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 June 30, 2015

 

or

 

¨

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

 

Commission File Number: 333-184363

 

POWERSTORM HOLDINGS, INC.

(Name of registrant as specified in its charter)

 

DELAWARE	45-3733512
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

 

31244 Palos Verdes Dr. W, Ste 245

Rancho Palos Verdes, CA 90275-5370

(Address of principal executive offices) (Zip Code)

 

424-327-2991

(Registrant's telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x 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 x  No ¨ 

 

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

 

Large accelerated Filer	¨		Accelerated Filer	¨
Non-accelerated Filer	¨		Small Reporting Company	x
(Do not check if smaller reporting company)

 

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

 

As of August 14, 2015, there were 22,395,809 shares of common stock issued and outstanding. 

 

 

TABLE OF CONTENTS

 

		Page
PART I. - FINANCIAL INFORMATION
Item 1.	Financial Statements	F-1
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	3
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	8
Item 4.	Controls and Procedures.	8
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings.	9
Item 1A.	Risk Factors.	9
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	9
Item 3.	Defaults Upon Senior Securities.	11
Item 4.	Mine Safety Disclosures.	11
Item 5.	Other Information.	11
Item 6.	Exhibits.	11

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q (this “Report”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.

 

We cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Report and include information concerning possible or assumed future results of our operations, including statements about potential acquisition or merger targets; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.

 

These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report. All subsequent written and oral forward-looking statements concerning other matters addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report.

 

Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.

 

 

PART 1 - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

POWERSTORM HOLDINGS, INC.

INDEX TO FINANCIAL STATEMENTS

 

Balance Sheets as of June 30, 2015 and December 31, 2014 (Unaudited)		F-2
Statements of Operations for the three and six months ended June 30, 2015 and 2014 (Unaudited)		F-3
Statements of Cash Flows for the six months ended June 30, 2015 and 2014 (Unaudited)		F-4
Notes to the Financial Statements (Unaudited)		F-5

 

  

POWERSTORM HOLDINGS, INC.

Balance Sheets

(Unaudited)

 

		June 30, 2015				December 31, 2014
ASSETS
Current Assets
Cash and cash equivalents		$	48,965			$	495
Prepaid expenses			2,479				2,276
Total current assets			51,444				2,771
Fixed assets, net			49,704				4,555
Trademarks and patents			11,200				8,965
Other assets			2,500				2,500
TOTAL ASSETS		$	114,848			$	18,791
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities
Accounts payable		$	102,731			$	61,141
Advances from related party			-				33,045
Accrued expenses			196,200				-
Common stock payable			44,591				-
Capital lease obligations – short-term			13,753				-
Promissory note to related party			34,526				-
Convertible debt, net of discount of $80,710			6,290				-
Derivative liability			121,195				-
Total current liabilities			519,286				94,186
Capital lease obligations – long-term			36,792				-
TOTAL LIABILITIES		$	556,078			$	94,186
Commitments and Contingencies
Stockholders’ Deficit
Preferred stock, par value $0.01 per share, 5,000,000 shares     authorized; 0 shares issued and outstanding			-				-
Common stock, par value $0.001 per share, 300,000,000 shares     authorized; 22,295,809 and 21,506,195 shares issued and     outstanding			22,296				21,506
Additional paid-in capital			5,119,420				4,137,610
Accumulated deficit			(5,582,946	)			(4,234,511	)
TOTAL STOCKHOLDERS’ DEFICIT			(441,230	)			(75,395	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT		$	114,848			$	18,791

 

The accompanying notes are an integral part of these unaudited financial statements.

 

 

 POWERSTORM HOLDINGS, INC.

Statements of Operations

(Unaudited)

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2015				2014				2015				2014
Revenues - related party		$	13,900			$	13,455			$	28,130			$	26,305
Operating expenses
General and administrative			960,486				73,909				1,314,809				145,858
Depreciation expense			11,002				310				11,482				620
Total operating expenses			971,488				74,219				1,326,291				146,478
Loss from operations			(957,588	)			(60,764	)			(1,298,161	)			(120,173	)
Gain on forgiveness of debt			-				-				-				14,025
Interest expense			(9,079	)			-				(9,079	)			-
Unrealized loss on derivative liability			(41,195	)			-				(41,195	)			-
Net loss		$	(1,007,862	)		$	(60,764	)		$	(1,348,435	)		$	(106,148	)
Loss per common share-basic and diluted		$	(0.05	)		$	(0.00	)		$	(0.06	)		$	(0.00	)
Weighted average number of common shares outstanding - basic and diluted			21,584,829				20,852,901				21,560,113				20,490,745

 

The accompanying notes are an integral part of these unaudited financial statements.

 

 

POWERSTORM HOLDINGS, INC.
Statements of Cash Flows
(Unaudited)

 

		Six Months Ended June 30,
		2015				2014
Cash flows from operating activities
Net loss		$	(1,348,435	)		$	(106,148	)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation			760,855				1,855
Amortization of debt discount			6,290				-
Depreciation expense			11,482				620
Unrealized loss on derivative liability			41,195				-
Gain on forgiveness of debt			-				(14,025	)
Changes in operating assets and liabilities:
Prepaid expenses			(203	)			403
Accounts payable			41,590				8,799
Accrued expenses			240,791				-
Net cash used in operating activities			(246,435	)			(108,496	)
Cash flow from investing activities:
Purchase of fixed assets			(2,967	)			-
Payments for trademarks and patents			(2,235	)			(905	)
Net cash used in investing activities			(5,202	)			(905	)
Cash flow from Financing Activities:
Payments of capital lease obligations			(3,119	)			-
Proceeds from issuance of convertible debt			80,000				-
Advances from related party			223,226				108,151
Net cash provided by financing activities			300,107				108,151
Net change in cash and cash equivalents			48,470				(1,250	)
Cash and cash equivalents - beginning of period			495				7,543
Cash and cash equivalents - end of period		$	48,965			$	6,293
Supplemental disclosure of cash flows information:
Cash paid during the period for:
Interest		$	-			$	-
Income taxes		$	-			$	-
Non-cash investing and financing activities:
Issuance of common stock for related party advances		$	221,229			$	73,652
Capital lease obligations on fixed assets		$	53,664			$	-
Capital contribution from shareholder through payment of accounts payable on behalf of the Company		$	-			$	12,000
Issuance of promissory note for related party advances		$	34,526			$	-
Debt discount		$	87,000			$	-

 

The accompanying notes are an integral part of these unaudited financial statements.

