NOTE 1 - OVERVIEW

Basis of Presentation

The unaudited consolidated financial statements and related notes of have been prepared pursuant to Article 8-03 of the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been omitted. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments and information (consisting only of normal recurring accruals) considered necessary for a fair presentation of the accompanying unaudited consolidated financial statements have been included.

The year-end balance sheet was derived from the Company’s audited financial statements. The accompanying unaudited consolidated financial statements and related notes should be read in conjunction with the Company’s audited financial statements included in its 2014 Annual Report on Form 10-K. The results of operations for the periods reflected herein are not necessarily indicative of the results to be expected for the full year.

Going Concern

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As of JuneSeptember 30, 2015, the Company has an accumulated deficit of approximately $12.8$8.6 million, and the Company has had cumulative negative cash flows from operations since inception. Its ability to continue as a going concern is dependent upon the ability of the Company to obtain the necessary financing, likely through the continued sale of its equity and equity-linked securities or through a strategic partnership, to meet its obligations and pay its liabilities arising from normal business operations when they come due. The outcome of these matters cannot be predicted with any certainty at this time and raise substantial doubt that the Company will be able to continue as a going concern. These consolidated financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern.

Concentration

Historically, approximately 96% of our consolidated power generation revenue arose from our Powerhouse One solar installation under an index-priced power purchase agreement ("PPA") having a fixed premiuminstallation. The Powerhouse One subsidiary was sold in August 2015 (see NOTE 6, "Sale of $0.12 per kilowatt-hour over the GSA-1 scheduled rate (currently approximately $0.10 per kWh) through 2021, and a market rate based upon the then current GSA-1 scheduled rate for the remaining 10 years of the initial 20 year term ending in 2031. The buyer and counterparty of the PPA is Fayetteville Public Utility of Lincoln County Tennessee. A similar percentage of the accounts receivable also stems from this single relationship.Powerhouse One").

Reverse Stock Split

On May 5, 2015, the Company's Board of Directors and stockholders representing a majority of the shares outstanding on that date voted to effect a 1:4 reverse stock split (the "May 2015 Reverse"). Unless otherwise stated or the context would require otherwise, all share amounts disclosed throughout these financial statements retroactively take into account the May 2015 Reverse, and all resulting fractional share amounts have been rounded to the nearest whole share. On May 6, 2015, the Company amended its Certificate of Incorporation with the State of Delaware reflecting the May 2015 Reverse.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Recent Accounting Pronouncements

In February 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-02Consolidation (Topic 810) Amendments to the Consolidation Analysis, which affects the following areas of the consolidation analysis:  limited partnerships and similar entities, evaluation of fees paid to a decision maker or service provider as a variable interest and in determination of the primary beneficiary, effect of related parties on the primary beneficiary determination and for certain investment funds. ASU No. 2015-02 is effective for fiscal years beginning after December 15, 2015, and for interim periods beginning after December 31, 2017. We are evaluating the impact of this standard on our consolidated financial position, results of operations and cash flows.

In April 2015, FASB issued ASU No. 2015-03,, "Interest - Imputation of Interest (Subtopic 835-30)" entitled "Simplifying the Presentation of Debt Issuance Costs". Effective for financial statements issued for fiscal years beginning after December 15, 2015, the statement provides that debt issuance costs are reflected as a discount to the debt on the Balance Sheet and amortized as additional interest expense over the life of the debt. While we have incurred such debt issuance costs in the past, such amounts have not been material, and we do not expect the adoption of this standard to have a material impact on our consolidated financial position, results of operations and cash flows.flows.

Principles of Consolidation

The Company consolidates the financial position, results of operations, and cash flows of all majority-owned subsidiaries. The consolidated financial statements include the accounts of the Company (including the dba Principal Solar Institute) and its subsidiaries SunGen Mill 77, LLC; SunGen Step Guys, LLC; and Powerhouse One, LLC.LLC (through the sale date). Significant intercompany accounts and transactions have been eliminated in consolidation.

Fair Value

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date.  We believe the carrying values of our current assets and current liabilities approximate their fair values, and the carrying value of our notes payable approximate their estimated fair value for debts with similar terms, interest rates, and remaining maturities currently available to companies with similar credit ratings.

All related party transactions are evaluated by our officers and/or Board of Directors whotakewho take into account various factors, including their fiduciary duty to the Company; the relationships of the related parties to the Company; the material facts underlying each transaction; the anticipated benefits to the Company and related costs associated with such benefits; and the terms the Company could receive from an unrelated third party. Despite this review, related party transactions may not be recorded at fair value.

We do not engage in hedging activities, but do have a derivative instrument treated as a liability whose value is measured on a recurring basis (see "Fair Value Instruments" and "Derivative Liability on Warrants" included herein).

Fair Value Instruments

On March 2, 2015, the Company entered into a convertible loan agreementdebenture with Alpha Capital Anstalt ("Alpha") (See NOTE 67 - NOTES PAYABLE, Convertible Debentures)"Convertible Debenture (Alpha)"). In connection with the loan, the Company granted Alpha complex warrants with certain "down round" protection. As such, they arewere treated as a derivative liability and were valued using a binomial lattice-based option valuation model using holding period assumptions developed from the Company's business plan and management assumptions, and expected volatility from comparable companies including OTC Pink® and small-cap companies. Increases or decreases in the Company's share price, the volatility of the share price, changes in interest rates in general, and the passage of time will all impactimpacted the value of these warrants. The Company re-values these warrants at the end of each reporting period and any changes are reflected as gains or losses in current period results.

(See (See NOTE 89 - DERIVATIVE LIABILITY ON WARRANTS). In August 2015, all principal and interest pursuant to the convertible debenture was paid in full thus eliminating the terms giving rise to a potential down round price adjustment of the warrants. As such, a final re-valuation as of the repayment date was recorded and the warrants are now considered equity instruments.

Use of Estimates

The preparation of our financial statements in accordance with GAAP requires us to, on an ongoing basis, make significant estimates and judgments that affect the reported values of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities.  We base our estimates on historical experience and on various other assumptions we believe are reasonable under the circumstances, the results of which form the basis for our conclusions.  Actual results may differ from these estimates under different assumptions or conditions.  Such differences could have a material impact on our future financial position, results of operations, and cash flows.

Cash and Equivalents

We consider cash, deposits, and short-term investments with original maturities of three months or less as cash and equivalents.  Our deposits are maintained primarily in two financial institutions and, at times, may exceed amounts covered by U.S. Federal Deposit Insurance Corporation insurance.

