UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | Quarterly report pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30 2017
☐ | Transition report pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from _______ to _______
000-55152
(Commission file number)
ZNERGY, INC.
(Exact name of registrant as specified in its charter)
Nevada | 46-1845946 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
808A South Huntington Street,
|
| |
(Address of principal executive offices) | (Zip Code) |
800-931-5662 |
(Registrant’s telephone number, including area code) |
MAZZAL HOLDING CORP.None
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed 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 ☒☐ No ☐
Indicate by check mark whether the registrant has submitted electronically, and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ☐ No ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.
Large accelerated filer ☐ | Accelerated filer ☐ | |
Non-accelerated filer | Smaller reporting company ☒ | |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if hethe registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provide pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Symbol | Name of each exchange on which registered |
Common | ZNRG | OTC |
On November 13, 2017,July 30, 2019 there were 227,624,960271,924,960 shares of the registrant’s common stock outstanding.
PART I - FINANCIAL INFORMATION | |||
Item 1. | 4 | ||
Item 2. | 15 | ||
Item 3. | 18 | ||
Item 4. | 18 | ||
Part II - OTHER INFORMATION | 19 | ||
Item 1. | 19 | ||
Item 5. | 19 | ||
Item 6. | 20 | ||
21 | |||
PART I - FINANCIAL INFORMATION
ZNERGY, INC.
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS: | |
5 | |
6 | |
7 | |
8 |
ZNERGY, INC.
| September 30, | December 31, | |||||||
| 2017 | 2016 | |||||||
| (UNAUDITED) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 131,444 | $ | 40,507 | ||||
| Accounts receivable, net of allowance | 697,389 | 79,612 | ||||||
| Prepaid expenses | 76,460 | 3,750 | ||||||
| Inventory | 389,768 | 192,105 | ||||||
| Total current assets | 1,295,061 | 315,974 | ||||||
| Fixed Assets, net | 306,189 | 2,567 | ||||||
| Intangible assets, net | 1,845 | 1,845 | ||||||
| TOTAL ASSETS | $ | 1,603,095 | $ | 320,386 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | 251,131 | $ | 284,930 | ||||
| Accrued expenses | 185,588 | 139,336 | ||||||
| Customer deposits | 64,383 | 6,605 | ||||||
| Advances | - | 60,000 | ||||||
| Loan, building | 225,000 | - | ||||||
| Loan from related party | 892 | 135,749 | ||||||
| Total current liabilities | 726,994 | 626,620 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
Preferred stock, $0.0001 par value, 100,000,000 authorized shares; no shares issued and outstanding | - | - | ||||||
Common stock, $0.0001 par value; 500,000,000 shares authorized; 227,624,960 and 193,150,000 shares issued and outstanding at September 30, 2017 and December 31, 2016 | 22,762 | 19,315 | ||||||
| Additional paid-in-capital | 11,917,435 | 7,626,099 | ||||||
| Accumulated deficit | (11,064,096 | ) | (7,951,648 | ) | ||||
| Total Stockholders’ Equity (Deficit) | 876,101 | (306,234 | ) | |||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | $ | 1,603,095 | $ | 320,386 | ||||
September 30, | December 31, | |||||||
2018 | 2017 | |||||||
(UNAUDITED) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash | $ | 6,356 | $ | 116,481 | ||||
Accounts receivable, net | 57,784 | 112,818 | ||||||
Prepaid expenses | 45,941 | 35,365 | ||||||
Inventory | 830,157 | 444,606 | ||||||
Total current assets | 940,238 | 709,270 | ||||||
Building, equipment and furniture, net | 83,354 | 364,093 | ||||||
Intangible assets | 1,845 | 1,845 | ||||||
TOTAL ASSETS | $ | 1,025,437 | $ | 1,075,208 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | 511,858 | $ | 431,267 | ||||
Accrued expenses | 216,341 | 179,628 | ||||||
Customer deposits | 51,006 | 39,453 | ||||||
Advances from related parties | 322,224 | - | ||||||
Loan, building | - | 225,000 | ||||||
Loans from related parties | 729,429 | 171,518 | ||||||
Total current liabilities | 1,830,858 | 1,046,866 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
STOCKHOLDERS’ (DEFICIT) EQUITY | ||||||||
Preferred stock, $0.0001 par value, 100,000,000 authorized shares; no shares issued and outstanding | - | - | ||||||
Common stock, $0.0001 par value; 500,000,000 shares authorized; 235,724,960 and 230,724,960 issued and outstanding at September 30, 2018 and December 31, 2017, respectively | 23,672 | 23,072 | ||||||
Additional paid-in-capital | 13,678,326 | 12,444,488 | ||||||
Accumulated deficit | (14,507,419 | ) | (12,439,218 | ) | ||||
Total Stockholders’ Equity/(Deficit) | (805,421 | ) | 28,342 | |||||
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY | $ | 1,025,437 | $ | 1,075,208 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
ZNERGY, INC.
