UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

~~x QUARTERLY REPORT UNDER SECTION 13 OR 15~~(~~d) OF~~Mark ~~THE SECURITIES EXCHANGE ACT OF 1934~~One)

~~For~~x ~~the~~QUARTERLY ~~quarterly~~REPORT ~~period~~PURSUANT ~~ended:~~TO ~~September~~SECTION ~~30,~~13 ~~2011~~OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

ORFor the quarterly period ended September 30, 2016

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

For the transition period from ~~___________~~______ to ~~___________~~_______

Commission File ~~No. 0~~Number: 000-31805

POWER EFFICIENCY CORPORATION

(Exact ~~Name~~name of ~~Issuer~~registrant as ~~Specified~~specified in its ~~Charter~~charter)

Delaware (State or Other Jurisdiction of Incorporation or Organization)	22-3337365 (I.R.S. Employer Identification No.)
Delaware		14-1673067
5744 Pacific Center Blvd. Suite 311 San Diego, CA 92121 (Address of Principal Executive Offices)	(858) 750-3875 (Issuer's Telephone Number, Including Area Code)
(State or other jurisdiction		( I.R.S. Employer
of incorporation or organization)		Identification No.)
2200 Northern Boulevard, Suite 102 Greenvale, NY 11548		30504
(Address of principal executive offices)		(zip code)

~~Check whether the issuer (~~1) ~~filed~~877 ~~all~~309 reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o3357

~~Indicate~~(Registrant’s bytelephone ~~check mark whether the registrant is a large accelerated filer~~number, anincluding area accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check onecode):

~~Large~~Indicate ~~Accelerated~~by ~~filer o~~check ~~Accelerated~~mark whether ~~filer o~~the ~~Non-Accelerated~~registrant ~~filer o~~(1) ~~Smaller~~has ~~reporting~~filed ~~company~~all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No x

Indicate by check mark whether the ~~Company~~registrant ishas asubmitted ~~shell~~electronically ~~company~~and ~~(as~~posted ~~defined~~on inits corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule ~~12b-2~~405 of Regulation S-T during the ~~Exchange~~preceding ~~Act~~12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

~~Yes o~~Indicate Noby xcheck mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

~~The~~Large ~~number~~accelerated offiler ~~shares~~☐ ofAccelerated ~~common~~filer ~~stock~~☐ ~~outstanding~~Non-accelerated asfiler of☐ ~~November~~Smaller ~~11,~~reporting ~~2011~~company ~~was~~☒ ~~54,346,832.~~Emerging Growth company ☐

~~Transitional~~If ~~Small~~an ~~Business~~emerging ~~Disclosure~~growth company, ~~Format~~indicate (by check ~~one~~mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a)~~: Yes o No~~ xof the Exchange Act. ¨

Indicate by check mark whether the registrant ~~has~~is ~~submitted~~a ~~electronically~~shell ~~and~~company ~~posted~~(as ondefined ~~its~~in ~~corporate Website, if any, every Interactive Date File required to be submitted and posted pursuant to~~ Rule ~~405 of Regulation S~~12b-T2 ~~(§232.405~~ of ~~this chapter) during~~ the ~~preceding~~Exchange ~~12 months (or for such shorter period that the registrant was required to submit and post such files~~Act). Yes x No o

As of September 30, 2016, there were there were 28,886,843 shares of common stock, $0.001 par value per share, issued and outstanding. As of January 17, 2018, there were 32,936,843 shares of common stock, $0.001 par value per share, issued and outstanding.

ITEM 1 –	FINANCIAL STATEMENTS

	Balance Sheets as of September 30, 2016 (Unaudited) and December 31, 2015 (Audited)	1

	Statements of Operations (Unaudited) for the nine months and three months ended September 30, 2016 and September 30, 2015	2

	Statements of Cash Flows (Unaudited) for the nine months and three months ended September 30, 2016 and September 30, 2015	3

	Notes to Financial Statements (Unaudited)	4

ITEM 2 –	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	21

ITEM 3 –	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	22

ITEM 4 –	CONTROLS AND PROCEDURES	23

PART II –	OTHER INFORMATION

ITEM 1 –	LEGAL PROCEEDINGS	24

ITEM 1A –	RISK FACTORS	24

ITEM 2 –	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	25

ITEM 3 –	DEFAULTS UPON SENIOR SECURITIES	25

ITEM 4 –	MINE SAFETY DISCLOSURE	25

ITEM 5 –	OTHER INFORMATION	25

ITEM 6 –	EXHIBITS	26

SIGNATURES		27

Exhibit 31.1	Certification Pursuant to 17CFR240.13a-14(a) or 17CFR240.15d-14(a)

Exhibit 31.2	Certification Pursuant to 17CFR240.13a-14(a) or 17CFR240.15d-14(a)

Exhibit 32.1	Certification Pursuant to 17CFR240.13a-14(b) or 17CFR240.15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code

Exhibit 101	Instance Document

Exhibit 101	Schema Document

Exhibit 101	Calculation Linkbase Document

Exhibit 101	Labels Linkbase Document

Exhibit 101	Presentation Linkbase Document

Exhibit 101	Definition Linkbase Document

POWER EFFICIENCY CORPORATION

~~FORM~~PART ~~10-Q~~I: ~~INDEX~~FINANCIAL INFORMATION

PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Condensed Balance Sheets as of September 30, 2011 and December 31, 2010			3
Condensed Statements of Operations for the three and nine months ended September 30, 2011 and 2010			4
Condensed Statements of Cash Flows for the nine months ended September 30, 2011 and 2010			5
Notes to Condensed Financial Statements			6-11
ITEM 2. Management's Discussion and Analysis Of Financial Condition and Results of Operations			12-23
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk			24
ITEM 4. Controls and Procedures			24
Part II — OTHER INFORMATION
ITEM 1. Legal Proceedings			25
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds			25
ITEM 3. Defaults Upon Senior Securities			25
ITEM 4. Reserved			25
ITEM 5. Other Information			25
ITEM 6. Exhibits			26
Signatures			27
Certification of Chief Executive Officer as Adopted
Certification of Principal Financial Officer as Adopted

ITEM 1 FINANCIAL STATEMENTS

-POWER EFFICIENCY 2CORPORATION -AND SUBSIDIARY

~~PART~~CONSOLIDATED BALANCE ~~I. FINANCIAL INFORMATION~~SHEETS

Item 1. Financial Statements

	SEPTEMBER 30,			DECEMBER 31,
	2016			2015
	(UNAUDITED)

ASSETS

Current Assets
Cash and cash equivalents	$	10,766		$	115,384
Note receivable - Related party		-			10,000
Prepaid expenses		-			7,500
Current portion of deferred tax asset		408			408
Accrued interest receivable		-			69
Total Current Assets		11,174			133,361

Other Assets
Deferred project costs		-			50,538
Notes receivable - Related party		20,000			-
Accrued interest receivable		614			-
Deferred tax asset		5,176			5,479
Total Other Assets		25,790			56,017

Total Assets	$	36,964		$	189,378

LIABILITIES AND STOCKHOLDERS' (DEFICIT)

Current Liabilities
Accrued expenses payable	$	288,140		$	286,489
Total Current Liabilities		288,140			286,489

Long Term Liabilities
Accrued dividends payable		4,903,900			4,129,600
Accrued officers' compensation payable		100,000			-

Total Liabilities		5,292,040			4,416,089

Commitments and Contingencies

Stockholders' (Deficit)
Preferred Stock, $0.001 par value, 10,000,000 shares authorized: issued and outstanding in 2016 and 2015 - Series B 133,000 shares, Series C-1 34,625 shares and Series D 304,377 shares		472			472
Common Stock, $0.001 par value, 350,000,000 shares authorized: 28,886,843 shares issued and outstanding at September 30, 2016 and 26,420,177 at December 31, 2015		28,887			26,420
Additional Paid-in Capital		51,502,604			51,454,919
Accumulated (Deficit)		(56,787,039	)		(55,708,522	)
Total Stockholders' (Deficit)		(5,255,076	)		(4,226,711	)

TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT)	$	36,964		$	189,378

~~POWER~~See ~~EFFICIENCY~~notes ~~CORPORATION~~to the consolidated financial statements.

~~CONDENSED BALANCE SHEETS~~1

~~Unaudited~~POWER EFFICIENCY CORPORATION AND SUBSIDIARY

	September 30, 2011			December 31, 2010
ASSETS
CURRENT ASSETS:
Cash	$	78,979		$	2,567,607
Accounts receivable, net		81,665			106,066
Inventory		171,283			217,119
Prepaid expenses and other current assets		21,580			22,550
Total Current Assets		353,507			2,913,342
PROPERTY AND EQUIPMENT, Net		105,795			64,847
OTHER ASSETS:
Patents, net		151,387			141,907
Deposits		91,304			36,971
Goodwill		1,929,963			1,929,963
Total Other Assets		2,172,654			2,108,841
Total Assets	$	2,631,956		$	5,087,030
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	803,261		$	687,168
Total Current Liabilities		803,261			687,168
LONG TERM LIABILITIES
Deferred rent		29,170			11,282
Deferred tax liability		486,972			449,513
Total Long Term Liabilities		516,142			460,795
Total Liabilities		1,319,403			1,147,963
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Series B, C-1 and D Convertible Preferred Stock, $.001 par value, 10,000,000 shares authorized, 488,377 and 500,877 issued and outstanding in 2011 and 2010, respectively		488			501
Common stock, $.001 par value, 350,000,000 shares authorized, 54,346,832 and 49,005,733 issued and outstanding in 2011 and 2010, respectively		54,347			49,006
Additional paid-in capital		47,687,324			46,737,632
Accumulated deficit		(46,429,606	)		(42,848,072	)
Total Stockholders' Equity		1,312,553			3,939,067
Total Liabilities and Stockholders' Equity	$	2,631,956		$	5,087,030

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

Accompanying notes are an integral part of the financial statements.

	NINE MONTHS ENDED SEPTEMBER 30,						THREE MONTHS ENDED SEPTEMBER 30,
	2016			2015			2016			2015


Revenues	$	-		$	-		$	-		$	-



General and Administrative Expenses
Legal & professional fees		222,646			11,500			139,977			6500
Officers' compensation		100,000			-			75,000			-
Financing expense		7,500			-			-			-
Consulting fees - Related parties		13,100			43,000			-			43,000
Business travel expenses		14,525			1,705			2,262			1,705
Stock based compensation		13,152			28,683			480			6,432
Office Expense		6,985			2,519			4,238			2,519
Administrative consulting fees		25,000			30,089			19,500			17,128
Consulting fees - Projects		10,000			-			10,000			-
Project costs		73,000			-			73,000			-
Board services		1,000			-			1,000			-
Stock transfer agent expense		4,787			6,150			1,587			6,150
Franchise fees		458			-			-			-
Bank service fees		655			426			300			356
Storage rental fees		1,350			1,446			450			1,146
Total General and Administrative Expenses		494,158			125,518			327,794			84,936

(Loss) from Operations		(494,158	)		(125,518	)		(327,794	)		(84,936	)

Other Income		190,244			22			156			6

Net (Loss) Before Provision for Income Taxes		(303,914	)		(125,496	)		(327,638	)		(84,930	)

Provision for Income Taxes (Benefit)		(303	)		(303	)		(101	)		(101	)

Net (Loss)	$	(304,217	)	$	(125,799	)	$	(327,739	)	$	(85,031	)

Dividends accrued on Preferred Stock		774,300			774,300			258,100			258,100

Net (Loss) attributable to common shareholders	$	(1,078,517	)	$	(900,099	)	$	(585,839	)	$	(343,131	)

Basic and Fully Diluted (Loss) per Common Share	$	(0.03593	)	$	(0.03214	)	$	(0.01898	)	$	(0.01225	)

Weighted average common shares outstanding basic and fully diluted		30,018,191			28,008,924			30,860,191			28,008,924

-See 3notes -to the consolidated financial statements.

~~POWER EFFICIENCY CORPORATION~~2

~~CONDENSED~~POWER EFFICIENCY ~~STATEMENTS~~CORPORATION OFAND ~~OPERATIONS~~SUBSIDIARY

~~Unaudited~~CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	For the three months ended September 30,						For the nine months ended September 30,
	NINE MONTHS ENDED SEPTEMBER 30,
	2011			2010			2011			2010
	2016			2015
REVENUES	$	123,571		$	180,787		$	394,342		$	416,393
Operating Activities:
COST OF REVENUES
Net (loss)	$	(304,217	)	$	(125,799	)
Materials, labor and overhead		99,282			100,733			290,687			301,755
Adjustments to reconcile net (loss) to net cash
Inventory obsolescence		-			-			44,633			-
(used in) operating activities:
Total Cost of Revenues		99,282			100,733			335,320			301,755
Stock based compensation		13,152			28,683
GROSS PROFIT		24,289			80,054			59,022			114,638
Common Stock issued in connection with services rendered		37,000			-
COSTS AND EXPENSES:
Amortization of deferred taxes		303			303
Research and development		314,465			230,758			892,386			546,377
Changes in operating assets and liabilities:
Selling, general and administrative		608,421			629,378			1,878,189			1,892,839
Prepaid expenses		7,500			(30,000	)
Depreciation and amortization		8,766			11,405			28,727			37,667
Accrued interest receivable		(545	)		-
Total Costs and Expenses		931,652			871,541			2,799,302			2,476,883
Deferred project costs		50,538			(5,000	)
LOSS FROM OPERATIONS		(907,363	)		(791,487	)		(2,740,280	)		(2,362,245	)
Accrued expenses payable		101,651			200
OTHER INCOME (EXPENSE):
Net cash (used in) operating activities		(94,618	)		(131,613	)
Interest income		152			7,794			5,749			9,451
Investing Activities:
Interest expense		-			-			-			(934,649	)
Advances - Note Receivable - Related party		(10,000	)		-
Change in fair value of warrant liability		-			4,745			-			828,827
Net cash (used in) investing activities		(10,000	)		-
Total Other Income (Expense)		152			12,539			5,749			(96,371	)
(Decrease in) cash and cash equivalents		(104,618	)		(131,613	)
LOSS BEFORE PROVISION FOR INCOME TAXES		(907,211	)		(778,948	)		(2,734,531	)		(2,458,616	)
Cash and cash equivalents at beginning period		115,384			309,047
PROVISION FOR INCOME TAXES		12,486			15,884			37,459			50,309
Cash and cash equivalents at end of period	$	10,766		$	177,434
NET LOSS		(919,697	)		(794,832	)		(2,771,990	)		(2,508,925	)
Supplemental disclosures
DIVIDENDS PAID OR PAYABLE ON SERIES B, C-1 AND D PREFERED STOCK		272,100			358,279			809,544			3,259,030
Cash paid during the period for interest	$	-		$	-
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	(1,191,797	)	$	(1,153,111	)	$	(3,581,534	)	$	(5,767,955	)
Cash paid during the period for income taxes	$	-		$	-
BASIC AND FULLY DILUTED LOSS PER COMMON SHARE	$	(0.02	)	$	(0.03	)	$	(0.07	)	$	(0.13	)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING, BASIC AND DILUTED		54,346,832			45,119,984			51,507,462			45,013,643

~~Accompanying notes are an integral part of the financial statements.~~3

-POWER 4EFFICIENCY -CORPORATION AND SUBSIDIARY

~~POWER~~NOTES ~~EFFICIENCY~~TO ~~CORPORATION~~UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

~~CONDENSED~~AS OF ~~STATEMENTS~~AND OFFOR ~~CASH~~THE ~~FLOWS~~NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2016

~~Unaudited~~NOTE 1- NATURE OF BUSINESS

	For the nine months ended September 30,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(2,771,990	)	$	(2,508,925	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		28,727			37,667
Cost of goods sold depreciation		5,922			-
Warrants and options issued to employees and consultants		145,476			212,619
Change in fair value of warrant liability		-			(828,827	)
Noncash interest expense related to debt discount		-			818,542
Loss on sale of equipment		1,653			-
Inventory obsolescence		44,633			-
Changes in assets and liabilities:
Accounts receivable, net		24,401			(17,279	)
Inventory		1,203			85,625
Prepaid expenses and other current assets		970			(16,491	)
Deposits		(54,333	)		(10,057	)
Accounts payable and accrued expenses		116,093			287,006
Deferred tax liability		37,459			37,460
Deferred rent		17,888			(6,153	)
Net Cash Used in Operating Activities		(2,401,898	)		(1,908,811	)
CASH FLOWS FROM INVESTING ACTIVITIES
Costs related to patent applications		(11,624	)		(22,335	)
Purchases of property and equipment		(83,606	)		(9,595	)
Sale of property and equipment		8,500			-
Net Cash Used in Investing Activities		(86,730	)		(31,930	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of equity securities		-			3,976,200
Proceeds from issuance of notes payable		-			1,687,083
Repayment of notes payable		-			(450,000	)
Fees paid to investment banks for equity financing		-			(126,992	)
Net Cash Provided by Financing Activities		-			5,086,291
Increase (Decrease) in cash		(2,488,628	)		3,145,550
Cash at beginning of period		2,567,607			247,564
Cash at end of period	$	78,979		$	3,393,114

Power Efficiency Corporation ("PEC" or the "Company" or “we”), a Delaware Corporation, was formed in July 1994. Until 2012, the Company was in the business of designing, developing, marketing and selling proprietary solid state electrical devices designed to reduce energy consumption in alternating current induction motors. During such period of operations, the Company had one principal and proprietary product called the three phase Motor Efficiency Controller, which was intended to be used in industrial and commercial applications, such as rock crushers, granulators, and escalators. Additionally, during the period up to early 2012, the Company had developed a digital single phase controller in preparation for working with Original Equipment Manufacturers to incorporate the technology into their equipment.

~~Accompanying~~In ~~notes~~the ~~are~~spring anof ~~integral~~2012 ~~part~~the then management of the ~~financial~~Company ~~statements~~began winding down substantive operations and ceased all activities and sold or abandoned any remaining assets and operations by the end of 2012.

-The 5Company -was a publicly reporting company filing periodic reports with the Securities and Exchange Commission. On April 17, 2012, the Company filed a Form 15 with the SEC to cease being a reporting company. At the time of the filing in April 2012, the Company had less than 200 shareholders of record and little if, any assets.

~~NOTE~~Until 1current -management ~~BASIS~~gained OFcontrol of ~~PRESENTATION~~the Company in July 2015, the Company had no operations, did not incur any material liabilities and issued no additional securities.

