PREMIER ALLIANCE GROUP, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

(Edgar Glimpses Via Acquire Media NewsEdge) CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION This Form 10-Q contains certain statements relating to future results of the Company that are considered "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties, including, but not limited to, changes in political and economic conditions; interest rate fluctuation; competitive pricing pressures within the Company's market; equity and fixed income market fluctuation; technological change; changes in law; changes in fiscal, monetary regulatory and tax policies; monetary fluctuations as well as other risks and uncertainties detailed elsewhere in the Form 10-Q or from time-to-time in the filings of the Company with the Securities and Exchange Commission. Such forward-looking statements speak only as of the date on which such statements are made, and the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events.

The following discussion should be read in conjunction with our financial statements and the related notes included in this Form 10-Q.

CERTAIN TERMS USED IN THIS REPORT When this report uses the words "we," "us," "our," "Premier," and the "Company," they refer to Premier Alliance Group, Inc. "SEC" refers to the Securities and Exchange Commission.

Company Summary Premier is a service and solution delivery focused firm that provides integration and consulting expertise. Our team consists of senior individuals that are trained as engineers, technology specialists, business and project consultants and analysts - our Knowledge Based Experts (KBE). Our KBE's are versed in many areas of business and primarily focus on assisting and advising our clients in dealing with critical areas that impact their business. We have a strong base of expertise related to energy and financial service skills and are focused on change agents and mandates driving these specific areas of opportunity. As we work with our clients, we can be engaged in a variety of ways, all focused on producing results that contribute to business success. Our clients typically engage us in order to address energy initiatives, risk and compliance efforts, or business performance issues. Our clients engage us to provide them with a service or a solution based approach, which may include: · Assessing and designing strategic programs or plans; · Overseeing implementation of various projects or initiatives; · Engineering and implementing systems, controls, or automation; or · Evaluating, integrating, or validating controls, compliance and risk points.

17-------------------------------------------------------------------------------- table of contents Company Overview Premier's core business focus is as a holistic problem solver by providing subject matter expertise through its delivery teams - 360° Intelligence Delivery. Premier's approach is built 100% around its people - it is about knowledge, expertise and execution. Premier has a focus on building its knowledge practices with talent in key industries it feels offer opportunities including: financial services, utilities, life science, technology, government and health sectors. We currently have two major delivery verticals of Energy and Financial service capabilities, which are being driven by energy mandates and increased financial regulations crossing many industries. Our Energy capabilities position us as a provider of energy efficiency and sustainable facilities solutions. This includes the design, engineering and installation of disparate solutions and technologies that enable clients to reduce their energy costs and carbon footprints. Our Financial service deliveries encompass Governance, Risk & Compliance (GRC), and Business Performance & Technology as we assist clients with Risk Management, Compliance, Mergers & Acquisitions, Organizational Effectiveness, and Information Management.

Energy Overview GreenHouse Holdings, Inc., a wholly owned subsidiary acquired in March 2012, operates as the Solution division of Premier, and has "vertical operations" consisting of Energy and Sustainable Infrastructure. The Solutions division has a primary focus on energy related projects. Automated Demand Response and Demand Side Management are key focus points for energy efficiency today and the Solutions division is strategically positioned to take advantage of this growing industry. Automated Demand Response and Demand Side Management enables customers with automated load control systems, such as Energy Management Systems (EMS), to participate in demand response events without manual intervention. The program's flexibility and ease-of-use allows customers to pre-select their level of participation and to automatically take part in demand response events.

The alternative energy markets are also experiencing significant growth and have increased focus beyond the commercial sector, by becoming a focus of military leaders looking for cost savings and revenue generation from these projects as a part of the Federal Leadership in Environmental, Energy and Economic Performance Act executed by President Obama. While the Solutions division primarily focuses on energy projects, it is anticipated that some of its legacy projects will fall under the Sustainable Infrastructure vertical.

Energy Capabilities Commercial and Industrial Automated Demand Response (ADR), Demand Side Management, Energy Efficiency, Controls Automation and Alternative Energy · We support local utilities as a lead service provider for energy audits, energy program management and installation.