FOR THE THREE ANDNINE MONTHS ENDED
(Unaudited)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | September 30, | September 30, | |||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Revenue | $ | 873,976 | $ | 2,461 | $ | 1,302,217 | $ | 14,701 | ||||||||
| Cost of revenue | 423,334 | - | 596,661 | - | ||||||||||||
| Gross profit | 450,642 | 2,461 | 705,556 | 14,701 | ||||||||||||
| Selling, general and administrative expenses | 1,404,389 | 231,754 | 3,818,004 | 373,490 | ||||||||||||
| Loss from operations | (953,747 | ) | (229,293 | ) | (3,112,448 | ) | (358,789 | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Other income | - | - | - | 7,136 | ||||||||||||
| Total other income | - | - | - | 7,136 | ||||||||||||
| Provision for income taxes | - | - | - | - | ||||||||||||
| Net loss | $ | (953,747 | ) | $ | (229,293 | ) | $ | (3,112,448 | ) | $ | (351,653 | ) | ||||
| Net loss per common share - basic and diluted | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.02 | ) | $ | (0.00 | ) | ||||
Weighted average number of shares outstanding - basic and diluted | 214,074,451 | 185,060,753 | 205,493,759 | 203,991,818 | ||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Revenue | $ | 556,142 | $ | 586,976 | $ | 1,298,696 | $ | 1,015,217 | ||||||||
Cost of revenue | 259,158 | 423,334 | 665,154 | 596,661 | ||||||||||||
Gross profit | 296,984 | 163,642 | 633,542 | 418,556 | ||||||||||||
Selling, general and administrative expenses | 668,000 | 1,241,262 | 2,486,001 | 3,654,877 | ||||||||||||
Loss from operations | (371,016 | ) | (1,077,620 | ) | (1,852,459 | ) | (3,236,321 | ) | ||||||||
Other income (expense) | ||||||||||||||||
Other (expense) | 7,730 | - | (35,758 | ) | - | |||||||||||
Interest Expense | (3,749 | ) | - | (179,899 | ) | - | ||||||||||
Total other income (expense) | 3,981 | - | (215,657 | ) | - | |||||||||||
Loss before provision for income taxes | (367,035 | ) | (1,077,620 | ) | (2,068,116 | ) | (3,236,321 | ) | ||||||||
Provision for income taxes | - | - | - | |||||||||||||
Net loss | $ | (367,035 | ) | $ | (1,077,620 | ) | $ | (2,068,116 | ) | $ | (3,236,321 | ) | ||||
Net loss per common share - basic and diluted | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.02 | ) | ||||
Weighted average number of shares outstanding - basic and diluted | 229,024,960 | 214,074,451 | 228,991,993 | 205,493,759 | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
ZNERGY, INC.
| Total | ||||||||||||||||||||
| Additional | Stockholders’ | |||||||||||||||||||
| Common Stock | Paid in | Accumulated | Equity | |||||||||||||||||
| Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||
| Balance at December 31, 2016 | 193,150,000 | $ | 19,315 | $ | 7,626,099 | $ | (7,951,648 | ) | $ | (306,234 | ) | |||||||||
| Stock and options issued for services | 19,550,000 | 1,955 | 2,654,370 | - | 2,656,325 | |||||||||||||||
| 506b Offering | ||||||||||||||||||||
| Stock and warrants issued for cash | 10,600,000 | 1,060 | 793,941 | - | 795,000 | |||||||||||||||
| Stock and warrants issued for debt conversion | 4,324,960 | 432 | 843,025 | - | 843,457 | |||||||||||||||
| Net loss | (3,112,448 | ) | (3,112,448 | ) | ||||||||||||||||
| Balance at September 30, 2017 | 227,624,960 | $ | 22,762 | $ | 11,917,435 | $ | (11,064,096 | ) | $ | 876,101 | ||||||||||
(unaudited)
Nine Months Ended | ||||||||
September 30, | September 30 | |||||||
2018 | 2017 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (2,068,116 | ) | $ | (3,236,321 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 27,478 | 1,862 | ||||||
Loss on sale of assets | 41,608 | - | ||||||
Common stock and options issued for services | 1,183,611 | 2,564,198 | ||||||
Non-cash interest expense | 173,652 | 519,085 | ||||||
Bad debt expense | 53,348 | - | ||||||
Changes in operating assets and liabilities | ||||||||
Accounts receivable | 1,686 | (401,777 | ) | |||||
Prepaid expenses | (10,576 | ) | (72,710 | ) | ||||
Inventory | (385,551 | ) | (197,663 | ) | ||||
Accounts payable & accrued expenses | 117,304 | 21,818 | ||||||
Customer deposits | 11,553 | 57,778 | ||||||
Net cash used in operating activities | (854,003 | ) | (743,730 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of fixed assets | (63,564 | ) | (80,483 | ) | ||||
Proceeds from sale of assets | 50,218 | - | ||||||
Net cash used in investing activities | (13,346 | ) | (80,483 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from sale of common stock | - | 795,000 | ||||||
Repayment of advances from third parties | (187 | ) | (106,340 | ) | ||||
Proceeds from advances from related parties | 322,411 | 226,750 | ||||||
Repayment of loans from related party | (10,000 | ) | (260 | ) | ||||
Proceeds from loans from related parties | 445,000 | - | ||||||
Net cash provided by financing activities | 757,224 | 915,150 | ||||||
(DECREASE) INCREASE IN CASH | (110,125 | ) | 90,937 | |||||
CASH, BEGINNING OF PERIOD | 116,481 | 40,507 | ||||||
CASH, END OF PERIOD | $ | 6,356 | $ | 131,444 | ||||
Cash Paid during the period | 9,000 | - | ||||||
Supplemental Disclosures | ||||||||
Non-cash investing and financing activities: | ||||||||
Common Stock and Warrants issued for Conversion of Debt and Advances | $ | 75,000 | $ | 324,372 | ||||
Related party advance paid directly to vendor | 125,000 | - | ||||||
Purchase of building with a note | 225,000 | |||||||
Transfer of building to related party in exchange for payment of loan | $ | 225,000 | $ | - | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
ZNERGY, INC.