 

  

POWERSTORM HOLDINGS, INC.

Notes to Financial Statements

(Unaudited)

 

NOTE 1 – GENERAL ORGANIZATION AND BUSINESS OPERATIONS

 

Powerstorm Capital Corp. was formed on October 11, 2011 in the state of Delaware. On February 25, 2015, Powerstorm Capital Corp. filed a Certificate of Amendment to the Certificate of Incorporation changing its name to Powerstorm Holdings, Inc. (“we”, “Powerstorm” or the “Company”). The Company intends to be a manufacturer of hybrid energy storage systems that provides reliable off-grid solutions to: a) service providers such as telecom tower operators, managed network operators (MNOs), data centers, mining companies, hospitals, b) rural communities within the emerging markets and, c) the residential/home use and serves disaster recovery requirements.

 

NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying interim unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and on the same basis as the annual audited financial statements. In the opinion of management, these financial statements include all adjustments, which, unless otherwise disclosed, are of a normal recurring nature, necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented. The results of interim periods are not necessarily indicative of results for the entire year. The balance sheet at December 31, 2014 has been derived from audited financial statements; however, the notes to the financial statements do not include all of the information and notes required by GAAP for complete financial statements. The accompanying interim unaudited financial statements should be read in conjunction with the financial statements and notes thereto for the period ended

December 31, 2014, included in the Form 10-K filed with the SEC on April 8, 2015.

 

Use of Estimates

 

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 and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Reclassifications

 

Certain accounts in the prior period were reclassified to conform to the current period financial statement presentation.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid, short-term investments purchased with an original maturity of three months or less to be cash equivalents. These investments are carried at cost, which approximates fair value.

 

Intangible Assets

 

The Company’s intangible assets consist of patents and trademarks with indefinite lives. The Company capitalizes the filing and legal fees related to the patent and trademark registrations, which totaled $11,200 and $8,965 as of June 30, 2015 and December 31, 2014, respectively.

 

The Company reviews its indefinite-lived intangible assets for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. The Company assesses recoverability by reference to future cash flows from the products underlying these intangible assets. If these estimates change in the future, the Company may be required to record impairment charges for these assets. As of June 30, 2015 and December 31, 2014, no impairment was recorded.

 

 

Fixed Assets

 

Furniture and office equipment is stated at cost and depreciated using the straight-line method over 7 years, the estimated useful life of the asset. Computers and software developed or obtained for internal use are depreciated using the straight-line method over the estimated useful life of 5 years. Office leasehold improvements are amortized over 6 years, the term of the lease. Repairs and maintenance are expensed as incurred.

 

Accounting for Derivative Liabilities

 

The Company evaluates stock options, stock warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under the relevant sections of ASC Topic 815-40, Derivative Instruments and Hedging: Contracts in Entity’s Own Equity. The result of this accounting treatment could be that the fair value of a financial instrument is classified as a derivative instrument and is marked-to-market at each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Financial instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815-40 are reclassified to a liability account at the fair value of the instrument on the reclassification date.

 

Income Taxes

 

The Company uses the asset and liability method in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and income tax carrying amounts of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company reviews deferred tax assets for a valuation allowance based upon whether it is more likely than not that the deferred tax asset will be fully realized. A valuation allowance, if necessary, is provided against deferred tax assets, based upon management’s assessment as to their realization.

 

Revenue Recognition

 

The Company’s revenue generated consisted of revenues from consulting services from a related party. Revenue is recognized at the time when a price is fixed and determinable, persuasive evidence of an arrangement exists, the service has been rendered, and collectability is assured.

 

Share-Based Compensation

 

The Company amortizes the cost of services received in exchange for equity instruments based on the grant date fair value of such instruments over the service period.

 

Equity instruments issued to parties other than employees for acquiring goods or services are recorded at either the fair value of the consideration received or the fair value of the instruments issued in exchange for such services, whichever is more reliably measurable.

 

Fair Value Measurements

 

As defined in FASB ASC Topic No. 820 – 10, fair value is the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC Topic No. 820 – 10 requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements. The statement requires fair value measurements be classified and disclosed in one of the following categories:

 

Level 1:

Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. The Company considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

 

 

Level 2:

Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. This category includes those derivative instruments that the Company values using observable market data. Substantially all of these inputs are observable in the marketplace throughout the term of the derivative instruments, can be derived from observable data, or supported by observable levels at which transactions are executed in the marketplace.

 

Level 3:

Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources (i.e. supported by little or no market activity). The Company’s valuation models are primarily industry standard models. Level 3 instruments include derivative warrant instruments. The Company does not have sufficient corroborating evidence to support classifying these assets and liabilities as Level 1 or Level 2.

 

As required by FASB ASC Topic No. 820 – 10, financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. The estimated fair value of the variable feature convertible debt instrument was calculated using the black scholes model.

 

Net Loss per Common Share

 

Basic net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, the diluted weighted-average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive. At June 30, 2015, the Company had 2,243,616 stock options and 431,976 shares issuable upon the conversion of convertible debt that would have been included in its calculation of diluted net loss per common share if they were not anti-dilutive. 

 

Recent Accounting Pronouncements

 

Recently issued or adopted accounting pronouncements are not expected to, or did not have, a material impact on our financial position, results of operations or cash flows.

 

 

Subsequent Events

 

The Company evaluates subsequent events through the date when financial statements are issued for disclosure consideration.

  

NOTE 3 – GOING CONCERN

 

The accompanying financial statements were prepared in conformity with GAAP, which contemplates continuation of the Company as a going concern and depends upon the Company’s ability to establish itself as a profitable business. The Company is an early stage company and has incurred an accumulated loss of $5,582,946 since inception. The Company has negative working capital of $467,842 and will require additional funds to finance its business plan for the next twelve months. Due to the early stage of the Company, the Company expects to incur additional losses in the immediate future. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they become due. To date, the Company’s founders have provided funding for operations until the Company raises sufficient capital to provide for the first-year operating expenses.

 

The Company is planning to obtain financing either through the issuance of equity or debt. To the extent that funds generated from any private placements, public offerings, and/or bank financings are insufficient, the Company will have to raise additional working capital through other sources.