· We assist with the expansion of Integrated Demand Side Management (IDSM) programs into new regions as incentive programs are created and launched and pursuit of joint ventures with national organizations. Target utilities include Pacific Gas and Electric, San Diego Gas and Electric, Duke/Progress and Con Edison. The Company has already been named the technical coordinator for demand side projects undertaken by So. Cal. Edison.

18-------------------------------------------------------------------------------- table of contents · We are moving toward a "one stop shop" for all things efficiency, making a direct cost saving or revenue generating impact on the client's bottom line.

· We provide Program management and turnkey integration to other energy related companies, organizations and aggregators.

· We cross sell our consulting services to existing and potential commercial, industrial and utility customers offering services in support of all three "legs" of the utility stool: (i) demand side of the meter, (ii) production side of the meter, and, (iii) Operations, Finance & Accounting, Business Process & Technology, and Governance, Risk and Compliance.

Department of Defense - Automated Demand Response, Demand Side Management, Energy Efficiency, Controls Automation and Alternative Energy · We conduct fully integrated Military Base energy audits in conjunction with local utilities and turnkey integration of energy efficiency upgrades.

The Company has already completed the first ever fully integrated energy audits on US Military Bases.

· We develop and assist on executing Alternative energy and energy efficiency projects to meet 2020 demands.

Engineering Procurement and Construction (EPC) of major Alternative Energy Projects · Solar projects; and · Co-Generation projects.

Financial Service Overview Our Services division delivers expertise encompassing our organizational, regulatory and financial related service capabilities. A typical customer is an organization with complex business processes, large amounts of data to manage, and change driven by regulatory or market environments, or strategic, growth and profitability initiatives. Key areas of focus continue to be large mandated regulatory efforts including complying with the Sarbanes-Oxley Act, BASEL (for financial institutions), and the Dodd-Frank Wall Street Reform and Consumer Protection Act which impact organizations across many aspects including risk assessment and management, business processes and work flow, and data management, capture and reporting.

Financial Service Capabilities Financial services are provided by our KBE's within their core areas of expertise: (a) Governance, Risk and Compliance (GRC), (b) Business Performance & Technology (BP&T) and (c) Finance & Accounting (F&A). Engagements within this realm include: 19 -------------------------------------------------------------------------------- table of contents Governance Risk and Compliance · Enterprise risk management · Control and governance frameworks · Internal audit services · Regulatory and compliance efforts (i.e., BASEL, SOX) Business Performance & Technology · Systems planning · Organizational effectiveness · Business process re-engineering and workflow analysis · Business intelligence, data analytics Finance & Accounting · Financial & SEC reporting · Technical accounting research · Audit preparation · Mergers and acquisitions Premier Customers Premier's typical customers have historically been Fortune companies; a sampling includes: · Ally Financial Inc · Honeywell, Inc.

· Anheuser Busch Companies · Pepsico · Bank of America Corporation · SAAB · California Steel Industries Inc. · Schneider Electric · Duke Power Co · Southern California Edison · GMAC · Wells Fargo & Company · Gulfstream Technologies Inc.

Premier Acquisition Strategy Premier has made several acquisitions seeking to expand the scope of its business and achieve growth in revenues and profitability. Premier's task is to have the capability to help clients deal with external change driven by various factors including energy, regulatory or market environments or internal change driven by strategic, growth, and profitability initiatives. To compete more effectively, part of the strategic growth plan for Premier is to identify target firms that expand or enhance the 360° Intelligence Delivery capability. To do this Premier must have the knowledge, history, and experience - Knowledge Based Expertise - as it believes this will be 20 -------------------------------------------------------------------------------- table of contents a key to continued growth and opportunity. Premier has focused on expanding its Knowledge Based Expertise in targeted industry sectors which include the energy, healthcare and federal government sectors as well as by enhancing or expanding overall service capability which includes energy services, risk and compliance, business intelligence, and business process expertise.

