(a)     Two recent events have caused a change in control of Power Efficiency Corporation, a Delaware corporation (the “Registrant” or the “Company”). These events have caused Summit Energy Ventures, LLC (“Summit”), a private equity firm specializing in energy related technologies and one of Power Efficiency’s shareholders, to obtain voting control of the Registrant.

Summit purchased 2,346,233 shares of Series A-1 Convertible Preferred Stock from the Registrant in June of 2002. The shares of Series A Preferred Stock vote together with the Common Stock as a single class. The initial conversion rate allowed Summit to convert its Series A-1 Convertible Preferred Stock into Common Stock at the rate of two shares of Common Stock for each share of Series A-1 Convertible Preferred Stock. However, according to the terms of this transaction, Summit’s ability to vote its shares was limited. Summit was only entitled to vote such number of shares of Series A-1 Convertible Preferred Stock that equaled 28% of the outstanding shares of Common Stock entitled to vote on the date of such stockholder vote.

On May 8, 2003, the Registrant entered into a financing transaction whereby Summit provided the Registrant with a $1,000,000 line of credit (as more fully described in Item 2). As part of that transaction, the limitation on Summit’s ability to vote its shares described above was removed. As a result, each share of Series A-1 Convertible Preferred Stock is entitled to such number of votes equal to the number of shares of Common Stock each share of Series A-1 Convertible Preferred Stock is convertible into.

The second event that increased Summit’s voting power was the Registrant’s issuance of Common Stock in a private placement. The Registrant has recently entered into a stock purchase agreement whereby the Registrant agreed to sell shares to a foreign company in sales exempt from registration under the Securities Act of 1933, as amended, pursuant to Regulation S. These sales are to take place at various times and at various prices. The price per share will in no case be less than $0.25. The lowest price at which stock has been sold so far has been approximately $0.25 per share. The terms of the Series A-1 Convertible Preferred Stock owned by Summit provide for an adjustment of the conversion price in the event the Registrant issues stock at a price less than $0.53 per share. As a result of the sale of stock at approximately $0.25, each share of Series A-1 Convertible Preferred Stock is now convertible into approximately 4.25 shares of Common Stock. This change in the conversion ratio also increases the voting power of the Series A-1 Convertible Preferred Stock to approximately 4.25 votes per share.

The shares of Series A Preferred Stock vote together with the Common Stock as a single class. As a result of these two recent events, the voting power of the Series A-1 Convertible Preferred Stock held by Summit entitles Summit to approximately 58 percent of the votes that may be cast.

Item 2.  Acquisition or Disposition of Assets.

Line of Credit Financing

On May 8, 2003, the Registrant closed on a line of credit (the “Financing”) from Summit. Pursuant to the terms of the revolving credit note entered into between the Registrant and Summit (the “Note”), the Registrant received a $1 million line of credit from Summit. Summit is a major stockholder of the Registrant and is entitled to appoint three of the Registrant’s eight directors. The Financing was unanimously approved by the five non-Summit directors with the Summit directors abstaining. The significant transaction documents executed in the Financing are attached as Exhibits.

Security Interest. To secure the repayment of the outstanding balance (including all principal, interest and fees) due under the Note, the Registrant granted Summit a security interest in all of the Registrant’s assets, both tangible and intangible. The outstanding balance of the Note is due on the earlier of (i) December 31, 2003, or (ii) at such time that an event of default occurs. The following conditions, among other things, would constitute an event of default:

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