~~The~~In ~~accompanying~~July ~~financial statements have been prepared by the Company~~2015, ~~without~~current anmembers ~~audit. In the opinion~~ of management, acquired ~~all~~a ~~adjustments~~majority ~~have~~of ~~been~~the ~~made,~~voting ~~which~~stock ~~include~~of ~~normal recurring adjustments necessary to present fairly~~ the ~~condensed~~Company ~~financial~~(through ~~statements.~~entities ~~Operating~~controlled ~~results~~by ~~for~~them) from the ~~three~~single majority shareholder and ~~nine~~commenced ~~months~~its ~~ended~~plan ~~September~~to ~~30,~~restart ~~2011~~the ~~are~~operations ~~not necessarily indicative~~ of the ~~operating~~Company ~~results~~in ~~for~~new ~~the~~business ~~full year~~lines. ~~Certain~~The ~~information~~change ~~and~~of ~~footnote~~control ~~disclosures~~and ~~normally~~management ~~included~~occurred on inJuly ~~financial~~17, ~~statements~~2015, ~~prepared~~resulting in ~~accordance~~new ~~with~~management ~~accounting~~and ~~principles~~a ~~generally~~new ~~accepted~~Board ~~in the United States~~ of ~~America have been condensed or omitted~~Directors. ~~The~~Management ~~Company~~then ~~believes~~commenced ~~that~~developing ~~the~~a ~~disclosures~~new ~~provided~~business plan ~~are~~and ~~adequate~~operations toin ~~make~~ the ~~information~~business ~~presented~~of ~~not~~the ~~misleading.~~promotion, ~~These~~acquisition ~~unaudited~~and ~~condensed~~development ~~financial~~of ~~statements~~battery ~~should~~energy bestorage ~~read~~systems ~~in conjunction with the audited financial statements~~ and related energy ~~notes~~and ~~included~~power inmanagement ~~the~~services ~~Company’s~~and ~~Annual Report for the year ended December 31, 2010 on Form 10-K~~businesses.

~~The~~Since ~~preparation~~July 2015, management has been focused on developing its business plan, of ~~condensed~~developing ~~financial~~battery ~~statements~~energy instorage ~~conformity~~projects ~~with~~and ~~accounting~~energy ~~principles~~storage ~~generally~~systems ~~accepted~~and inalso commenced developing relationships within the ~~United~~industry. ~~States~~The ofCompany’s ~~America~~business ~~requires~~plan ~~management~~is to ~~make~~originate, ~~estimates~~develop ~~and~~or ~~assumptions~~own ~~that~~energy ~~affect~~storage ~~the~~systems ~~reported~~in North ~~amounts~~America ofand ~~assets~~may ~~and~~utilize ~~liabilities~~different ~~and~~ownership ~~disclosure~~structures offor ~~contingent~~its ~~assets~~projects; ~~and~~in ~~liabilities~~certain atcases, owning the ~~dates~~projects ofand ~~the~~obtaining financing; ~~financial~~in ~~statements~~other ~~and~~cases, ~~the~~developing ~~reported~~joint ~~amounts~~ventures ofas ~~revenue~~majority ~~and~~or ~~expenses~~minority ~~during~~developers, ~~the~~or ~~reporting~~establishing ~~period.~~projects ~~Actual~~to ~~results~~different levels ~~could~~of ~~differ~~development ~~from~~before ~~those~~selling ~~estimates~~the projects.

NOTE 2 - ~~GOING~~BASIS ~~CONCERN:~~OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements ~~have~~include ~~been~~the ~~prepared~~accounts ~~assuming~~of the ~~Company~~Power isEfficiency aCorporation ~~going~~(“Company”) ~~concern,~~and ~~which~~its ~~assumption~~wholly ~~contemplates~~owned subsidiary. In the ~~realization~~opinion of ~~assets~~management ~~and~~all ~~satisfaction~~adjustments ofhave ~~liabilities~~been inmade, ~~the~~which include normal ~~course~~recurring ofadjustments ~~business~~necessary to present fairly the consolidated financial statements. The ~~Company~~accompanying ~~experienced~~financial astatements ~~$2,401,898~~have ~~deficiency~~been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Article 10 of ~~cash~~SEC ~~from~~Regulation ~~operations~~S-X. Operating results for the nine months ended September 30, ~~2011,~~2016 ~~and~~are ~~expects~~not ~~significant~~necessarily ~~cash~~indicative ~~deficiencies~~of ~~from~~the ~~operations~~operating ~~until~~results for the ~~Company’s~~full ~~sales~~fiscal year ending December 31, 2016. Certain information and ~~gross~~footnote ~~profit~~disclosures ~~grow~~normally toincluded ~~exceed~~in ~~its~~financial ~~expenses~~statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. ~~The~~ The Company ~~had~~believes athat ~~working~~the ~~capital~~disclosures ~~deficit~~provided ~~(current~~are ~~assets~~adequate ~~less~~to ~~current~~make ~~liabilities)~~the ofinformation ~~approximately~~presented ~~$450,000~~not atmisleading. ~~September~~These ~~30,~~unaudited ~~2011~~condensed financial statements should be read in conjunction with the audited financial statements and ~~has~~related annotes ~~immediate~~included ~~need~~in the Company's Annual Report for ~~capital~~the year ended December 31, 2015 on Form 10.

These factors raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amount of liabilities that might be necessary should the Company be unable to continue in existence. Continuation of the Company as a going concern is dependent upon achieving profitable operations or accessing sufficient operating capital. Management's plans to achieve profitability include developing new products such as hybrid motor starters and single-phase to three-phase converters, developing business in the Asian market, obtaining new customers and increasing sales to existing customers. Management is seeking to raise additional capital through equity issuance, debt financing or other types of financing (see Note 13). However, there are no assurances that sufficient capital will be raised. If we are unable to obtain it on reasonable terms, we would be forced to restructure, file for bankruptcy or significantly curtail operations.4

~~NOTE~~POWER 3EFFICIENCY –CORPORATION ~~SUMMARY~~AND ~~OF SIGNIFICANT ACCOUNTING POLICIES~~SUBSIDIARY

~~There~~NOTES ~~were~~TO noUNAUDITED ~~significant~~CONSOLIDATED changes to the Company’s significant accounting policies as disclosed in Note 3 of the Company’s financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.FINANCIAL STATEMENTS

-AS OF 6AND -FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2016

~~New~~NOTE ~~Accounting~~2- ~~Pronouncements:~~BASIS OF PRESENTATION (continued)

InThe ~~May~~Company ~~2011,~~filed ~~the~~a ~~FASB~~Form ~~issued~~10 ~~Accounting~~with ~~Standards~~the ~~Update~~Securities and ~~(“ASU”)~~Exchange ~~2011-04,~~Commission ~~“Fair~~on ~~Value~~August ~~Measurement~~11, –2016 ~~Amendments~~which tobecame ~~Achieve~~effective ~~Common~~under ~~Fair~~the ~~Value~~rules ~~Measurement~~ and ~~Disclosure~~regulations ~~Requirements~~of inthe ~~U.S.~~Securities ~~GAAP~~ and ~~IFRSs,”~~Exchange Commission ~~addressing~~on ~~how~~October to10, ~~measure~~2016. ~~fair~~The ~~value~~filing ~~and~~on ~~what~~Form ~~disclosures~~10 towas ~~provide~~made ~~about~~by ~~fair~~the ~~value~~Company ~~measurements. This~~on ~~amendment~~a isvoluntary ~~largely~~basis ~~consistent~~pursuant ~~with~~to ~~the~~Section ~~existing~~12(g) ~~GAAP~~of the ~~guidance,~~Act. ~~but~~As ~~aligned~~of the ~~international~~date ~~guidance~~of ~~and~~effectiveness ~~eliminated~~of ~~unnecessary~~the ~~wording~~Form ~~differences~~10 ~~between~~and ~~GAAP~~through ~~and~~the ~~International~~date ~~Financial~~of ~~Reporting~~this ~~Standards~~filing, ~~(“IFRS”). The~~the ~~amendment~~Company is ~~effective~~a ~~for~~shell ~~interim~~company. ~~and~~Securities Act ~~annual~~Rule ~~periods~~405 ~~beginning after December 15, 2011,~~ and ~~should~~Exchange beAct ~~applied~~Rule ~~prospectively. The~~12b-2 ~~implementation~~define ofa ~~this~~shell ~~standard~~company isas ~~not~~a ~~expected~~company, toother ~~affect~~than ~~the~~an ~~Company’s~~asset-backed ~~financial condition~~issuer, ~~results~~with ofno ~~operations,~~ or ~~cash~~nominal operations; ~~flows.~~and either:

In• ~~June~~no 2011, the FASB issued ASU 2011-05, “Statement of Comprehensive Income,” which revises the manner in which entities present comprehensive income in their financial statements, requiring entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or ~~(2)~~nominal two separate but consecutive statements. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011 and should be applied retrospectively. The implementation of this standard is not expected to affect the Company’s financial condition, results of operations or cash flows.assets;

In• ~~September~~assets ~~2011,~~consisting the FASB issued ASU 2011-08, “Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment,” which adds a new option entities can use to determine whether it is necessary to apply the traditional two step goodwill impairment test, based on qualitative factors. If the entity elects to use the option, it must assess qualitative factors to determine whether the existence of ~~events~~cash or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If so, the existing quantitative calculations in steps one and ~~two~~cash ~~continue~~equivalents; to apply. However, if after assessing the totality of the qualitative factors, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. Under the amendments, an entity has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step goodwill impairment test. An entity may resume performing the qualitative assessment in any subsequent period. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011 and should be applied prospectively. The implementation of this standard is not expected to affect the Company’s financial condition, results of operations or ~~cash flows.~~

~~NOTE~~• 4assets –consisting ~~CONCENTRATIONS~~of OFany ~~CREDIT~~amount ~~RISK~~of cash and cash equivalents and nominal other assets.

~~Financial~~On ~~instruments~~January ~~which~~11, ~~potentially~~2017, ~~subject~~PEC ~~the~~filed ~~Company~~an amendment to ~~concentrations~~its Amended and Restated Certificate of ~~credit~~Incorporation ~~risk~~to ~~consist~~effectuate ~~primarily~~a reverse stock split (“Reverse Split”) on a basis of ~~cash~~each 15 shares of issued and ~~temporary~~outstanding ~~cash~~shares ~~investments~~of Common Stock representing 1 share of Common Stock. The Reverse Split became effective on January 17, 2017. Except as stated otherwise, all shares numbers stated in this Form 10-Q for all periods inclusive of December 31, 2015 reflect the post-split shares numbers of the 1 for 15 reverse stock split for its Common Stock, as well as the conversion ratios for any issued and ~~accounts~~outstanding ~~receivable~~preferred stock.

~~Cash~~NOTE ~~is maintained at financial institutions and, at times, balances may exceed federally insured limits. We have never experienced any losses related to these balances. All of our non~~3-~~interest~~ ~~bearing~~GOING cash balances were fully insured at September 30, 2011 and December 31, 2010 due to a temporary federal program in effect from December 31, 2010 through December 31, 2012. Under the program, there is no limit to the amount of insurance for eligible accounts. Beginning 2013, insurance coverage will revert to $250,000 per depositor at each financial institution, and our non-interest bearing cash balances may again exceed federally insured limits. Interest-bearing amounts on deposit in excess of federally insured limits at December 31, 2010 approximated $2.1 million and no balances exceeded the federally insured limits as of the quarter ended September 30, 2011.CONCERN

-These 7financial -statements have been prepared on a going concern basis, which implies the Company will continue to meet its obligations and continue its operations for the next fiscal year. At September 30, 2016, the Company had a working capital deficiency of $276,966.

~~Accounts~~The ~~receivable~~financial ~~totaled~~statements ~~$106,066~~do ~~and~~not ~~$81,665~~include any asadjustments ofrelating ~~December~~to ~~31,~~the ~~2010~~recoverability and ~~September~~classification ~~30,~~of ~~2011,~~recorded ~~respectively. Of~~asset ~~these~~ amounts, ~~three~~or ~~customers~~the ~~accounted~~amount ~~for 98%~~ of ~~accounts~~liabilities ~~receivable~~that atmight be ~~December~~necessary ~~31,~~should ~~2010,~~the ~~and~~Company ~~four~~be ~~customers~~unable ~~accounted~~to ~~for~~continue ~~96%~~in ~~of accounts receivable at September 31, 2011~~existence.

~~NOTE~~Continuation 5of –the ~~INVENTORIES~~Company as a going concern is dependent upon achieving profitable operations or accessing sufficient operating capital. On July 17, 2015, the controlling interest of the Company was purchased by members of management in a private transaction with the holder of the majority of voting securities and new management commenced seeking and identifying and developing a line of business in the power energy management sector to generate revenue and achieve profitability. However, there are no assurances that profitability will be achieved or that sufficient capital will be raised to initiate such an operation and successfully implement the Company’s business plan. During the two years since management has taken control of the Company, management has been working to identify potential projects and sites on which to establish battery based or traditional generator systems. Although the Company does not presently have any battery or generator systems in operation, management believes that its business plan and approach will result in successful systems which will generate revenue for the Company.

~~Inventories~~The ~~are~~Company ~~valued~~will atbe ~~the~~required ~~lower~~to ofobtain capital ~~cost~~ (~~first-in,~~whether ~~first-out)~~through equity or ~~market. The~~debt ~~Company~~or ~~reviews~~combination ~~inventory~~thereof) ~~for~~in ~~impairments~~substantial amounts in order to ~~net~~satisfy ~~realizable~~its ~~value~~working ~~whenever~~capital needs ~~circumstances~~and ~~arise. Such~~to ~~circumstances~~develop ~~may~~projects ~~include,~~as ~~but~~contemplated ~~are~~in ~~not~~its ~~limited~~business ~~to,~~plan ~~the~~and ~~discontinuation~~plan of aoperations. ~~product~~However, ~~line~~there orare ~~re-engineering~~no ~~certain~~assurances ~~components~~that sufficient ~~making~~capital ~~certain~~will ~~parts~~be ~~obsolete~~raised. ~~Management~~ ~~recorded~~If anunable ~~inventory~~to ~~obsolescence~~obtain ~~charge~~sufficient ofcapital ~~$44,633~~on inreasonable ~~March~~terms, ~~May~~the ~~and~~Company ~~June~~would ofbe ~~2011. Management~~forced ~~has~~to ~~determined~~restructure, file ~~a reserve~~ for ~~inventory~~bankruptcy ~~obsolescence~~or iscurtail ~~not necessary at September 30, 2011~~ or ~~December~~cease ~~31, 2010~~operations.

~~Inventories are comprised as follows:~~5

	September 30, 2011		December 31, 2010
Raw materials	$	165,911	$	170,251
Finished goods		5,372		46,868
Inventories	$	171,283	$	217,119

POWER EFFICIENCY CORPORATION AND SUBSIDIARY

~~NOTE~~NOTES 6TO –UNAUDITED ~~GOODWILL~~CONSOLIDATED FINANCIAL STATEMENTS

OnAS OF ~~January~~AND 1,FOR ~~2011,~~THE ~~the~~NINE ~~Company~~AND ~~adopted~~THREE ~~FASB~~MONTHS ~~ASU~~ENDED ~~No.~~SEPTEMBER 2010-28, Intangibles (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. The Guidance calls for reporting units with zero or negative carrying amounts to perform Step 2 of the goodwill impairment test. As of September 30, ~~2011, the Company’s fair value exceeded its carrying value, which was positive; therefore, the Company is not required to perform Step 2.~~2016

InNOTE ~~accordance with ASC 350, Goodwill and Other Intangible Assets, previously recognized goodwill was tested by management for impairment during 2011 and 2010 utilizing a two~~4-~~step~~ ~~test. At~~SUMMARY aOF ~~minimum,~~SIGNIFICANT ~~an annual goodwill impairment test is required, or when certain events indicate a possible impairment.~~ACCOUNTING POLICIES

~~The~~Principles ~~first part~~ of the test is to compare the Company’s fair market value to the book value of the Company. If the fair market value of the Company is greater than the book value, no impairment exists as of the date of the test. However, if book value exceeds fair market value, the Company must perform part two of the test, which involves recalculating the implied fair value of goodwill by repeating the acquisition analysis that was originally used to calculate goodwill, using purchase accounting as if the acquisition happened on the date of the test, to calculate the implied fair value of goodwill as of the date of the test.Consolidation:

-The 8accompanying -consolidated financial statements includes the accounts of Power Efficiency Corporation and its wholly owned subsidiary, Hillsborough Battery I LLC. The subsidiary entity was established to serve as the legal entity for a battery system project to be located in Hillsborough, New Jersey. All significant intercompany transactions and balances have been eliminated in consolidation.

~~The~~Use Company has no accumulated impairment losses on goodwill. The Company’s impairment analysis is performed on December 31 each year, on the Company’s single reporting unit. Using the Company’s market capitalization (a Level 1 input), management determined that the estimated fair market value exceeded the company’s book value as of ~~September 30, 2011 and December 31, 2010. Based on this, no impairment exists as of September 30, 2011 and December 31, 2010.~~Estimates:

~~NOTE~~The 7preparation –of ~~EARNINGS~~financial ~~PER~~statements in ~~SHARE~~conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. Actual results could differ from those estimates and the differences could be material.

~~The~~Cash ~~Company accounts for its earnings per share in accordance with ASC 260, Earnings Per Share, which requires presentation of basic~~ and ~~diluted~~Cash earnings per share. Basic earnings per share is computed by dividing income or loss attributable to common shareholders by the weighted average number of common shares outstanding for the reporting period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts, such as stock options, to issue common stock were exercised or converted into common stock.Equivalents:

	Three Months Ended September 30, 2011			Three Months Ended September 30, 2010			Nine Months Ended September 30, 2011			Nine Months Ended September 30, 2010
Net loss attributable to common shareholders	$	(1,191,797	)	$	(1,153,111	)	$	(3,581,534	)	$	(5,767,955	)
Basic weighted average number of common shares outstanding		54,346,832			45,119,984			51,507,462			45,013,643
Dilutive effect of stock options		-			-			-			-
Diluted weighted average number of common shares outstanding		54,346,832			45,119,984			51,507,462			45,013,643
Basic and diluted loss per share	$	(0.02	)	$	(0.03	)	$	(0.07	)	$	(0.13	)

The Company considers all highly-liquid investments with maturities of three months or less when purchased to be cash equivalents.

~~For~~Concentration ~~the three and nine months ended September 30, 2011, warrants and options to purchase 65,679,324 shares~~ of ~~common~~Credit stock at per share exercise prices ranging from $0.08 to $19.25 were not included in the computation of diluted loss per share because inclusion would have been anti-dilutive. For the three and nine months ended September 30, 2010, warrants and options to purchase 70,578,324 shares of common stock at per share exercise prices ranging from $0.11 to $19.25 were not included in the computation of diluted loss per share because inclusion would have been anti-dilutive.Risk:

-Financial 9instruments -that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents. The Company places its cash with high quality banking institutions. From time to time, the Company may maintain cash balances at certain institutions in excess of the Federal Deposit Insurance Corporation limit.