| For the Nine | For the Nine | |||||||
| Months Ended | Months Ended | |||||||
| September 30, | September 30, | |||||||
| 2017 | 2016 | |||||||
| CASH FLOWS USED IN OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (3,112,448 | ) | $ | (351,653 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 1,862 | 2,500 | ||||||
| Common stock and options issued for services | 2,656,325 | 197,169 | ||||||
| Common stock and options issued for interest on debt converted | 519,085 | - | ||||||
| Contributed services | - | 10,640 | ||||||
| Accounts receivable | (617,777 | ) | (23,480 | ) | ||||
| Prepaid expenses | (72,710 | ) | - | |||||
| Inventory | (197,663 | ) | (19,341 | ) | ||||
| Accounts payable & accrued expenses | 21,818 | 69,534 | ||||||
| Customer deposits | 57,778 | - | ||||||
| Net cash used in operating activities | (743,730 | ) | (114,631 | ) | ||||
| CASH FLOWS USED IN INVESTING ACTIVITIES: | ||||||||
| Purchase of fixed assets | (80,483 | ) | (1,213 | ) | ||||
| Net cash used in investing activities | (80,483 | ) | (1,213 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance of common stock | 795,000 | - | ||||||
| Repayment of advances from third parties | (106,340 | ) | - | |||||
| Payments of Loan from Related Parties | (260 | ) | - | |||||
| Advances from third parties | 226,750 | 123,526 | ||||||
| Net cash provided by financing activities | 915,150 | 123,526 | ||||||
| INCREASE IN CASH | 90,937 | 7,682 | ||||||
| CASH, BEGINNING OF PERIOD | 40,507 | 1,279 | ||||||
| CASH, END OF PERIOD | $ | 131,444 | $ | 8,961 | ||||
| Supplemental Disclosures | ||||||||
| Non-cash investing and financing activities: | ||||||||
| Transfer of assets and liabilities to related party for return of common shares | $ | - | $ | 1,018,679 | ||||
| Purchase of building with note | $ | 225,000 | $ | - | ||||
| Repayment of debt with common stock and options | $ | 324,372 | $ | - | ||||
PERIODS ENDED SEPTEMBER 30, 2018 AND 2017
NOTE 1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION
Znergy, Inc., (formerly Mazzal Holding Corp., formerly Boston Investment and Development Corp.) is a Nevada corporation (the “Company”), incorporated on January 23, 2013. The original business plan of the Company was the construction and management of multi-family home developments and the subsequent sale thereof.
On October 26, 2015 the Company acquired Global ITS, Inc. and its wholly owned subsidiary, Znergy, Inc. in order to expand into the Energy Efficiency (EE) marketplace, focusing on commercial lighting and green project financing. On February 9, 2016, the Company agreed to sell to the Mazzal Trust the real property which the Trust had previously sold to the Company and the Trust returned to the Company 149,950,000 of the 150,000,000 shares of the Company’s common stock owned by the Trust. This transaction caused a change of control with Global being the accounting acquirer. The Company is now focused solely on the EE marketplace with an emphasis on LED retrofitting and relamping.
The Company determined that Global ITS, Inc. served no purpose for the Company. It held no assets or operations, had been dormant for over a year, except fot the operations of Presentation
The condensed consolidated financial statements areinclude the accounts of the Company and its wholly owned subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation.
Basis of Presentation
The unaudited condensed consolidated financial statements of the Company for the three and nine months ended September 30, 2018 and 2017 have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the instructions torequirements for reporting on Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.
Revenue Recognition
The Company accounts for revenue using the “completed contract method” in accordance with ASC 605-35.606-10. The Company generally has two revenue sources – installation contracts and sales of lighting products. The installation contracts are short term in duration, typically within a week. The disaggregation of revenue for the three months ended September 30, 2018 was $528,715 and $27,427 for installation contracts and sale of lighting products, respectively. For the nine months ended September 30, 2018, the amounts were $1,212,428 and $86,268 for installation contracts and sale of lighting products, respectively
When Znergy receives an order from a customer, either verbally or through a written purchase order for products such as individual lights or fixtures, but is not part of an installation contract, the Company recognizes the revenue when the goods are shipped, and title has passed to the customer. In these arrangements, we have determined that there is one performance obligation and that revenue should be recognized at the point in time that title passes to the customer.