 

NOTE 4 – FIXED ASSETS

 

		June 30, 2015				December 31, 2014
Furniture and equipment		$	18,913			$	5,608
Computers and software			38,979				2,183
Leasehold improvements			6,530				-
Less: accumulated depreciation			(14,718	)			(3,236	)
Fixed assets, net		$	49,704			$	4,555

 

During the six months ended June 30, 2015 and 2014, the Company recorded depreciation expense of $11,482 and $620, respectively.

 

NOTE 5 – CONVERTIBLE NOTE PAYABLE

 

On June 16, 2015, the Company issued a convertible note to a third party in the principal amount of $87,000 in exchange for cash proceeds of $80,000 (a $7,000 original issue discount). This note is payable with interest bearing 10% per annum on February 16, 2016. The note is convertible, in whole or in part, into shares of common stock of the Company at a conversion price of 43% of the lowest three trading prices of the common stock for the 10 trading days immediately preceding the date of conversion.

 

The Company has the right to redeem the outstanding convertible note at a redemption price of: (i) 125% of the note outstanding thirty (30) days following the issue date; (ii) thirty one (31) to sixty (60) days following the issue date, 130% of the note outstanding; (iii) sixty-one (61) to ninety (90) days following the issue date, 135% of the note outstanding; (iv) ninety-one (91) days to one hundred and eighty days (180) following the issue date, 140% of the note outstanding.

 

The Company evaluated the terms of the convertible note in accordance with ASC 815 – 40,  Derivatives and Hedging - Contracts in Entity’s Own Stock and determined that the underlying common stock is indexed to the Company’s common stock. The Company determined that the conversion feature did meet the definition of a liability and therefore bifurcated the conversion feature and accounted for it as separate derivative liability. The Company recognized a debt discount for the amount of the derivative liability in the amount of $80,000 that will be amortized to interest expense of the life of the note.  

 

As of June 30, 2015, the amount of discount amortized for these notes was $6,290.

 

 

NOTE 6 – PROMISSORY NOTE PAYABLE

 

On June 30, 2015, the Company entered into a $34,526 promissory note with Michel J. Freni, the CEO and Chairman for advances and payments made on behalf of the Company. Interest accrues at 8% and the note is due upon demand.

 

NOTE 7 – RELATED PARTY TRANSACTIONS

 

On March 31, 2015, the Company issued 33,045 shares of common stock to a related party, KeyMedia Management, Inc., as reimbursement for $33,045 of advances and payments made on behalf of the Company. These shares were valued at the grant date fair value of the common stock of $33,045.

 

On May 18, 2015, the Company issued 217,402 shares of common stock to a related party, KeyMedia Management, Ltd., as reimbursement for $108,701 of advances and payments made on behalf of the Company. The shares were valued at the grant date fair value of $110,875. The issuance of these shares reduced advances owed to the CEO by the Company of $108,701 and the remainder ($2,174) was considered stock-based compensation.

 

On June 30, 2015, the Company issued 266,667 shares of common stock to a Carmelia Lau as reimbursement for $80,000 of payments made by Michel J. Freni and KeyMedia Management Ltd. on behalf of the Company. The shares were valued at the grant date fair value of $106,667. The issuance of these shares reduced advances owed to the CEO by the Company of $80,000 and the remainder ($26,667) was considered stock-based compensation.

 

As of June 30, 2015 and December 31, 2014, the Company had a related party liability due to KeyMedia Management, Inc. of $0 and $33,045, respectively, for advances and payments made on behalf of the Company.

 

During the six months ended June 30, 2015 and 2014, the Company collected and recorded revenues of $28,130 and $26,305, respectively, from a related party (a European entity owned by a significant shareholder of the Company) for consulting services.

 

NOTE 8 - CAPITAL LEASES

 

The Company entered into a capital lease agreements with third parties during the six months ended June 30, 2015 to rent office equipment. The capital leases contain a bargain purchase option at the end of the leases.

 

The future minimum lease payments required under the capital lease obligations and the present value of the minimum lease payments as of June 30, 2015 are as follows:

         

For the year ending June 30,
2016		$	21,276
2017			21,276
2018			17,652
2019			5,650
Total minimum lease payments			65,854
Less: amount representing interest			(15,309	)
Present value of net minimum lease obligations			50,545
Less: current maturities of capital lease obligations			(13,753	)
Long-term capital lease obligations		$	36,792

 

 

NOTE 9 – DERIVATIVE LIABILITIES

 

Activity for derivative liability related to the variable conversion feature on convertible debt during the six months ended June 30, 2015 was as follows:

 

		Balance at December 31, 2014				Initial valuation of derivative liability upon issuance of variable feature convertible note				Change in fair value of derivative liability				Balance at  June 30, 2015
Convertible debt		$	-			$	80,000			$	41,195			$	121,195
Total		$	-			$	80,000			$	41,195			$	121,195

 

The fair value of the derivative was valued on the date of the issuance of the convertible debt using the Black-Scholes option pricing model with the following weighted average assumptions: (1) risk free interest rate 1%, (2) term of 0.67 years, (3) expected stock volatility of 155%, (4) expected dividend rate of 0%, and (5) common stock price of $0.51.

 

The fair value of the derivative was valued on June 30, 2015 using the Black-Scholes option pricing model with the following weighted average assumptions: (1) risk free interest rate 1%, (2) term of 0.63 years, (3) expected stock volatility of 155%, (4) expected dividend rate of 0%, and (5) common stock price of $0.40.

 

NOTE 10 – COMMITMENTS AND CONTINGENCIES

 

Operating Lease

 

On October 18, 2013, the Company entered into a lease agreement with a third party to rent office premises. The lease commencement date was November 1, 2013 and ends on December 31, 2016. The Company entered into a lease addendum on February 20, 2015. Pursuant to the lease addendum, the monthly lease payment is $2,600 for January 1, 2015 through June 30, 2015, and increases to $4,800 per month starting July 1, 2015. The lease term is through February 28, 2021.

 

Rent expense was for the six months ending June 30, 2015 and 2014 was $15,600 and $15,000, respectively.