Restricted Cash

As part of the June 2013 financing with Bridge Bank, National Association (see "Acquisition Note Payable" herein), the Company agreed to maintain in a restricted cash account all proceeds, less debt service and approved expenses, generated by our Powerhouse One subsidiary. Such account provides a minimum of $82,050 replacement reserve ("module reserve") on solar panels foundIn August 2015, all principal and interest pursuant to be defectivethe Acquisition Note Payable was paid in full and potentially not covered under the 25-year manufacturer's warranty. Funds in excess of the module reserve may be accessed by the Company whenever the debt service coverage ratio is greater than or equalrequirement to 1.1:1.0.restrict cash was eliminated.

Accounts Receivable

Accounts receivable are stated at amounts management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a charge to earnings and a credit to a valuation allowance based on its assessment of individual accounts. No allowance has been recorded in the accompanying financial statements.

Solar Arrays

Solar arrays are stated at historical cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the remaining estimated useful lives of the assets. The estimated useful lives of solar arrays are 25 years from the date first placed in service. Accumulated depreciation was $647,885$68,935 and $496,894 at JuneSeptember 30, 2015 and December 31, 2014, respectively. During the construction period, all costs and expenses related to the development and construction of a project, excluding administrative expenses, are recorded as construction in process.

In each case where a solar array is installed on property subject to a real estate lease, the Company is obligated to remove such installation at the end of the lease terms. As the expected termination dates including renewal periods are decades off (2041-2084); there is little experience uninstalling solar arrays anywhere in the world; costs are expected to be minimal; and the scrap value of the materials is expected to exceed the cost of removal, such removal costs have not been separately accounted for.

Long-Lived Assets

The recoverability of the carrying value of long-lived assets is assessed when an indicator of impairment has been identified.

For purposes of recognition and measurement of an impairment loss, a long-lived asset or group of assets is combined with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.

For long-lived assets, when impairment indicators are present, the Company compares undiscounted future cash flows, including the eventual disposition of the asset group at market value, to the asset group’s carrying value to determine if the asset group is recoverable. If undiscounted cash flows are less than carrying value, the excess of carrying value over fair value is expensed in the period in which it is estimated to have occurred.

Power Purchase Agreement

The Company evaluated the PPApower purchase agreement ("PPA") with reference to Accounting Standards Codification ("ASC") 805-20-25-10 entitled "Identifiable Intangible Assets" and determined that, while it is not separable from other assets, it does meet the contractual-legal criteria for separate recognition. Further evaluation with reference to ASC 840-10-15-6 entitled "Arrangements that qualify as Leases" concluded the PPA is not a lease, and reference to ASC 805-20-25-10 entitled "Identifiable Intangible Assets" concluded the PPA has no separately recordable value.

Revenue Recognition

Power generation revenue is recognized as delivered to the purchaser based upon electrical meters affixed to the solar array and measuring kilowatt-hours produced. Our current power generation operations do not generate renewable energy credits, performance-based incentives, or similar credits to the benefit of the Company.

Income Taxes

Income taxes are recorded under the asset and liability method under which deferred tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using the enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

We account for uncertain income tax positions in accordance with FASB ASC 740 entitled "Income Taxes". Interest costs and penalties related to income taxes are classified as interest expense and general and administrative costs, respectively, in our consolidated financial statements. Income tax returns are subject to a three-year statute of limitations during which they are subject to audit and adjustment. We file income tax returns in the United States federal jurisdiction and certain states.

Equity Transaction Fair Values

The estimated fair value of our Common Stock issued in share-based payments is measured by the more relevant of (1) the prices received in private placement sales of our stock or (2) the Company's publically-quoted market price.  We estimate the fair value of simple warrants and stock options when issued or, in the case of issuances to non-employees, when vested, using the Black-Scholes option-pricing ("Black-Scholes") model that requires the input of subjective assumptions.  When valuing more complex warrants, options, or other derivative equity instruments, we use a binomial lattice-based option pricing model or Monte Carlo option pricing model, whichever management deems more appropriate inunder the circumstances. Recognition in stockholders’ equity and expense of the fair value of stock options awarded to employees is on the straight-line basis over the requisite service period.  Subsequent changes in fair value are not recognized.

Net Income (Loss) per Share

Basic net income or loss per share is computed by dividing the net income or loss attributable to common stockholders for the period by the weighted average number of shares of Common Stock outstanding for the period. Diluted income per share reflects the potential dilution of other potential issuances of Common Stock including shares to be issued upon exercise of options and warrants and upon conversion of convertible debt and preferred stock.stock, if any. Potentially dilutive shares are not included in the event of a loss as the effect of doing so would be anti-dilutive. As of June 30, 2015, options to purchase 819,591 shares, warrants to purchase 464,013 shares of our Common Stock, and 467,501 shares issuable upon the conversion of convertible notes payable have been excluded from the calculation of diluted loss per share, as their effect would have been anti-dilutive. As of June 30, 2014, options to purchase 408,834 shares and warrants to purchase 587,592 shares of our Common Stock have been excluded from the calculation of diluted loss per share as their effect would have been anti-dilutive.

NOTE 3 - LIABILITIES ARISING FROM REVERSE MERGER

Liabilities arising from the reverse merger represent long term real estate leases which had been abandoned, general unsecured liabilities, commercial liens, and tax liens filed with various states all associated with the Company’s pre-reverse merger operations, which were unknowingly assumed in the March 2011 reverse merger transaction. The statute of limitations for most of such liabilities is five years and for most liens is ten years, subject to renewal at the lien holders’ option, depending upon the jurisdiction.  Although the liens accrue interest at between 8% and 12% per year, the Company has ceased accruing interest as it believes the liability recorded to date is adequate to cover the ultimate claims that may, one day, be presented. Liabilities not associated with a lien have been accrued based upon management’s estimation of the amount to be paid.  Liabilities associated with a lien have been accrued at face value.  Management believes all such liabilities have been indemnified by Pegasus Funds, LLC (and/or its affiliates or related parties)parties, "Pegasus") to which (including its assigns) the Company issued 534,654 shares of its common stock as part of the reverse merger transaction.  However, as the Company is obligor, the Company has recorded the liability.  To date, only one lien holder has approached the Company concerning payment.  Such lien holder is pursuing the former management of the Company first through litigation.  To the extent such lien holder recovers the liability from the former management, the lien against the Company will be reduced.