~~NOTE~~Income ~~8 – STOCK-BASED COMPENSATION~~Taxes:

AtUnder ~~September~~ASC 30740, ~~2011~~“Income Taxes”, deferred ~~the~~tax ~~Company~~assets ~~had~~and ~~two~~liabilities ~~stock-based~~are ~~compensation~~recognized ~~plans. There~~for ~~were~~the ~~5,500,000~~future ~~options~~tax ~~granted~~consequences inattributable ~~the~~to ~~nine~~temporary ~~months~~differences ~~ended~~between the ~~September~~financial ~~30,~~statement ~~2011,~~carrying amounts of ~~which~~existing ~~2,000,000~~assets ~~options~~and ~~have~~liabilities ~~been~~and ~~cancelled~~their respective tax bases and from net operating loss carryovers. ~~The~~ ~~fair~~Deferred ~~value~~tax ofassets ~~these~~and ~~options~~liabilities ~~was~~are ~~approximately~~measured ~~$566,000~~using atenacted ~~issuance. There~~tax ~~were~~rates ~~10,500,000~~expected ~~options~~to ~~granted~~apply into taxable income in the ~~nine~~years ~~months~~in ~~ended~~which ~~September~~those ~~30,~~temporary ~~2010,~~differences ofare ~~which~~expected ~~4,657,500~~to ~~have~~be ~~been~~recovered ~~cancelled~~or settled. ~~The~~ ~~fair~~Valuation ~~value~~allowances ofare ~~these~~established ~~options~~when it ~~was~~is ~~approximately~~more ~~$1,731,000~~likely atthan ~~issuance. No~~not ~~stock~~that ~~options~~some ~~were~~or ~~exercised~~all inof the ~~periods~~deferred ~~ending~~tax assets will not be realized. As of September 30, ~~2011~~2016, ~~and~~there ~~2010. The~~were no ~~Company~~deferred ~~accounts~~taxes ~~for~~from ~~stock~~net ~~option~~operating ~~grants~~loss incarryovers ~~accordance~~as ~~with~~it ~~ASC~~is ~~718,~~believed ~~Compensation~~that –the ~~Stock~~Corporation ~~Compensation. Compensation~~will ~~costs~~not ~~related~~benefit tofrom ~~share-based~~any ~~payments~~deferred tax ~~recognized~~benefits inresulting ~~the~~from ~~Condensed~~prior ~~Statements~~year ofnet ~~Income~~operating ~~were~~losses. ~~$145,476~~The ~~and~~deferred ~~$212,619~~tax ~~for~~asset ~~the~~of ~~periods~~$5,584 ~~ended~~at September 30, ~~2011~~2016 and ~~2010~~$5,887 at ~~respectively~~December 31, 2015 is attributable to the future tax amortization of the organization costs.

~~NOTE~~Uncertain 9Tax ~~– MATERIAL AGREEMENTS~~Positions:

InThe ~~March 2011, the~~ Company ~~entered~~has ~~into~~adopted aFASB ~~lease~~ASC ~~for office space~~740-10-25, Accounting ~~engineering~~for ~~and~~Uncertainty ~~manufacturing~~in ~~facilities~~Income Taxes. The ~~new~~Company ~~lease~~is ~~calls~~required ~~for~~to ~~an initial base rent of $9~~recognize,~~298~~ ~~per month~~measure, ~~plus operating costs~~classify, and ~~annual~~disclose ~~increases~~in ~~equal~~the tofinancial statements 3%uncertain oftax ~~the~~positions ~~base~~taken ~~rent. For~~or ~~the~~expected ~~first~~to 11be ~~months~~taken ofin the ~~lease~~Company’s ~~term,~~tax ~~the~~returns. ~~company~~Since istax ~~only~~matters ~~required~~are subject to ~~pay~~some ~~one-half~~degree of ~~the~~uncertainty, ~~initial~~there ~~base~~can ~~rent~~be ~~per~~no ~~month. The~~assurance ~~term~~that of the ~~lease~~Company’s istax 48returns ~~months~~will ~~and~~not ~~commenced~~be onchallenged ~~April~~by 1,the ~~2011. Total~~taxing authorities ~~rent~~and ~~expense~~that ~~was~~the ~~$39,168~~Company ~~and~~will ~~$41,937~~not ~~for~~be ~~the~~subject ~~three~~to ~~months~~additional ~~and~~tax, ~~$171~~penalties,~~100~~ and ~~$150,436~~interest ~~for~~as ~~the~~a ~~nine~~result ~~months~~of ~~ended~~such ~~September~~challenge. The ~~30,~~Company’s ~~2011~~2012 and ~~2010,~~subsequent ~~respectively~~years remain open for tax examination.

In July 2011, the Company entered into a sublease agreement for its Las Vegas office facilities. Under the sublease, the Company will receive rents of $8,098 per month. The term of the sublease is for 16 months, expiring on November 30, 2012.6

~~NOTE~~POWER 10EFFICIENCY –CORPORATION ~~WARRANT~~AND ~~LIABILITY~~SUBSIDIARY

~~The~~NOTES ~~Company~~TO ~~issued~~UNAUDITED ~~5,696,591~~CONSOLIDATED warrants in connection with a private offering of its common stock on July 8, 2005 and August 31, 2005. The proceeds attributable to the warrants, based on the fair value of the warrants at the date of issuance, amounted to $1,433,954 and were accounted for as a liability and valued in accordance with ASC 815 Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock based on an evaluation of the terms and conditions related to the warrant agreements, which provide that the exercise price of these warrants shall be reduced if, through a subsequent financing, the Company issues common stock below the lowest per share purchase price of the offering. In each subsequent period, the Company adjusted the warrant liability to equal the fair value of the warrants at each balance sheet date. Changes in the fair value of warrants classified as a liability are recognized in earnings. The warrant liability, including the effect of the anti-dilution provision, was valued as follows:FINANCIAL STATEMENTS

	Three months ended September 30, 2010			Nine month ended September 30, 2010
Balance at beginning of period	$	4,745		$	828,827
Change in fair value		(4,745	)		(828,827	)
Balance at end of period	$	-		$	-

AS OF AND FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2016

~~All~~NOTE ~~the~~4- ~~liability~~SUMMARY ~~warrants~~OF ~~had~~SIGNIFICANT ~~expired~~ACCOUNTING POLICIES ~~as of December 31, 2010.~~(continued)

-Accounting 10for -Share Based Compensation:

~~NOTE~~The 11analysis –and ~~INCOME~~computation ~~TAXES~~was performed based on our adoption of ASC 718-10-25, which requires the recognition of the fair value of stock-based compensation. For the nine months ended September 30. 2016 and 2015, we recognized $13,152 and $28,683, respectively, in share-based payments related to the issuance of stock options and $480 and $6,432 for the three months ended September 30, 2016 and 2015, respectively. We recognized no expense related to the issuance of warrants during the nine months or three months ended September 30, 2016 and 2015.

The Company utilizes the asset and liability method of accounting for income taxes pursuant to ASC 740, Accounting for Income Taxes (“ASC 740”). ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected future tax impact of differences between the financial statement and tax basis of assets and liabilities, and for the expected future tax benefit to be derived from tax loss and tax credit carryforwards. ASC 740 additionally requires the establishment of a valuation allowance to reflect the likelihood of realization of deferred tax assets. The Company has evaluated the net deferred tax asset, taking into consideration operating results, and determined that a full valuation allowance should be maintained.Advertising:

~~The~~Advertising ~~Company~~costs ~~accounts~~are ~~for~~expensed uncertain tax positions under the provisions of ASC 740-10. The Company has not identified any uncertain tax positions, nor does it believe it will have any material changes over the next 12 months. Any interest or penalties resulting from examinations will be recognized as ~~a component of the income tax provision~~incurred. ~~However,~~ There ~~since~~were ~~there are~~ no ~~unrecognized~~advertising ~~tax~~expenses ~~benefits~~for asthe anine ~~result~~and ofthree ~~the~~months ~~tax~~ended ~~positions~~September ~~taken~~30, ~~there~~2016 ~~are no accrued interest~~ and ~~penalties~~2015, respectively.

~~NOTE~~Research 12and ~~– SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION~~Development:

~~Cash~~Research ~~paid~~and ~~during~~development expenditures are charged to expense as incurred. There were no research and development expenses for the nine and three months ended September 30, 2016 ~~for:~~and 2015, respectively.

		2011				2010
Income/franchise taxes		$	18,612			$	12,849

Earnings Per Share:

~~Non-cash~~Under ~~investing~~the ~~and~~provisions ~~financing~~of ~~activities~~ASC ~~during~~260, “Earnings per Share,” basic loss per common share is computed by dividing net loss available to common shareholders by the weighted average number of shares of common stock outstanding for the periods presented. Diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would then share in the income of the Company. As of September 30, 2016, there were options outstanding for the purchase of 26,666 shares of Common Stock which could potentially dilute future earnings per share. No options were issued or exercised for the nine or three months ended September 30, ~~for:~~2016. All options which were outstanding as of September 30, 2016 had expired as of December 31, 2016.

	2011		2010
Common stock issued to vendors	$	-	$	60,000
Senior secured notes converted into Series D preferred stock	$	-	$	1,237,083
Accrued interest and accrued wages converted into Series D preferred stock	$	-	$	181,718
Preferred stock dividend recognized for beneficial conversion features of preferred stock issuances	$	-	$	2,643,679
Preferred stock dividends paid or payable in common stock	$	809,544	$	615,352

At September 30, 2016 the Company had outstanding:

~~NOTE~~an aggregate 13of –472,002 ~~SUBSEQUENT~~shares ~~EVENTS~~of preferred stock issued and outstanding comprised of Classes B, C-1 and D preferred stock convertible into an aggregate of 3,146,679 shares of Common Stock; and 28,886,843 shares of Common Stock at September 30, 2016.

OnAt ~~October~~December 431, ~~2011~~2015, the Company ~~entered~~had ~~into a bridge financing transaction in which it issued an aggregate of $1~~26,~~000~~420,~~000~~177 shares ~~in senior secured notes, before discount, and 2,777,780 warrants to purchase the Company’s common stock. The notes bear interest~~ of ~~10%~~Common ~~per~~Stock ~~annum,~~issued ~~payable upon maturity. The notes mature on March 31, 2012,~~ and have a first priority securing interest in all of the assets of the Company. The holders of the notes have the right to convert the amounts due plus all accrued but unpaid interest under the note into any subsequent financing while the note is outstanding~~, on the same terms as such new financing, at the sole discretion of the note holder~~. ~~The warrants to purchase the Company’s common stock have a per share exercise price of $0.09 and expire on October 3, 2016.~~

-Fair 11Value -of Financial Instruments:

~~ITEM~~The ~~2. MANAGEMENT~~Financial Accounting Standards Board’Ss ASC ~~DISCUSSION~~Topic ~~AND~~820, ~~ANALYSIS~~“Fair ORValue ~~PLAN~~Measurements”, OFdefines ~~OPERATION~~fair value, establishes a three-level valuation hierarchy for fair value measurements and enhances disclosure requirements.

~~FORWARD~~The ~~LOOKING~~three ~~STATEMENTS~~levels are defined as follows:

~~This~~Level ~~report~~1 ~~and~~– ~~the~~inputs ~~documents~~to ~~incorporated into this report contain forward-looking statements within~~ the ~~meaning~~valuation methodology ofare ~~the~~quoted ~~Private~~prices ~~Securities Litigation Reform Act of 1995~~ (~~the “PSLRA”~~unadjusted), ~~including,~~for ~~but~~identical ~~not~~assets limited to, statements relating to the Company’s business objectives and strategy. Such forward-looking statements are based on current expectations, management beliefs, certain assumptions made by the Company’s management, and estimates and projections about the Company’s industry. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “forecasts,” “is likely,” “predicts,” “projects,” “judgment,” variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict with respect to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may differ materially from those expressed, forecasted, or ~~contemplated~~liabilities byin ~~any~~active ~~such forward-looking statements~~markets.

~~Factors~~Level ~~that~~2 ~~could~~– ~~cause~~inputs ~~actual events or results~~ to ~~differ materially include, but are not limited to,~~ the ~~following:~~valuation methodology ~~continued~~included ~~market~~quoted ~~acceptance~~prices ~~of the Company’s products; the Company’s ability to expand and/or modify its products on an ongoing basis; general demand~~ for ~~the~~similar ~~Company’s~~assets ~~products, intense competition from other developers, manufacturers~~ and~~/or~~ ~~marketers~~liabilities ~~of energy reduction and/or power saving products; the Company’s negative net tangible book value; the Company’s negative cash flow from operations; delays or errors~~ in ~~the~~active ~~Company’s~~markets, ~~ability~~quoted tomarket ~~meet~~prices ~~customer~~for ~~demand~~identical ~~and deliver products on a timely basis; the Company’s lack of working capital; the Company’s need to upgrade its facilities; changes in laws and regulations affecting the Company and/~~or similar ~~its~~assets ~~products; the impact of technological advances and issues; the outcomes of pending and future litigation and contingencies; trends~~ in ~~energy~~markets ~~use~~that ~~and~~are ~~consumer~~not ~~behavior;~~active, ~~changes~~inputs ~~in the local and national economies; and~~ other ~~risks~~than ~~inherent~~quoted inprices ~~and~~that ~~associated~~are ~~with~~observable, ~~doing business in an engineering~~ and ~~technology~~inputs ~~intensive~~derived ~~industry.~~from ~~See “Management’s Discussion and Analysis~~ or corroborated ~~Plan~~by ofobservable ~~Operation.”~~market ~~Given these uncertainties, investors are cautioned not to place undue reliance on any such forward-looking statements~~data.

Unless required by law, the Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. However, readers should carefully review the risk factors set forth in other reports or documents that the Company files from time to time with the Securities and Exchange Commission (the “SEC”), particularly Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K.7

-POWER 12EFFICIENCY -CORPORATION AND SUBSIDIARY

~~OVERVIEW~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

~~The~~AS OF ~~Company~~AND ~~generates~~FOR ~~revenues~~THE ~~from~~NINE aAND ~~single~~THREE ~~business~~MONTHS ~~segment:~~ENDED ~~the~~SEPTEMBER ~~design~~30, development, marketing and sale of proprietary energy efficiency technologies and products for electric motors. The Company’s products, called Motor Efficiency Controllers (“MEC”), save up to 35 percent of the electricity used by a motor in appropriate applications. The Company’s patented technology platform, called E-Save Technology®, saves energy when a constant speed alternating current induction motor is operating in a lightly loaded condition. Target applications for the Company’s three-phase MECs include escalators, MG set elevators, grinders, crushers, saws, stamping presses, and many other types of industrial equipment. The Company has also developed a single-phase MEC targeted at smaller motors, such as those found in clothes washers, dryers, and other appliances and light commercial equipment. The Company has three existing patents and one patent pending on E-Save Technology® in the US, and has made numerous international patent filings. These patents primarily focus on algorithms and other control methods to optimize motor energy use while maintaining the stability and speed of the motor.2016

~~Analog~~NOTE ~~Three~~4-~~phase~~ ~~MEC~~SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

~~The~~Fair ~~Company~~Value ~~began generating revenues from sales~~ of ~~its~~Financial patented analog three-phase MEC line of motor controllers in the late 1990’s. The Company sold this product through the second quarter of 2009, and is currently providing repair services and parts for units in the field.Instruments (continued):

~~Digital~~Level ~~Three-phase~~3 ~~MEC~~– inputs to the valuation methodology are unobservable.

InThe ~~2005, the~~ Company’s ~~began~~financial ~~development~~instruments, classified ofas aLevel ~~digital~~1 ~~version~~within ~~of its three-phase MEC so that~~ the ~~product~~fair ~~would~~value behierarchy, ~~capable~~consist primarily of ~~high~~cash, ~~volume~~deferred ~~sales~~project ~~through~~costs, ~~existing~~restricted ~~distribution~~deposits ~~channels~~in money ~~for~~market ~~motor~~accounts, ~~controls. The~~a ~~digital~~note ~~version~~receivable isfrom ~~much~~affiliate ~~smaller in size~~ and ~~easier~~accrued todividends ~~install~~payable ~~than~~and ~~the~~expenses. ~~analog~~The ~~product,~~carrying isamount ~~driven~~of bysuch financial ainstruments ~~powerful~~approximate ~~digital~~their ~~signal~~respective ~~processor.~~estimated ~~The~~fair ~~digital~~value ~~MEC~~due isto ashort ~~complete~~term ~~motor~~maturities ~~control~~and ~~device,~~approximate ~~meaning~~market isinterest rates ~~can~~of ~~start,~~these ~~stop,~~instruments. ~~soft~~The ~~start~~Company’s ~~and~~accrued ~~protect~~dividends apayable ~~motor,~~approximate ~~and~~the isfair ~~therefore~~value ~~capable~~ of ~~replacing~~such ~~standard~~instruments ~~motor~~based upon ~~starters~~management’s ~~and~~best ~~soft~~estimate ~~starts~~of ~~that~~debt dointerest ~~not~~rates ~~save~~that ~~energy.~~would ~~The~~be ~~product~~available ~~can~~to bethe ~~installed~~Company byfor ~~OEMs~~financial arrangements at ~~their~~September ~~factories~~30, or2016 itand ~~can~~December be31, ~~retrofitted on to existing equipment~~2015.

InRevenue 2008, the Company launched limited sales of the digital three-phase MEC and initiated testing if the digital product by several OEMs, primarily in the elevator/escalator industry. In the summer of 2009, the Company announced its first OEM agreements and that it had received Underwriters’ Laboratories (“UL”) certification on a full line of the Company’s digital three-phase products. UL certification enables the Company to sell its digital three-phase products to industrial markets. The Company is working with independent sales representatives and distributers, as well as directly with OEMs, to penetrate the industrial markets.Recognition:

InThe ~~the~~Company ~~first~~had ~~quarter~~no ofrevenue ~~2011,~~during the ~~Company~~nine and ~~launched its 2nd generation digital~~ three~~-phase~~ ~~MEC~~months ~~for~~ended ~~products~~September ~~ranging~~30, ~~from~~2016 22and ~~to 80 amps~~2015. ~~These~~ ~~are~~The ~~the~~ Company’s ~~highest~~business ~~volume~~model ~~three-phase~~provides ~~products. The~~that ~~2nd~~revenue ~~generation~~will ~~digital~~be ~~three-phase~~derived ~~MEC~~from payments ~~uses~~to ~~a more powerful processor and has generally enhanced capabilities. The 2nd generation products also incorporate numerous cost saving advantages over~~ the ~~1st~~Company ~~generation~~as ~~products. The~~its ~~Company~~battery ~~expects~~storage ~~these~~systems ~~cost~~generate ~~savings~~revenue tofrom ~~have~~electric amarket ~~significant~~participants ~~impact~~for on the ~~average~~sale ~~cost~~ of ~~these~~electricity into ~~products in~~ the ~~fourth quarter of 2011~~market.

-Recent 13Accounting -Pronouncements:

~~Digital~~A ~~Single-phase~~variety ~~MEC~~of proposed or otherwise potential accounting standards are currently under study by standard setting organizations and various regulatory agencies. Due to the tentative and preliminary nature of those proposed standards, management has not determined whether implementation of such proposed standards would be material to the consolidated financial statements of the Company.

InNOTE ~~2006, the Company began development on its digital single~~5-~~phase~~ ~~product. The~~SHARE ~~digital~~BASED single phase MEC is targeted at appliances, such as clothes washers and dryers. The single phase MEC can also be incorporated directly into a motor, making a combined motor and motor control with energy efficiency, soft start and other advanced features.COMPENSATION

~~Because~~As of September 30, 2016, there were options outstanding for the ~~nature~~purchase of ~~our~~26,666 ~~business~~shares of Common Stock, ~~the~~with ~~Company~~exercise ~~makes~~prices ~~significant~~ranging ~~investments~~from in$0.75 ~~research~~to ~~and~~$9.75 ~~development~~per ~~for~~share, ~~new~~all of ~~products~~which ~~and~~were ~~enhancements~~issued prior to ~~existing~~2012. ~~products~~All such previously issued options have expired. ~~Historically~~ During the period from April 2012 to September 30, 2016, the Company ~~has~~did ~~funded~~not ~~its~~issue ~~research~~any ~~and~~stock ~~development~~based ~~efforts~~options ~~through~~or ~~cash~~other ~~flow~~securities. ~~primarily~~There ~~generated~~has ~~from~~been ~~debt~~no ~~and~~active ~~equity~~market ~~financings. Management~~for ~~anticipates~~the ~~that~~Company's Common ~~future~~Stock ~~expenditures~~during inthe ~~research~~latest two fiscal years or during the nine and ~~development~~three ~~will~~months ~~continue~~ended atSeptember ~~current~~30, ~~levels~~2016.

