrued and unpaid as of October 31, 2014.
On October 1, 2014, the Company paid accrued amount of $17,390 of Series B Preferred Stock payable, of which $3,828 was paid in common shares and $13,562 was paid in cash.
On November 10, 2014, the Company paid accrued amount of $19,365 of Series B Preferred Stock payable, of which $3,058 was paid in common shares and $16,307 was paid in cash.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
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The following discussion of our financial condition and results of operations should be read in conjunction with the unaudited consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act, and is subject to the safe harbors created by those sections. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “will” and variations of these words or similar expressions are intended to identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors. We undertake no obligation to revise or publicly release the results of any revisions to these forward-looking statements.
Due to possible uncertainties and risks, readers are cautioned not to place undue reliance on the forward-looking statements contained in this Quarterly Report, which speak only as of the date of this Quarterly Report, or to make predictions about future performance based solely on historical financial performance. We disclaim any obligation to update forward-looking statements contained in this Quarterly Report.
Readers should carefully review the risk factors described below under the heading “Risk Factors” and in other documents we file from time to time with the SEC, including our Form 10-K for the fiscal year ended December 31, 2013. Our filings with the SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those filings, pursuant to Sections 13(a) and 15(d) of the Exchange Act, are available free of charge at www.summerenergy.com, when such reports are available via the EDGAR system maintained by the SEC at www.sec.gov.
Recent Developments
The unaudited consolidated financial statements include the accounts of Summer Energy Holdings, Inc., a Nevada corporation and its wholly-owned subsidiaries Summer Energy, LLC, a Texas limited liability company (“Summer LLC”) and Summer EM Marketing (“Marketing LLC”) (collectively referred to as the “Company,” “we,” “our,” or “us”).
On March 27, 2012, Summer LLC became a wholly-owned subsidiary of Summer Energy Holdings, Inc. (formerly known as Castwell Precast Corporation) through a reverse acquisition transaction, which resulted in the former members of Summer LLC owning approximately 92.3% of the Summer Energy Holdings, Inc. outstanding common stock. Our sole operations are conducted through Summer LLC.
Marketing LLC was formed in the state of Texas on November 6, 2012 to provide marketing services to Summer LLC.
Plan of Operation
Our wholly owned subsidiary, Summer LLC, is a licensed Retail Electricity Provider (REP) in the State of Texas. In general, Texas regulatory structure permits REPs, such as Summer LLC, to procure and sell electricity at unregulated prices. REPs pay the local transmission and distribution utilities a regulated tariff rate for delivering electricity to their customers. As a REP, we sell electricity and provide the related billing, customer service, collections and remittance services to residential and commercial customers. We offer retail electricity to commercial and residential customers in designated target markets within the State of Texas. In the commercial market, the primary target is small to medium-sized customers (less than one megawatt of peak usage), but we will also selectively pursue larger commercial customers through management’s existing, historical relationships. Residential customers are a secondary target market. We anticipate that a majority of our customers will be located in the Houston and Dallas-Fort Worth metropolitan areas; although, we anticipate a growing number will be located in a variety of other metropolitan and rural areas within Texas.
We began delivering electricity to customers in mid-February 2012.
Results of Operations
Three Months Ended September 30, 2014, compared to the Three Months ended September 30, 2013
Revenue – For the quarter ended September 30, 2014, we generated $17,665,118 in electricity revenue primarily from commercial customers, and from various long and short-term residential customers. The majority of our revenue comes from the flow of electricity to customers which includes revenues from contract cancellation fees, disconnection fees and late fees of $518,125. Revenues for the quarter ended September 30, 2013 were $10,476,187 from electricity revenue which includes $366,375 from disconnection and late fees.
Management plans to continue to execute on its sales and marketing program to solicit individual commercial and residential customers. Management also plans to continue to acquire portfolios of commercial and residential customers when offered at reasonable prices.
Cost of Goods Sold and Gross Profit – For the quarter ended September 30, 2014, cost of goods sold and gross profit totaled $16,498,871 and $1,166,247, respectively. Cost of goods sold and gross profit recorded in the quarter ended September 30, 2013 were $9,999,087 and $477,100, respectively.