Installation contract revenue is recognized when the contract is considered complete by the customer, through a written customer acceptance form. Each contract for installation of lighting and fixtures, consists of labor and materials, and is given a unique number in the system. Each contract is accounted for individually. The Company identifies the performance obligations, which include labor and materials and are accounted for as one contract. The transaction price is identified in advance with an agreed proposal between the Company and the customer and the price can be adjusted if, during the installation process, changes are made during the process. Under this method, contract costs are accumulated as deferred assets and billings and/or cash receipts are recorded to a deferred revenue liability account during the contract period, but no revenues, costs, or profits are recognized in operations until the completion of the contract. Costs include direct material, direct labor, subcontract labor, and allocable indirect costs. All unallocableunallocated indirect costs and corporate general and administrative costs are charged toin the periods as incurred. However, in the event a loss on a contract is foreseen, the Company will recognize the loss when such loss is determined. A contract is considered complete when accepted by the customer.customer that the Company has satisfied its performance obligations. In the third quarter there were no contracts which were not complete by the end of the third quarter.
Adoption of recent accounting standards
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606). The guidance in this ASU requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company quoteshas adopted Topic 606 as of January 1, 2018 utilizing the full retrospective method of adoption. The adoption of Topic 606 did not have any impact on its customersresults of operations and financial condition.
In May 2017, the total costsFASB issued ASU No. 2017-09, Compensation–Stock Compensation (Topic 718): Scope of product installation and materials minusModification Accounting, clarifying when a change to the expected rebates, if any, fromterms or conditions of a given utility. For projects larger than $10,000, rebatesshare-based payment award must be pre-approved byaccounted for as a modification. The new guidance requires modification accounting if the utility.
Recent accounting standards
In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The guidance in this ASU expands the scope of ASC Topic 718 to include all share-based payment arrangements related to the acquisition of goods and services from both nonemployees and employees. This amendment will be effective for consistency withannual and interim periods beginning after December 31, 2018. The Company is currently evaluating the current period presentation. These reclassifications had no effectimpact ASU No. 2018-07 will have on its financial position, results of operations or financial statement disclosure.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This ASU will require lessees to recognize a right of use asset and lease liability on the reportedbalance sheet for leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The amendment will be effective for annual and interim periods beginning after December 15, 2018, including interim periods within those fiscal years. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements. ASU No. 2018-10 provides certain amendments that affect narrow aspects of the guidance issued in ASU No. 2016-02. ASU No. 2018-11 allows entities the option to prospectively apply the new lease standard at the adoption date instead of recording the cumulative impact of all comparative reporting periods presented within retained earnings. The Company is currently evaluating the impact ASU No. 2016-02, ASU No. 2018-10 and ASU No. 2018-11 will have on its financial position, results of operations. Reclassifications have also been made to the Consolidated Condensed Statement of Cash Flows for the for the nine months ending September 30, 2016, for consistency with the current period presentation. This change in classification does not materially affect previously reported cash flows from operations investing or financing activities in the Consolidated Condensed Statement of Cash Flows, and had no effect on the previously reported Consolidated Condensed Statement of Operations for any period.
NOTE 2 – GOING CONCERN
The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. As of September 30, 2017, while2018, the Company hashad a working capital surplusdeficit of $568,067, the$890,620, insufficient cash resources to meet its planned business objectives, and accumulated losses from operations aggregated $11,064,096 and it continues to experience operating losses.of $14,507,419 The Company intends to fund operations through equity and debt financing arrangements, which may be insufficient to fund its capital expenditures, working capital and other cash requirements through September 2018.a year from the date these financial statements are available to be issued. As such,a result, the companyCompany is attempting to secure purchase orderseeking additional funding through debt and asset basedequity financing to support the growth needsarrangements, or other funding opportunities.
The CompanyCompany’s success is dependent upon, among other things, obtaining the additional financing to continue operations and to execute its business plan. No assurances can be made that management will be successful in pursuing any of these strategies.
These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 3 – FIXED ASSETS
On July 22, 2017, the Company entered into a purchase agreement for a property located at 808 A808A South Huntington Street, Syracuse, Indiana. The agreement stipulates a purchase price ofwas $255,000 of which $30,000 was paid on July 22, 2017 with the balance of $225,000 due 180 days after closing. There iswas no interest payableaccruing on the balance due. The square footage of the building is approximately 2,348. The property also includes 27 storage units generating approximately $19,000 per year rental income.debt. The Company closed on the property on September 1, 2017.
On March 9, 2018, the Company settled the outstanding mortgage through a sale of the building to the Company’s chairman, Rick Mikles who purchased the building for the balance of the mortgage of $225,000, as the Company was unable to make the scheduled $225,000 payment. On March 16th, a quitclaim was recorded to Rick Mikles as the new owner of the building. The Company was grantedrecorded a federally registered trademark for “ZNERGY”.loss on the sale of $43,488, representing the difference between the carrying value and the mortgage balance assumed by the Company’s chairman.