~~The~~In ~~Company’s~~accordance ~~results~~with ofASC ~~operations~~718, ~~for~~ the ~~three~~Company determines ~~and~~whether ~~nine~~a ~~months~~share ~~ended~~payment ~~September~~should ~~30,~~be ~~2011~~classified ~~were~~and ~~marked~~accounted byfor as a ~~decrease~~liability inaward ~~revenues~~or ~~and~~equity anaward. ~~increase~~All ingrants ~~loss~~of ~~from~~share-based payments ~~operations~~to ~~that~~service ~~are~~providers ~~more~~classified ~~fully~~as ~~discussed~~equity inawards ~~the~~are ~~following~~recognized ~~section,~~in ~~“Results~~the offinancial ~~Operations~~statements ~~for~~based ~~the~~on ~~Three~~their ~~and~~grant ~~Nine~~date fair ~~Months~~values ~~Ended~~which ~~September~~are ~~30,~~calculated ~~2011~~using ~~and~~historical ~~2010”~~pricing. ~~Sales~~ ~~cycles~~The ~~for~~Company ~~our~~has ~~products~~elected ~~range from less than a month~~ to ~~well~~recognize ~~over~~compensation ~~one~~expense ~~year,~~based ~~depending~~ on ~~customer~~the criteria ~~profile. Larger~~that ~~original~~the ~~equipment~~stock ~~manufacturer~~awards ~~(“OEM”)~~vest ~~deals~~immediately ~~and~~on ~~sales~~the toissuance ~~larger~~date. ~~end~~ASC ~~users~~718 ~~generally~~requires ~~take~~forfeitures ato ~~longer period of time, whereas sales through channel partners may~~ be ~~closed~~estimated ~~within~~at ~~a few days or weeks. Because of~~ the ~~complexity~~ time of ~~this~~grant ~~sales~~and ~~process~~revised, aif ~~number~~necessary, ofin ~~factors~~subsequent ~~that~~period ~~are~~if ~~beyond~~actual ~~the~~forfeitures ~~control~~differ offrom ~~the~~initial ~~Company can delay the closing of transactions~~estimates.

~~RESULTS~~In OFcomputing the ~~OPERATIONS~~impact, ~~FOR~~the ~~THE~~fair ~~THREE~~value ~~AND~~of ~~NINE~~each ~~MONTHS~~option ~~ENDED~~is ~~SEPTEMBER~~estimated 30on the date of grant based on the BlackScholes options-pricing model utilizing certain assumptions for a risk-free interest rate; volatility; and expected remaining lives of the awards. The assumptions used in calculating the fair value of share-based payment awards represent management's best estimates, ~~2011~~but ~~AND~~these ~~2010~~estimates involve inherent uncertainties and the application of management's judgment. As a result, if factors change and the Company uses different assumptions, the Company's stock-based compensation expense could be materially different in the future.

~~The following table sets forth certain line items in our condensed statement of operations as a percentage of total revenues for the periods indicated:~~8

	Three Months Ended September 30, 2011			Three Months Ended September 30, 2010			Nine Months Ended September 30, 2011			Nine Months Ended September 30, 2010
Revenues		100.0	%		100.0	%		100.0	%		100.0	%
Cost of revenues		80.3			55.7			85.0			72.5
Gross profit		19.7			44.3			15.0			27.5
Costs and expenses:
Research and development		254.5			127.6			226.3			131.2
Selling, general and administrative		492.4			348.1			476.3			454.6
Depreciation and amortization		7.1			6.3			7.3			9.0
Total expenses		754.0			482.0			709.9			594.8
Loss from operations		(734.3	)		(437.7	)		(694.9	)		(567.3	)
Other income (expense)		0.1			6.9			1.5			(23.1	)
Loss before provision for income taxes		(734.2	)		(430.8	)		(693.4	)		(590.4	)
Provision for income taxes		10.1			8.8			9.5			12.1
Net loss		(744.3	)		(439.6	)		(702.9	)		(602.5	)
Dividends paid or payable on Series B, C-1 and D Preferred Stock		220.2			198.2			205.3			782.7
Net loss attributable to common shareholders		(964.5	)		(637.8	)		(908.2	)		(1,385.2	)

POWER EFFICIENCY CORPORATION AND SUBSIDIARY

~~REVENUES~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

~~Total~~AS OF ~~revenues~~AND ~~for~~FOR ~~the~~THE ~~three~~NINE ~~months~~AND ~~ended~~THREE ~~September~~MONTHS ~~30,~~ENDED ~~2011~~SEPTEMBER ~~were approximately $124,000, compared to $181,000 for the three months ended September~~ 30, 2010, a decrease of $57,000 or 31%. This decrease is mainly attributable to a decrease in sales in the industrial market in the third quarter of 2011. Specifically, industrial sales fell to approximately $10,000 for the three months ended September 30, 2011, from approximately $83,000 for the three months ended September 30, 2010, which was partially offset by an increase in sales in the elevator and escalator market which grew to approximately $115,000 for the three months ended September 30, 2011, from $98,000 for the three months ended September 30, 2010. The decrease in industrial sales is primarily due to one large international sale that occurred during the three months ended September 30, 2010, of which no comparable sale occurred during the three months ended September 30, 2011. The increase in elevator and escalator sales in the three months ended September 30, 2011 is primarily due to the commercialization and increased market acceptance of the Company’s digital products resulting from the OEM agreements the Company signed in 2009 and 2010. For the three months ended September 30, 2011, industrial and other sales were approximately 8% of total sales, and escalator and elevator sales were approximately 92% of total sales. All sales for the three months ended September 30, 2011 consisted entirely of digital units. For the three months ended September 30, 2010, industrial and other sales were approximately 46% of total sales, and escalator and elevator sales were approximately 54% of total sales. All sales for the three months ended September 30, 2010 consisted entirely of digital units.2016

NOTE 5- 14SHARE -BASED COMPENSATION (continued)

~~Total~~In ~~revenues~~addition, ~~for~~ the ~~nine~~Company ~~months~~is ~~ended~~required ~~September 30, 2011 were approximately $394,000, compared~~ to estimate ~~$416,000 for~~ the ~~nine~~expected ~~months~~forfeiture ~~ended~~rate ~~September~~and ~~30,~~only ~~2010,~~recognize aexpense ~~decrease~~for ofthose ~~$22,000~~shares orexpected ~~5%. This decrease is mainly attributable~~ to ~~a decrease in sales in the industrial market in the first three quarters of 2011~~vest. ~~Specifically,~~ ~~sales~~In inestimating the ~~industrial~~Company's forfeiture ~~market fell to approximately $102~~rate,~~000~~ ~~for~~ the ~~nine~~Company ~~months~~analyzed ~~ended~~its ~~September~~historical ~~30,~~forfeiture ~~2011~~rate, ~~compared to $150,000 for~~ the ~~nine~~remaining ~~months~~lives ~~ended~~of ~~September~~unvested 30options, ~~2010, which was partially offset by an increase in elevator~~ and ~~escalator sales, which grew to approximately $293,000 for~~ the ~~nine~~amount ~~months~~of vested ~~ended~~options ~~September~~as ~~30,~~a ~~2011,~~percentage ~~from~~of ~~approximately~~total ~~$266,000~~options ~~for~~outstanding. If the ~~nine~~Company's ~~months~~actual ~~ended~~forfeiture ~~September~~rate ~~30, 2010. The decrease in industrial sales~~ is ~~primarily~~materially ~~due~~different tofrom its ~~one large international sale that occurred during the nine months ended September 30~~estimate, ~~2010,~~or ofif ~~which no comparable sale occurred during~~ the ~~nine~~Company ~~months~~reevaluates ~~ended September 30, 2011, partially offset by sales to an Asian industrial distributor during~~ the ~~nine~~forfeiture ~~months~~rate ~~ended September 30, 2011. The increase~~ in ~~elevator and escalator sales in~~ the ~~nine months ended September 30~~future, ~~2011 is primarily due to~~ the ~~commercialization~~stock-based ~~and~~compensation ~~increased~~expense ~~market~~could ~~acceptance~~be ofsignificantly different ~~the Company’s digital products resulting~~ from ~~the~~what ~~OEM~~we ~~agreements~~have ~~the~~recorded ~~Company signed~~ in ~~2009~~the ~~and~~current ~~2010~~period. The ~~digital~~impact ~~product~~of ~~has~~applying ~~been~~ASC ~~tested~~718 ~~and~~approximated ~~approved for use on a retrofit and OEM basis by two elevator and escalator OEMs and on a retrofit basis by a third OEM. Currently~~$13,152 ~~two~~in ofadditional ~~the~~compensation expense ~~three~~during ~~OEMs we have agreements with have approved and adopted our second generation digital product. For~~ the nine months ended September 30, ~~2011,~~2016. ~~industrial~~Such ~~and~~amounts ~~other~~are ~~sales~~included ~~were~~in ~~approximately~~expense ~~26%~~on ~~of total sales, and escalator and elevator sales were approximately 74% of total sales. For~~ the ~~nine~~statement ~~months ended September 30, 2010, industrial sales,~~ of ~~which all but one order consisted of digital units, were approximately 34% of total sales, and escalator and elevator sales were approximately 66% of total sales~~operations.

~~COST~~The OFCompany ~~REVENUES~~adopted a new stock based compensation plan in July, 2016 which provided for a reserve of 5 million shares of Common Stock (See Note 9).

~~Total~~In ~~cost of revenues~~December, ~~which~~2015 ~~includes material, direct labor, overhead and inventory obsolescence for~~ the ~~three~~Company ~~months ended September 30, 2011, was approximately $99,000 compared to approximately $101,000 for~~ authorized the ~~three~~issuance ~~months ended September 30, 2010, a decrease~~ of ~~$2,000 or 2%. This decrease is mainly attributable to~~ an ~~overall~~aggregate ~~decrease in sales in the third quarter~~ of ~~2011~~1, ~~as described above. As a percentage of revenue~~651,266 ~~total~~shares ~~cost~~ of ~~revenues~~Common ~~increased~~Stock to ~~approximately 80% for~~ the ~~three~~following ~~months~~persons ~~ended~~and ~~September~~entities ~~30, 2011 compared to approximately 56%~~ for ~~the~~services ~~three~~(which months ended September 30, 2010. The increase in the costs as a percentage of revenues was primarily due to an abnormally large amount of warranty costs during the three months ended September 30, 2011. These large warranty costs approximated $28,000 and shares were ~~caused~~not byissued auntil ~~faulty batch of our first generation digital controllers. We have since replaced all such units with our second generation digital controllers at no additional cost to our customers~~June, ~~and we are no longer selling our first generation digital controllers.~~2016):

Total cost of revenues, which includes material, direct labor, overhead and inventory obsolescence for the nine months ended September 30, 2011, was approximately $335,000 compared to approximately $302,000 for the nine months ended September 30, 2010, an increase of $33,000 or 11%. This increase is mainly attributable to an inventory obsolescence charge of approximately $45,000 and the $28,000 in warranty costs as described above. There was no comparable inventory obsolescence charge during the nine months ended September 30, 2010. As a percentage of revenue, total cost of sales increased to approximately 85% for the nine months ended September 30, 2011 compared to approximately 73% for the nine months ended September 30, 2010. The increase in the costs as a percentage of sales were due to the inventory obsolescence charge and the warranty costs as described above.

MCG Enterprises, Inc.			792,300
Becker & Poliakoff LLP			792,300
Steven A. Caputo			66,666
Total:			1,651,266

-MCG 15Enterprises -is an entity controlled by the Company’s Chief Financial Officer. The issuance was for services provided to the Company, namely, making the chief financial officer available to the Company in lieu of any salary or other compensation.

~~The~~Becker ~~inventory~~& ~~obsolescence~~Poliakoff ~~charge~~LLP is ~~related to~~ the Company’s outside ~~switch~~law ~~from its 1st generation digital MECs to its 2nd generation digital MECs~~firm, ~~for~~and ~~products~~one ~~ranging from 22 to 80 amps. These are the Company’s highest volume products. As~~ of ~~September 30, 2011 all of our customers were accepting shipments of the 2nd generation digital MECs. The Company expects the cost savings associated with the switch to~~ its ~~2nd~~partners ~~generation~~serves ~~product~~as toSecretary ~~have a significant impact on the average per unit cost~~ of the ~~22 to 80 amp units in the fourth quarter of 2011 and the first quarter of 2012~~Company.

~~GROSS~~Steven ~~PROFIT~~A. Caputo has provided legal services to the Company with respect to the Hillsborough, NJ battery project, and is the brother of R. Scott Caputo, the Chief Operating Officer and President.

~~Gross~~In ~~profit~~August ~~for~~2016, the ~~three~~Company ~~months~~authorized the ~~ended~~issuance ~~September 30~~of, ~~2011~~and ~~was~~issued, ~~approximately~~an ~~$24,000~~aggregate ~~compared~~of toan ~~approximately~~additional ~~$80~~2,400,000 ~~for~~shares ~~the~~of ~~three~~restricted ~~months~~stock ~~ended~~in ~~September~~consideration ~~30, 2010. This decrease is mainly attributable to decreased revenues as well as the abnormally high warranty costs described above. As a percentage~~ of ~~revenue,~~services ~~gross profit decreased~~ to ~~approximately 20% for~~ the ~~three~~following ~~months ended September 30, 2011 compared to approximately 44% for the three months ended September 30, 2010 for the reasons explained above.~~persons/entities:

Gross profit for the nine months ended September 30, 2011 was approximately $59,000 compared to approximately $115,000 for the nine months ended September 30, 2010. As a percentage of revenue, gross profit decreased to approximately 15%, which included inventory obsolescence charges of 11% and abnormally high warranty costs, for the nine months ended September 30, 2011 compared to approximately 28%, which included one large sale with extremely reduced pricing to a marquee end user who was considered a strategic customer, for the nine months ended September 30, 2010.

Consultant – Energy Projects			666,667
Board services			66,667
Legal Services Law Firm - (Becker & Poliakoff LLP)			333,333
Chief Financial Officer services - (MCG Enterprises, Inc.)			333,333
General Advisory Services Consultant			1,000,000
Total:			2,400,000

~~OPERATING~~In ~~EXPENSES~~April, 2017, the Company issued an aggregate of 4,500,000 options to two of its officers and a consultant with exercise prices ranging between $0.10 and $0.11 per share. In January, 2017, the Company entered into a consulting agreement with a third party pursuant to which it agreed, subject to the conditions contained in the agreement, to issue warrants to purchase up to 4,000,000 warrants for shares of common stock with an exercise price of $0.01 per share. See Note 13, Subsequent Events.

~~Research~~NOTE ~~and~~6- ~~Development~~NET ~~Expenses~~OPERATING LOSSES

~~Research~~As ~~and~~of ~~development~~September ~~expenses~~30, ~~were~~2016, ~~approximately~~the ~~$314,000~~Company ~~for~~had net ~~the~~operating ~~three~~losses ~~months~~(“NOLs”) ~~ended~~of ~~September~~approximately 30$40, ~~2011~~000,000 aslimited ~~compared~~ to approximately $~~231~~1,200,000 ~~for~~under the ~~three~~provisions of ~~months~~Section ~~ended~~382 ~~September~~of ~~30,~~the ~~2010,~~Internal anRevenue ~~increase~~Code of(see ~~$83,000 or 36%~~below). ~~This~~ ~~increase~~These isamounts ~~mainly~~are ~~attributable~~available to anbe ~~increase~~carried inforward ~~product~~to ~~development~~offset ~~and~~future ~~certification~~taxable income. ~~costs~~The ~~related~~carry forwards begin to expire during the ~~Company’s~~year ~~digital~~ended ~~controller~~December ~~for~~31, ~~both~~2020. ~~its~~The ~~single-phase~~Company ~~and~~has ~~three-phase~~provided ~~products~~a offull ~~$48,000,~~100% ~~consulting~~valuation allowance ~~fees~~on ofthe ~~$8,000,~~deferred ~~office~~tax ~~expenses~~assets ofat ~~$12~~September 30,~~000,~~ ~~rent~~2016 ofand ~~$15~~December 31,~~000~~ ~~and~~2015 ~~travel~~to ~~expenses~~reduce ofsuch ~~$14,000,~~deferred ~~during~~income ~~the~~tax ~~three~~assets ~~months~~to ~~ended~~zero as ~~September~~it ~~30,~~is ~~2011,~~management’s ~~partially~~belief ~~offset~~that byrealization aof ~~decrease~~such inamounts ~~payroll~~does ~~and~~not ~~payroll~~meet ~~related~~the ~~costs~~criteria ofrequired ~~$23,000~~by generally accepted accounting principles.

Research and development expenses were approximately $892,000 for the nine months ended September 30, 2011, as compared to approximately $546,000 for the nine months ended September 30, 2010, an increase of $346,000 or 63%. This increase is mainly attributable to an increase in salaries and payroll related costs of $45,000, product development and certification costs related to the Company’s digital controller for both its single-phase and three-phase products of $79,000, tools and supplies of $24,000, consulting fees of $24,000, office expenses of $33,000, rent of $50,000 and travel expenses of $59,000, during the nine months ended September 30, 2011.9

-POWER 16EFFICIENCY -CORPORATION AND SUBSIDIARY

~~Selling,~~NOTES ~~General~~TO ~~and~~UNAUDITED ~~Administrative~~CONSOLIDATED ~~Expenses~~FINANCIAL STATEMENTS

~~Selling,~~AS OF ~~general~~AND ~~and~~FOR ~~administrative~~THE ~~expenses~~NINE ~~were~~AND ~~approximately~~THREE ~~$608,000~~MONTHS ~~for~~ENDED ~~the~~SEPTEMBER ~~three months ended September~~ 30, 2011, as compared to $629,000 for the three months ended September 30, 2010, a decrease of $21,000 or 3%. The decrease in selling, general and administrative expenses compared to the prior year was primarily due to decreases in salaries and payroll related costs of $30,000, rent of $23,000 and conferences of $5,000. These decreases were partially offset by increased consulting fees of $41,000.2016

~~Selling,~~NOTE ~~general~~6- ~~and~~NET ~~administrative~~OPERATING ~~expenses~~LOSSES were approximately $1,878,000 for the nine months ended September 30, 2011, as compared to $1,893,000 for the nine months ended September 30, 2010, a decrease of $15,000 or 1%. The decrease in selling, general and administrative expenses compared to the prior year was primarily due to decreases in salaries and payroll related costs of $41,000, and legal and professional fees of $42,000. These decreases were partially offset by increases in travel expenses of $65,000.(continued)

~~Change~~Management inwill ~~Fair~~review ~~Value~~the ofvaluation ~~Warrant~~allowance required ~~Liability~~periodically and make adjustments if warranted.