Acquisitions On March 5, 2012, the Company consummated its Merger Agreement with GreenHouse Holdings, Inc. ("GHH"). GHH is a provider of energy efficiency and sustainable facilities services and solutions. GHH audits, designs, engineers and installs solutions and technologies that enable its clients to reduce their energy costs and carbon footprint. GHH has two primary areas of focus: (i) energy efficiency solutions ("EES") and (ii) sustainable facilities solutions (" SFS"). GHH is focused on industrial, commercial, governmental and military markets in the United States and abroad and has "past performance" status with the Department of Defense. Substantially all of GHH's revenue has historically come from its EES business focus. GHH operates as the "Solutions" segment of Premier.

In January 2011, the Company acquired a risk practice from another company in Los Angeles, California. In September 2010 the Company completed a merger with Q5Group, Inc., a San Diego, California based organization. In April 2010 Premier completed an asset purchase of Intronic Solutions Group LLC, a Kansas City, Missouri based organization. These transactions have all contributed to a broader customer base, added deeper industry experience, better geographic coverage, deeper professional services strengths specifically related to financial services delivery expertise, and more capabilities in the business development and fulfillment areas.

Delivery Team In delivering its services and solutions, Premier has five key functional areas or groups that ensure delivery and support across the Company: (a) Talent Acquisition - sources and identifies the business, engineering, and consulting staff we hire; (b) Business Development - works with Premier's customers in a consultative approach to identify and assess opportunities where we can assist and provide our services; (c) Service Leaders - Premier's knowledge based experts, who work with customers on strategic and complex issues; (d) Consultants/Engineers - these are Premier's knowledge based experts and professionals who deliver services and solutions to our customers; and (e) Operations - provides back office support and capability for the enterprise, including finance, human resources, financial reporting, and the day-to-day support of the staff in the field.

Talent Acquisition Premier's success depends on its ability to hire and retain qualified employees.

Premier's Talent Acquisition team contacts prospective employment candidates by telephone, through postings on 21 -------------------------------------------------------------------------------- table of contents the internet, and by means of our internal recruiting software and databases.

For internet postings, Premier maintains its own web page at www.premieralliance.com and uses other internet job-posting bulletin board services as well as professional and social networking sites. The Company uses a sophisticated computer application as its central repository to track applicants' information, manage skills verification, background checks, etc. and then match to potential customer opportunities. Premier only hires candidates after they have gone through a rigorous qualification process involving multiple interviews and screening.

Business Development and Service Leaders Premier's Business Development team and Service Leaders are its primary interface with the customer, prior to delivery of services or solutions. They develop and maintain business relationships by building knowledge on Premier's client businesses, technical environments and strategic direction. Premier's Business Development team and Service Leaders use the same central repository system as recruiting, this links recruiter information with customer information to manage the process efficiently and effectively.

Operations The Company's operations team encompasses several core functions within Premier such as human resources (''HR'') and finance (''Finance''). Encompassed in HR is our employee relations function, providing primary support and service for our engineers and consultants on a daily basis. This support ensures regular interaction and information sharing leading to quality services, better retention, and successful delivery to our clients. Within HR, Premier performs standard functions (such as benefit administration, payroll, and background processing). Finance provides all financial processing - billing, Accounts Payable, Accounts Receivable, and SEC reporting. Our goal is to centralize all operational functions for all Mergers & Acquisition activity.

Competition The market for professional services is highly competitive. It is also highly fragmented, with many providers and no single competitor maintaining clear market leadership. Premier's competition varies by location, type of service provided, and the customer to whom services are provided. Premier's competitors fall into four categories: (i) large national or international service firms; (ii) regional specialty firms (GRC, engineering, energy), (iii) software / hardware vendors and resellers; and (iv) internal engineering and technology staff of our customers and potential customers.

Contracts When servicing customers, Premier typically signs master contracts for a one to three year period. The contracts typically set rules of engagement and can include pricing guidelines. The contracts manage the relationship and are not indicators of guaranteed work. Individual contracts or Statement of Work are put in place (under the master agreement) for each engineer, consultant or team assigned to the client site and cover logistics of length of contract, bill information and 22 -------------------------------------------------------------------------------- table of contents deliverables for the particular assignment. In most cases contracts can be terminated by providing 10 to 30 days advance notice.