NOTE 4– ADVANCES
September 30, 2018 | December 31, 2017 | |||||||
R. Mikles | $ | 167,436 | $ | 0 | ||||
B2 Opportunity Fund | 154,788 | 0 | ||||||
| $ | 322,224 | $ | 0 | |||||
During the nine months ended September 30, 2018, the Company received an aggregate of $167,436 of short-term advance from its Chairman, Rick Mikles. The cost of applying foramounts are non-interest bearing and prosecuting this trademark was $1,845 which cost was accounted forpayable on demand.
On April 20, 2018, the Company received $125,000 as a non-amortizing intangible asset.
On June 20, 2018, the Company received $75,000 as a short-term advance from an investor, Gary Cook, an unrelated party. Currently the advance is non-interest bearing and payable on demand and does not accrue interest. The advance was converted to 1,000,000 shares of common stock and 1,000,000 warrants. The advance was converted at fair value on the date of the conversion. The fair value of the warrants was not material.
Since September 30, 2018, through the filing date of this report the Company has received $171,000 in additional advances to fund operations.
NOTE 5 – LOANS FROM RELATED PARTYPARTIES
September 30, 2018 | December 31, 2017 | |||||||
R. Mikles | $ | 312,329 | $ | 47,248 | ||||
W. Miller | 358,450 | 124,270 | ||||||
P. Ladd | 58,650 | 0 | ||||||
| $ | 729,429 | $ | 171,518 | |||||
September 30, 2017 | December 31, 2016 | |||||||
| Loans from related party | $ | 892 | $ | 135,749 | ||||
On January 8, 2018, the Company executed an unsecured promissory note in the amount of $150,000 payable to Mr. Wayne Miller, a major shareholder of the Company. The note was due and payable on April 8, 2018, with interest of $6,000. Pursuant to the terms of the note, there was a 15-day grace period, which ended on April 23, 2018 at which time a 15% penalty of the unpaid balance became due and payable together with the unpaid principal and accrued interest. Prior to the end of the grace period the Company and is unsecured, bears nopaid $3,000 in interest and $10,000 in principle. The balance at September 30, 2018 was $175,950, which includes unpaid principal, interest, and penalties. As of the date of this Report, no further payments had been made. Under the note agreement, the Company issued warrants to purchase 1,000,000 shares at an exercise price of $0.15 per share. The warrants expire on the first anniversary date of the initial exercise date of the warrants.
On February 15, 2018, the Company executed a promissory note in the amount of $25,000 payable to Rick Mikles, the Company’s Chairman and secured by the Company’s inventory. The note was due and payable on June 1, 2018 together with interest at 4% per annum. Pursuant to the terms of the note, if the note and accrued interest is repayablenot paid by the due date, interest at 12% per annum shall be accrued on the outstanding balance until paid in full. The balance at September 30, 2018 was $26,375 which includes unpaid interest. As of the date of this Report, the note and accrued interest remain unpaid.
On March 2, 2018, the Company executed an unsecured promissory note in the amount of $200,000 payable to Rick Mikles, the Company’s Chairman. The note was due on June 1, 2018 together with interest of $2,500. Pursuant to the terms of the note, there was a 15-day grace period, which ended on June 16, 2018 at which time a 15% penalty of the unpaid balance became due and payable together with the unpaid principal and accrued interest. The balance at September 30, 2018 was $232,875 which includes unpaid interest and penalties. As of the date of this Report, the note, accrued interest, and penalties remain unpaid.
On March 22, 2018, the Company executed an unsecured promissory note in the amount of $50,000 payable to Paul Ladd, a shareholder. The note was due and payable on May 21, 2018 together with interest of $1,000. Pursuant to the terms of the note, there was a 15-day grace period, which ended on June 4, 2018 at which time a 15% penalty of the unpaid balance became due and payable together with the unpaid principal and accrued interest. The balance at September 30, 2018 was $58,650 which includes the unpaid principal, interest, and penalties. As of the date of this Report, the note, accrued interest, and penalties remain unpaid. Under the note agreement, the Company issued warrants to purchase 50,000 shares at an exercise price of $0.15 per share. The warrants expire on the first anniversary date of the initial exercise date of the warrants.
On March 22, 2018, the Company also borrowed $20,000 in a non-interest bearing short-term payable to Wayne Miller. The balance as of September 30, 2018 is $10,000. There is no formal promissory note and payment is due on demand. This loan was repaid by
Since September 30, 2018, through the issuancefiling date of 1,809,987 shares of common stock and 1,809,987 options to purchase common stock during June 2017 (see Note 6)this report the company has received $450,000 in additional loans from related parties. The notes bear interest at 10%.
NOTE 6 – STOCKHOLDERS’ EQUITY
Common Stock
On February 2, 2017 the Company entered into a consulting agreement with Venture Legal Services, PLLC, to provide legal and strategic advisory services for the Company. In conjunction with the execution of this agreement, the Company granted Venture options to purchase up to 2,000,000 shares of its common stock at a price of $0.10 per share. The options have an expiration of three years from the date of issue and vest quarterly one option for every two dollars of revenue recognized by the Company.