In March 2015, the Company entered into a settlement agreement with Pegasus Funds LLC ("Pegasus") regarding its indemnification of the Company in regards to the legacy liabilities. In the settlement agreement, the Company agreed to accept the return of 215,154 shares of the original 534,654 shares of its Common Stock issued to Pegasus and its principals and affiliates in acquiring the shell company, Kupper Parker Communications, Inc., which later became Principal Solar, Inc. As the shares of Common Stock were initially issued in a common stock for preferred stock share exchange with Pegasus, the shares returned by Pegasus will be cancelled without further accounting recognition. Cancellation of the shares will be recognized for accounting purposes once they are received from Pegasus.

In the settlement with Pegasus, the Company preserved its rights to pursue the individual(s) serving as officers of Kupper Parker Communications, Inc. who, prior to the exchange of shares, who had agreed in the Exchange Agreement to "satisfy and assume liability for the payment of any additional liabilities not identified" in the agreement. In April 2015, the Company filed a lawsuit against the remaining individual serving as an officer of Kupper Parker Communications, Inc. prior to the exchange of shares seeking an amount of $991,371 plus accruing interest and legal fees. Any recovery from the lawsuit is uncertain at this time, and such recovery would in no way diminish our potential obligation to third parties.

NOTE 4 - COMPENSATION PAYABLE

Certain members of the management team have deferred payment of their compensation for the benefit of the Company.  No interest is accrued on such deferral and no formal terms of payment have been established.

NOTE 5 - ACQUISITIONS

Principal Sunrise IV (fka "IS 46")

In November 2014,See NOTE 6 "Assignment of Principal Sunrise IV".

Principal Sunrise V (fka "IS 42") (pending)

On March 2, 2015, the Company entered into a Membership Interest Purchase Agreement ("MIPA") with Innovative Solar Systems, LLC, a solar developer operating primarily in North Carolina, to acquire Innovative Solar 46, LLC ("PS IV"), the owner of a 78.5mw AC solar project to be built in Cumberland County, North Carolina.

On August 11, 2015, the Company assigned its contractual rights under the MIPA for the amount of $7.0 million and the reimbursement of its advances to date under the MIPA of $4.7 million. The net proceeds from the assignment were scheduled to be received by the Company as follows: $7.6 million at closing; $2.5 million on August 31, 2015; $1.6 million at the project's commercial operation date, expected to be early 2016. The gain on the transaction is expected to be approximately $6.8 million after transaction costs estimated at $200,000. See NOTE 14 "Assignment of Principal Sunrise IV".

Principal Sunrise V (fka "IS 42") (pending)

On March 2, 2015, the Company entered into a MIPA with Innovative Solar Systems, LLC, a solar developer operating primarily in North Carolina, to acquire Innovative Solar 42, LLC ("PSPrincipal Sunrise V"), the owner of a 72.9mw AC solar project to be built in Fayetteville, North Carolina. PSPrincipal Sunrise V holds a single and intangible asset, a 10-year power purchase agreement ("PPA") with Duke Energy Progress, Inc. PSPrincipal Sunrise V does not have, nor has it ever had, any other assets, any liabilities, any employees, any revenues, or any operations of any kind. As such, PSPrincipal Sunrise V is not a "business" as defined in the accounting literature, and it has no historical financial statements. PSI agreed to pay Innovative Solar Systems, LLC $5,832,000$5.8 million for 100% of the membership interest of PSPrincipal Sunrise V in a series of payments of approximately $300,000$300 thousand per month between execution of the MIPA and the financial close (the point at which all project financing is arranged), and a balloon payment at. Payments to date total $1.5 million. In August 2015, the Company modified the terms of the MIPA to suspend further payments until financial close sufficient to having cumulatively paid 70%at which time $3.7 million will become due reflecting cumulative payments of 90% of the $5,832,000 purchase price. The remaining 30%10% of the purchase price, approximately $600 thousand, will be paid in installments of $150,000 per month throughat the project's commercial operation date. In addition, Principal Sunrise V has a monthly payment obligation for ongoing engineering and infrastructure development work estimated at approximately $400 thousand per month.

At JuneSeptember 30, 2015, a total of $1,170,000$3.2 million has been paidinvested to date to acquire Principal Sunrise V and for related infrastructure work, and failure by the Company to make any of the future scheduled payments may result in the loss of all paymentsthe total investment made through such date. The Company is working with engineering and construction firms on final designs, and the total cost of the project based upon the preliminary work is expected to be approximately $147.2$145 million. The Company is in discussiondiscussions with multiple parties to provide the acquisition, construction, and permanent financing for the project,project; however, no assurance can be given that adequate financing on terms acceptable, or even available, to the Company will be obtained. Closing of the acquisition is expected to occur no later than August 30, 2015,by February 1, 2016 (which date may be further extended), and construction is expected to be completed in early 2016.

mid-2016.

Additional Projects

On August 21, 2015, the Company entered into non-binding term sheets to acquire additional solar projects for development having a combined capacity of approximately 98.5mw AC and a combined purchase price of $5.9 million. The Company is working with engineering and construction firms on preliminary designs, and the total combined cost of the projects based upon the preliminary work is expected to be approximately $193 million. At September 30, 2015, a total of $1.9 million has been invested to date for the additional projects, all funded by advances by Arowana International Limited ("Arowana") under a promissory note, as amended (see NOTE 7 "Convertible Note (Arowana)". In addition, the additional projects have a combined monthly payment obligation for ongoing engineering and infrastructure development work estimated at approximately $800 thousand per month. These monthly development costs have also been funded by advances under the Arowana promissory note, though no assurance can be given that such advances from Arowana will continue. Confirmations of the additional projects are expected to occur by February 1, 2016 (which date may be extended), and construction is expected to be completed in late 2016.

Terminated Projects

The acquisition of Principal Sunrise VII for which the Company entered into a binding term sheet on June 9, 2015, did not meet our expectations and was abandoned. Evaluation costs incurred to the point the acquisition was abandoned were not material and were expensed in the current period.