 

Employment Agreements

 

CEO employment agreement

 

On January 1, 2014, the Company entered into an employment agreement with its CEO, effective through December 31, 2016. Pursuant to the agreement, the CEO shall receive a minimum annualized salary of $300,000. During the six months ended June 30, 2015, the Company recorded $150,000 of compensation expense for this agreement, which is recorded in accrued expenses at June 30, 2015.

 

CFO employment agreement

 

On December 31, 2014, the Company entered into an employment agreement with its CFO, effective through March 31, 2018, in which the CFO will provide consulting services to the Company. Pursuant to the agreement, the CFO shall receive an annualized salary of $208,000, of which 50% shall be paid in cash and 50% shall be paid in stock options. During the six months ended June 30, 2015, the CFO received $40,108 in consulting fees. No additional stock options are issuable pursuant to this agreement in 2015.

 

In addition to a salary, the CFO will be provided with a 3% ownership of the Company to be issued in common stock. The shares vest in three 1% installments on January 1, 2016, 2017, and 2018. The Company will value this obligation each quarter and record a common stock payable until the obligation is paid for in common stock of the Company. Pursuant to this agreement, the Company recorded share-based compensation expense of $44,591 for the six months ended June 30, 2015.   

 

 

NOTE 11 – EQUITY

 

The Company is authorized to issue 305,000,000 shares of capital stock. These shares are divided into two classes, with 300,000,000 shares in common stock at $0.001 par value and 5,000,000 shares in preferred stock at $0.01 par value.

 

Issuance of common stock

 

During June 2015, the Company issued 266,667 shares of common stock at their fair value to an individual as reimbursement for $80,000 of advances and payments made on behalf of the Company by Michel J. Freni and KeyMedia Management Ltd.

 

During June 2015, the Company issued 50,000 shares of common stock to a director of the Company for services. The Company recorded stock-based compensation of $75,000 based on the grant date fair value of the common stock.

 

During May 2015, the Company issued 217,402 shares of common stock at their fair value to a related party, KeyMedia Management, Ltd., as reimbursement for $108,701 of advances and payments made on behalf of the Company.

 

During May 2015, the Company issued 100,000 shares of common stock to the Company’s CFO for services. The Company recorded stock-based compensation of $145,000 based on the grant date fair value of the common stock.

 

During May 2015, the Company issued 22,500 shares of common stock to consultants for services. The Company recorded stock-based compensation of $16,775 based on the grant date fair value of the common stock.

 

During April 2015, the Company entered into a consulting agreement for Business Development and Marketing services with a third party. The agreement is effective through December 31, 2015. In exchange for the services, the Company agreed to a consulting fee of $2,000 per month. In addition, the Company agreed to grant 100,000 shares of common stock on April 1, 2015, July 1, 2015, October 1, 2015 and January 1, 2016 (400,000 shares in aggregate). The Company recorded stock-based compensation of $150,933 based on the grant date fair value of the common stock.

 

During March 2015, the Company issued 33,045 shares of common stock to a related party for $33,045 of advances and payments made on behalf of the Company.

 

Stock Options

 

A summary of the Company’s option activities for the six months ended June 30, 2015 is as follows:

 

		Options				Weighted- Average Exercise Price				Weighted- Average Remaining Contractual Term				Weighted- Average Grant Date Fair Value
Options Outstanding, December 31, 2014			1,690,616			$	0.51				9.84			$	1.47
Options granted			653,000			$	0.43				10.00			$	0.73
Options exercised			-			$	-				-			$	-
Options forfeited			(100,000	)		$	0.43				-			$	1.49
Options Outstanding at June 30, 2015			2,243,616			$	0.49				9.57			$	1.25
Options Vested and Exercisable at June 30, 2015			1,483,763				0.54				9.52			$	1.47

 

 The aggregate intrinsic value of stock options outstanding at June 30, 2015 was $21,000.

 

 

During the year ended December 31, 2014, the Company appointed seven new members to its Board of Advisors and granted 10,000 non-qualified stock options (70,000 in aggregate) to each advisor that vest upon one year of service. The stock options were valued using the Black-Scholes option pricing model. Fair values of these options were calculated using the following inputs in the valuation model; 10-year term; $0.10 exercise price; common stock price of $0.10 - $2.15; risk free rate of 2.47%- 3.00% and volatility of 156%-159%. The grant date fair value of these stock options was $74,313. The Company recorded $24,346 of stock-based compensation expense during the six months ended June 30, 2015 in connection with these stock options. The remaining $1,973 of stock compensation expense will be expensed during the remainder of 2015.

 

On December 31, 2014, the Company granted 259,706 stock options to the Company’s CFO. The stock options were valued using the Black-Scholes option-pricing model. Fair value of these options was calculated using the following inputs in the valuation model; 10-year term; $0.43 exercise price; common stock price of $1.50; risk free rate of 2.17% and volatility of 156%. The grant date fair value of the stock options was $386,724 and will vest in four equal installments quarterly over one year. On May 29, 2015, the CFO forfeited 100,000 stock options. The grant date fair value of the remaining stock options pursuant to this agreement is $238,034. During the six months ended June 30, 2015, the Company recorded share-based compensation of $119,017 pursuant to these stock options related to 79,853 stock options that vested. The remaining $119,017 will be expensed during the remainder of 2015.

 

On April 9, 2015, the Company granted 213,000 stock options to the various independent contractors, independent consultants and advisors. The stock options were valued using the Black-Scholes option pricing model. Fair value of these options was calculated using the following inputs in the valuation model; 10-year term; $0.43 exercise price; common stock price of $1.50; risk free rate of 1.97% and volatility of 156%. The grant date fair value of the stock options was $163,770. The stocks option grants have various vesting schedules as approved by the Board of Directors, of which 43,000 stock options vested during quarter ending June 30, 2015, 20,000 will vest on December 31, 2015 and the remaining 150,000 vest in quarterly installments on July 1, 2015, October 1, 2015 and January 1, 2016. The Company recorded $97,133 of stock-based compensation expense during the six months ended June 30, 2015 in connection with these stock options. The remaining $66,637 of stock compensation expense will be expensed during the remainder of 2015.