Stock Based Compensation Committee of the Board of Directors. In addition, Mr. Smith was granted 3,000,000 shares of common stock of the Company, vested immediately, and was granted 7,000,000 options to purchase common stock of the Company at $0.10 per share. The Options have a three-year expiration and vest quarterly one option for every two dollars of revenue recognized by the Company.
The Company has issued and outstanding two types of options, time vesting and performance vesting.
The following table shows the stock option activity for time vesting options during the period ended September 30, 2017:
Number of Options | Weighted Average Exercise Price | |||||||
| Options outstanding at beginning of year | 2,400,000 | $ | 0.10 | |||||
| Changes during the period: | ||||||||
| Granted - at market price | 11,800,000 | $ | 0.10 | |||||
| Exercised | - | |||||||
| Expired | - | |||||||
| Options outstanding at end of period | 14,200,000 | $ | 0.10 | |||||
| Options exercisable at end of period | 5,204,168 | $ | 0.10 | |||||
September 30, 2018 | ||||||||
Number of Options | Weighted Average Exercise Price | |||||||
Outstanding at January 1, 2018 | 14,400,000 | $ | 0.10 | |||||
Changes during the period: | ||||||||
Granted - at market price | 1,000,000 | $ | 0.10 | |||||
Exercised | - | |||||||
Forfeited | 700,000 | $ | 0.10 | |||||
Outstanding at September 30, 2018 | 14,700,000 | $ | 0.10 | |||||
Exercisable at September 30, 2018 | 11,104,169 | $ | 0.10 | |||||
Weighted average fair value of options granted during the period | $ | 0.10 | $ | 0.10 | ||||
Options issued for the period ended September 30, 2018 were valued using the Black-ScholesBlack-Sholes model assuming zero dividends, a $0.10 strike price, 3-year expiration, 1.51%2.73% average risk-free rate and 255%201% average volatility. Options issued for the period ended September 30, 2017 were valued using the Black-Sholes model assuming zero dividends, a $0.10 strike price, 3-year expiration, 1.44% average risk-free rate and 225% average volatility.
Costs incurred in respect of stock based compensation related to time-vested options for employees, advisors and consultants for the three and nine-monthnine month periods ended September 30, 20172018 were approximately $122,000$133,129 and $295,000,$382,246, respectively. Costs incurred in respect of stock based compensation related to time-vested options for employees, advisors and consultants for the three and nine-monthnine month periods ended September 30, 20162017 were $-0-$121,662 and $-0-,$290,571, respectively.
Unrecognized compensation costs related to time-vested options as of September 30, 2018 was approximately $800,000$296,546, which is expected to be recognized ratably over a weighted average period of approximately 2218 months.
Options –- Performance Vesting
The options issued and outstanding as of December 31, 2016 that vest based on Company performance with one option vesting for every two dollars of revenue, vesting quarterly. The following table shows the stock option activity for performance vesting options during the period ended September 30, 2017:
Number of Options | Weighted Average Exercise Price | |||||||
| Options outstanding at beginning of year | 5,000,000 | $ | 0.10 | |||||
| Changes during the period: | ||||||||
| Granted - at market price | 30,800,000 | $ | 0.10 | |||||
| Exercised | - | |||||||
| Expired | - | |||||||
| Options outstanding at end of period | 35,800,000 | $ | 0.10 | |||||
| Options exercisable at end of period | 3,641,815 | $ | 0.10 | |||||
September 30, 2018 | ||||||||
Number of Options | Weighted Average Exercise Price | |||||||
Outstanding at January 1, 2018 | 31,341,094 | $ | 0.10 | |||||
Changes during the period: | ||||||||
Granted - at market price | 7,500,000 | $ | 0.10 | |||||
Exercised | - | |||||||
Expired/Forfeit | 10,700,000 | $ | 0.10 | |||||
Outstanding at September 30, 2018 | 28,141,094 | $ | 0.10 | |||||
Exercisable at September 30, 2018 | 7,014397 | $ | 0.10 | |||||
Weighted average fair value of options granted during the period | $ | 0.08 | $ | 0.10 | ||||
Options issued for the period ended September 30, 2018 were valued using the Black-ScholesBlack-Sholes model assuming zero dividends, a $0.10 strike price, 3-year expiration, 2.52% average risk-free rate and 196% average volatility. Options issued for the period ended September 30, 2017 were valued using the Black-Sholes model assuming zero dividends, a $0.10 strike price, 3-year expiration, 1.62% average risk-free rate and 259% average volatility. Costs
These options were issued to individuals for their business development efforts. The costs incurred in respect of stock based compensation related to performance vested options for employees, advisors and consultants for the three and nine-monthnine month periods ended September 30, 20172018 were approximately $282,000$96,466 and $381,000,$215,113, respectively. Costs incurred in respect of stock based compensation related to performance-vested options for employees, advisors and consultants for the three and nine-monthnine month periods ended September 30, 20162017 were $-0-$281,767 and $-0-,$360,994 respectively.
Unrecognized compensation costs related to options as of September 30, 2018 was approximately $3,441,000$1,790,610 which is expected to be recognized ratably over a weighted average period of approximately 1230 months.