NOTE 6 - DISPOSAL OF ASSETS

Assignment of Principal Sunrise IV

On August 11, 2015, the Company assigned its contractual rights under the MIPA to acquire Principal Sunrise IV for the amount of $7.0 million and the reimbursement of its advances to date under the MIPA of $4.7 million. Proceeds still to be received include $2.5 million escrowed on August 31, 2015, pending resolution of a fee dispute related to the project (see NOTE 14 "Pending or Threatened Litigation"). The balance of proceeds of $1.6 million is due at the project's commercial operation date, expected to be early 2016, pending the Company's completing its on-going responsibilities as co-developer including, but not limited to, advising on engineering matters, providing technical assistance on project design, overseeing substation design and construction, organizing documentation and permitting, interpreting test results, and opining on final acceptance matters. Gain on the assignment of Principal Sunrise IV totaled $6.8 million after transaction costs of approximately $136 thousand. Of the gain, $2.5 million was deferred pending resolution of the fee dispute and reflected as "Deferred gain on assignment of Principal Sunrise IV" on the balance sheet. Cash equal to the deferred gain is held in escrow held by a third party and included in "Deposits" on the balance sheet.

Proceeds from the assignment were used to repay outstanding debts (other than the Acquisition Note Payable and the note payable for insurance premiums) and to redeem preferred stock. Assigning its rights to Principal Sunrise IV also relieved the Company of ongoing payment obligations totaling more than $500 thousand per month, eliminated the costs of ongoing development efforts, and eliminated a contingent liability under an $800 thousand letter of credit. Using the proceeds, the Company was also able to reduce its deferred compensation ($1.2 million) and its accounts payable.

In addition to the amounts owed by the assignee to the Company at the project’s commercial operation date, the assignee owes the seller, Innovative Solar Systems, LLC, an additional $600 thousand. If the assignee, for whatever reason, fails to pay the amount due the seller, the Company has agreed to do so thereby creating a contingent liability of the Company.

Sale of Powerhouse One

In July 2015, the Company decided to sell Powerhouse One in order to 1) focus full attention to our current projects under development 2) eliminate an asset having a high level of debt service costs, and 3) raise cash to meet upcoming debt obligations.

Prior to its disposal, Powerhouse One's assets were reflected in the Balance Sheet at June 30, 2015, within the caption "Solar arrays at cost, net" at a value of $6.1 million and had associated liabilities reflected in "Acquisition note payable, net of discount" (including the current portion) of $4.6 million. As a part of the transaction, the buyer repaid all principal and interest pursuant to the Acquisition Note Payable at closing.

Gain on the sale of Powerhouse One totaled $644 thousand, and proceeds of $1.6 million, net of transaction costs totaling $244 thousand, were used to further reduce accounts payable, deferred compensation, and for general working capital purposes.

Pretax profit from Powerhouse One recognized by the Company was as follows:

ASU No. 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity" restricts the presentation of the sale of a component of an entity as a "discontinued operation" to those instances reflecting a strategic shift in the business. Our recent sale of Powerhouse One does not reflect a strategic shift in the business, so our presentation of the sale herein does not reflect a discontinued operation.

NOTE 67 - NOTES PAYABLE

Acquisition Note Payable

On June 17, 2013, Powerhouse One, LLC secured financing of $5,050,000 from Bridge Bank, National Association to acquire the membership interest (and the underlying solar arrays) of co-sellers, Vis Solis, Inc., a Tennessee limited liability company, and AstroSol, Inc., a Tennessee corporation. In August 2015, all principal and interest pursuant to the Acquisition Note Payable was paid in full.

The note, maturesoriginally scheduled to mature on June 17, 2017, and bearsbore a fixed interest rate of 7.5% annually. Interest iswas paid monthly and principal iswas paid quarterly beginning in September 2013 based on an 11-year amortization schedule. Covenants include the maintenance of a restricted cash account, routine reporting, and a minimum debt service coverage ratio calculated separately for Powerhouse One of not less than 1.10:1, measured quarterly following the first anniversary of the debt. The debt also restricts the payment of dividends, and it is secured by all the assets of Powerhouse and further guaranteed by Principal Solar, Inc.

In conjunction with the acquisition note payable, warrants to purchase 37,763 shares of Common Stock were issued to Bridge Bank with an exercise price of $4.00 and a contractual life of 10 years. The value of the warrants issued in connection with this debt, as determined using the Black-Scholes model, was $81,449 and iswas recorded as a discount to the debt. The discount is being amortized as interestAmortization expense overfor the life of the note.three and nine months ended September 30, 2015, were $39,876 and $50,057, respectively.

The Bridge Bank warrants have cashless exercise rights, redemption rights providing the Company the right to redeem the warrants for $604,200, anti-dilution rights associated with subsequent offerings of equity securities, a term expiring on the first to occur of (i) the 10 year anniversary of the grant, (ii) the closing of the Company’s initial public offering, or (iii) the liquidation of the Company (each a “Termination Event”). In each case, unless exercised earlier, the warrants are automatically exercised on a cashless basis upon a Termination Event.  The Company also provided the holder registration rights in connection with the grant of the warrants.

Convertible Debenture (Alpha)

On March 2, 2015, the Company entered into a convertible loan agreementdebenture with Alpha Capital Anstalt ("Alpha") to borrow $1,250,000 (the "Loan"). $1,250,000. In August 2015, all principal and interest pursuant to the convertible debenture was paid in full.

The Loan isdebenture was convertible into shares of Common Stock at a rate of $4.00 per share, bearsbore interest at a rate of 8.0% per annum, and all principal and interest iswas due on September 2, 2015, and the loan is secured by the assets of the Company and its subsidiaries (excluding Powerhouse One and all interest in its operations, its assets, and proceeds or distributions therefrom).2015. The loandebenture also containscontained certain "down round" protection that, due to the loan'sits short maturity, the prohibition in the debenture of issuing further debt, and management's assessment of the probability of issuing future convertible debt below $4.00 as remote, no separate value hashad been assigned to this aspect of the debt. The principal and accrued interest amounts on the Loan are convertible at any time into shares of Common Stock at a rate of $4.00 per share. In connection with the Loan, the Company granted Alpha 234,375 warrants having a term of 5 years and an exercise price of $6.00 per share (See NOTE 89 - DERIVATIVE LIABILITY ON WARRANTS).

On May 6, 2015, the Company issued Series A Preferred stock (NOTE 10 “Preferred Stock”) resetting the exercise price of the warrants to $4.00 per share.

On July 1, 2015, the Company issued Convertible Debentures with a conversion price of $.50 per share and warrants exercisable at $6.00 per share (see NOTE 14 "Convertible Debentures (TCH)") below). In its consent to this later transaction, Alpha waived its "down round" rights in this single instance.

As the debentures were repaid in full in August 2015, by the terms of the debenture, no further adjustment to the exercise price of the warrants is possible.