New Board Appointments On July 18, 2012, the Board of Directors of the Company elected John Catsimatidis, 63, to serve as a director for the Company. Mr. Catsimatidis is currently Chairman and CEO of the Red Apple Group and United Refining Company.

On August 20, 2012, the Board of Directors of the Company elected Wesley Clark, 67, to serve as a director for the Company. General Clark serves as Chairman and CEO of Wesley K. Clark & Associates, a strategic consulting firm; Co-Chairman of Growth Energy; senior fellow at UCLA's Burkle Center for International Relations; Chairman of Clean Terra, Inc.; and Director of International Crisis Group. General Clark serves as a member of the Clinton Global Initiative's Energy & Climate Change Advisory Board, and ACORE's Advisory Board. General Clark retired a four star general after 38 years in the United States Army.

Results of Operations The GHH acquisition became effective on March 5, 2012; the results of operations for the nine months ended September 30, 2012 found below, therefore, only include GHH's results of operations from March 5, 2012 through September 30, 2012.

Results of Operations for the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011.

Net revenue for the nine months ended September 30, 2012 was $15,103,000, an increase of 10.6%, compared to $13,652,000 for the same period in 2011. Net revenue for the nine months ended September 30, 2012 contributed by the Solutions segment, GHH was $2,433,000 or 16.1% of total revenue. Excluding the contribution of GHH, net revenue would have been $12,670,000 compared to $13,652,000 for the same period in the prior year, a decrease of $982,000 or 7.2%. The decline in core revenue is primarily attributable to a decline in revenue in Charlotte ($1,405,000), Kansas City ($858,000) and San Diego ($382,000). In the Charlotte branch, decreases in revenue were attributable to clients' decisions to defer anticipated Governance and Risk based projects (GRC), as well as the overall loss of consultants engaged in client billing activities from these services. In Kansas City, the decline is attributable to the loss of two major clients from 2011 and our inability to replace that business to date, resulting in our decision to close the physical office in Kansas City and manage the existing business from Charlotte. In San Diego, the decline is due to the deferral of certain Governance and Risk projects combined with engagements that completed in 2011 which were to be offset in 2012 by our expansion into Orange County, which expansion did not take place at this time.

In all cases, proactive steps are being taken by management to address these declines. These declines were partially offset by increases in business in Los Angeles ($1,332,000) and Winston-Salem ($340,000).

Cost of revenues, defined as all costs for billable staff for Premier and cost of goods for GHH, was $11,331,354 or 75.0% of revenue for the nine months ended September 30, 2012, as compared to $10,114,000 or 74.1% of revenue for the same period in 2011. Cost of revenue for 23 -------------------------------------------------------------------------------- table of contents GHH was $1,767,180 or 72.6% of total revenue. Cost of revenue for the core Premier business was 75.5% for the nine months ended September 30, 2012 compared to 74.1% for the same period in the prior year and reflects the decrease in revenue in second and third quarter 2012 specific to our higher margin GRC business, which did not offset fixed personnel costs.

Selling, general and administrative expenses (SG&A) were $5,682,000 or 37.6% of revenue for the nine months ended September 30, 2012, as compared to $4,398,000 or 32.2% for the same period in 2011. For the nine months ended September 30, 2012 (or since the March 5, 2012 acquisition) GHH incurred $1,299,000 in SG&A representing 53.4% of its total revenue. Management continues to take steps to monitor GHH's SG&A while GHH continues to grow and enter into new contracts.

SG&A, excluding GHH, for Premier's core business would have been $4,383,000 or 34.6% of Premier's core business revenue compared to the $4,398,000 and 32.2% outlined above for the nine months ended September 30, 2011, a decrease of $15,000, but a slightly higher percentage due to lower core revenues. SG&A also included non-cash compensation expense related to the issuance of stock options and warrants and the amortization of stock option/warrant expense for previously awarded options/warrants that vest over time in the amount of $376,000 for the nine months ended September 30, 2012 compared to $251,000 in the same period in the prior year. In addition, one-time costs of $408,000, related to M&A integration were also recorded in the nine months ended September 30, 2012. All selling, general and administrative expenses related to the Company as a whole (executive compensation, all back office costs, costs of being a public company, etc., are recorded at the "core" Premier level).