~~Warrants~~Under ~~issued~~Section in382 ~~connection~~of ~~with~~the aInternal ~~private~~Revenue Code ~~offering~~ of 1986, as amended (the ~~Company’s~~“Code”), ~~common~~the utilization of net operating loss carry forwards is limited under the change in stock ~~completed~~ownership onrules ~~July~~of 8,the ~~2005~~Code. ~~and~~As ~~August~~a 31result, ~~2005~~NOLs ~~were~~prior ~~accounted~~to ~~for~~the aschanges ~~liabilities~~of control in ~~accordance~~2012 ~~with~~and ~~ASC~~July ~~820-10,~~2015 ~~Fair~~are ~~Value~~limited. ~~Measurements~~The Company’s ~~and~~operating ~~Disclosures,~~loss ~~based~~carry onforwards anare ~~analysis~~subject ofto ~~the~~these ~~terms~~limitations. ~~and~~Future ~~conditions~~ownership ofchanges could also further limit the ~~warrant~~utilization ~~agreements~~of any net operating loss carry forwards as of that date.

~~The~~NOTE ~~$4,745 and $828,827 decreases in the fair value of these warrants during three and nine months ended September 30, 2010, respectively, were reflected as non~~7-~~operating~~ ~~gains~~DEFERRED inPROJECT the Statement of Operations for the three and six months ended September 30, 2010. The warrants were valued at each reporting period using the Black-Scholes pricing model to determine the fair market value per share. All of these liability warrants had expired as of December 31, 2010.COSTS

~~Financial~~The ~~Condition~~Company incurred deferred project costs aggregating the sum of $73,000 ~~Liquidity~~through September 30, 2016 related to two battery storage system projects. The costs incurred were for the due diligence fees including consultants and ~~Capital~~application ~~Resources~~fees for both zoning and utility and local governments approval of the projects. In light of the passage of time and subsequent events (See Note 8(d)) management has written off the project costs in the amount of $73,000 at September 30, 2016 since the two projects will not be consummated. As of December 31, 2015, deferred project costs were $50,538.

~~The~~NOTE ~~Company~~8- ~~has~~COMMITMENTS ~~suffered~~AND recurring losses from operations, and experienced a deficiency of cash of approximately $2,402,000 and $1,909,000 from operations for the nine months ended September 30, 2011 and 2010, respectively. For the nine months ended September 30, 2011 and 2010, we had net losses of $2,772,000 and $2,509,000, respectively, and expect significant cash deficiencies from operations until the Company’s sales and gross profit grow to exceed its expenses. The Company had a working capital deficit (current assets less current liabilities) of approximately $450,000 at September 30, 2011 and has an immediate need for capital.CONTINGENCIES

~~These factors raise substantial doubt about the Company's ability to continue as~~ (a) ~~going~~Management concern. Our financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amount of liabilities that might be necessary should we be unable to continue in existence.Agreement

-During 17the -period from 2012 until the change of management and control completed in July 2015, the Company had a consulting arrangement with Northcoast Management, which was engaged to provide management services to the Company, including provision of the services of its owner to serve as President of the Company during this tenure at the Company. During the period from late 2012 to July 2015, the Company was either winding down its operations or had ceased substantially all business activities other than maintaining its corporate existence. During the nine months ended September 31, 2015, the Company made payments of $16,774 to Northcoast Management. The agreement with Northcoast Management was terminated in September 2015.

~~The~~(b) ~~Company’s~~Employment continuation as a “going concern” is dependent upon achieving profitable operations and related positive cash flow and satisfying our immediate cash needs by external financing until we are profitable. Our plans to achieve profitability include developing new products such as hybrid motor starters and single-phase to three-phase converters, developing business in the Asian market, obtaining new customers and increasing sales to existing customers. We are seeking to raise additional capital through equity issuance, debt financing and other types of financing, but we cannot guarantee that sufficient capital will be raised.Agreements

~~Since~~In ~~inception~~October 2016, the Company ~~has~~entered ~~financed~~into formal ~~its~~employment ~~operations~~agreements ~~primarily~~with ~~through~~ the ~~sale~~President ~~of its securities. In 2010, the Company received a total of approximately $5,395,000 in gross proceeds from private placements of its Series D preferred stock, Secured Notes~~ and ~~Series~~Chief ~~C-1~~Operating ~~preferred~~Officer ~~stock~~ and ~~warrants~~the toChief ~~purchase~~Executive ~~common stock~~Officer. In ~~2009,~~The ~~the~~agreements ~~Company received~~ have a ~~total~~term ofcommencing ~~approximately~~June $1,~~210,000~~ in2016 ~~gross~~and ~~proceeds~~ending ~~from~~May a31, ~~private~~2019 ~~placement~~(See ofNotes ~~its~~13 ~~Series~~(d) ~~C preferred stock~~ and ~~Series~~(e) C-1 ~~preferred~~Subsequent ~~stock and warrants to purchase common stock~~Events). ~~Total stockholders’ equity as of September 30, 2011 was $1,312,553.~~

~~Cash~~(c) ~~used~~Consulting/Employment for operating activities for the nine months ended September 30, 2011 was $2,401,898, which consisted of a net loss of $2,771,990; less depreciation and amortization of $28,727, cost of goods sold depreciation of $5,922, warrants and options issued to employees and consultants of $145,476, loss on sale of equipment of $1,653, inventory obsolescence of $44,633, and decreases in accounts receivable of $24,401, inventory of $1,203 and prepaid expenses of $970, offset by an increase in deposits of $54,333. In addition, these amounts were offset by increases in accounts payable of $116,093, deferred tax liability of $37,459 and deferred rent of $17,888.Agreement

~~Cash~~The ~~used~~Company ~~for~~entered ~~operating~~into ~~activities~~a ~~for~~consulting ~~the~~and employment ~~nine~~agreement ~~months~~with ~~ended~~Mr. ~~September~~Jeffrey 30Lines in August 2016. As originally contemplated in the agreement, ~~2010~~Mr. Lines was ~~$1,908,811,~~retained on ~~which~~a ~~consisted~~consulting ofbasis and had been serving as a ~~net~~consultant ~~loss~~since July 2015. Under the terms of $2his arrangement with the Company,~~508,925;~~ Mr. ~~less~~Lines ~~depreciation~~was ~~and~~to ~~amortization~~continue to serve as a consultant until the Company has obtained capital of at least $372,~~667~~000,000 ~~warrants~~to ~~and~~employ ~~options~~him on ~~issued~~a tofull-time ~~employees~~basis. ~~and~~Mr. ~~consultants~~Lines received total compensation of consulting fees of $~~212~~14,~~619,~~580 ~~noncash~~during ~~interest~~the ~~expense~~year ofended December 31, 2015 and $~~818~~20,~~542~~000 and $14,500 of fees during the nine and athree ~~decrease~~month inperiods ~~inventory~~ended ofSeptember ~~$85~~30,~~625~~ 2016. Mr. Lines also received 666,667 restricted ~~offset~~shares byof aCommon ~~change~~Stock inunder the ~~fair~~2016 ~~value~~Plan ofin ~~our~~August, ~~warrant~~2016, ~~liability~~the value of which ($~~828~~10,~~827,~~000) ~~and~~is ~~increases~~included in ~~accounts~~the ~~receivable~~compensation amounts offor ~~$17~~the nine and three months ended September 30,~~279~~ 2016 (See Note 9). As a consultant, ~~prepaid~~Mr. ~~expenses~~Lines ~~and~~was ~~other~~not ~~current~~required ~~assets~~to ofdevote his ~~$16,490~~full business time and ~~deposits~~efforts ofto ~~$10,057~~the Company’s business. In ~~addition~~Under the original terms, ~~these~~assuming ~~amounts~~that ~~were~~Mr. ~~offset~~Lines byis employed on a ~~decrease~~full-time basis, he will be entitled to participate on the same terms as other employees in ~~deferred~~the ~~rent~~Company’s health and other benefit plans. Additionally, the Company will pay him a base salary of $6150,~~153~~000 per year upon employment on a full-time basis. Under the agreement at the time he is employed on a full-time basis as an employee, ~~and~~Mr. ~~increases~~Lines inwill ~~accounts~~serve ~~payable~~as Vice President – Business Development. The term of ~~$287~~employment will be one (1) year from the date employment on a full-time basis becomes effective. In December 2017,~~006~~ the Company and ~~deferred~~Mr. ~~tax~~Lines ~~liability~~amended ofthe ~~$37,460~~agreement (See Note 13(j) – Subsequent Events).

Net cash used in investing activities for the nine months ended September 30, 2011 was $86,730, compared to $31,930 for the nine months ended September 30, 2010. The amount for the first three quarters of 2011 consisted of purchases of property and equipment of $83,606, and capitalized costs related to patent applications of $11,624, partially offset by proceeds from the sale of property and equipment of $8,500. The total amount for the first three quarters of 2010 consisted of capitalized costs related to patent applications of $22,335, and the purchase of property and equipment of $9,595. 10

~~Net~~POWER ~~cash~~EFFICIENCY ~~provided~~CORPORATION byAND financing activities was $5,086,291 for the nine months ended September 30, 2010. Of this amount, $3,976,200 was from the proceeds from the issuance of equity securities, $1,687,083 was from the proceeds from the issuance of debt securities, offset by payments on notes payable of $450,000, and payments to investment banks for fees related to equity financings of $126,992. There was no cash provided by or used for financing activities for the nine months ended September 30, 2011.SUBSIDIARY

-NOTES 18TO -UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

OnAS OF ~~October~~AND 4,FOR ~~2011,~~THE ~~the~~NINE ~~Company~~AND ~~entered~~THREE ~~into~~MONTHS aENDED ~~bridge~~SEPTEMBER ~~financing transaction in which it issued an aggregate of $1~~30,~~000,00~~ ~~in senior secured notes, before discount, and 2,777,780 warrants to purchase the Company’s common stock (see Note 13 to the financial statements).~~2016

~~The~~NOTE ~~Company~~8- ~~expects~~COMMITMENTS toAND experience growth in its operating expenses, particularly in research and development and selling, general and administrative expenses, for the foreseeable future in order to execute its business strategy. As a result, the Company anticipates that operating expenses will constitute a material use of any cash resources.CONTINGENCIES (continued)

~~Cash~~(c) ~~Requirements~~Consulting/Employment ~~and~~Agreement ~~Need for Additional Funds~~(continued)

~~The~~To ~~Company~~date, ~~anticipates~~the aCompany ~~substantial~~has ~~need~~been ~~for~~unable ~~cash~~ to obtain ~~fund its working~~ capital ~~requirements. In~~and ~~accordance~~therefore ~~with~~unable ~~the~~to ~~Company’s~~employ ~~prepared~~Mr. ~~expansion~~Lines ~~plan,~~on ~~the~~a ~~opinion~~full oftime ~~management~~basis isas ~~that~~originally ~~approximately~~contemplated $3at tohis $4expected ~~million~~base ~~will~~salary. In beApril ~~required to cover operating expenses~~2017, ~~including,~~the ~~but~~Board ~~not~~of ~~limited~~Directors ~~to,~~approved the ~~development~~issuance of ~~the~~options ~~Company’s~~to ~~next~~purchase ~~generation products~~1, ~~marketing~~500,000 ~~sales~~shares ~~and~~to ~~operations~~Mr. ~~during~~Lines ~~the~~to ~~next~~reflect ~~twelve months~~Mr. ~~Although~~ Lines weincreased ~~currently~~time ~~have~~spent ~~some~~on ~~obtained~~Company ~~bridge~~matters ~~financing,~~and wehis ~~may~~agreement ~~nevertheless~~to ~~need~~continue to ~~issue~~make ~~additional~~himself ~~debt~~available ~~or equity securities~~ to ~~raise required funds. If~~ the Company ison ~~unable~~a toconsulting basis ~~obtain~~in ~~funding~~lieu onof ~~reasonable~~obtaining ~~terms~~full ortime ~~finance~~employment ~~its~~elsewhere. ~~needs~~The ~~through~~options ~~current~~have ~~operations,~~an ~~the~~exercise ~~Company~~price ~~may~~of be$0.10 ~~forced~~per ~~to restructure~~share, ~~file~~vested ~~for~~immediately and ~~bankruptcy~~an orexercise ~~cease~~term ~~operations~~of five years.

~~Notable~~(d) ~~changes~~Leases tofor ~~expenses~~Real ~~are expected to include an increase in the Company’s sales personnel and efforts, and developing more advanced versions of the Company’s technology and products.~~Property

OnIn ~~October~~connection with 4a proposed battery storage project contemplated to be developed in Hillsborough, ~~2011~~New Jersey, in October 2015, the Company through ~~entered~~its ~~into~~then anewly ~~financing~~formed ~~transaction~~wholly inowned ~~which~~subsidiary itHillsborough ~~issued~~Battery anI ~~aggregate~~LLC of(a ~~$1,000,000~~New inJersey ~~senior~~limited ~~secured~~liability ~~notes~~company), ~~before~~entered into ~~discount,~~a ~~and~~real ~~2,777,780~~property ~~warrants~~lease to(guaranteed ~~purchase~~by the Company’s) ~~common~~for ~~stock~~a . ~~The~~5 ~~notes~~acre ~~bear~~parcel ~~interest~~ of ~~10%~~land ~~per~~to ~~annum,~~be ~~payable~~used ~~upon~~as ~~maturity. The~~the ~~notes~~location ~~mature~~for ona ~~March~~battery ~~31,~~storage conversion ~~2012,~~system. ~~and~~Payments ~~have~~under athe ~~first~~lease ~~priority~~were ~~securing~~contingent ~~interest~~upon inreceipt ~~all~~ of ~~the~~utility ~~assets~~and municipal approvals and commencement of operations of the ~~Company~~battery storage system. ~~The~~ ~~warrants~~Local toutility ~~purchase~~approval ~~the~~was ~~Company’s~~received ~~common~~in ~~stock~~February 2016 ~~have~~and aat ~~per~~September ~~share~~30, ~~exercise~~2016 ~~price~~the ofCompany ~~$0.09~~was ~~and~~awaiting ~~expire~~approval onfrom ~~October~~the 3,municipality ~~2016~~for zoning and other local regulatory approvals.

~~Critical~~The ~~Accounting~~initial ~~Policies~~lease was five years with an option to extend for an additional five years. The monthly rent for the initial term was $3,000 to be increased by an additional $2,500 if a second battery unit was installed on the premises. A $50,000 deposit was to be required upon commencement of the commercial operation date of the battery system. The lease term never commenced as the Company was unable to obtain financing for the project, never obtained all necessary local approvals and ~~Estimates~~ceased pursuing the project as a result of changes in the power market rates which made the economics for a 2 megawatt project unattractive from an economic viewpoint. In October 2017, the lease was terminated without further liability to the Company.

~~Management’s~~(e) discussion and analysis of Power Efficiency Corporation’s financial condition and results of operations are based upon the condensed financial statements contained in this Quarterly Report on Form 10-Q, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. On an on-going basis, management evaluates estimates, including those related to the valuation of inventory and the allowance for uncollectible accounts receivable. We base our estimates on historical experience and on various other assumptions that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our condensed financial statements.Litigation

-The 19Company -was not party to any litigation during the nine and three months ended September 30, 2016 and 2015.

~~Inventories~~NOTE 9- RELATED PARTY TRANSACTIONS

~~Inventories~~(a) ~~are~~Notes ~~valued~~receivable atare ~~the~~from ~~lower~~GDD ofVentures, LLC, ~~cost~~which ~~(first-in,~~is ~~first-out)~~owned orby ~~market. The~~the Company’s ~~reviews~~Chief ~~inventory~~Operating ~~for~~Officer ~~impairments~~and toPresident ~~net~~who ~~realizable~~also ~~value~~is ~~whenever~~a ~~circumstances~~director ~~arise. Such~~of ~~circumstances~~the ~~may~~Company ~~include,~~and ~~but~~during the ~~are~~period ~~not~~ended ~~limited~~September to30, ~~the~~2016 ~~discontinuation~~was of a ~~product~~principal ~~line~~shareholder orof ~~re-engineering~~the ~~certain components making certain parts obsolete~~Company. The ~~Company~~notes ~~recorded~~were ~~an inventory obsolescence charge of~~ $020,000 and $4410,~~633~~000 ~~for~~principal ~~the~~amount at ~~three~~September ~~and~~30, ~~nine~~2016 ~~months~~and ~~ended~~December ~~September 30~~31, ~~2011~~2015, respectively,. ~~associated~~At ~~with~~September ~~its~~30, ~~switch~~2016 ~~from~~there ~~its~~were ~~1st~~two ~~generation~~$10,000 ~~digital~~principal ~~three-phase~~notes ~~products~~due tofrom GDD ~~its~~Ventures, ~~2nd~~LLC; ~~generation~~the ~~three-phase~~notes ~~digital~~bear ~~products,~~interest ~~ranging~~at ~~from~~3% 22and to5% 80per ~~amps~~annum. ~~Management~~ ~~has~~The ~~determined~~due adates ~~reserve~~on ~~for~~the ~~inventory~~notes ~~obsolescence~~have isbeen ~~not~~extended ~~necessary~~from atOctober ~~September 30~~28, 2016 ~~2011~~to orOctober ~~December 31~~28, ~~2010~~2018.

~~Accounts~~(b) ~~Receivable~~In addition, consulting fees aggregating $13,100 and $29,000 were paid to GDD Ventures LLC, during the nine months ended September 30, 2016 and 2015, respectively. During the three months ended September 30, 2016, no fees were paid; the sum of $29,000 was paid during the three months ended September 30, 2015.

(c) The Company ~~carries~~also ~~its~~paid ~~accounts~~consulting ~~receivable~~fees to atValeo ~~cost~~Partners ~~less~~LLC, an ~~allowance~~entity ~~for~~owned ~~doubtful~~by ~~accounts~~the ~~and~~Chief ~~returns. On~~Executive aOfficer ~~periodic~~of ~~basis,~~ the Company, ~~evaluates~~who ~~its~~also ~~accounts~~serves ~~receivable~~as ~~and~~Chairman ~~establishes~~of anthe ~~allowance~~Board. These ~~for~~fees ~~doubtful~~aggregated ~~accounts~~$14,000 ~~based~~during onthe anine ~~history~~and ofthree ~~past~~months ~~write-offs~~ended ~~and~~September ~~collections~~30, ~~and~~2015. ~~current~~No ~~credit~~fees ~~conditions. Change~~were inpaid ~~customer~~to ~~liquidity~~Valeo orPartners ~~financial~~during the ~~condition~~nine ~~could~~and ~~affect~~three ~~the~~months ~~collectability~~ended ofSeptember ~~that account~~30, ~~resulting~~2016. inAt ~~the~~September ~~adjustment~~30, ~~upward~~2016, orValeo ~~downward~~Partners inLLC ~~the~~and ~~provision~~GDD ~~for~~Ventures ~~bad~~LLC ~~debts~~were, ~~with~~together the amajority ~~corresponding~~shareholders ~~impact to our results~~ of ~~operations~~the Company.