Convertible Notes Payable, Notes, Related Parties

In June 2014, the Company issued convertible notes of $250,000 each to two of its Board members, Messrs. Heller and Marmol, to fund deposits on potential future acquisitions. Such potential acquisitions remain subjectIn August 2015, all principal and interest pursuant to significant uncertainties including due diligence, obtaining construction and permanent financing, and negotiating PPAs, developer agreements, and interconnection agreements. the convertible notes were paid in full.

The notes bearinitially bore interest at a rate of 18% per year, and matured on December 5, 2014, and all principal and interest was due at maturity. Principal and interest is payable in cash or shares of Common Stock, at the option of the holder, at a conversion price of $4.00 per share. The notes were secured pursuant to a security agreement by the Company's interest in the otherwise unencumbered net cash flow, if any, from the operations of its Powerhouse One subsidiary. The Company may prepay the notes at any time, but the holders of the notes were guaranteed to receive a minimum of six months interest on the notes.

On2014. In February 27, 2015 (made effective on the original maturity date), the notes were modified to extend the maturity date to September 30, 2015, and to reduce the interest rate from 18% to 12% per annum, to eliminate all collateral securing the notes, and to subordinate the note to the Convertible Debenture issued March 2, 2015. In May 2015, in connection with the issuance of Series A Preferred (See NOTE 9 "Series A Preferred"), the notes were again modified to subordinate them to the Series A Preferred. All other aspects of the notes remained unchanged.annum.

OnIn December 1, 2014, Michael Gorton, the Company's Chief Executive Officer, loaned to the Company pursuant to a convertible promissory note the amount of $130,000. In August 2015, all principal and interest pursuant to the convertible notes were paid in full.

The note initially would have matured on June 30, 2015, bearsbore interest at a rate of 12% per annum is convertible into shares of our Common Stock at a price of $6.00 per share, and was secured byscheduled to mature, after being modified in February 2015, on September 30, 2015.

In August 2015, a claim on proceeds, if any,contractor to the Company made a short-term loan to the Company in the amount of $240,293 under a solar project being acquired (PS IV). The notes can be prepaid at any time priorshort-term promissory note. In August 2015, all principal and interest pursuant to maturity without penalty. On February 27, 2015, the short-term promissory note was modifiedpaid in full.

The note bore a flat fee of $36,000 that was recorded as interest expense, and was scheduled to extend the maturity date to September 30, 2015, eliminate all collateral securing the note, and subordinate the note to the Convertible Debenture issued March 2,mature on October 3, 2015. In May 2015, in connection with the issuance of Series A Preferred (See NOTE 9 "Series A Preferred"), the note was again modified to subordinate it to the Series A Preferred. All other aspects of the note remained unchanged.

Convertible Notes Payable, Notes, Non-Related Party

In January 2015, the Company issued a convertible note to an unrelated party in the amount of $50,000. In August 2015, all principal and interest pursuant to the convertible note was paid in full.

The note bearsbore interest at a rate of 12% per year and matureswas scheduled to mature on September 30, 2015

Convertible Debentures (TCH)

On July 1, 2015, the Company agreed to issue, in one or more separate tranches, up to $2.0 million of a newly created Senior Secured Convertible Debenture ("Debentures") security to three of its existing equity investors: Steuben Investment Company II, L.P. ("Steuben"), TCH Principal Solar, LP, ("TCH"), and SMCDLB, LLC ("SMC").

The first tranche of approximately $1.1 million was funded beginning July 1, 2015, and proceeds were used to meet obligations of our Principal Sunrise IV and Principal Sunrise V solar projects under development. In August 2015, all principal and interest is duepursuant to the Debentures were paid in full.

The Debentures bore interest at maturity. Principala rate of 8% per annum, and interest is payable in cash orwere scheduled to mature on September 1, 2015.

In connection with the Debentures, the Company granted to the holders 60-month warrants to purchase up to 90,796 shares of Common Stock at the option of the holder, at a conversion price of $6.00 per share. As the warrants were not complex, they were valued using a Black-Scholes model at $75,361, initially recorded as a discount to the debt, and fully amortized to interest expense in the current period. Input assumptions on the issuance date were as follows:

Convertible Note (Arowana)

On August 20, 2015, the Company issued a convertible note to Arowana in the original principal amount of $1,600,000. The noteNote matures on December 31, 2016, and bears simple interest at the rate of 6% per annum (the "Arowana Note").

The Company used the proceeds from the Arowana Note to make investments in additional projects (see NOTE 5 "Additional Projects"). The additional projects serve as collateral for the Company’s obligations under the Arowana Note, which is secured pursuantotherwise unsecured and non-recourse to the Company.

The principal amount of the Arowana Note may be converted, at Arowana’s option, into limited liability company membership interests in Principal Sunrise V, LLC at a security agreementconversion price determined with reference to the unlevered after tax project internal rate of return ("IRR") that reflects the lender’s investment valuation of Principal Sunrise V and other projects funded by our interest inthe proceeds if any, stemming from our interest in PS IV.of the Arowana Note. The Company may prepaypre-pay the noteArowana Note at any time without pre-payment premium or penalty.

Subject to satisfactory completion of its due diligence, Arowana commits to contribute equity capital in amounts sufficient to fund project development to completion of Principal Sunrise V and the additional projects funded by the proceeds of the Arowana Note. If, following Arowana's completion of its due diligence on Principal Sunrise V, the Company and Arowana agree the project does not meet its investment return requirements, the parties agree to work in good faith to identify other project(s) as security under the Arowana Note.

The parties are further obligated to enter into a strategic relationship providing Arowana an opportunity to invest in the project equity in each of the additional projects, or equivalent substitute projects. Failure of the Company and Arowana to reach such agreement on or before September 30, 2015, which such date may be extended by mutual agreement, shall be an event of default giving rise to Company's forfeiture of the collateral, and the satisfaction and cancellation of the Arowana Note.

On September 30, 2015, the Arowana Note was modified to increase the amount by $280,594 to $1,880,594, and the date by which the parties should reach further agreement as to a strategic relationship was extended to December 31, 2015. The note was again increased on October 30, 2015, to $2,680,881 to meet the ongoing cost of development of the additional projects. Such additional increases in the future are possible, but not assured.

NOTE 78 - LEASES

The Company's solar arrays sit on properties subject to long-term real estate leases (or similar agreements in the case of rooftop installations) with initial terms equal to the PPA and having one or more renewal options. Rental payments under the leases vary in type between fixed price, percentage of revenue, or, in the case of rooftop installations, no separate charge. The Company's current solar array installations are as follows:

The Company recognized expenses ofPrior to its sale in August 2015, rent expense for Powerhouse One was $17,806 and $20,541 in rent under the Powerhouse One lease in the sixnine months ended JuneSeptember 30, 2015 and 2014, respectively.