As a cumulative effect of the above, loss from operations for the nine months ended September 30, 2012 was $2,088,000 compared to a loss of $983,000 for the same period in the prior year. The Company's efforts to integrate GHH into its core, as it continues to refine its business development focus, accounted for $718,000 of that loss. Excluding the GHH loss of $718,000, the remainder of the loss for the nine months ended September 30, 2012 of $1,370,000 was attributable to core Premier operations. For core Premier, this loss of $1,370,000 represents an increase over the loss of $983,000 for the nine months ended September 30, 2011. This loss is attributable to a decline in core Premier revenues without corresponding decreases in fixed costs. Further, the total cumulative loss is significantly attributable to GHH's SG&A costs representing 53.4% of its total revenue. Management has and will continue to take steps to align fixed costs with revenues.

Other income and expense, resulted in a net loss of $511,000 for the nine months ended September 30, 2012 versus a net loss of $662,000 for the same period in the prior year. For the nine months ended September 30, 2012 the loss is almost entirely attributable to two items; (i) derivative expense, a non-cash item recorded as a result of the revaluation of warrants and related derivative liability at September 30, 2012 compared to December 31, 2011 of $495,000 and, (ii) interest expense related to the Company's borrowings on its line of credit of $65,175. In the nine months ended September 30, 2011, the loss is primarily attributable to interest expense on the Company's debentures of $156,000 (subsequently paid in full in November 2011), loss incurred as a result of the early extinguishment of a portion of these debentures converted to common stock of $80,000 and derivative expense of $340,000.

The income tax benefit of $644,000 and effective rate of 24.8% is attributable to the impact of permanent differences (nontaxable items such as certain stock compensation expense, 24 -------------------------------------------------------------------------------- table of contents nondeductible meals & entertainment, certain derivative expense, etc.) that do not have any effect on Premier's actual tax return.

Net loss of $1,955,000 for the nine months ended September 30, 2012 compared to a net loss of $1,128,000 for the corresponding period in the prior year is directly attributable to the individual factors outlined above. Net loss available for common stockholders was affected by the dividends paid on the preferred stock in the quarters ended March 31, 2012 and March 31, 2011, and in the quarter ended March 31, 2011, a deemed dividend on preferred stock of $1,914,000. This resulted in a net loss to common stockholders for the nine months ended September 30, 2012 of $2,276,000 and basic and fully diluted net loss per share of $0.16 and $3,086,000 for the nine months ended September 30, 2011 and basic and fully diluted net loss per share of $0.38.

Results of Operations for the three months ended September 30, 2012 compared to the three months ended September 30, 2011.

Net revenue for the three months ended September 30, 2012 was $4,823,000, an increase of 4.7%, compared to $4,604,000 for the same period in 2011. Net revenue for the three months ended September 30, 2012 contributed by GHH was $937,000 or 19.4% of total revenue. Excluding the third quarter contribution of GHH, net revenue would have been $3,886,000 compared to $4,604,000 for the same period in the prior year, a decrease of $718,000 or 15.6%. This decrease for the three month period is due to the same factors described for the nine months ended September 30, 2012 above.

Cost of revenues was $3,523,000 or 73.0% of revenue for the three months ended September 30, 2012, as compared to $3,361,000 or 72.9% of revenue for the same period in 2011. Cost of revenue for GHH was $712,000 or 76.0% or total revenue. Cost of revenue for the core Premier business was 72.4% and reflects managements' emphasis on cost reduction in the third quarter.

SG&A expenses were $1,763,000 or 36.5% of revenue for the three months ended September 30, 2012, as compared to $1,456,000 or 31.6% for the same period in 2011. But for the SG&A expenses of GHH of $500,000 (which represented 53.4% of their total revenue), SG&A for Premier's core business would have been $1,262,000, a decrease of $194,000 over the same period in 2011, reflecting management's continuing effort to control costs. This SG&A also included non-cash compensation expense related to the issuance of stock options and warrants and the amortization of stock option/warrant expense for previously awarded options/warrants that vest over time in the amount of $129,000 for the three months ended September 30, 2012 compared to only $15,000 in the same period in the prior year.