Warrants
The following table shows the warrant activity during the period ended September 30, 2017:
| Weighted | ||||||||
| Number | Average | |||||||
| Of | Exercise | |||||||
| Warrants | Price | |||||||
| Warrants outstanding at beginning of year | - | |||||||
| Changes during the period: | ||||||||
| Granted | 14,924,960 | $ | 0.15 | |||||
| Exercised | - | |||||||
| Expired | - | |||||||
| Warrants outstanding at end of period | 14,924,960 | $ | 0.15 | |||||
| Warrants exercisable at end of period | 14,924,960 | |||||||
Weighted | ||||||||
Number | Average | |||||||
Of | Exercise | |||||||
Warrants | Price | |||||||
Outstanding at January 1, 2018 | 15,924,960 | |||||||
Changes during the period: | ||||||||
Granted | 2,050,000 | $ | 0.15 | |||||
Exercised | - | |||||||
Expired | (14,924,960 | ) | $ | 0.15 | ||||
Outstanding at September 30, 2018 | 3,050,000 | $ | 0.15 | |||||
Exercisable at September 30, 2018 | 3,050,000 | $ | 0.15 | |||||
Warrants issued were valued using the Black-Scholes model assuming zero dividends, a $0.15 strike price, 1-year expiration, 1.49%2.09% risk-free rate and volatility of 238%286%. Costs incurred forThe relative fair value of warrants issued to related parties for the conversion ofwith debt werewas recorded as interest expensesexpense and were $0was zero and $367,66250,741 for the three and nine months endingended September 30, 2018.
Costs incurred in respect of warrants issued to investors for the three and nine months ended September 30, 2017 respectively.
NOTE 7 – BASIC AND DILUTED LOSS PER SHARE
Basic net loss per share is calculated by dividing the loss by the weighted-average number of shares outstanding for the period. Diluted net loss per share is computed by dividing the net attributable to common stockholders by the sum of the weighted average number of shares of common stock outstanding and the dilutive common stock equivalent shares outstanding during the period. The Company’s dilutive common stock equivalent shares, which include incremental common shares issuable upon i) the exercise of outstanding stock options and warrants and (ii) vesting of restricted stock units and restricted stock awards, are only included in the calculation of diluted net loss per share when their effect is dilutive. Since the Company had net losses for all periods presented, all potentially dilutive securities are anti-dilutive. Accordingly, basic and dilutive net loss per share are equal.
The following potential common stock equivalents were not included in the calculation of diluted net loss per common share because the inclusion thereof would be anti-dilutive.
Three and Nine Months Ended | ||||||||
September 30, | ||||||||
2018 | 2017 | |||||||
Stock Options | 42,841,094 | 39,000,000 | ||||||
Warrants | 3,050,000 | 14,924,960 | ||||||
Total | 45,891,094 | 53,924,960 | ||||||
NOTE 8 – LITIGATION
On September 26, 2016, RegistrantZnergy (“Registrant”) filed in the United States District Court for the Middle District of Florida a Complaint against defendants The Mazzal Trust, Nissim S. Trabelsi and Shawn Telsi (collectively the “Defendants”), seeking the disgorgement of profits obtained by Defendants and certain of their shareholder affiliates defined under Rule 16a-1(a)(1) under the Exchange Act defined below (collectively, the “Group”) through “short swing profits” in violation of Section 16(b) of the Securities Exchange Act of 1934 (the “Exchange Act”). Specifically, Registrant alleged that the Group acted under the guidance and control of the Defendants, whose individual defendants had filed forms 3 and 4 with the Securities and Exchange Commission (the “SEC”), declaring themselves to be “insiders” for the purpose of Section 16(b). The Group owned 100% of the shares of Registrant at the time that members of the group were engaged in the sale and purchase of such shares. The sales and purchases referenced all occurred withinwith six months of other sales and purchases, subjecting Defendants to disgorge to Registrant all profits made by the Group in such sales and purchases. As detailed in paragraphs 16-22 of the Complaint, the total profits received by the Group is $1,695,689. Accordingly, Registrant has demanded the return of all such profits to Registrant plus the statutory payment of attorneys’ fees.
On August 24, 2017, the court grantedPlaintiff received a Clerk’s Entry of Default against Nissim Trabelsi. The Plaintiff filed a Motion for Default Judgment for damages against Trabelsi on September 13, 2017, which to date has not been addressed by the CompanyCourt. On March 5, 2018, Nissim Trabelsi filed a default judgment against Defendants.notice of bankruptcy. The Company intendsPlaintiff is still pursuing its options in the Case and the Court has yet to vigorously pursue satisfaction of this judgment although there can be no assurance ofaddress the recovery of any funds from Defendants.
On January 26, 2017, the Company received an email from its transfer agent, VStock Transfer, LLC, (“VStock”) informing the Company that it had been served with a Summons and Complaint (B2 Opportunity Fund (“B2”) v. Trabelsi et al. - Index No.:17-CV-10043, the “Claim”) and further stating that the Company was obligated to indemnify VStock for fees and expenses incurred in defending the Claim. The Company responded on February 24, 2017 stating that (1) we reviewed the Transfer Agent and Registrar Agreement between Mazzal and VStock dated May 20, 2014 and that in Article VI(c) of that agreement it states that indemnification will not be offered if the acts of VStock constitute bad faith or gross negligence, (2) we reviewed the lawsuit filed by B2 against VStock and others and find that VStock’s actions constitute gross negligence and perhaps bad faith, and we therefore deny indemnification of VStock relating to the Claim, and (3) should VStock take any action to seek indemnification by Znergy in any manner, Znergy will either join B2 in its lawsuit or will file an action on its own. The Company terminated its agreement with VStock. Management cannot at this time estimate what, if any, financialThe issue in its entirety was settled with no impact this matter will haveto the Company on the Company.