 

On April 10, 2015, the Company granted 400,000 stock options for The Brewer Group for Business Development and Marketing Services. The stock options were valued using the Black-Scholes option pricing model. Fair value of these stock options was calculated using the following inputs in the valuation model; 10-year term; $0.43 exercise price; common stock price of $0.78; risk free rate of 1.96% and volatility of 156%. The grant date fair value of the stock options was $307,532 and will vest on January 1, 2016. The Company recorded $102,511 of stock-based compensation expense during the six months ended June 30, 2015 in connection with these stock options. The remaining $205,021 of stock compensation expense will be expensed during the remainder of 2015.

 

On May 4, 2015, the Company granted 40,000 stock options to four (4) of its Board of Advisors for compensation during the fiscal year 2015. The stock options were valued using the Black-Scholes option pricing model. Fair value of these options was calculated using the following inputs in the valuation model; 10-year term; $0.43 exercise price; common stock price of $0.10; risk free rate of 2.05% to 2.16% and volatility of 155%. The grant date fair value of the stock options was $3,897 and will vest on December 31, 2015. The Company recorded $1,299 of stock-based compensation expense during the six months ended June 30, 2015 in connection with these stock options. The remaining $2,598 of stock compensation expense will be expensed during the remainder of 2015.

 

NOTE 12 -FAIR VALUE MEASUREMENTS

 

The following table sets forth, by level within the fair value hierarchy, the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2015:

 

Quoted Prices

In Active

Significant

Total

Markets for

Other

Significant

Carrying

Identical

Observable

Unobservable

Value as of

Assets

Inputs

Inputs

June 30,

Description

(Level 1)

(Level 2)

(Level 3)

2015

Variable conversion features - convertible debt derivatives

$

121,195

$

121,195

Total

$

-

$

-

$

121,195

$

121,195

 

 

The following table sets forth a reconciliation of changes in the fair value of financial liabilities classified as level 3 in the fair value hierarchy:

 

		Significant Unobservable Inputs (Level 3)
		Three Months Ended June 30,
		2015				2014
Beginning balance		$	-			$	-
Additions			80,000				-
Change in fair value			41,195				-
Ending balance		$	121,195			$	-
Change in unrealized loss included in earnings		$	41,195			$	-

 

NOTE 13 – SUBSEQUENT EVENTS

 

On July 1, 2015, the Company issued 100,000 shares of common stock to The Brewer Group pursuant to the consulting agreement described in Note 11.

  

On July 14, 2015, the Company entered into a capital lease agreement with a third party to rent equipment. As per the lease term, the monthly payment is $724 over a lease term of 60 months with the lease being effective August 1, 2015. The lease term includes a $1 bargain purchase option at the end of the lease term.

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following is management’s discussion and analysis of the consolidated financial condition and results of operations of Powerstorm Holdings, Inc. dba Powerstorm ESS. (“Powerstorm”, the “Company”, “we”, and “our”) for the three and six months ended June 30, 2015. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as its plans, objectives, expectations and intentions. Its actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements. The following information should be read in conjunction with the consolidated interim financial statements for the three and six months ended June 30, 2015 and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q (this “Report”).

 

Overview

 

Powerstorm intends to serve the strong, growing demand for off-grid, Micro Grid energy storage systems worldwide, and in particular in emerging markets, while helping bring power to the 1.3 billion people living in energy poverty with virtually no connection to the rest of the world. We are focused on developing and delivering innovative, power agnostic, best-in-class, green, turnkey power management and energy storage solutions such as our Modular Energy Storage Solution (“MESS”), and our residential solution, “zeroXess.”

 

Our Products

 

MESS

 

The MESS is a containerized and optimized hybrid energy solution that can provide renewable and reliable off-grid power. The MESS container has a diesel generator/alternator combined with our Lithium Ion battery-based system and powered by Solar and/or Wind Turbines. The MESS unit is equipped with our patent pending remote monitoring system, the “digital brain” that incorporates and covers the BMS, TMS and NMS. The MESS is plug-and-play and can be operational within a single day when set up and tested by technicians.

 

The MESS is designed to support rural communities and service providers such as telecom tower operators, data centers, mines and hospitals, each serving as anchor points for our entrance into the surrounding communities. Our customers will experience reduced dependence on increasingly expensive diesel fuel, reduced OPEX and CAPEX, reduced energy cost, longer system life, ease of expansion, upgrade and scalability, and overall stable and reliable energy flow.

 

A single MESS unit is capable of powering an entire rural community with green alternative energy, allowing for comprehensive ancillary augmentations that will expand into clean water, healthcare, Internet access, and other benefits. Given that our MESS units are plug and play and operational within twenty four hours of delivery, they make for a fantastic solution in humanitarian aid and relief efforts including disaster recovery, war zones, disease epidemics, etc. This supports the Company’s mission of making a difference. Our system has the capacity to immediately change the quality of life for users.

 

zeroXess

 

The zeroXess system is an off-grid solar lighting kit that is convenient and compact. It is powered by a 12 volt 4500 mAh lithium-ion battery pack and a 25-watt solar panel to provide renewable energy. The zeroXess system features an 8-hour battery life and 6 extra bright, 15-1 watt hanging LED lights, 4 USB chargers with AC adapter, external speakers and fully integrated and network connected interface for basic internet access. The systems have a sleek and stylish design and come in five (5) gorgeous colors.

 

The zeroXess system is capable of providing off-grid solar lighting for personal use in small houses in established and emerging rural markets, in humanitarian relief, disaster recovery efforts, and camping.

 

The Energy Storage Market

 

The Energy Storage Market is and will continue to be one of the fastest growing sectors. The off-grid base station power, or “the tower,” is anticipated to grow in revenue from $1.6B in 2012 to $10.5B in 2020 and micro-grid enabling technologies are projected to exceed $26B in annual revenue by 2023. Some reports suggest an even higher projected market growth. Global electricity demand is expected to rise by 40% from 2010 to 2040 as stated in the Navigant Research Report and Pike Report.

 

Energy storage is an increasingly important area of focus since traditional energy sources, like coal, oil, and gas, are consumed far too rapidly to be able to adequately balance electricity supply with the rising demand of the grid. The solution to these quickly exhaustive sources is portable and turnkey energy sources. Powerstorm, with its patent pending technology, intends to lead industry efforts to increase efficiency and provide improved renewable energy technology.