In each case, the Company is obligated to remove such installations at the end of the lease terms. As the expected termination dates are decades off;off, there is little experience de-installing solar arrays anywhere in the world;world, and costs are expected to be minimal;minimal, such removal costs have not been separately accounted for.

The Company maintains its headquarters in Dallas, Texas pursuant to a month-to-month lease at a cost of $500 per month.

NOTE 89 - DERIVATIVE LIABILITY ON WARRANTS

On March 2, 2015, the Company issued warrants to purchase 234,375 shares of Common Stock with a 66-month contractual term to Alpha Capital Anstalt in connection with the issuance of convertible debentures (See NOTE 6 "CONVERTIBLE DEBENTURE"7 "Convertible Debenture (Alpha)"). The warrants were immediately exercisable into the Company’s Common Stock with an exercise price of $6.00 per share.

However, as the warrants havehad “down round” protection, they arewere treated as a derivative liability and were valued each period using a binomial lattice-based option valuation model using holding period assumptions developed from the Company's business plan and management assumptions, and expected volatility from comparable companies including OTC Pink^®and small-cap companies. Increases or decreases in the Company's share price, the volatility of the share price, changes in interest rates in general, and the passage of time will all impactimpacted the value of these warrants. TheOn May 6, 2015, the Company re-values theseissued Series A Preferred stock (NOTE 10 “Preferred Stock”) resetting the exercise price of the warrants atto $4.00 per share, and the end of each reporting periodvaluation was updated and any changes are reflected as gains or losses in current period results.the balance sheet.

Input assumptions on the issuance date were as follows:

The fair value of the warrant derivative liability outstanding as of June 30, 2015, was determined using "Level 2 Observable Inputs" as defined in ASC 820, entitled "Fair Value Measurement".

The following table sets forth a summary of changes in fair value of the warrants in 2015:

NOTE 910 – CAPITAL STOCK

Preferred Stock

The Company has authorized 100,000,000 shares of $.01 par value Class A preferred stock.

Series A Preferred (Mandatorily Redeemable)

On May 6, 2015, the Company contracted to issue, in two separate tranches, up to 500,000 shares of its newly designated $.01 par value Series A Preferred stock ("Series A Preferred") to an unrelated investor at a purchase price of $4.00 per share that could result in proceeds to the Company of up to $2,000,000.

The first tranche of $1,000,000 was funded on May 6, 2015, and all Series A Preferred shares were redeemed in August 2015.

The preferred shares havehad a dividend rate of 12% per annum and, along with accrued dividends, arewere convertible into shares of our Common Stock at a price of $4.00 per share at any time on or before the third day following the receipt of proceeds from a public offering of securities of the Company. If the shares are not converted by the holder during that time, the Company shall redeem the shares at face value plus accrued dividends from the proceeds of the public offering.

The first tranche of $1,000,000 was funded on May 6, 2015. The second tranche of $1,000,000 was to be funded when a) a Registration Statement, as may be amended, was declared effective by the Securities and Exchange Commission, and b) the Company presented to the holder financing commitments to construct and operate one of our two announced solar projects, PS V.

share.

In connection with the issuance, the Company agreed to grantgranted the holder warrants to purchase 375,000187,500 shares of its Common Stock 187,500 with each tranche, at a purchase price of $6.00 per share. As the warrants were not complex in nature, they were valued using the Black-Scholes option-pricing model.

Input assumptions on the issuance date were as follows:

The Company evaluated the detachable warrants in accordance with FASB ASC No. 470-20, “Debt with Conversion and Other Options” and FASB ASC 815, “Derivatives and Hedging” and allocated the proceeds from issuance of the Series A preferred to the warrants based on the relative fair value of the preferred stock and warrants at issuance, and recorded the allocation to the warrants as additional paid-in capital. The allocation of the warrants to additional paid-in capital was offset by the accretion of the Series A Preferred.

Use of proceeds from the issuance is limited to repayment of a certain convertible note outstanding in the amount of $50,000, development of PS IV and PS V, and general corporate purposes. The incurrence of additional debt or issuance of additional preferred equity instruments, the payment of dividends, or the repurchase of our Common shares is prohibited.

Absent an IPO

The Company's failure to complete a public offering on or before July 1, 2015, was an event of default under the Series A Preferred, the remedy for which was for the Company, agreedin such instance, to aggressively seek strategic alternatives including, without limitation, marketing the Company to a private equity group, seeking out a strategic purchaser, seeking a merger of equals, or selling its interest in one or more of the solar projects. The Company has takentook the required steps at such stepstime, and considerssince all shares of Series A Preferred have been fully redeemed, the event of default is of no further consequence.

Theconsequence and the Company is no longer under such obligation. However, the failure to complete an IPO on or before July 1, 2015, also caused the Series A Preferred to be reclassified from a convertible temporary equity to a mandatorily redeemable liability. Whereas the Series A Preferred incurred dividends prior to its reclassification on June 30, 2015, as a liability, it will incurincurred interest expense thereafter.

In August 2015, all shares of Series A Preferred were redeemed using proceeds from the assignment of Principal Sunrise IV.

Common Stock

The Company has authorized 300,000,000 shares of $.01 par value Common Stock, and it trades on the OTC Pink^® under the symbol “PSWW.”  Holders of our Common Stock are entitled to one vote per share and receive dividends or other distributions when, and if, declared by our Board of Directors.  In addition to shares outstanding, we have reserved 966,090 shares for issuance upon exercise of equity incentive awards with options to purchase 819,591 shares of Common Stock granted to date.

Stueben Investment

Effective June 14, 2013, the Company entered into a Subscription Agreement with Steuben Investment Company II, L.P. (“Steuben”).  Pursuant to the subscription agreement, Steuben purchased 727,273 shares of the Company’s common stock for an aggregate of $1,600,000 or $2.20 per share. As additional consideration in connection with the subscription, the Company granted Steuben warrants to purchase 545,455 shares of the Company’s common stock with an exercise price of $4.00 per share and a term of 10 years.  The Company also provided Steuben registration rights whereby the Company was required to file a registration statement and take all necessary actions to maintain the availability of Rule 144 for a period of two years following its effective date. The registration statement became effective on February 3, 2015.