~~Fair Value Measurements:~~11

~~ASC~~POWER ~~820-10~~EFFICIENCY ~~emphasizes~~CORPORATION ~~that~~AND fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC 820-10 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). The Company has applied ASC 820-10 to measure the amount of the liability related to its derivative instruments at fair value and to determine fair value for purposes of testing goodwill for impairment.SUBSIDIARY

~~Level~~NOTES 1TO ~~inputs~~UNAUDITED ~~utilize~~CONSOLIDATED quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which is typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.FINANCIAL STATEMENTS

-AS OF 20AND -FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2016

~~Liabilities~~NOTE measured at fair value on a recurring basis include warrant liabilities resulting from an equity financing in 2005. Total gains resulting for this fair value measurement are recorded as a component of other income in the statement of operations. There were no purchases, sales, issuance or settlements, nor were there any transfers in and/or out of a Level 3 classification. In accordance with ASC 8209-~~10,~~ RELATED ~~the~~PARTY warrant liabilities were being remeasured to fair value each quarter until they all expired. The warrants were valued using the Black-Scholes option pricing model, using observable and unobservable assumptions TRANSACTIONS (~~Level 3~~continued) ~~consistent with our application of ASC 718. All the liability warrants had expired as of December 31, 2010.~~

~~Revenue~~(d) ~~Recognition~~In December, 2015 the Company authorized the issuance of an aggregate of 1,651,266 shares of Common Stock to the following persons and entities for services. The Company’s financial statements for the fiscal year ended December 31, 2015 reflect 1,584,600 shares of the total of 1,651,266 as being issued and outstanding during the year ended December 31, 2015:

Revenue from product sales is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the price to the buyer is fixed or determinable, and collectability is reasonably assured. Returns and other sales adjustments (warranty accruals, discounts and shipping credits) are provided for in the same period the related sales are recorded. The Company does not have any post shipment obligations nor customer acceptance provisions, but it does provide its customers a limited right of return for defective products under its two year warranty. Shipping and handling fees and related freight costs and supplies associated with shipping products to customers are included as a component of cost of goods sold. The Company accounts for sales returns as a component of its estimated warranty accrual, discounts as a reduction in revenue, and shipping credits as a reduction in its cost of goods sold. The Company does not grant price concessions to its OEMs, resellers or distributors.

MCG Enterprises, Inc.			792,300
Becker & Poliakoff LLP			792,300
Steven A. Caputo			66,666
Total:			1,651,266

~~Accounting~~MCG Enterprises Inc. is an entity controlled by the Company’s Chief Financial Officer. The issuance was for ~~Stock~~services ~~Based~~provided ~~Compensation~~to the Company, namely, making the chief financial officer available to the Company in lieu of any salary or other compensation.

~~The~~Becker ~~Company~~& ~~accounts~~Poliakoff ~~for~~LLP ~~employee~~is ~~stock~~the ~~options~~Company’s outside aslaw ~~compensation expense~~firm, inand ~~accordance~~one ~~with~~of ~~ASC~~its ~~718. ASC~~partners ~~718~~serves ~~requires~~as ~~companies~~Secretary toof ~~expense~~ the ~~value of employee stock options and similar awards, and applies to all outstanding and vested stock-based awards~~Company.

InSteven ~~computing~~Caputo ~~the~~has ~~impact,~~provided ~~the~~legal ~~fair~~services to ~~value of each option is estimated on~~ the date of grant based on the Black-Scholes options-pricing model utilizing certain assumptions for a risk free interest rate; volatility; and expected remaining lives of the awards. The assumptions used in calculating the fair value of share-based payment awards represent management's best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and the Company ~~uses~~with ~~different~~respect ~~assumptions, the Company’s stock-based compensation expense could be materially different in the future. In addition, the Company is required~~ to ~~estimate~~ the ~~expected forfeiture rate and only recognize expense for those shares expected to vest. In estimating the Company’s forfeiture rate~~Hillsborough, ~~the~~NJ ~~Company~~battery ~~analyzed its historical forfeiture rate~~project, ~~the remaining lives of unvested options,~~ and ~~the amount of vested options as a percentage of total options outstanding. If the Company’s actual forfeiture rate~~ is ~~materially different from its estimate, or if~~ the ~~Company~~brother ~~reevaluates the forfeiture rate in the future, the stock-based compensation expense could be significantly different from what we have recorded in the current period. The impact~~ of ~~applying ASC 718 approximated $145,000 and $213,000 in additional compensation expense during~~ the ~~nine~~Chief ~~months~~Operating ~~ended~~Officer ~~September 30, 2011~~ and ~~2010, respectively~~President. ~~Such amounts are included in research and development expenses and selling, general and administrative expense on the statement of operations.~~

-(e) 21In -August 2016, the Company authorized the issuance of, and issued, an aggregate of an additional 2,400,000 shares of restricted stock in consideration of services to the following persons/entities:

Product Warranties

Consultant – Energy Projects			666,667
Board services			66,667
Legal Services Law Firm - (Becker & Poliakoff LLP)			333,333
Chief Financial Officer services - (MCG Enterprises, Inc.)			333,333
General Advisory Services Consultant			1,000,000
Total:			2,400,000

(f) The Company ~~typically~~utilizes ~~warrants~~office ~~its~~space ~~products~~at the ~~for~~offices ~~two~~of ~~years. Estimated~~an ~~product~~entity ~~warranty~~controlled ~~expenses~~by ~~are~~its ~~accrued~~Chief inExecutive ~~cost~~Officer who is also a director of ~~sales~~the Company. The space is provided at the ~~time~~cost ~~the~~of ~~related~~$450 ~~sale~~per iscalendar ~~recognized~~quarter. ~~Estimates~~At ofSeptember ~~warranty~~30, ~~expenses~~2016, ~~are~~the ~~based~~amount ~~primarily~~of on$450 ~~historical~~was ~~warranty~~owed ~~claim~~with ~~experience.~~respect ~~Warranty~~to ~~expenses~~accrued ~~include~~rent. ~~accruals~~Rent expense ~~for~~was ~~basic~~$1,350 ~~warranties~~and $450 for ~~products~~the ~~sold. While~~nine ~~management~~and ~~believes~~three ~~our~~months ~~estimates~~ended ~~are~~September ~~reasonable~~30, an2016. ~~increase~~No orsums ~~decrease~~were paid in ~~submitted~~the ~~warranty~~prior ~~claims~~year ~~could~~periods. The ~~affect~~space ~~warranty~~is ~~expense~~made ~~and~~available ~~the~~on ~~related~~a ~~current~~month-to-month basis and ~~future~~is ~~liability~~terminable at any time by either party.

~~Accrued~~(g) ~~warranty~~Professional ~~expenses~~fees aton ~~December~~the 31Statement of Operations include legal fees to Becker & Poliakoff LLP aggregating $157,855 ~~2010~~and $107,108 for the nine and three months ended September 30, ~~2011~~2016, ~~consist~~respectively. ofA partner in the ~~following:~~firm serves as Corporate Secretary to the Company. Included in accrued expenses payable is $165,252 due to the law firm.

Balance, January 1, 2010	$	2,648
Additions		6,327
Deductions		(6,895	)
Balance, December 31, 2010	$	2,080
Additions		42,695
Deductions		(40,079	)
Balance, September 30, 2011	$	4,696

Professional fees also include accounting fees to Raphael Goldberg Nikpour Cohen & Sullivan CPA’s, PLLC aggregating $39,353 and $7,430 for the nine and three months ended September 30, 2016, respectively. The Company’s Chief Financial Officer is a partner in the firm. Included in accrued expenses payable is $87,958 due to his firm.

~~Provision~~NOTE ~~for~~10- ~~Income~~EQUITY ~~Taxes~~INCENTIVE PLANS AND AWARDS

~~The~~At ~~Company~~September ~~utilizes~~30, ~~the~~2016, ~~asset~~there ~~and~~were ~~liability~~options outstanding ~~method of accounting for income taxes pursuant~~ to ~~ASC~~purchase ~~740 Accounting for Income Taxes~~26,666 ~~which requires~~shares ~~the recognition~~ of ~~deferred~~Common ~~tax~~Stock ~~assets~~with ~~and~~exercise ~~liabilities~~prices ~~for both the expected future tax impact~~ of ~~differences~~ between ~~the~~$0.75 ~~financial statement~~ and ~~tax~~$9.75 ~~basis~~per ~~of assets and liabilities, and for the expected future tax benefit to be derived from tax loss and tax credit carryforwards~~share. ~~ASC~~ ~~740~~The ~~additionally~~Company ~~requires~~did not ~~the~~issue ~~establishment~~any ofoptions ~~a valuation allowance~~ to ~~reflect~~acquire ~~the~~any ~~likelihood~~ of ~~realization~~its ofsecurities ~~deferred~~in ~~tax~~2015 ~~assets. We~~or ~~have~~during ~~reported~~the ~~net~~nine ~~operating losses for consecutive years,~~ and dothree ~~not~~months ~~have~~ended ~~projected~~September ~~taxable~~30, ~~income~~2016 ~~in the near future~~and 2015. ~~This significant evidence causes our management to believe a full valuation allowance should be recorded against the deferred tax assets.~~

~~Goodwill~~12

OnPOWER ~~January~~EFFICIENCY 1,CORPORATION ~~2011,~~AND the Company adopted FASB ASU No. 2010-28, Intangibles (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. The Guidance calls for reporting units with zero or negative carrying amounts to perform Step 2 of the goodwill impairment test. As of September 30, 2011, the Company’s fair value exceeded its carrying value, which was positive; therefore, the Company is not required to perform Step 2.SUBSIDIARY

InNOTES ~~accordance~~TO ~~with~~UNAUDITED ~~ASC~~CONSOLIDATED 350, Goodwill and Other Intangible Assets, previously recognized goodwill was tested by management for impairment during 2011 and 2010 utilizing a two-step test. At a minimum, an annual goodwill impairment test is required, or when certain events indicate a possible impairment.FINANCIAL STATEMENTS

-AS OF 22AND -FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2016

~~The~~NOTE ~~first~~10- ~~part~~EQUITY ofINCENTIVE ~~the~~PLANS ~~test~~AND AWARDS is to compare the Company’s fair market value to the book value of the Company. If the fair market value of the Company is greater than the book value, no impairment exists as of the date of the test. However, if book value exceeds fair market value, the Company must perform part two of the test, which involves recalculating the implied fair value of goodwill by repeating the acquisition analysis that was originally used to calculate goodwill, using purchase accounting as if the acquisition happened on the date of the test, to calculate the implied fair value of goodwill as of the date of the test.(continued)

~~The~~In ~~Company~~2000, ~~has~~the noCompany ~~accumulated~~adopted ~~impairment~~the ~~losses~~2000 onStock Option ~~goodwill. The~~and ~~Company’s~~Restricted ~~impairment~~Stock ~~analysis~~Plan is(the ~~performed~~“2000 onPlan”). ~~December~~On 31July ~~each~~16, ~~year~~2009, on the ~~Company’s~~2000 ~~single~~Plan ~~reporting~~was ~~unit. Using~~amended ~~the~~and ~~Company’s~~restated. ~~market~~The ~~capitalization~~2000 Plan, ~~(based~~as onrestated ~~Level~~and ~~1 inputs)~~amended, ~~management~~provided ~~determined~~for ~~that~~ the ~~estimated~~granting ~~fair market value substantially exceeded the company’s book value as~~ of ~~September~~options ~~30,~~to ~~2011~~purchase ~~and~~up ~~December~~to 3125, ~~2010. Based on this~~000,000 noshares ~~impairment was recorded as~~ of ~~September~~common ~~30,~~stock. ~~2011~~The or2000 Plan ~~December~~has ~~31, 2010~~expired.

~~New~~The ~~Accounting~~fair ~~Pronouncements:~~market value of stock options issued that has not been expensed was $8,775 and $351,000 to be expensed over .25 and 1.0 years as of September 30, 2016 and December 31, 2015, respectively.

InThe May 2011, the FASB issued Accounting Standards Update (“ASU”) 2011-04, “Fair Value Measurement – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs,” addressing how to measure fair value ~~and~~of ~~what~~each ~~disclosures~~option togrant ~~provide~~was estimated ~~about~~on ~~fair~~the ~~value~~date ~~measurements. This~~of ~~amendment~~grant isusing ~~largely consistent with~~ the ~~existing~~Black-Scholes ~~GAAP~~option ~~guidance,~~pricing ~~but~~model ~~aligned~~with the ~~international~~following ~~guidance~~weighted-average ~~and~~assumptions ~~eliminated unnecessary wording differences between GAAP and International Financial Reporting Standards (“IFRS”). The amendment is effective~~ used for interim and annual periods beginning after December 15, 2011, and should be applied prospectively. The implementation of this standard will not affect the Company’s financial condition, results of operations, or cash flows.grants:

In June 2011, the FASB issued ASU 2011-05, “Statement of Comprehensive Income,” which revises the manner in which entities present comprehensive income in their financial statements, requiring entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011 and should be applied retrospectively. The implementation of this standard will not affect the Company’s financial condition, results of operations or cash flows.

	Nine Months Ended			Year Ended
	September 30,			December 31,
	2016			2015
Weighted average risk-free rate		1.07	%		1.17	%
Average expected life in years		0.25			1.00
Expected dividends		0			0
Volatility		152.20	%		154.22	%
Forfeiture rate		52	%		52	%

InThe ~~September~~fair ~~2011,~~value ~~the~~of ~~FASB~~options ~~issued~~granted ~~ASU 2011-08, “Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment,” which adds a new option entities can use to determine whether it~~ is ~~necessary~~estimated on ~~to apply~~ the ~~traditional~~date ~~two~~of ~~step~~grant ~~goodwill impairment test,~~ based on ~~qualitative factors. If~~ the ~~entity~~weighted-average ~~elects~~assumptions toin ~~use~~ the ~~option,~~table itabove. ~~must~~The ~~assess~~assumption ~~qualitative~~for ~~factors to determine whether~~ the ~~existence~~expected oflife ~~events or circumstances leads to a determination that it~~ is ~~more~~based on ~~likely~~evaluations ~~than~~of ~~not~~historical ~~that~~and ~~the~~expected ~~fair~~exercise ~~value~~behavior. ofThe arisk-free ~~reporting~~interest ~~unit~~rate is ~~less~~based ~~than~~on ~~its carrying amount. If so,~~ the ~~existing quantitative calculations in steps one and two continue to apply~~U. ~~However,~~S. ifTreasury ~~after~~rates ~~assessing~~ at the ~~totality~~date of ~~the~~grant ~~qualitative~~with ~~factors,~~maturity andates ~~entity~~approximately ~~determines~~equal itto ~~is not more likely than not that~~ the ~~fair~~expected ~~value~~life ofat ~~a reporting unit is less than its carrying amount, then performing~~ the ~~two-step~~grant ~~impairment test is unnecessary~~date. ~~Under~~ ~~the~~The ~~amendments,~~historical andaily ~~entity~~stock ~~has~~volatility of the ~~option~~Company’s tocommon ~~bypass~~stock (the ~~qualitative~~Company’s ~~assessment~~only ~~for~~class ~~any~~of ~~reporting~~publicly ~~unit~~traded instock) ~~any~~over ~~period and proceed directly to performing~~ the ~~first~~estimated ~~step~~life of the ~~two-step~~stock warrant ~~goodwill~~is ~~impairment~~used ~~test. An~~as ~~entity may resume performing~~ the ~~qualitative~~basis ~~assessment in any subsequent period. The amendments are effective~~ for ~~fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011 and should be applied prospectively. The implementation of this standard will not affect~~ the ~~Company’s~~volatility ~~financial condition, results of operations or cash flows~~assumption.

-The 23Company -accounts for employee stock options as compensation expense, in accordance with FASB ASC 718. FASB ASC 718 requires companies to expense the value of employee stock options and similar awards over the requisite service period.

~~ITEM~~In 3computing the impact, the fair value of each option is estimated on the date of grant based on the Black Scholes options pricing model utilizing certain assumptions for a risk-free interest rate; volatility; and expected remaining lives of the awards. ~~QUANTITATIVE~~The ~~AND~~assumptions ~~QUALITATIVE~~used ~~DISCLOSURES~~in ~~ABOUT~~calculating ~~MARKET~~the fair ~~RISK~~value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and the Company uses different assumptions, the Company’s stock-based compensation expense could be materially different in the future. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. In estimating the Company’s forfeiture rate, the Company analyzed its historical forfeiture rate, the remaining lives of unvested options, and the amount of vested options as a percentage of total options outstanding. If the Company’s actual forfeiture rate is materially different from its estimate, or if the Company reevaluates the forfeiture rate in the future, the stock-based compensation expense could be materially different from what we have recorded in the current period.

~~The~~On ~~information~~July in20, 2016, the Board of Directors approved a new stock based compensation plan entitled the 2016 Omnibus Equity Incentive plan (this ~~Item~~“2016 isPlan”). ~~not~~The 2016 ~~being~~Plan ~~disclosed~~was adopted by ~~Smaller~~written ~~Reporting~~consent ~~Companies~~by ~~pursuant~~the toholders ~~Regulation~~of Sa majority of the shares of Common Stock (including holders of the Series B, C-K1, D and E preferred stock entitled to vote and voting on an as converted basis) effective July 22, 2016.

POWER EFFICIENCY CORPORATION AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2016

NOTE 10- EQUITY INCENTIVE PLANS AND AWARDS (continued)

There are a total of 5,000,000 shares of common stock reserved for issuance in connection with awards under the 2016 Plan.

Under the 2016 Plan, options, stock appreciation rights, restricted stock awards, restricted stock unit awards, other share-based awards and performance awards may be granted to eligible participants. Subject to the reservation of authority by the board of directors to administer the 2016 Plan and act as the committee thereunder, the 2016 Plan will be administered by a committee of (the “Committee”) established by the Board, which committee will have the authority to determine the terms and conditions of awards, and to interpret and administer the 2016 Plan.

The maximum number of shares of common stock that are available for awards under the 2016 Plan (subject to the adjustment provisions described in the plan for changes in capitalization), is 5,000,000 shares. If any shares of common stock subject to an award under the 2016 Plan, are forfeited, expire or are settled for cash (in whole or in part), the shares subject to the award may be used again for awards under the 2016 Plan to the extent of the forfeiture, expiration or cash settlement.

Options, stock appreciation rights (“SARs”), restricted stock awards, restricted stock unit awards, other share based awards and performance awards may be granted under the 2016 Plan. Options may be either “incentive stock options,” as defined in Section 422 of the Code, or nonstatutory stock options. Awards may be granted under the 2016 Plan to an employee, non-employee member of the board of directors, consultant or advisor who is a natural person and provides services to the Company or a subsidiary, except for incentive stock options which may be granted only to employees.

During the nine and three months ended September 30, 2016, the Company has granted a total of 733,333 restricted shares under the 2016 Plan and issued no other awards. As the 2016 Plan had not been adopted as of December 31,2015, no awards were outstanding under this plan as of such date. No awards were made under the 2016 Plan between October 1, 2016 and March 30, 2017.

NOTE 11- COMMON STOCK ISSUED

In June 2016, 66,666 shares of Common Stock with a value of $1,000 were issued by the Company to Steven A. Caputo, the brother of the Chief Operating Officer for legal services.

In August 2016, an aggregate of 2,400,000 shares of Common Stock with a value of $36,000 were issued by the Company as follows:

Consultant – Energy Projects			666,667
Board services			66,667
Legal Services Law Firm - (Becker & Poliakoff LLP)			333,333
Chief Financial Officer services - (MCG Enterprises, Inc.)			333,333
General Advisory Services Consultant			1,000,000
Total:			2,400,000

NOTE 12- PREFERRED STOCK

The Company has authorized 10,000,000 shares of preferred stock, par value $0.001 per share. With respect to the preferred stock, the Company designated: 140,000 shares as Series B Convertible Preferred Stock, of which 133,000 shares are issued and outstanding; 175,000 shares as Series C-1 Convertible Preferred Stock, of which 34,625 shares are issued and outstanding; 375,000 shares of Series D Convertible Preferred Stock, of which 304,377 are issued and outstanding. As a result of the Reverse Split (on a 1 for every 15 shares outstanding basis (See Note 13(a) – Subsequent Events) ) completed in January, 2017, all Series E Preferred Stock automatically was deemed converted into Common Stock and therefore all financial statements reflect the conversion.