 

 

In addition to efficiency, there has also previously been the problem of accessibility. Rural communities in developing countries in Africa, Latin America and South-East Asia have historically not had access to an electricity grid to support their energy needs. Since the introduction of off-grid energy technologies, these areas are now able to have off-grid energy solutions with self-reliant micro grid systems that supply remote communities with basic energy needs. Recently, micro grid systems powered by renewable energy sources, such as solar power and wind turbines supported with Lithium Ion battery back-up systems, have become a more and more popular tool to address energy access challenges. The critical importance of energy storage technologies for both modern, developed energy infrastructure and energy access in underdeveloped areas of the world prompts Powerstorm to furnish leading energy storage technologies.

 

Our Market Strategy

 

Powerstorm is dedicated to making a difference in the world by providing power to the 1.3 billion that currently do not have power and by providing alternative off grid solutions to relieve the already overburdened existing grid system. To service this overwhelming energy crisis Powerstorm has created a comprehensive sales channel strategy designed to effectively create energy equality, driving rapid market adoption and create brand identity. The strategy is a three (3) pronged approach, wherein we utilize three (3) distribution channels: a) The “Anchor Point” that covers service providers such as telecom tower operators, MNO’s, datacenters, mines and hospitals, b) “Community Power” that covers multi-level government relations, humanitarian outreach organizations, world organizations and non-profits, and c) “VAR” – value added resellers.

 

Anchor Point(s)

 

The anchor point channel will be used as an initial point of sale allowing Powerstorm to provide our MESS solution and begin to build a presence in select regions. Once our MESS is installed within a region, our teams are then able to reach into local communities and create a network of energy storage systems to bring power to their cities. For distribution into our “Anchor Point” customers, management has existing relationships with key telecom tower operators and will target and sell our products into the “Anchor Point” customer such as the telecom tower operators, data centers, mines, and hospitals in the emerging markets. Their extensive knowledge of both the telecommunications industry and emerging market experience enables us to rapidly deploy all of our products into our initial targeted markets.

 

As an example of an anchor point, Powerstorm believes that due to the continued increase in subscribers for wireless personal telecommunication services in the rural markets telecommunication operators and wireless carriers will need to add a significant number of cell sites (towers) to maintain the performance of their networks in the areas they currently cover, and to extend service to new markets. Out of the five (5) million cellular towers worldwide, three (3) million are in emerging regions such as Africa and the Middle East. Of these, over one (1) million are tied to unstable grids and about 640,000 are off-grid. To maintain and grow this network, telecommunications operators must ensure access to energy sources, and must store, manage and deploy power efficiently and reliable. Equally driving the need for hybrid energy solutions is the demand for reduced OPEX and CAPEX costs as the telecom industry is experiencing a difficult time in sustaining margins with declining average revenue per unit (“ARPU”). Powerstorm is positioned to service the telecom operators’ need to significantly reduce operating and capital expenditure costs.

 

The need for cost-efficient solutions extends into other sectors as well. Current choices, such as diesel generators, have proven too costly to allow remote mines to operate, which has consequences for productivity, profitability, and Company security. Unreliability of energy has similar repercussions, as brownouts can result in losses in the millions. This is money that may be saved in the future with increased reliance on off-grid solutions.

 

Additionally, worker safety is at stake. Lack of access to energy in a remote mine means limited light and visibility, increasing risk of accidents. Unreliable energy translates into limited emergency medical care, which has the potential to seriously endanger lives. MESS’ features mean that it is an ideal solution for this type of environment, allowing mines to continue to operate productively and with significantly reduced hazards.

 

 

Like our other anchor points, data centers are currently growing at a rate that the grid is simply unable to support. With their growth outpacing their source of power, data centers are looking into off- grid options as potential backups. Data centers are particularly taxing on electricity grids. The nature of the work conducted by data centers means that they require uninterrupted power and these high power demands can cause problems, even necessitating grid shutdowns intermittently. Both expensive and inconvenient, this can be avoided with our MESS. For businesses of this nature that rely so heavily on energy for operation, benefits like cost savings, consistence of quality, and guarantee of power even during a grid disruption are all compelling reasons to consider a solution like the ones offered by Powerstorm.

 

Our potential anchor point clients are continuing to expand significantly into the emerging markets, in turn allowing Powerstorm to deliver MESS systems directly into an emerging market.

 

Community Power

 

In regards to the “Community Power” channel, the Company will leverage the anchor point customers’ energy access to develop relationships within the local, state and federal level governments within those regions and bring the energy storage systems to the communities. Additionally, the Company will be aggressively establishing relationships with key humanitarian, non-profit, and governmental agencies that focus on bringing a higher quality of life to individuals within the emerging markets. Given the stature of these relationships, a select group of the Company’s senior management will lead the initial development of these relationships while it seeks a seasoned sales personnel that is intimately experienced with the governmental agencies, organizations and the communities.

 

VAR’s and Distributors

 

The demand for power in rural regions is staggering. The energy storage solutions we offer, the MESS and the zeroXess, will drastically improve living conditions by increasing accessibility to hospitals, preventative medicine, long term care, clean water and sanitation, agriculture, education, commerce and telecommunications.

 

Powerstorm believes that a carefully identified set of VARs can serve as an extended sales team and lead the Company to an accelerated market expansion. The Company is currently identifying the VARs that best serve the Energy Storage Systems market. Senior management will lead the initial development of these relationships while it seeks seasoned sales personnel that are intimately experienced with VARs.

 

Plan of Operations

 

Powerstorm has identified its initial target market and vertical for the sale of its product in the near term:

 

1)

Areas in the world where energy is non-existent or unreliable and unstable (e.g., Africa, South East Asia, Middle East and Latin America). The first market of focus is North Eastern region of Africa including the Horn of Africa.

 

2)

The first target vertical within the market is the Telecom Operator which is primarily being powered by diesel generators and lead acid batteries in which case the displaced cost of energy include upfront cost of the equipment and ongoing operating cost of the generator and fuel.

 

Results of Operations            

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2015				2014				2015				2014
Revenues – related party		$	13,900			$	13,455			$	28,130			$	26,305
Operating expenses
General and administrative			(960,486	)			(73,909	)			(1,314,809	)			(145,858	)
Depreciation expense			(11,002	)			(310	)			(11,482	)			(620	)
Total operating expenses			(971,488	)			(74,219	)			(1,326,291	)			(146,478	)
Gain on forgiveness of debt			-				-				-				14,025
Interest expense			(9,079	)			-				(9,079	)			-
Unrealized loss on derivative liability			(41,195	)			-				(41,195	)			-
Net loss		$	(1,007,862	)		$	(60,764	)		$	(1,348,435	)		$	(106,148	)

 

 

For the three months ended June 30, 2015 and 2014

 

Revenues

 

The Company generated revenues from related party consulting services of $13,900 and $13,455 during the three months ended June 30, 2015 and 2014. The increase was primarily due to the increase in consultancy hours.