In the event we fail to take all necessary actions to enable Steuben to sell shares pursuant to Rule 144, we may have to pay to Steuben penalties totaling $216,000 which could have a material adverse effect on our available cash, limit our ability to raise capital, and negatively impact our results of operations. The Company has not accrued a liability for this potential penalty, as it believes the payment of any such penalty is not probable.

Restricted Stock

In January 2015, the Company awarded to an engineering firm, in exchange for its services on Principal Sunrise IV, 12,500 restricted shares pursuant to the 2014 Equity incentive Plan. The value of the shares on the date of grant totaled $37,500 and the amount was capitalized as construction in progress.

Stock Options

The Company maintains the2014 Equity Incentive Plan(the "Plan"), pursuant to which 716,090 shares of Common Stock had previously been reserved for issuance. In January 2015, the Board of Directors reserved an additional 250,000 shares of Common Stock pursuant to the Plan and 819,591 of the total 966,090 reserved have been issued to date.

2015Grants

In February 2015, the Company granted 6,250 options to acquire shares of Common Stock having an exercise price of $6.00 per share, a 10-year term, and immediate vesting to each of five directors as a discretionary bonus. The options were valued using the Black-Scholes model and the resulting equity-based compensation expense included in general and administrative expenses for 2015 was $187,500. The Company also granted in February 2015, options to acquire 6,000 shares of Common Stock to each of two advisors. The options have an exercise price of $6.00 per share, immediate vesting, and expiration dates extending to 5-years based upon their continued service of two years from the grant date. The options were valued using the Black-Scholes model and the resulting equity-based compensation expense included in general and administrative expenses for 2015 was $72,000. Finally, the Company granted to a consultant in February 2015, options to acquire 6,250 shares of Common Stock. The options have an exercise price of $6.00 per share, immediate vesting, and expiration dates extending to 10-years based upon continued service of three years from the date of grant. The options were valued using the Black-Scholes model and the resulting equity-based compensation expense included in general and administrative expenses for 2015 was $37,500.

In May 2015, the Company granted to two Board members options to acquire 18,000 shares of Common Stock each.  The options have an exercise price of $6.00 per share, immediate vesting of 12,000 shares to reflect the grant that was overlooked in January 2014, and the balance vest over the following 8 months.  The options expire 10-years from the date of grant.  The options were valued using the Black-Scholes model and the resulting equity-based compensation expense included in general and administrative expenses for three month period ending June 30, 2015 was $146,065 and $48,688 of compensation expense related to options not yet vested remains unrecognized at June 30, 2015. Such amount is expected to be recognized during the remainder of 2015. 

In May 2015, the Company granted to a new Board member options to acquire 18,000 shares of Common Stock.  The options have an exercise price of $6.00 per share, vest over 24 months, and expire 10-years from the date of grant.  The aforementioned Board member resigned in September 2015, and all options not yet vested were forfeited upon his resignation.

In each case above, the options were valued using the Black-Scholes model and the resulting equity-based compensation expense included in general and administrative expenses for the three and six months ended June 30, 2015 was $8,115 and $89,262 of compensation expense related to options not yet vested remains unrecognized at June 30, 2015. Such amount is expected to be recognized during the years 2015 through 2017.

model. Equity-based compensation expense included in general and administrative expenses for the three and six month innine months ended September 30, 2015, was $192,339$58,705 and $533,410, respectively.$629,615, respectively, and, at September 30, 2015, $97,238 of additional compensation expense is expected to be recognized over the years 2016 and 2017.

As the Company does not have a significant history of post vesting exercises to estimate an expected life of the option, the simplified method was used wherein the expected life becomes the mid-point of the options vesting date and their contractual life. The valuation of all of the option issuances abovein 2015 were based upon the following parameters:

Warrants

The Company had 464,013550,534 warrants outstanding at JuneSeptember 30, 2015, with a weighted average term of 54.7 years and a weighted average exercise price of $5.81$5.86 per share.

NOTE 1011 - NONCONTROLLING INTEREST

ThePrior to its sale in August 2015, the original owners of Powerhouse One continuecontinued to own approximately 11% of the membership interest of the limited liability company. The noncontrolling interests of equity investors in Powerhouse One iswas reported on the consolidated balance sheet and statement of operations as "Noncontrolling interest in subsidiary" ("noncontrolling interest") and reflectsreflected their respective interests in the equity and the income or loss of the limited liability company.

The following table sets forth the activity in the noncontrolling interest equity account during 2015:

NOTE 1112 – RELATED PARTY TRANSACTIONS

Other than the Board member options described herein in a note entitledNOTE 10 "Stock Options”, the issuance of convertible notes described herein in the note entitledNOTE 7 "Convertible Notes, Payable, Related Parties", no other related party transactions occurred during the three and sixnine months ended JuneSeptember 30, 2015 and 2014.

NOTE 1213 - TAXES

Our estimated $9.2$1.8 million federal income tax net operating loss carryover expires over the period from 2030 through 2034. Our federal and state income tax returns are no longer subject to examination for years before 2011.2012. We have taken no tax positions that, more likely than not, may not be realized.

The Company has established a valuation allowance to fully reserve the net deferred tax assets in the accompanying financial statements, due to the uncertainty of the timing and amounts of future taxable income.

NOTE 14 - COMMITMENTS AND CONTINGENCIES

NOTE 13Contingent - COMMITMENTS AND CONTINGENCIESObligation

In connection with the acquisitionassignment of Principal Sunrise IV (fka IS 46)(see NOTE 6 "DISPOSAL OF ASSETS"), a third-party arranged, on behalf of the Company a letter of credit withbecame contingently liable to the off-taker, Duke Energy Progress, Inc.,solar project's original developer in the amount of $800,000. $600,000, if and only if the assignee of the Company's rights to that project fails to pay the original developer a like amount at the commercial operation date. No liability has been recorded in the financial statements as the failure of the assignee to pay the amount when due is not probable.

Pending or Threatened Litigation

Carlyle Capital Markets, Inc.

In the event the letter of credit is drawn upon by the beneficiary,December 2013, the Company engaged Carlyle Capital Markets, Inc. and its affiliate, Friedman, Luzzatto & Co. (together "CCMI"), to assist it in identifying sources of and securing financing for its solar projects to be built. CCMI is liable toa firm of three professionals having its sole office in Dallas, Texas and, though having a similar name, is not affiliated with the provider for the notional amount of the letter of credit plus its costs.

well-known and respected firm, The Carlyle Group, headquartered in Washington, D.C.