Operating expenses – Operating expenses for the quarter ended September 30, 2014 totaled $2,210,591 consisting primarily of general and administrative expenses of $1,363,313, stock compensation of $3,577, bank service fees of $136,539, professional fees of $34,270, outside commissions of $525,865 and $145,027 of billing fees. Billing fees are primarily costs paid to third party Electronic Data Inter-Chain (EDI) provider to handle transactions between us, ERCOT and the TDSPs in order to produce customer bills.
Operating expenses for the quarter ended September 30, 2013 totaled $1,403,945, consisting of general and administrative expenses of $863,426, bank service fees of $93,719, collection fees/sales and verification fees of $3,531, outside commission expense of $20,527, professional fees of $89,207, bad debt reserve of $242,810 and $90,725 of billing fees.
Net loss – Net loss for the quarter ended September, 2014 and 2013, totaled $1,355,325 and $957,236, respectively, relating primarily to operating expenses and cost of goods sold incurred in excess of revenue as we attempt to obtain economies of scale.
Nine Months Ended September 30, 2014, compared to the Nine Months ended September 30, 2013
Revenue – For the nine months ended September 30, 2014, we generated $34,707,850 in electricity revenue primarily from commercial customers, and from the addition of various long and short-term residential customers. The majority of our revenue comes from the flow of electricity to customers which includes revenues from contract cancellation fees, disconnection fees and late fees of $827,851. For the nine months ended September 30, 2013, the Company generated $18,893,140 in electricity revenue which includes $758,291 from contract cancellation fees, disconnection fees and late fees.
Cost of Goods Sold and Gross Profit – For the nine months ended September 30, 2014, cost of goods sold and gross profit totaled $31,900,273 and $2,807,577, respectively. Cost of goods sold and gross profit recorded in the nine months ended September 30, 2013 were $17,401,213 and $1,491,927, respectively.
Operating expenses – Operating expenses for the nine months ended September 30, 2014 totaled $5,134,939, consisting primarily of general and administrative expenses of $3,511,386, stock compensation of $22,685, bank service fees of $334,974, professional fees of $189,318, outside commission expense of $732,903 and $343,673 of billing fees. Billing fees are primarily costs paid to third party Electronic Data Inter-Chain (EDI) provider to handle transactions between us, ERCOT and the TDSPs in order to produce customer bills.
Operating expenses for the nine months ended September 30, 2013 totaled $3,319,091, consisting primarily of general and administrative expenses of $2,020,134, bank service fees of $185,406, collection fees/sales and verification fees of $63,985, outside commission expense of $128,879, professional fees of $228,242, bad debt reserve of $495,318 and $197,127 of billing fees.
Net loss – Net loss for the nine months ended September 30, 2014 and 2013, totaled $3,733,249 and $1,890,288, respectively, relating primarily to operating expenses and cost of goods sold incurred in excess of revenue as we attempt to obtain economies of scale.
Liquidity and Capital Resources
At September 30, 2014 and December 31, 2013, our cash totaled $576,407 and $739,966, respectively. Our principal cash requirements for the quarter ended September 30, 2014, were for operating expenses and cost of goods sold (including power purchases, employee cost, and customer acquisition) and capital expenditures. During the quarter ended September 30, 2014, the primary source of cash was from electricity revenues. During the quarter ended September 30, 2013, the primary source of cash was from electricity revenues and capital raised in the amount of $520,000 pursuant to private placements of common stock and warrants.
General – The Company’s decrease in net cash flow during the first nine months of 2014 is attributable to $2,774,675 cash used by operating activities, $536,001, cash used in investing activities which includes $219,130 for the purchase of property and equipment and $3,147,117 provided by financing activity. In 2013, the Company’s net cash increase resulted from cash provided by operations of $249,484, net cash used in investing activities of $150,395 which includes $380,793 for the purchase of property and equipment and $511,310 provided by financing activity.