Loss from operations for the three months ended September 30, 2012, was $528,000 as compared to a loss of $254,000 for the same period in 2011. The increase in the loss in 2012 over 2011 is primarily attributable to the loss from operations from GHH for the period of $309,000.

Other income and expense, resulted in net expense of $340,000 for the three months ended September 30, 2012 versus a net expense of $457,000 for the same period of the prior year. The net expenses for the three months ended Spetmber 30, 2012 was comprised almost exclusively of derivative income, a non-cash item, resulting from the revaluation of warrants and the 25 -------------------------------------------------------------------------------- table of contents related derivative liability at September 30, 2012 resulting in derivative expense of $310,000, plus interest expense of $37,000 relating to borrowings on the Company's line of credit.

The effective income tax rate is 43.5% and is impacted by the permanent differences attributable to certain derivative income and certain stock compensation expense which are considered permanent differences; hence, nontaxable, and not providing a tax deduction or benefit.

Net loss for the three months ended September 30, 2012 was $490,000 compared to a net loss of $473,000 for the same period in the prior year. This resulted in basic and fully diluted net loss per share of $0.03 per share and $0.06 for the three months ended September 30, 2012 and September 30, 2011, respectively.

Dividend No dividend for common stock has been declared as of September 30, 2012, and the Company does not anticipate declaring dividends in the future.

Critical Accounting Policies Revenue Recognition Premier primarily follows the guidance of the Securities and Exchange Commission's Staff Accounting Bulletin No. 104 for revenue recognition. In general, the Company records revenue when persuasive evidence of any agreement exists, services have been rendered, and collectability is reasonably assured, therefore, revenue is recognized when the Company invoices clients for completed services at contracted rates and terms. GHH's Control Engineering division records revenue on a percentage of completion accounting basis.

Income Taxes The Company makes certain estimates and judgments in determining income tax expense/benefit for financial statement purposes. These estimates and judgments occur in calculating tax credits, tax benefits, and deductions that arise from differences in the timing of recognition of revenue and expense for tax and financial-statement purposes.

Further, the Company assesses the likelihood that deferred tax assets are recoverable. If recovery is unlikely, the Company increases the provision for taxes by recording a valuation allowance against the estimated deferred tax assets that will not ultimately be recoverable. As of September 30, 2012, all deferred tax assets were evaluated and an allowance against certain current deferred tax assets was provided in the amount of $514,000. However, should there be a change in our ability to recover our deferred tax assets, our tax provision would increase in the period in which the Company determines that the recovery is unlikely.

Liquidity and Capital Resources As of September 30, 2012, the Company had cash and cash equivalents of $340,000 representing a decrease of $2,711,000 from December 31, 2011. Net working capital at September 30, 2012, was $672,000, as compared to $4,381,000 on December 31, 2011 a decrease of $3,709,000. This 26 -------------------------------------------------------------------------------- table of contents decrease is primarily attributable to increased borrowing under the bank line of credit of $523,000, an increase in accounts payable and accrued expenses of $1,129,000 (which is primarily attributable to the GHH acquisition) with the remainder being cash used in operating activities described below. Current assets at September 30, 2012, were $4,898,000. At September 30, 2012, the Company had long-term liabilities of $1,254,000, which is primarily comprised of a non-cash item, a derivative liability of $1,048,000 representing the current fair value calculation of detachable stock warrants. Shareholders' equity as of September 30, 2012, was $12,926,000 which represented 70.2% of total assets.