  

Operating Expenses

 

We incurred total operating expenses of $971,488 and $74,219 for the three months ended June 30, 2015 and 2014. The increase was primarily due to an increase in share-based compensation. The remaining increase is attributed to an increase in marketing, independent contractor payments, audit, bookkeeping and legal and investor relation’s fees.

 

Net Loss

 

During the three months ended June 30, 2015 and 2014, we incurred a net loss of $1,007,862 and $60,764, respectively. The increase was primarily due to an increase in share-based compensation. The remaining increase is attributed to an increase in marketing, independent contractor payments, audit, bookkeeping and legal and investor relation’s fees.

 

For the six months ended June 30, 2015 and 2014

 

Revenues

 

The Company generated revenues from related party consulting services of $28,130 and $26,305, respectively, for the six months ended June 30, 2015 and 2014. The increase was primarily due to the increase in consultancy hours.

  

Operating Expenses

 

We incurred total operating expenses of $1,326,291 and $146,478, respectively for the six months ended June 30, 2015 and 2014. The increase was primarily due to an increase in share-based compensation. The remaining increase is attributed to an increase in marketing, independent contractor payments, audit, bookkeeping and legal and investor relation’s fees.

 

Net Loss

 

During the six months ended June 30, 2015 and 2014 we incurred a net loss of $1,348,435 and $106,148. The increase was primarily due to an increase in share-based compensation. The remaining increase is attributed to an increase in marketing, independent contractor payments, audit, bookkeeping and legal and investor relation’s fees.

 

 

Liquidity and Capital Resources

 

Our financial condition as of June 30, 2015 and December 31, 2014 is summarized as follows:

 

Working Capital:

		June 30, 2015				December 31, 2014
Current Assets		$	51,444			$	2,771
Current Liabilities			(519,286	)			(94,186	)
Working capital deficit		$	(467,842	)		$	(91,415	)

 

Cash Flows:

		June 30, 2015				June 30, 2014
Cash used in operating activities		$	(246,435	)		$	(108,496	)
Cash used in investing activities			(5,202	)			(905	)
Cash provided by financing activities			300,107				108,151
Net increase (decrease) in cash		$	48,470			$	(1,250	)

 

We have incurred an accumulated loss of $5,582,946 since inception and we had a working capital deficit of $467,842 as of June 30, 2015, which indicates substantial doubt as to our ability to continue as a going concern. The Company received cash proceeds of $80,000 from a convertible note to fund research, development, selling, and general administrative expenses while management continues to pursue additional financing options.

 

From inception to date, our founders have made contributions to fund our operations. We will be required to raise additional capital over the next twelve months to meet our current administrative expenses.

 

We plan to secure financing through the issuance of equity or debt. If we are not able to generate sufficient funds from any private placement, public offerings, or bank financings, we will need to raise additional working capital through other sources.

 

Our resources were insufficient to effectuate our inaugural business plan dated October 10, 2011, that extended through the period ending June 30, 2015. We expect to incur a minimum of $1,500,000 in operating expenses during the subsequent 12 months of operations.

 

We had previously indicated that we would have to raise the funds to pay for these expenses. We may have to borrow money from founders or shareholders, issue debt or equity, or enter into a strategic arrangement with a third party. There is no assurance that we will secure additional capital. There currently are no agreements, arrangements, or understandings that would enable us to obtain funds through bank loans, lines of credit, or any other source. If we are unable to raise funds for acquisitions it will have a severe negative impact on our ability to execute our business plans.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements.

 

 

Critical Accounting Policies and Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to select appropriate accounting policies and to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses.

 

Intangible Assets

 

The Company’s intangible assets consist of patents and trademarks with indefinite life. The Company capitalizes the filing and legal fees related to the patents and trademark registrations, which totaled $11,200 and $8,965 as of June 30, 2015 and December 31, 2014, respectively. The Company reviews its indefinite-lived intangible assets for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. The Company assesses recoverability by reference to future cash flows from the products underlying these intangible assets. If these estimates change in the future, the Company may be required to record impairment charges for these assets. As of June 30, 2015 and December 31, 2014, no impairment was recorded.

 

Revenue Recognition

 

The Company’s revenue generated consisted of revenues from consulting services from a related party. Revenue is recognized at the time when a price is fixed and determinable, persuasive evidence of an arrangement exists, the service has been rendered, and collectability is assured.

 

Share-Based Compensation

 

Compensation expense for all share-based payment awards made to employees and directors are recognized in the financial statements based on their fair value. The Company measures share-based compensation to consultants and recognizes the fair value of the award over the period the services are rendered or goods are provided.

 

The Company uses the Black-Scholes option-pricing model to estimate the fair value of stock options. The fair value is recognized as expense, net of estimated forfeitures, over the requisite service period, which is generally the vesting periods or the period before the vesting date of the respective award on a straight- line basis.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

 

Item 4. Controls and Procedures.

 

(a) Evaluation of disclosure controls and procedures. 

 

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are not effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits 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 the Company’s management, including the Company’s principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

 

1)

Insufficient segregation of duties. We did not sufficiently segregate duties over incompatible functions at our corporate headquarters.

 

2)

Audit Committee and Financial Expert. The Company does not have a formal audit committee with a financial expert, and thus the Company lacks the board oversight role within the financial reporting process.

 

(b) Changes in Internal Control over Financial Reporting

 

The Company has hired an internal accountant during the period ending June 30, 2015. There were no changes in our internal control over financial reporting during the Six months ended June 30, 2015 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to change in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

PART II. - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

Item 1A. Risk Factors

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

 

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

 

On June 30, 2015, the Company issued 266,667 shares of common stock to a Carmelia Lau as reimbursement for $80,000 of advances and payments made by Michel J. Freni and KeyMedia Management Ltd on behalf of the Company.

 

On June 24, 2015, the Company issued 50,000 shares of common stock to Michael and Pat Porter as compensation for Michael Porter’s services performed as director of the Company.