POWER EFFICIENCY CORPORATION AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2016

NOTE 12- PREFERRED STOCK (continued)

At September 30, 2016 and December 31, 2015, the Company had:

					ACCRUED DIVIDENDS
			ISSUED AND		PAYABLE
	DESIGNATED		OUTSTANDING		SEPTEMBER 30,		DECEMBER 31,
	SHARES		SHARES		2016		2015

Series B		140,000		133,000	$	2,527,000	$	2,128,000
Series C-1		175,000		34,625		526,300		443,200
Series D		375,000		304,377		1,850,600		1,558,400
					$	4,903,900	$	4,129,600

The Company has not issued or created any shares or classes of preferred stock since 2012. No shares of any class of preferred stock were converted into Common Stock during the year ended December 31, 2015. No shares of preferred stock were issued during the nine or three months ended September 30, 2016 and 2015.

Each share of Series B Preferred Stock is convertible into 6.66 shares of the Company’s common stock, subject to adjustment under certain circumstances, based upon a stated value of $50.00 per share. There are 133,000 shares of Series B Preferred Stock issued and outstanding, convertible into 886,666 shares of Common Stock. The Series B Preferred Stock is convertible at the option of the holder at any time. The Series B Preferred Stock is also subject to mandatory conversion in the event the average closing price of the Company’s common stock for any ten day period equals or exceeds $15.00 per share, such conversion to be effective on the trading day immediately following such ten day period. The Series B Preferred Stock has a dividend equal to 8% of the aggregate $7,000,000 stated value of the Series B Preferred Stock, payable annually in cash or stock, at the discretion of the Company’s board of directors. Upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, before any distribution or payment is made to the holders of any stock of the Company, the holders of Series B Stock are entitled to be paid out of the assets of the Company, proportionally with any other series of preferred stock, an amount per share of Series B Stock equal to the stated value (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares), plus all accrued but unpaid dividends (whether declared or not) on such shares of Series B Stock for each share of Series B Stock held by them. With respect to the Series B Preferred Stock, the Company has accrued undeclared and unpaid dividends of $2,527,000 and $2,128,000 at September 30,2016 and December 31,2015, respectively. The dividend per calendar quarter is $133,000.

Each share of Series C-1 Preferred Stock is convertible into 6.66 shares of the Company’s common stock, subject to adjustment under certain circumstances, based upon a stated value of $40.00 per share. There are 34,625 shares of Series C-1 Preferred Stock issued and outstanding, convertible into 230,833 shares of Common Stock. The Series C-1 Preferred Stock is convertible at the option of the holder at any time. The Series C-1 Preferred Stock is also subject to mandatory conversion in the event the average closing price of the Company’s common stock for any ten day period equals or exceeds $15.00 per share, such conversion to be effective on the trading day immediately following such ten day period. The Series C-1 Preferred Stock has a dividend rate of 8% payable annually in cash or stock, at the discretion of the Company’s board of directors. Upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, before any distribution or payment is made to the holders of any stock of the Company, the holders of Series C-1 Stock are entitled to be paid out of the assets of the Company, proportionally with any other series of preferred stock, an amount per share of Series C-1 Stock equal to the stated value (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares), plus all accrued but unpaid dividends (whether declared or not) on such shares of Series C-1 Stock for each share of Series C-1 Stock held by them. With respect to the Series C-1 Preferred Stock, the Company has accrued undeclared and unpaid dividends of $526,300 and $443,200 at September 30, 2016 and December 31, 2015, respectively. The dividend per calendar quarter is $27,700.

POWER EFFICIENCY CORPORATION AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2016

NOTE 12- PREFERRED STOCK (continued)

The Series D preferred stock has an annual dividend equal to 8% of the aggregate $5,220,000 stated value of the preferred stock ($16.00 per share), payable annually in cash or stock, at the discretion of the Company’s board of directors. There are 304,377 shares of Series D Preferred Stock issued and outstanding, convertible into 2,029,180 shares of Common Stock. Upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, before any distribution or payment is made to the holders of any stock of the Company, the holders of Series D preferred stock are entitled to be paid out of the assets of the Company, proportionally with any other series of preferred stock, an amount per share of Series D preferred stock equal to the stated value (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares), plus all accrued but unpaid dividends (whether declared or not) on such shares of Series D preferred stock for each share of Series D preferred stock held by them.

The conversion price for the Series D preferred stock is $0.16 per share, and the Series D preferred stock is subject to mandatory conversion of 100 common shares per 1 Series D preferred share, in the event the average closing price of the Company’s common stock for any ten day period equals or exceeds $7.50 per share and the average daily trading volume is at least 50,000 shares of common stock per day during such ten-day period, such conversion to be effective on the trading day immediately following such ten day period. Series D preferred stock shall vote with the shares of Common Stock on an as converted basis from time to time, and not as a separate class, at any duly called annual or special meeting of stockholders of the Company. The holders of our Series D preferred stock have no pre-emptive rights, and the Company cannot amend the Series D preferred stock’s Certificate of Designation without first obtaining the approval of 75% of the holders of the outstanding Series D preferred stock. With respect to the Series D Preferred Stock, the Company has accrued undeclared and unpaid dividends of $1,850,600 and $1,558,400 at September 30,2016 and December 31,2015, respectively. The dividend per calendar quarter is $97,400.

On January 27, 2012 and January 30, 2012, the Company consummated closings of a private placement offering for an aggregate of 305 shares of Series E Convertible Preferred Stock, par value of $0.001 per share. The Series E Preferred Stock carried no dividend, and each share of Series E Preferred Stock was convertible into 66,667 shares of Common Stock and also had voting rights on the same basis. As a result of the Reverse Stock Split consummated in January 2017, all shares of Series E Preferred Stock have been deemed converted into shares of Common Stock (an aggregate of 20,333,333 shares).

NOTE 13- SUBSEQUENT EVENTS

In preparing the accompanying financial statements, the Company has reviewed events that have occurred after September 30, 2016, through the date of issuance of the financial statements. No events, other than those described below, have occurred that require disclosure or adjustments.

(a) On January 11, 2017, the Company filed an amendment to its Amended and Restated Certificate of Incorporation to effectuate a reverse stock split (“Reverse Split”) on a basis of each 15 shares of issued and outstanding shares of Common Stock into 1 share. The immediate effect of the Reverse Split will be to reduce the number of issued and outstanding pre-split shares of Common Stock from 189,052,666 outstanding as of January 17, 2017 to approximately 12,603,511 shares (subject to rounding fractional shares down to the next whole share). The conversion ratios of each class of Preferred Stock have been adjusted to reflect the Reverse Split.

As a result of the Reverse Split, our remaining classes of Preferred Stock would be convertible into an aggregate of approximately 3,146,680 shares of Common Stock after the Reverse Split, as follows:

Class of Preferred Stock	Pre-Split Conversion	Post-Split Conversion
Series B	13,300,000	886,667
Series C-1	3,462,500	230,833

POWER EFFICIENCY CORPORATION AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2016

NOTE 13- SUBSEQUENT EVENTS (continued)

Series D			30, 437,700				2,029,180
Total:							3,146,680

Our Class E Preferred Stock has been deemed automatically converted into Common Stock following the Reverse Split; the other classes remain outstanding. The conversion of the Series E Preferred Stock (305 shares with a conversion ratio of 666,667 shares each) resulted in the issuance of 20,333,333 shares of Common Stock. Giving effect solely to the conversion of the Series E Preferred Stock and no other classes or shares of Preferred Stock, PEC had approximately 32,936,844 shares of Common Stock issued and outstanding as of the date of the Reverse Split. The par value of the Common Stock (and all Preferred Stock) remains $0.001 per share and the number of shares of Common Stock authorized to be issued remain at the number authorized at the time the Reverse Split was effected, currently 350,000,000 shares.

(b) On July 30, 2016, the Company was selected through a bid auction process an award for two separate bids to supply up to 12 kilowatts of demand energy savings through the Consolidated Edison Brooklyn Queens Demand Energy Management Program (BQDM). Under this program, Consolidated Edison of New York is offering incentives for energy management. Consolidated Edison of New York, Inc., provides electric, gas and steam service to New York City and Westchester County and is regulated by the New York Public Service Commission (NYSPSC). Under the terms of its original agreement with Consolidated Edison, the Company was required to provide electric usage savings during certain hours for 2017 and 2018 in specified neighborhoods in Brooklyn and Queens, New York and will be required to incur the expense of purchasing and installing such generator systems or develop other systems in order to meet its requirements. The Company joined with an unaffiliated third party to enter into the agreements with Consolidated Edison and develop the projects and provide the funds necessary to obtain issuance of a letter of credit in the amount of $790,392 (each party contributed $395,196 (50%) for the letter of credit). The letter of credit was delivered in October 2016.

The Company was unable to identify sites to satisfy the BQDM program requirements for the summer of 2017. The original contract with Consolidated Edison required that PEC and its partner deliver 4 megawatts of energy savings in the summer of 2017 and an additional 8 megawatts of energy savings in 2018. The Company notified Consolidated Edison in February 2017 that it would be unable to satisfy the 2017 summer program requirements and Consolidated Edison called upon the letter of credit for program deficiencies in the amount of $393,800 and claimed the Company was liable for additional penalties for non-performance. Consolidated Edison later notified the Company that it was calling upon the remainder of the letter of credit and terminating the Company’s participation. The Company disputed Consolidated Edison’s’ rights to terminate and draw upon the remainder of the letter of credit and to assess further damages. In October 2017 the Company and its third partner project partner executed a settlement agreement with respect to the BQDM participation. Under the settlement, the parties released each other from all obligations and claims, except that the Company agreed to seek reimbursement or a credit from Consolidated Edison for the drawn upon letter of credit amounts and to split with the third party any such reimbursed amounts.

The Company does not believe that it will be able to meet the 2018 requirements, and will focus on 2019 and beyond for other energy management programs. The Company may be required to forego any remaining letter of credit proceeds with Consolidated Edison, and is evaluating its legal options to pursue collection of such amounts.

(c) During the years 2010 through the third quarter of calendar year 2012, the Company had a San Diego, California office presence. Due to its limited operations during the period the Company had a small number of California based employees and also utilized contractors and consultants during the period for marketing, research and finance functions. This California facility was closed during 2012. Subsequent to the closing of the California facility, during October 2013, the State of California Employment Development Department (EDD) scheduled then initiated and audit of payroll for the Company’s California operations. The period covered by the audit was the period beginning the fourth quarter of 20 I 0 through the third quarter of 2013. Since a new business occupied the premises and EDD was not successful in making contact with the Company they developed an audit liability of $195,762 (including penalties and interest) based upon estimated payroll, and have filed a lien; the Company had recorded a liability in that amount. In October 2016, the Company finalized an agreement with the State of California reducing the liability to a total of $6,074, payable at $337 per month over 18 months beginning November 18, 2016. Accordingly, the reversal of the accrued expenses resulted in the recognition of other income in the amount of $189,688.

POWER EFFICIENCY CORPORATION AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2016

NOTE 13- SUBSEQUENT EVENTS (continued)

(d) In October, 2016, the Company entered into a formal employment agreement with its Chief Executive Officer (Gary Weiss). Under the original terms of the agreement with the Company was to pay him a base salary of $150,000 per year. Under the agreement, Mr. Weiss serves as CEO. The term of employment is (3) years from the commencement date which was June 1, 2016. Under the terms of the agreement, Mr. Weiss and the Company recognized that the finances of the Company did not allow for payment of base salary at that time. Mr. Weiss agreed and acknowledged that from the commencement date (June 1, 2016) and until the first to occur of: (i) the date the Company obtains capital (whether debt or equity) in an amount of at least $2,000,000 of gross proceeds (in any single or series of financing events) which allows for the use by its terms, of the proceeds for payments of salaries to officers; or (ii) such time as the Company achieves Cash Flow Breakeven for two consecutive fiscal quarters, up to 100% of such Base Salary may be accrued as determined by the Board of Directors and thereafter shall be payable upon achievement of such events as set forth in clauses (i) and (ii) above, and provided further, in no event shall any accrued salary be paid later than ten (10) business days after the Company has obtained capital (whether debt or equity) of at least $5,000,000 of gross proceeds (in any single or series of financing events). Under the original terms, at such time Mr. Weiss would have been entitled to payment of up to $60,000 with respect to accrued but unpaid Base Salary [all remaining accrued salary, above the $60,000, would remain accrued]. The Company also agreed to pay for health and related benefits on terms similar to those provided to other executives. During the nine and three months ended September 30, 2016, Mr. Weiss did not receive any payments of base salary under the employment agreement. The Company accrued $50,000 of salary for the period from June 1, 2016 to September 30, 2016.

In April 2017 the Company agreed to issue to Mr. Weiss options to purchase 1,500,000 shares with an exercise price of $0.11 per share, with a term of five years in lieu of salary for the period June 1, 2016 to May 31, 2017 due to the inability of the Company to raise capital to pay this salary under the terms of the Agreement.

Mr. Weiss (through an entity controlled by him) received compensation in the amount of $20,235 during the year ended December 31, 2015 and no compensation during the nine and three months ended September 30, 2016. In December, 2017, the Company and Mr. Weiss amended the terms of the agreement (See Note 13(j) – Subsequent Events).

(e) In October, 2016, the Company entered into a formal employment agreement with its Chief Operating Officer and President, R. Scott Caputo. Under the original terms of the agreement with the Company was to pay him a base salary of $150,000 per year. Under the agreement, Mr. Caputo serves as Chief Operating Officer and President. The term of employment is (3) years from the commencement date which was June 1, 2016. Under the terms of the agreement, Mr. Caputo and the Company recognized that the finances of the Company did not allow for payment of base salary at that time. Mr. Caputo agreed and acknowledged that from the commencement date (June 1, 2016) and until the first to occur of: (i) the date the Company obtains capital (whether debt or equity) in an amount of at least $2,000,000 of gross proceeds (in any single or series of financing events) which allows for the use by its terms, of the proceeds for payments of salaries to officers; or (ii) such time as the Company achieves Cash Flow Breakeven for two consecutive fiscal quarters, up to 100% of such Base Salary may be accrued as determined by the Board of Directors and thereafter shall be payable upon achievement of such events as set forth in clauses (i) and (ii) above, and provided further, in no event shall any accrued salary be paid later than ten (10) business days after the Company has obtained capital (whether debt or equity) of at least $5,000,000 of gross proceeds (in any single or series of financing events). Under the original terms, at such time Mr. Caputo would have been entitled to payment of up to $60,000 with respect to accrued but unpaid Base Salary [all remaining accrued salary, above the $60,000, would remain accrued]. The Company also agreed to pay for health and related benefits on terms similar to those provided to other executives. During the nine and three months ended September 30, 2016, Mr. Caputo did not receive any payments of base salary under the employment agreement, the Company accrued $50,000 of salary for the period from June 1, 2016 to September 30, 2016. In April 2017 the Company agreed to issue to Mr. Caputo options to purchase 1,500,000 shares with an exercise price of $0.10 per share, with a term of five years in lieu of salary for the period June 1, 2016 to May 31, 2017 due to the inability of the Company to raise capital to pay this salary under the terms of the Agreement.

POWER EFFICIENCY CORPORATION AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2016

NOTE 13- SUBSEQUENT EVENTS (continued)

Mr. Caputo (through an entity controlled by him) received compensation in the amount of $37,500 during the year ended December 31, 2015 and $13,100 and $0 during the nine and three months ended September 30, 2016. In December, 2017, the Company and Mr. Caputo amended the terms of the agreement (See Note 13(j) – Subsequent Events).

(f) Effective October 13, 2016, the Company issued and sold, in a private placement offering under Section 4(2) of the Securities Act of 1033, as amended, to 6 accredited investors, an aggregate of $405,000 of promissory notes bearing interest at 10% per annum. The proceeds from the sale of the notes were used by the Company to support its share ($395,196) of the issuance of a standby letter of credit as required under the Consolidated Edison BDQM Program in the amount of $790,392. The standby letter of credit was issued by Wells Fargo Bank to Consolidated Edison on behalf of the SPV as described in clause (b) above. In addition to the issuance of the notes, investors received an aggregate of 4,050,000 shares of common stock.

The notes are unsecured obligations of the Company and are payable upon the earlier of (i) date of payment to the Company of its proportionate share for services or other payment made pursuant to the Company’s agreements in effect from time to time with Generate NY Grid Services LLC under the Consolidated Edison BDQM Program for the 2017 and 2018 years, (ii) within 10 business days of the date of any payment by Generate NY Grid Services LLC intended to be a replacement of funds advanced by the investors for the Company’s portion of the standby letter of credit issued to Consolidated Edison of New York under the Consolidated Edison BDQM Program for the 2017 and 2018 years or (iii) December 31, 2019.

The Company also entered into a registration rights agreement with the investors providing for the registration for resale under the Securities Act of 1933 of the shares of common stock issued to them. The agreement provides that the Company will file a registration statement with the SEC within 180 days of closing.

Certain members of management participated, including the Chief Financial Officer and Chief Executive Officer through entities controlled by them, participated in the private placement. Additionally, the Company’s outside counsel participated in the private placement offering.

The securities issued to such investors are restricted securities and were offered and sold in private transactions to accredited investors (as such term is defined in Rule 501(a), as promulgated under the Securities Act of 1933), without registration under the Securities Act and the securities laws of certain states, in reliance on the exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended and similar exemptions under applicable state laws. The securities sold in the foregoing transaction may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

(g) Effective January 25, 2017, Power Efficiency Corporation (PEC) entered into an advisory agreement with Carnegie Hudson Resources Structured Capital, LLC (CHR) whereby CHR and its affiliated entities will provide corporate advisory and investment banking services to the Company. Services which may require a registered broker-dealer will be provided through MCM Securities LLC., an SEC registered broker-dealer. CHR is affiliated with a director of the Company. Under the terms of the agreement, in consideration for its services, CHR and its affiliates were to receive up to 4,000,000 warrants for shares of common stock to vest upon certain events, 1,000,000 of the 4,000,000 warrants have become ineligible for issuance because one of the conditions were not met. The warrants have a five (5) year exercise terms, provide for an exercise price of $0.01 per share and the holders are entitled to piggyback registration rights with respect to the underlying shares of Common Stock. As of September 30, 2017, an aggregate of 1,750,000 warrants had vested and 1,000,000 have not vested and are ineligible for issuance. An officer and controlling shareholder of CHR also serves as a director of the Company. In November, 2017, the agreement with CHR was amended to provide for the issuance of an additional 250,000 vested warrants with an exercise price of $0.10 per share; the warrants have five year exercise terms. In December, 2017, the Company and CHR amended the terms of the agreement to provide for the issuance of an additional 250,000 warrants to CHR. The additional warrants have a five year exercise term and are exercisable at $0.01 per share.