During the nine months ended September 30, 2012, the net cash used by operating activities was $2,842,000 and was primarily a result of the net loss of $1,955,000, offset by the non-cash charge of derivative expense of $495,000, non-cash stock option / warrant compensation expense of $376,000, and depreciation and amortization expense of $178,000. These increases were offset by an increase in deferred income taxes of $644,000, an increase in accounts receivable of $530,000, an increase in costs and estimated earnings in excess of billings on uncompleted contracts of $492,000 and a decrease in billings in excess of costs and estimated earnings on uncompleted contracts of $196,000. Cash flows used in investing activities of $288,000 were attributable to issuance of secured notes receivable of $195,000, expenditures for stock issuance costs related to the GHH acquisition of $193,000, net purchases of property and equipment of $7,000, offset by the receipt of $107,000 in cash from the GHH acquisition.

Financing activities provided $420,000 of cash for the nine months ended September 30, 2012. This increase is directly attributable to net proceeds from borrowings on the bank line of credit of $523,000, offset by required payments on long-term debt of $103,000.

Financing Arrangements Effective October 22, 2012, the Company and its financial institution entered into a loan modification under its current line of credit. All terms remain the same with the maturity date extended to until January 19, 2013, as negotiations continue to increase the Line of Credit and the advance rate. The current line of credit is limited to a borrowing base of 75% of eligible receivables or $1,500,000.

As discussed in Note 11 to the Consolidated Financial Statements, the Company has closed a private placement financing resulting in net proceeds of $__________. Additionally, as outlined in Note 11 to the Consolidated Financial Statements, the Company has announced the signing of an Asset Purchase Agreement with Ecological, LLC that is scheduled to close no later than November 30, 2012.

A condition precedent to the Ecological, LLC acquisition is that the Company completes a private financing. Such private financing would also provide additional working capital. The above, combined with our revolving line of credit and funds from operations, will meet our cash needs for operations for the next twelve months.

We will need to raise additional funds in order to fund future business acquisitions. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and a downturn in the U.S. equity and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect amounts owed to us, or 27 -------------------------------------------------------------------------------- table of contents experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. The inability to obtain additional capital may restrict our ability to grow. If we are unable to obtain additional financing, we will be required to further curtail our plans to acquire additional businesses.

Our liquidity may be negatively impacted by the significant costs associated with our public company reporting requirements, costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the Securities and Exchange Commission. We expect all of these applicable rules and regulations to significantly increase our legal and financial compliance costs and to make some activities more time consuming and costly.

Off-Balance-Sheet Arrangements As of September 30, 2012, and during the prior three months then ended, there were no other transactions, agreements or other contractual arrangements to which an unconsolidated entity was a party under which we (1) had any direct or contingent obligation under a guarantee contract, derivative instrument, or variable interest in the unconsolidated entity, or (2) had a retained or contingent interest in assets transferred to the unconsolidated entity.

Outlook The Company's priority is to continue to build depth in the range of services and solutions we offer by building "areas of expertise and knowledge and increased industry specific knowledge." Premier believes that achieving this goal will require a combination of merger activity and organic growth. This will in part depend on continued improvement in the U.S. business market.

With our focus on capabilities related to the Energy and Financial Service (specifically regulatory and compliance) verticals, we must continue to adjust to the rapid change being driven by the evolving Energy sector as well as the ongoing wave of regulatory change affecting all industries. Both areas continue to increase in importance and are tied to key priority initiatives for most businesses.

The energy sector has a fragmented regulatory environment driven by federal, state, provincial and local processes including: reliability, building and safety, environmental regulation and codes, permitting, rate structures, tariffs, incentives, tax credits, all which are changing frequently. In addition, the metrics and values used to deal with financing of energy related projects are still maturing. However, the drivers of rising energy costs combined with power reliance issues for countries and the long term view related to our carbon footprint continue to push the energy sector forward and our involvement in energy efficiency, frequency regulation, integrated demand side management, and distributed generation and renewable energy are priorities.

The regulatory and compliance sector continues to evolve globally and locally. The challenges that impact specific verticals, based on industry nuances, continue to expand and create ongoing challenges for businesses. Many of the growing areas within this sector impact all industries and 28 -------------------------------------------------------------------------------- table of contents will also overlap with our energy services as maturation continues in relation to the energy sector. This will include cyber-security, risk mitigation, ongoing regulatory and compliance initiatives and program management as we move to expand our overall capabilities and expertise.

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