NOTE 14 -SUBSEQUENT EVENT

Convertible Debentures (TCH)

On July 1, 2015,In more than 20 months, CCMI was unable to arrange financing of any type or amount and was unable to even generate enough interest to produce a financing proposal from a prospective investor or lender. With CCMI failing its promise, the Company agreedraised money on its own to issue, in one or more separate tranches, upmaintain operations and further its development efforts. Despite CCMI's failure to $2,000,000 ofsecure even a newly created Senior Secured Convertible Debenture ("Debentures") securitysingle financing proposal (let alone a proposal acceptable to three of its existing equity investors: Steuben Investment Company II, L.P. ("Steuben"), TCH Principal Solar, LP, ("TCH")the Company), and SMCDLB, LLC ("SMC"). The Debentures:despite CCMI having no involvement in non-project related financing efforts undertaken by the Company, CCMI now claims in arbitration proceedings an entitlement to:

CCMI had no involvement and provided no services in securing financing in the above situations for which it now claims an entitlement to fees. In connection withits responsive filing, CCMI admits it first learned of the Debentures,non-project related financings from the Company's Quarterly Report on Form 10-Q filed August 27, 2015, 7 days after the Company granted to the holders 60-month warrants to purchase up to 166,667 shares of Common Stock at a price of $6.00 per share.commenced arbitration proceedings in Dallas, Texas.

On August 12, 2015, the Convertible Debentures (TCH) were repaid in full for an amount of $1.1 million including $10 thousand of accrued interest.

Short-Term Advance

On August 3, 2015, the Company accepted a short-term advance from one of its consultants of approximately $240 thousand. The advance was non-interest bearing except amounts outstanding beyond October 3, 2015, bear interest at a rate of 12% per annum. The Company, incurredas claimant, has requested the arbitrator to declare CCMI liable for breach of fiduciary duty, breach of contract, tortious interference with a one-time feeprospective business relationship, and tortious interference with a contract and seeks to terminate the engagement for convenience and/or cause, for unspecified compensatory damages, interest, and fees. CCMI's claim in arbitration totals $5,183,263, of $36 thousandwhich $2,500,000 was escrowed in connection with the advance.assignment of the Company's rights to Principal Sunrise IV (see "Deposit" on the Balance Sheet). The Company believes the claims by Carlyle Capital Markets, Inc. are without merit, and no estimate of loss can be made. Management is vigorously pursuing this case, and the arbitration hearing is scheduled for February 2016.

On August 12, 2015, the short-term advance was repaid in full for an amount of $240 thousand plus the fee of $36 thousand.

Vis Solis, Inc.

Assignment of Principal Sunrise IV

OnIn November 2014, the Company entered into a services agreement (the “Services Agreement”) with Vis Solis, Inc. ("VIS"), the minority interest holder of our former Powerhouse One subsidiary, wherein VIS would refer to the Company "economically viable solar generation projects" for acquisition; identify and source engineering procurement and construction firms; identify and source operations and maintenance contractors; among other things necessary to build, own, and operate solar projects. In exchange for its services, VIS would be compensated from the construction and permanent financing arranged by the Company based upon the installed kilowatts of each project the Company accepted, took under contract, and put into commercial operation. Any compensation owing to VIS from the Company under the Services Agreement would be due either at the project’s "Financial Close" or its commercial operation date ("COD").

In August 11, 2015, the Company assigned its contractual rights to develop, finance, and put into commercial operation its project Principal Sunrise IV to Carolina Energy Partners II, LLC (“CEP”) as the Company had been unable to arrange either construction or permanent financing for this project. As such, the Company will never be in a position to reach either Financial Close or COD with Principal Sunrise IV. VIS failed to identify any solar generation projects that proved to be economical for the Company, and the Company does not believe that any compensation is due and owing to VIS under the MIPA for the amount of $7.0Services Agreement. However, CEP’s attorneys informed us that VIS had contacted CEP with a claim that it had earned approximately $2.2 million and the reimbursement of its advances to date under the MIPA of $4.7 million. The netServices Agreement combined with a threat to place a lien on Principal Sunrise IV unless proceeds from the assignment were scheduled to be received by the Company as follows: $7.6 million at closing; $2.5 million on August 31, 2015; $1.6 million at the project's commercial operation date, expected to be early 2016. The gain on the transaction is expected to be approximately $6.8 million after transaction costs estimated at $200,000.

Proceeds from the assignment were used to: repay debt and accrued interest of the Convertible Debentures held by Alpha ($1.3 million); redeemproject were escrowed while this compensation matter was resolved. CEP’s attorneys have made a claim for indemnification under the outstanding Series A Preferred ($1.03 million); repay the Convertible Debenture (TCH) issued July 1, 2015 ($1.1 million); repay convertible notes payable, related party ($724 thousand); repay convertible notes payable ($51 thousand); repay a short-term advance of August 3, 2015 ($276 thousand); pay deferred compensation ($1.2 million), accounts payable, and for general working capital. Following applicationterms of the proceeds as described above, the Company has no debt or redeemable preferred stock outstanding except the Acquisition Note Payable (NOTE 5)Assignment Agreement and the note payablea demand for insurance premiums.

In addition to amounts owed by the assignee to the Company at the project’s commercial operation date, the assignee owes the seller, Innovative Solar Systems, LLC, an additional $600 thousand. If the assignee, for whatever reason, fails to pay the amount due the seller, the Company has agreed to do so thereby creating a contingent liabilityour quick resolution of the Company. Additionally, asmatter should VIS be successful in filing a part of the closing, the assignee and the Company agreed to escrow the scheduled August 31, 2015, payment pending the Company meeting its on-going responsibilities as co-developer including, but not limited to, advising on engineering matters, providing technical assistance on project design, overseeing substation design and construction, organizing documentation and permitting, interpreting test results, and opining on final acceptance matters, and resolving a fee dispute related to the project. 
Finally, the assignee, the Company, and the third-party arranging a letter of credit in connection withlien against Principal Sunrise IV (see NOTE 13), have separately agreedand to relievemake CEP whole in the Company of its obligation under the letter of credit.event any actions by VIS resulted in damages to CEP.

SaleNo assessment had been made as to VIS’s ability to successfully file a lien on the Principal Sunrise IV project, nor do we have any data on which to calculate potential damages to CEP in the event such a lien is, in fact, successfully filed on the project. No liability has been recorded in the financial statements as no estimate of Powerhouse Oneloss, if any, can be made at this time.

NOTE 15 - EARNINGS PER SHARE

On August 17,Our basic and diluted earning per share attributable to common stockholders are computed as follows: