##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-QSB
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended: June 30, 2007
 OR
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the transition period from _________ to _________
 Commission File No. 0-31805
 POWER EFFICIENCY CORPORATION
  Delaware
(State or Other Jurisdiction of 
Incorporation or Organization)
    
    22-3337365
(I.R.S. Employer Identification No.)
 3960 Howard Hughes Pkwy, Ste 460
Las Vegas, NV 89169
(Address of Principal Executive Offices)
    
    (702) 697-0377
(Issuers Telephone Number,
Including Area Code)
 þ o
 o þ
  o þ




---



##### 



POWER EFFICIENCY CORPORATION
FORM 10-QSB INDEX
 PART I  FINANCIAL INFORMATIONITEM 1. Financial StatementsCondensed Balance Sheet as of June 30, 2007
    
    
    3Condensed Statements of Operations for the three months ended
June 30, 2007 and 2006 and six months ended
June 30, 2007 and 2006
    
    
    4Condensed Statements of Cash Flows for the six months
ended June 30, 2007 and 2006
    
    
    5Notes to Condensed Financial Statements
    
    
    6-9ITEM 2. Managements Discussion and Analysis Or Plan of Operation
    
    
    10-13ITEM 3. Controls and Procedures
    
    
    13Part II  OTHER INFORMATIONITEM 1. Legal Proceedings
    
    
    14ITEM 2. Changes in Securities and Use of Proceeds
    
    
    14ITEM 3. Defaults Upon Senior Securities
    
    
    14ITEM 4. Submission of Matters to a Vote of Security Holders
    
    
    14ITEM 5. Other Information
    
    
    15ITEM 6. Exhibits and Reports on Form 8-K
    
    
    15Signatures
    
    
    16EXHIBIT 10.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 POWER EFFICIENCY CORPORATION
 
   June 30,2007ASSETSCURRENT ASSETS:Cash
    
    $
    1,381,514Accounts receivable, net
    
    
    166,975Accounts receivable, other
    
    
    20,000Inventory, net of reserve
    
    
    91,316Prepaid expenses and other current assets
    
    
    44,320Total Current Assets
    
    
    1,704,125PROPERTY AND EQUIPMENT, Net
    
    
    100,852OTHER ASSETS:Patents, net
    
    
    40,242Deposits
    
    
    38,611Goodwill
    
    
    1,929,963Inventory  long term, net
    
    
    30,439Deferred financing costs, net
    
    
    4,491Total Other Assets
    
    
    2,043,746Total Assets
    
    $
    3,848,723LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts payable and accrued expenses
    
    $
    574,928Accrued salaries and payroll taxes
    
    
    47,970Total Current Liabilities
    
    
    622,898LONG TERM LIABILITESNotes payable  2008, net
    
    
    1,554,990Total Liabilities
    
    
    2,177,888STOCKHOLDERS EQUITY:Series A-1 Convertible Preferred Stock, $.001 par value,
10,000,000 shares authorized, none issued or outstanding
    
    
    Common stock, $.001 par value, 140,000,000 shares
authorized, 38,516,676 issued and outstanding
    
    
    38,517Additional paid-in capital
    
    
    26,309,663Accumulated deficit
    
    
    (24,677,345
    )Total Stockholders Equity
    
    
    1,670,835Total Liabilities and Stockholders Equity
    
    $
    3,848,723
 Accompanying notes are an integral part of the financial statements
 3




---



##### Table of Contents



POWER EFFICIENCY CORPORATION
 
   For the three months ended
    
    
    For the six months endedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006REVENUES
    
    $
    230,195
    
    
    $
    44,390
    
    
    $
    266,810
    
    
    $
    68,734COST OF SALES
    
    
    153,705
    
    
    
    36,091
    
    
    
    188,344
    
    
    
    64,095GROSS MARGIN
    
    
    76,490
    
    
    
    8,299
    
    
    
    78,466
    
    
    
    4,639COSTS AND EXPENSES:Research and development
    
    
    138,091
    
    
    
    123,970
    
    
    
    232,803
    
    
    
    220,626Selling, general and administrative
    
    
    620,526
    
    
    
    756,815
    
    
    
    1,295,981
    
    
    
    1,645,940Depreciation and amortization
    
    
    11,611
    
    
    
    7,872
    
    
    
    20,586
    
    
    
    14,344Total Costs and Expenses
    
    
    770,228
    
    
    
    888,657
    
    
    
    1,549,370
    
    
    
    1,880,910LOSS FROM OPERATIONS
    
    
    (693,738
    )
    
    
    (880,358
    )
    
    
    (1,470,904
    )
    
    
    (1,876,271
    )OTHER INCOME (EXPENSE):Interest income
    
    
    12,800
    
    
    
    620
    
    
    
    25,120
    
    
    
    4,338Interest expense
    
    
    (156,694
    )
    
    
    (813,893
    )
    
    
    (313,591
    )
    
    
    (950,379
    )Total Other Expenses, net
    
    
    (143,894
    )
    
    
    (813,273
    )
    
    
    (288,471
    )
    
    
    (946,041
    )NET LOSS
    
    $
    (837,632
    )
    
    $
    (1,693,631
    )
    
    $
    (1,759,375
    )
    
    $
    (2,822,312
    )BASIC AND FULLY DILUTED LOSS
PER COMMON SHARE
    
    $
    (0.02
    )
    
    $
    (0.07
    )
    
    $
    (0.05
    )
    
    $
    (0.12
    )WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING, BASIC
    
    
    38,516,676
    
    
    
    23,708,391
    
    
    
    37,645,746
    
    
    
    23,674,848
 Accompanying notes are an integral part of the financial statements
 4




---



##### Table of Contents



POWER EFFICIENCY CORPORATION
 
   For the six months ended June 30,2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (1,759,375
    )
    
    $
    (2,822,312
    )Adjustments to reconcile net loss to net cash used for
operating activities:Depreciation and amortization
    
    
    20,586
    
    
    
    14,344Loss on disposal of property and equipment
    
    
    
    
    
    
    586Amortization of deferred financing costs
    
    
    6,737
    
    
    
    36,624Bad debt expense
    
    
    
    
    
    
    13,414Debt discount related to issuance of debt securities
    
    
    158,087
    
    
    
    813,872Warrants and options issued in connection with the issuance
of debt securities, and to employees and consultants
    
    
    360,503
    
    
    
    596,085Common stock issued for consulting services
    
    
    
    
    
    
    90,000Changes in assets and liabilities:Accounts receivable, net
    
    
    (134,783
    )
    
    
    6,025Accounts receivable, other
    
    
    (20,000
    )
    
    
    Inventory
    
    
    35,097
    
    
    
    (27,325
    )Prepaid expenses and other assets
    
    
    19,222
    
    
    
    21,137Deposits
    
    
    (4,736
    )
    
    
    (33,875
    )Accounts payable and accrued expenses
    
    
    37,793
    
    
    
    (78,738
    )Accrued salaries and payroll taxes
    
    
    
    
    
    
    (7,706
    )Net Cash Used for Operating Activities
    
    
    (1,280,869
    )
    
    
    (1,377,869
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of property and equipment
    
    
    (44,886
    )
    
    
    (67,169
    )Net Cash Used for Investing Activities
    
    
    (44,866
    )
    
    
    (67,169
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from issuance of equity securities
    
    
    1,024,796
    
    
    
    Payments on notes payable
    
    
    (11,111
    )
    
    
    (16,667
    )Proceeds from line of credit  related party
    
    
    
    
    
    
    600,000Payments to former officers
    
    
    
    
    
    
    (25,112
    )Net Cash Provided by Financing Activities
    
    
    1,013,685
    
    
    
    558,221Decrease in cash
    
    
    (312,070
    )
    
    
    (886,817
    )Cash at beginning of period
    
    
    1,693,584
    
    
    
    1,009,120Cash at end of period
    
    $
    1,381,514
    
    
    $
    122,303
 Accompanying notes are an integral part of the financial statements
 5




---



##### Table of Contents



NOTE 1  BASIS OF PRESENTATION
   NOTE 2  GOING CONCERN
   NOTE 3  ACCOUNTS RECEIVABLE, OTHER
  6




---



##### Table of Contents



NOTE 4  NOTES PAYABLE
    NOTE 5  COMMITMENTS AND CONTINGENCIES
 Leases:
 7




---



##### Table of Contents



NOTE 6  CONSULTING AGREEMENTS
 st
  NOTE 7  ACCOUNTING FOR SHARE BASED PAYMENTS
   8




---



##### Table of Contents



For the six months ended June 30 (Unaudited)2007
    
    
    2006Total Revenues
    
    $
    266,693
    
    
    $
    68,734Total Cost of Product Revenues
    
    
    188,344
    
    
    
    64,095Gross Margin
    
    
    78,466
    
    
    
    4,639Costs and Expenses:Research and development
    
    
    211,179
    
    
    
    220,626Selling, general and administration
    
    
    957,102
    
    
    
    959,855SFAS 123 stock option expense*
    
    
    360,503
    
    
    
    521,655Other non-cash consideration*
    
    
    
    
    
    
    164,430Depreciation and amortization
    
    
    20,586
    
    
    
    14,344Total Costs and Expenses
    
    
    1,549,370
    
    
    
    1,880,910Loss From Operations
    
    
    (1,470,904
    )
    
    
    (1,876,271
    )Other (Expense) Income:Cash interest (expense) income, net
    
    
    (130,384
    )
    
    
    (132,169
    )Non-cash interest (expense)
income, net*
    
    
    (158,087
    )
    
    
    (813,872
    )Total Other (Expense) Income
    
    
    (288,471
    )
    
    
    (946,041
    )Net Loss
    
    $
    (1,759,375
    )
    
    $
    (2,822,312
    )*Sum of non-cash compensation and
non-cash interest expense
    
    
    518,590
    
    
    
    1,499,957Net Loss excluding non-cash
compensation and non-cash interest
    
    $
    (1,240,785
    )
    
    $
    (1,322,355
    )
 9




---



##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
 OVERVIEW
   RESULTS OF OPERATIONS: FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007 AND 2006.
 REVENUES
   COST OF SALES
  10




---



##### Table of Contents



OPERATING EXPENSES
 Research and Development Expenses
   Selling, General and Administrative Expenses
   11




---



##### Table of Contents



Financial Condition, Liquidity, and Capital Resources: For the Six Months Ended June 30, 2007 and
2006
      12




---



##### Table of Contents



Cash Requirements and Need for Additional Funds
   
 ITEM 3. CONTROLS AND PROCEDURES
 (a) Evaluation of Disclosure Controls and Procedures.
 (b) Changes in Internal Controls.
 13




---



##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   Name
    
    Votes For
    
    Votes WithheldSteven Strasser
    
    
    23,782,114
    
    
    
    324,818John (BJ) Lackland
    
    
    23,954,114
    
    
    
    152,818Raymond J. Skiptunis
    
    
    24,087,114
    
    
    
    19,818George Boyadjieff
    
    
    24,062,114
    
    
    
    44,818Douglas M. Dunn
    
    
    24,087,114
    
    
    
    19,818Richard Morgan
    
    
    24,088,413
    
    
    
    18,518Gary Rado
    
    
    24,088,414
    
    
    
    18,518
  
    
    Approved the ratification of the appointment of Sobel & Co., LLC as the Companys
independent registered public accounting firm for the year ended December 31, 2007. There
were 23,800,901 votes cast for the ratification, 16,031 votes cast against the
ratification and 290,000 abstentions;
    
    Approved the amendment of the Companys Certificate of Incorporation, as amended, to
increase the amount of the Companys authorized common stock from one hundred ten million
(110,000,000) to one hundred fifty million (150,000,000). There were 23,736,358 votes
cast for the amendment, 337,238 votes cast against the amendment, and 33,336 abstentions;
    
    Approved the amendment of the Companys 2000 Stock Option and Restricted Stock Plan by
striking Section 10.2(b) of the Plan in its entirety. There were 16,740,476 votes cast
for the amendment, 371,990 votes cast against the amendment, and 19,000 abstentions.
 14




---



##### Table of Contents



ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
  Number
    
    Description of Document10.1
    
    Consulting Agreement amendment with George Boyadjieff, dated June
9, 2007, filed herewith.10.2
    
    Consulting Agreement with George Boyadjieff, dated June 9, 2005;
incorporated by reference to Exhibit 10.54 to the Companys Form
10-KSB filed on March 31, 200631.1
    
    Certification by the Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002, filed herewith.31.2
    
    Certification by the Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002, filed herewith.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, filed herewith.32.2
    
    Certification by the Chief 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, filed herewith.
    15




---



##### Table of Contents



SIGNATURES
  POWER EFFICIENCY CORPORATIONDate:  August 13, 2007
    By:
    /s/  Steven StrasserChief Executive OfficerDate:  August 13, 2007
    By:
    /s/  John LacklandChief Financial Officer (Principal Financial andAccounting Officer) 16




---



##### Table of Contents



Exhibit
No.
    
    Description10.1
    
    Consulting Agreement amendment with George Boyadjieff, dated June
9, 2007, filed herewith.10.2
    
    Consulting Agreement with George Boyadjieff, dated June 9, 2005;
incorporated by reference to Exhibit 10.54 to the Companys Form
10-KSB filed on March 31, 200631.1
    
    Certification by the Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002, filed herewith.31.2
    
    Certification by the Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002, filed herewith.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, filed herewith.32.2
    
    Certification by the Chief 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, filed herewith.
 17