POWER EFFICIENCY CORPORATION AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2016

NOTE 13- SUBSEQUENT EVENTS (continued)

(h) On October 1, 2017, the Company delivered a credit promissory note to Valeo Partners LLC, an entity controlled by our Chief Executive Officer. Our Chief Executive Officer has provided funds in the amount of $35,004 as of September 30, 2017 to the Company for working capital needs. Under the credit note, Valeo Partners agreed to provide funds, in its discretion, up to the sum of $50,000 at the rate of 5% per annum which commenced accruing December 1, 2016. The note is due on or before the earlier of (i) October 30, 2018 or (ii) within three days of the Company obtaining capital (in the form of equity or debt) from third parties, in an amount of at least $3,000,000, subject to approval of payment by the third party financing parties. The note is unsecured.

(i) PEC has executed a non-binding term sheet for an option to purchase the development rights from New Jersey Energy Storage Project One, LLC for a 20 MW battery energy storage (BESS) project located in Bloomsbury, NJ. The system will be used to provide frequency regulation services to PJM Interconnection. Under the option agreement, PEC must enter into a definitive agreement with Project One on or before February 15, 2018, provide funding of certain start-up costs related to the project of $75,000 and enter into a mutually acceptable lease agreement with the property owner. As presently contemplated, the project will utilize lithium ion battery technology. The project is anticipated to start in late 2018 or early 2019 once interconnection and all government approvals are obtained. PEC is presently working with its financial advisor partners and project partners to fully fund the project. The option expires on February 15, 2018 unless extended by the parties.

(j) Effective December 20, 2017, the Company amended the terms of its employment arrangements with its Chief Operating Officer and President (Scott Caputo), Chief Executive Officer (Gary Weiss) and Jeffrey Lines, its Vice President.

Under these amendments the Company and these employees, recognizing that the Company has been unable to obtain capital to fund its working capital and other needs, and to date has not completed and projects to generate revenue, determined to utilize common stock warrants on a monthly basis, in lieu of cash compensation. The parties agreed that as of June 1, 2017, these individuals would be compensated at the rate of 166,667 common stock warrants at the end of each calendar month, with such warrants having a five-year exercise period. The exercise price is based on a closing price of the Company’s stock as of the end of each month. The employees will be compensated on such terms until the Company is able to obtain necessary capital to pay cash compensation.

Additionally, the Company and each employee also amended the terms of their original agreement to reduce the potential amount of any accrual of unpaid salary to a maximum of $25,000 (two months’ salary) which might be payable upon completion of a financing in excess of $2,000,000 of gross proceeds. However, this accrual amount would only be payable if the employee has not elected to accept the 166,667 warrants per month for any such two months’ period prior to completion of a financing as described above.

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

Business Overview and Market

Over the past decade, the United States has observed a significant increase in the use of alternative energy sources, such as solar and wind, in electricity generation. The greater use of renewable energy imposes varied loads on the grid, which causes fluctuations in voltage, current, and frequency and, in turn, leads to degraded power quality and can result in large-scale blackouts. Power Efficiency Corporation (“PEC”) will provide comprehensive one-stop solutions to the grid stability problems and take advantage of the large and actively growing market opportunity for energy storage, which is projected to reach $50 billion by 2020. PEC will offer solutions to grid operators, utilities, and Commercial and Industrial (“C&I”) customers. Our focus will be on renewable Distributed Energy Resources (“DER”) and Battery Energy Storage Systems (“BESS”) for grid balancing services to the Independent System Operators (“ISOs”); load shifting for utilities; energy management, through storage for C&I customers; and microgrids for energy security. Our primary objective will be to build, own, and operate distributed energy resources and BESS to develop a portfolio of income producing projects.

PEC (together with its subsidiaries, sometimes referred to as “we,” “us,” or the “Company”) was incorporated in Delaware on October 19, 1994. PEC operated several businesses but terminated its last operations in 2012. Since mid-2012, the Company has had virtually no operations other than disposing of some assets and has generated no revenue or income. The Company ceased filing reports with the Securities and Exchange Commission in April 2012.

In July 2015, certain members of management acquired a controlling stake in the Company and commenced its plan to restart the Company’s operations. The change of control and management occurred on July 17, 2015, resulting in new management and a new Board of Directors. Mr. Gary Weiss, our Chief Executive Officer (“CEO”), and Mr. R. Scott Caputo, our Chief Operating Officer (“COO”), acquired control (through entities controlled by them) through the purchase of securities of the Company owned by the Estate of Philip Meisel in a privately negotiated transaction. The Company then commenced operations in the business of the promotion, acquisition, and development of BESS and related services and businesses. New management has embarked on entering into the new businesses related to energy management, DER, BESS, and related industries. We may develop and own these projects, participate as a large or small stakeholder or partial owner in these projects, or enter into joint ventures with various financial or operating partners. To date we have not developed any operating projects.

Operations and Shell Company Status and Plan of Operations

In August, 2016, PEC voluntarily filed a Form 10 with the SEC which became effective on October 10, 2016, and thereafter became subject to the reporting requirements under the Securities and Exchange Act of 1934 and the SEC rules and regulations promulgated thereunder. The filing on Form 10 was made by the Company on a voluntary basis pursuant to Section 12(g) of the Act. As of the date of effectiveness of the Form 10 and through the date of this filing, the Company is a shell company. Securities Act Rule 405 and Exchange Act Rule 12b-2 define a shell company as a company, other than an asset-backed issuer, with no or nominal operations; and either:

•

no or nominal assets;

•

assets consisting of cash and cash equivalents; or

•

assets consisting of any amount of cash and cash equivalents and nominal other assets.

We have begun very limited operations, and we require substantial outside capital to implement our business model. We believe that we will need additional funding to satisfy our cash requirements for the next twelve (12) months. Completion of our plan of operation is subject to attaining adequate financing. We cannot assure investors that additional financing will be available. In the absence of additional financing, we may be unable to proceed with our plan of operation. Over the next twelve (12) months we will be actively pursuing the raise of capital for corporate operations.

We foresee the need for and use of capital to provide for sufficient operation of the Company. We will also need to raise capital, at the corporate or project level, to meet the requirements necessary to pre-develop, build, and operate any systems or projects we may undertake and to fulfill any buildout requirements, including the installation of large generators and/or batteries on various site locations. For any site that we may seek to develop, we expect to incur costs and expenses related to:

Land/site acquisition costs which could be purchase price or lease costs;

Zoning and local land use application costs and related legal expenses;

Construction costs for preparation of acquired sites;

Equipment acquisition costs, including battery systems or generator systems;

Costs related to utility connections; and

Insurance costs for general liability.

Each project and site will have separate and distinct costs and expenses, dependent upon, among other factors, location of any site and associated variations of land related acquisition costs and the size and type of battery or generator system to be utilized. We cannot estimate an average cost of any installation and operation because of these project variations.

We anticipate that our operational, general, and administrative expenses for the next twelve (12) months, assuming we undertake substantially all of our contemplated projects, will approximate between $6 million and $14 million. The foregoing represents our best estimate of our cash needs based on current planning and business conditions. The exact allocation, purposes, and timing of any monies raised in subsequent private financings may vary significantly depending upon the exact amount of funds used and our progress with the execution of our business plan. We anticipate that depending on market conditions and our plan of operation, we may incur operating losses in the foreseeable future.

Results of Operations; Working Capital

During the quarter ended September 30, 2016, we did not generate revenue or income. We did not have any operating projects. Our focus has been on identifying potential sites for development as energy demand projects. As of September 30, 2016, our unrestricted cash was $10,766 of which $4,095 was in an interest-bearing money market account with and the balance of $6,671 was maintained in non-interest-bearing checking accounts used to pay operating expenses. As of September 30, 2017, our unrestricted cash was $162 was maintained in non-interest-bearing checking accounts to pay operating expenses and no revenue was generated.

We incurred net losses of $304,217 and $125,799 for the nine months ended September 30, 2016, and 2015, respectively. For the three months ended September 30, 2016 and 2015 we incurred net losses of $327,739 and $85,031, respectively.

As of September 30, 2016, we had total assets of approximately $37,000 (as adjusted for a write down of certain project related assets in the amount of approximately $73,000 and only nominal operations with no revenue. As of September 30, 2016, and through the date of this filing, the Company has fewer than 2,000 shareholders of record and less than $10,000,000 in total assets.

Continuation of the Company as a going concern is dependent upon achieving profitable operations or accessing sufficient operating capital. At September 30, 2016, the Company had a working capital deficiency of $276,966. 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

For the nine and three months ended September 30, 2016, we had no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a “smaller reporting company” as defined by Regulation S-K and as such, are not required to provide this information contained in this item pursuant to Regulation S-K.

We do not believe that any of our financial instruments have significant risk associated with market sensitivity. For more information on these investments see Note 4 to our financial statements included in this Form 10-Q. We are not exposed to significant financial market risks from changes in foreign currency exchange rates and are only minimally impacted by changes in interest rates. We have not used, and currently do not contemplate using, any derivative financial instruments.

Interest Rate Risk

At any time, fluctuations in interest rates could affect interest earnings on our cash and marketable securities. We believe that the effect, if any, of reasonably possible near-term changes in interest rates on our financial position, results of operations, and cash flows would not be material. Currently, we do not hedge these interest rate exposures. The primary objective of our investment activities is to preserve capital. We have not used derivative financial instruments in our investment portfolio.

As of September 30, 2016, our unrestricted cash was $10,766 of which $4,095 was in an interest-bearing money market account with and the balance of $6,671 was maintained in non-interest-bearing checking accounts used to pay operating expenses. As of September 30, 2017, our unrestricted cash was $162 which was maintained in non-interest-bearing checking accounts to pay operating expenses.

ITEM 4. CONTROLS AND PROCEDURES

~~(a)~~ Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of its Principal Executive Officer and Principal Financial Officer, management has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (the Exchange Act). Based on that evaluation, the Principal Executive Officer and Principal Financial Officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed in the Company’s Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to the Company’s management, including its Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

We maintain a system of disclosure controls and procedures, as defined in Rules 13a-15(be) ~~Changes~~and in15d-15(e) ~~Internal~~of ~~Controls.~~the ~~There~~Exchange ~~were~~Act, nothat ~~material~~are ~~changes~~designed to ensure that information required to be disclosed in our reports filed under the ~~Company~~Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s ~~internal~~rules ~~control~~and ~~over~~forms. ~~financial~~This ~~reporting~~information is also accumulated and communicated to management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (principal accounting officer) (“PAO”), as appropriate, to allow timely decisions regarding required disclosure. Our management, under the supervision and with the participation of its CEO and PAO, evaluated the ~~end~~effectiveness of the ~~period~~design ~~covered~~and byoperation ~~this~~of ~~report~~our asdisclosure ~~such~~controls ~~term~~and isprocedures ~~defined~~as inof ~~Rule~~the ~~13a-15(f)~~end of the period ~~Exchange~~covered ~~Act~~by this Report.

-The 24Company voluntarily filed a Form 10 with the Securities and Exchange Commission which became effective under SEC rules on October 11, 2016. Under SEC rules, the Company became subject to reporting requirements under the Securities and Exchange Act of 1934 and SEC regulations as of such date. The Company has not filed updates or amendments to the Form 10 in response to SEC comments until this filing and did not timely file any subsequent Exchange Act reports until the filing of this Report on Form 10-Q. The Company and its management are in the process of completing all delinquent filings and expects to file them within the next 45 to 60 days.

~~PART~~The IICompany —has ~~OTHER~~not ~~INFORMATION~~generated any revenue or income since the filing of the Form 10 and management has been focused on developing its business and plan of operations and therefore did not file the required reports in a timely manner. Notwithstanding the foregoing, our CEO and PAO believe that the financial statements included in this report fairly present in all material respects (and in accordance with U.S. generally accepted accounting principles) our financial condition, results of operations and cash flows for the periods presented.

A material weakness is a control deficiency, or combination of control deficiencies, that result in more than a remote likelihood that a material misstatement of annual or interim statements will not be prevented or detected. Our management has determined that prior to this filing our disclosure controls and procedures were inadequate to provide reasonable assurances that information required to be disclosed in our required filings or submitted under the Securities and Exchange Act of 1934 is properly recorded, processed, summarized and reported within the specified time periods pursuant to SEC rules and regulations. Further, our management, including our Chief Executive Officer and Principal Accounting Officer determined to forego filing required reports to focus on developing the Company’s business plan and to develop operations and potential projects.

Remediation of Material Weaknesses in Internal Control over Financial Reporting

Management is committed to the planning and implementation of remediation efforts to address the material weaknesses as well as other identified areas of risk. Management has committed itself to correct its filing deficiencies and to timely make required filings in the future.

Changes in Internal Control over Financial Reporting

Other than the ongoing remediation efforts described above, there have been no changes in our internal control over financial reporting during the quarter ended September 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

ITEM 1. LEGAL PROCEEDINGS

~~None~~The Company is not a party to or aware of any pending or threatened legal proceedings which, in the opinion of the Company’s management, would result in any material adverse effect on its results of operations or its financial condition.

ITEM 1A. RISK FACTORS

Our operating results and financial condition have varied in the past and may in the future vary significantly depending on a number of factors. In addition to the other information set forth in this report, you should carefully consider the factors discussed in the “Risk Factors” section in our Report on Form 10 as originally filed on August 11, 2016 and amended on January __, 2018 and in our other reports filed with the SEC for a discussion of the risks associated with our business, financial condition and results of operations. These factors, among others, could have a material adverse effect upon our business, results of operations, financial condition or liquidity and cause our actual results to differ materially from those contained in statements made in this report and presented elsewhere by management from time to time. The risks identified by Power Efficiency Corporation in its reports are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently believe are immaterial also may materially adversely affect our business, results of operations, financial condition or liquidity. Other than as stated herein, we believe there have been no material changes in our risk factors from those disclosed in our Report on Form 10, as amended.

Restrictions on the Use of Rule 144 by Shell Companies or Former Shell Companies

Rule 144 is not available for the resale of securities initially issued by shell companies (other than business combination related shell companies) or issuers that have been at any time previously a shell company. However, Rule 144 also includes an important exception to this prohibition if the following conditions are met:

	•	the issuer of the securities that was formerly a shell company has ceased to be a shell company;
	•	the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act;
	•	the issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable, during the preceding 12 months (or such shorter period that the issuer was required to file such reports and materials), other than Form 8-K reports; and
	•	at least one year has elapsed from the time that the issuer filed current Form 10 type information with the SEC reflecting its status as an entity that is not a shell company.

We should be considered a shell company under SEC rules and regulations.

Restricted Securities; Limited Transferability

Our securities should be considered a long-term, illiquid investment. Our securities have not been registered under the Securities Act, and cannot be sold without registration under the Securities Act or any exemption from registration. In addition, the securities are not registered under any state securities laws that would permit their transfer. Because of these restrictions and the absence of an active trading market for our securities, a shareholder will likely be unable to liquidate an investment even though other personal financial circumstances would dictate such liquidation.

No Trading Market

There is no established trading marketing for our Common Stock and there can be no assurance that one will ever develop. Market liquidity will depend on the perception of our operating business and any steps that our management might take to bring us to the awareness of investors. There can be no assurance given that there will be any awareness generated. Consequently, investors may not be able to liquidate their investment or liquidate it at a price that reflects the value of the business. As a result holders of our securities may not find purchasers for our securities should they to sell securities held by them. Consequently, our securities should be purchased only by investors having no need for liquidity in their investment and who can hold our securities for an indefinite period of time.

Not Likely To Pay Dividends

We currently intend to retain any future earnings for use in the operation and expansion of our business. Accordingly, we do not expect to pay any dividends in the foreseeable future, but will review this policy as circumstances dictate. Additionally, the payment of dividends requires that we have revenue and income, and we do not expect to generate income in the immediate future.

Our Common Stock is Now And In The Future Will be subject To The SEC’s “Penny Stock” Rules

We are subject now and in the future may continue to be subject to the SEC’s “penny stock” rules if our shares of Common Stock sell below $5.00 per share. Penny stocks generally are equity securities with a price of less than $5.00. The penny stock rules require broker-dealers to deliver a standardized risk disclosure document prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson, and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information must be given to the customer orally or in writing prior to completing the transaction and must be given to the customer in writing before or with the customer’s confirmation.

In addition, the penny stock rules require that prior to a transaction; the broker dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. The penny stock rules are burdensome and may reduce purchases of any offerings and reduce the trading activity for shares of our Common Stock. As long as our shares of Common Stock are subject to the penny stock rules, the holders of such shares of Common Stock may find it more difficult to sell their securities.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~None~~During the period covered by this report (July 1, 2016 to September 30, 2016), the Company did not issue any securities that were not registered under the Securities Act of 1933, as amended except as provided in this Item 2 below.

In August 2016, the Company authorized the issuance of, and issued, an aggregate of an additional 2,400,000 shares of restricted common stock in consideration of services to the following persons/entities:

Consultant -– Energy Projects			666,667

Board services			66,667

Legal Services Law Firm			333,333

Chief Financial Officer services			333,333

General Advisory Services Consultant			1,000,000

The shares were issued pursuant to the exemptions from registration provided under Section 4(a)(2) of the Securities Act of 1933, as amended. The shares are restricted securities within the meaning of the Securities Act of 1933, and the rules and regulation promulgated thereunder.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE ~~RESERVED~~SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

- 25 -

ITEM 6. EXHIBITS

31.1	Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification by the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification by the Chief Executive Officer pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification by the Principal Financial Officer pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS **	XBRL Instance Document
101.SCH **	XBRL Taxonomy Extension Schema Document
101.CAL **	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF **	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB **	XBRL Taxonomy Extension Label Linkbase Document
101.PRE **	XBRL Taxonomy Extension Presentation Linkbase Document

a) The following Exhibits are filed herein:

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

NO.	TITLE

31.1	Certification of Chief Executive Officer pursuant to the Securities Exchange Act of 1934, Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2	Certification of Chief Financial Officer pursuant to the Securities Exchange Act of 1934, Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1	Certification of Chief Executive Officer and of Chief Financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS*	XBRL Instance Document

101.SCH*	XBRL Taxonomy Extension Schema

101.CAL*	XBRL Taxonomy Extension Calculation Linkbase

101.DEF*	XBRL Taxonomy Extension Definition Linkbase

101.LAB*	XBRL Taxonomy Extension Label Linkbase

101.PRE*	XBRL Taxonomy Extension Presentation Linkbase

- 26 -

POWER EFICIENCY CORPORATION

FORM 10Q

SEPTEMBER 30, 2016

SIGNATURES

In accordance with ~~the~~Section ~~requirements~~13 or 15(d) of the ~~Securities~~ Exchange Act ~~of 1934~~, the ~~Company~~Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	POWER EFFICIENCY CORPORATION (Company)
Date: November 14, 2011	By:	/s/ Steven Strasser
		Chief Executive Officer (principal executive officer)
Date: November 14, 2011	By:	/s/ Brian Chan
		Vice President of Finance and Accounting (principal financial and accounting officer)

	POWER EFFICIENCY CORPORATION


	By: /s/ Gary Weiss
	Gary Weiss, Chief Executive Officer

-January 2722, -2018

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	POWER EFFICIENCY CORPORATION


	By: /s/ Mark Goldberg
	Mark Goldberg, Chief Financial Officer
	And Principal Accounting Officer

January 22, 2018

Filing Compare · POWER EFFICIENCY CORP