The Company has no present agreements or commitments with respect to any material acquisitions of other businesses, products, product rights or technologies. However, we will continue to evaluate acquisitions of and/or investments in products, technologies, or companies that complement our business and may make such acquisitions and/or investments in the future. Accordingly, we may need to obtain additional sources of capital in the future to finance any such acquisitions and/or investments. We may not be able to obtain such financing on commercially reasonable terms, if at all. If we are able to obtain additional financing, such financing may result in restrictions on our operations, in the case of debt financing, or substantial dilution for stockholders, in the case of equity financing.
Cash Outflows for Capital Assets, Customer Acquisition and Deposits
We expect to expend funds for capital assets, customer acquisition and deposits in connection with the expansion of our business during the remainder of the current fiscal year. The anticipated source of funds will be cash on hand and the capital raised through the year ended December 31, 2014.
Future Financing Needs
The Company did not commence operations and the generation of revenue until middle of the three month period ended March 31, 2012. Our cash position may not be significant enough to support daily operations. Management believes that we have adequate liquidity to support operations during the short-term, but this belief is based upon many assumptions and is subject to numerous risks.
While we believe in the viability of our plan of operations and strategy to generate revenues and in our ability to obtain additional funds, there can be no assurances that our plan of operations or ability to raise capital will be successful. The ability to grow is dependent upon our ability to further implement our business plan, generate revenues, and obtain additional financing, as needed.
Off-Balance Sheet Arrangements
Our existing wholesale power purchase agreement provides that we will provide additional credit support to cover mark-to-market risk in connection with the purchase of long term power. A mark-to-market credit risk occurs when the price of previously purchased long term power is greater than the current market price for power purchased for the same term. While we believe that the current environment of historically low power prices limits our exposure to risk, a collateral call, should it occur, could limit our working capital and, if we fail to meet the collateral call, could cause liquidation of power positions.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide this information.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this Quarterly Report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures, as of the end of the period covered by this Quarterly Report, were effective at the reasonable assurance level to ensure that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
Changes in Internal Control over Financial Reporting
There have been no changes in internal control over financial reporting during the period of time covered by this Quarterly Report has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Our process for evaluating controls and procedures is continuous and encompasses constant improvement of the design and effectiveness of established controls and procedures and the remediation of any deficiencies which may be identified during this process.
ITEM 1A. RISK FACTORS
As of the date of this filing, there have been no material changes to the Risk Factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, filed with the SEC on April 15, 2014 (the “2013 Form 10-K”). The Risk Factors set forth in the 2013 Form 10-K should be read carefully in connection with evaluating our business and in connection with the forward-looking statements contained in this Quarterly Report on Form 10-Q. Any of the risks described in the 2013 Form 10-K could materially adversely affect our business, financial condition or future results and the actual outcome of matters as to which forward-looking statements are made. These are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
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No.
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Item
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31.1
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Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
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31.2
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Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
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32.1*
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Certification of the CEO and CFO pursuant to Rule 13a-14(b) and Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
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101.INS**
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XBRL Instance Document
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101.SCH**
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XBRL Taxonomy Extension Schema Document
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101.CAL**
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XBRL Taxonomy Extension Calculation Linkbase Document
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101.DEF**
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XBRL Taxonomy Extension Definition Linkbase Document
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101.LAB**
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XBRL Taxonomy Extension Label Linkbase Document
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101.PRE**
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XBRL Taxonomy Extension Presentation Linkbase Document
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* In accordance with Item 601(b)(32)(ii) of Regulation S-K, this exhibit shall not be deemed “filed” for the purposes of Section 18 of the Securities and Exchange Act of 1934 or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
** Pursuant to Rule 406T of Regulation S-T, this XBRL information will not be deemed “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liability of that section, nor will it be deemed filed or made a part of a registration statement or prospectus for purposes of Sections 11 and 12 of the Securities Act of 1933, or otherwise subject to liability under those sections.
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this Quarterly Report to be signed on its behalf by the undersigned, thereunto duly authorized.
SUMMER ENERGY HOLDINGS, INC.
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Date: November 14, 2014
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By: /s/ Neil M. Leibman
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Neil M. Leibman
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Chief Executive Officer
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(Principal Executive Officer)
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Date: November 14, 2014
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/s/ Jaleea P. George
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Jaleea P. George
Chief Financial Officer
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(Principal Accounting Officer)
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