 

On May 18, 2015, the Company issued 217,402 shares of common stock to a related party, KeyMedia Management, Ltd., as reimbursement for $108,701 of advances and payments made on behalf of the Company.

 

On April 9, 2015, the Company issued 100,000 shares of common stock to The Brewer Group as further described in Note 10.

 

On March 31, 2015, the Company issued 33,045 shares of common stock to a related party for $33,045 of advances and payments made on behalf of the Company.

 

On April 9, 2015, the Company granted 213,000 stock options to the various independent contractors, independent consultants and advisors. The stock options were valued using the Black-Scholes option pricing model. Fair value of these options was calculated using the following inputs in the valuation model; 10-year term; $0.43 exercise price; common stock price of $1.50; risk free rate of 1.97% and volatility of 156%. The grant date fair value of the stock options was $163,770.00. The stocks option grants have various vesting schedules as approved by the Board of Directors, of which 43,000 stock options vested during quarter ending June 30, 2015, 20,000 will vest on December 31, 2015 and the remaining 150,000 vest in quarterly installments April 1, 2015, July 1, 2015, October 1, 2015 and January 1, 2016.

 

 

On April 10, 2015, the Company granted 400,000 stock options to The Brewer Group for Business Development and Marketing Services that will vest on January 1, 2016. The stock options were valued using the Black-Scholes option pricing model. Fair value of these options was calculated using the following inputs in the valuation model; 10-year term; $0.43 exercise price; common stock price of $0.78; risk free rate of 1.96% and volatility of 156%. The grant date fair value of the stock options was $307,532.00.

 

On May 4, 2015, the Company granted 40,000 stock options to four (4) of its Board of Advisors for compensation during the fiscal year 2015. The stock options were valued using the Black-Scholes option pricing model. Fair value of these options was calculated using the following inputs in the valuation model; 10-year term; $0.43 exercise price; common stock price of $0.10; risk free rate of 2.05% to 2.16% and volatility of 155%. The grant date fair value of the stock options was $3,897.00 and the stock options will vest on December 31, 2015.

 

On June 16, 2015, the Company closed a financing transaction pursuant to a Securities Purchase Agreement, dated June 12, 2015 (“Securities Purchase Agreement”) and Convertible Promissory Note, dated June 12, 2015 (the “Note”), each entered into by the Company and Carebourn Capital, L.P. (the “Purchaser”). Pursuant to the Securities Purchase Agreement, the aggregate principal amount of the 10% convertible note is $87,000 and, as described below, the purchase price of the Note is $80,000.

 

The terms of the Note are as follows:

 

The Note, dated June 12, 2015 (the “Issue Date”), earns interest at an annual rate equal to 10% and provides for a maturity date of February 16, 2016. Any amount of principal or interest not paid when due will bear interest at an annual rate of 22% applied from the due date until the date of payment. The Note carries an original issue discount of $4,000. As described above, the Company agrees to pay the Purchaser $3,000 to cover certain fees incurred in connection with the Securities Purchase Agreement and Note. The original issue discount and the amount for fees are included the initial principal amount of the Note. As a result, the purchase price of the Note is $80,000, which is an aggregate $87,000 in initial principal balance, less the $4,000 original issue discount and $3,000 in fees.

 

The conversion price is equal to 57% multiplied by the average of the lowest three trading prices for the Company’s common stock during the 10-day period ending on the latest complete trading day prior to the date of conversion (represents a 43% discount). The convertibility of the Note may be limited if, upon conversion, the Purchaser or any of its affiliates would beneficially own more than 4.99% of the Company’s common stock. While the Purchaser’s conversion rights exist, the Company will reserve a sufficient number of shares from its authorized and unissued shares of common stock to provide for the issuance of common stock upon the full conversion of the Note.

 

The Company may prepay the Note in full by paying off all principal, interest and any other amounts owing multiplied by (i) 125% if prepaid during the period commencing on the Issue Date through 30 days thereafter, (ii) 130% if prepaid between 31 days and 60 days following the Issue Date, (iii) 135% if prepaid between 61 days and 90 days following the Issue Date, (iv) 140% if prepaid between 91 days and 120 days following the Issue Date, (v) 140% if prepaid between 121 days and 150 days following the Issue Date, and (vi) 140% if prepaid between 151 days and 180 days following the Closing Date. After the expiration of 180 days following the Issue Date, the Company has no right of prepayment.

 

 

The above issuances of shares are exempt from registration, pursuant to Section 4(2) of the Securities Act. These securities qualified for exemption under Section 4(2) of the Securities Act since the issuance securities by us did not involve a public offering. The offering was not a “public offering” as defined in Section 4(2) due to the insubstantial number of persons involved in the deal, size of the offering, manner of the offering and number of securities offered. We did not undertake an offering in which we sold a high number of securities to a high number of investors. In addition, these stockholders had the necessary investment intent as required by Section 4(2) since they agreed to and received share certificates bearing a legend stating that such securities are restricted pursuant to Rule 144 of the Securities Act. This restriction ensures that these securities would not be immediately redistributed into the market and therefore not be part of a “public offering.” Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities Act for this transaction.

 

Item 3. Defaults upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other information

 

None.

 

Item 6. Exhibits

 

Exhibits
31.1		Certification of Principal Executive Officer of the Registrant pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Principal Financial Officer of the Registrant pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of Principal Executive Officer and Principal Financial Officer of the Registrant pursuant to 18U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*		Certification of Principal Financial Officer of the Registrant pursuant to 18U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Schema
101.CAL		XBRL Taxonomy Calculation Linkbase
101.DEF		XBRL Taxonomy Definition Linkbase
101.LAB		XBRL Taxonomy Label Linkbase
101.PRE		XBRL Taxonomy Presentation Linkbase

 

*In accordance with SEC Release 33-8238, Exhibit 32.1 and 32.2 are being furnished and not filed.

 

 

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.

 

	POWERSTORM HOLDINGS, INC.
Date: August 14, 2015
	By:	/s/ Michel J. Freni
		Michel J. Freni
		Chief Executive Officer
		(Principal Executive Officer)
Date: August 14, 2015
	By:	/s/ Kirstin L. Gooldy
		Kirstin L. Gooldy
		Chief Financial Officer
		(Principal Financial Officer)