NOTE 89 – CUSTOMER CONCENTRATION
For the three months ended September 30, 2018 two customers represented 28 and 60% of net revenue. For the three months ended September 30, 2017, we had one customer whose purchases accounted for 79%represented substantially all of sales. Duringnet revenue.
For the threenine months ended September 30, 2018, various customers represented 26%, 16% and 12% of net revenue. For the nine months ended September 30, 2017, we had one utility whose rebates accounted for 20% of sales.
At September 30, 2017, there was2018, one customer represented 64% of the net accounts receivable. At December 31, 2017, three different customers represented 22%, 21% and one utility who each had12% respectively of net accounts receivable.
NOTE 10 – SUBSEQUENT EVENTS
Since September 30 2018, through the filing date of this report the Company has received $296,000 in additional advances and $450,000 of additional loans from related parties.
Subsequent to September 30, 2018 through the filing date, the Company has issued 16,200,000 shares of common stock. 11,200,000 shares were issued to the Chairman of the Board in exchange for the cancellation of 19,000,000 stock options and 2,000,000 warrants outstanding. In addition, 4,000,000 shares were issued in exchange for business development efforts.
On July 3, 2019 the Company issued 3,500,000 shares in exchange for $192,500 to an accounts receivable balance greater than 10% of our total outstanding receivable balance.
CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We have based these forward-looking statements on our current expectations and projections about future events, and they are applicable on as of the dates of such statement. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “would,” “forecast,” “expect,” “plan,” anticipate,” believe,” estimate,” continue,” or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those listed under the heading “Risk Factors” and those listed in our other SEC filings. You should not put undue reliance on any forward-looking statements. These statements speak only as of the date of this Quarterly Report on Form 10-Q, even if subsequently made available on our website or otherwise, and we undertake no obligation to update or revise these statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q. The following discussion should be read in conjunction with our Financial Statements and related Notes thereto included elsewhere in this report. Throughout this Quarterly Report on Form 10-Q we will refer to Znergy, Inc., together with its subsidiaries, as the “Company,” “we,” “us,” and “our.”
The following discussion and analysis of our financial condition should be read together with our unaudited Consolidated Financial Statements and related notes included in this Form 10-Q as well as our audited Financial Statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 filed with the SEC on June 6, 2018.
Overview
The Company was formed in January 2013 as a Nevada corporation. The original business plan of the Company was to build and sell multi-family housing projects. The Company acquired a parcel of land in Taunton, Massachusetts, from The Mazzal Trust, a trust of which the founder of the Company, Nissim Trabelsi, was the Trustee, in exchange for shares of the Company’s common stock, and began development of the project and construction of multi-family units.
On October 26, 2015 the Company acquired Global ITS, Inc., a Wyoming corporation (“Global”), and its wholly owned subsidiary, Znergy, Inc., a Florida corporation (“Znergy”), in order to expand into the Energy Efficiency (EE) marketplace, focusing on commercial lighting and green project financing.
The Company entered into a Share Exchange Agreement (the “Agreement”) withdetermined that Global ITS, Inc., served no purpose for the Company. It held no assets or operations, had been dormant for over a Wyoming corporation (“Global”), andyear, except for the shareholdersoperations of Global, pursuant to which we exchanged 120,000,000 of our common shares (the “Company Shares”) for 24,000,000 Global common shares held by Global’s shareholders representingits wholly owned Subsidiary. On October 1, 2017, the Company sold 100% of Global’s outstandingits shares (the “Share Exchange”). The transaction was reported in and the Agreement was filed as an exhibitGlobal to Peter Peterson, a Current Report filed with the SEC on October 27, 2015.
The Company is a provider of energy-efficient lighting products, lighting controls and Mr. Telsi agreed to sell all of the shares ofenergy management solutions. The Company offers a full turn-key lighting solution which includes economic assessments, energy efficient analysis, installation and rebate support for the Company’s common stock owned by them, 45,800,000 sharescustomers. The Company’s business primarily involves retrofitting existing lighting solutions from traditional high intensity fluorescent lighting to energy efficient LED (Light Emitting Diode) technology.
Managing energy consumption and 9,500,000 shares, respectively,the associate costs is increasingly important to B2 or B2’s designees.building owners. Technological advancements in LED, together with significant private and public incentives for sustainability initiatives have made lighting infrastructure changes an effective way for building owners to cut energy costs. LED lighting provides energy efficiency, long life, low running temperatures and increasing technology such as dimmable lights.
The Company does not have long term contracts with its customers and the Company’s revenue comes from the sales of lighting systems involving the replacement of existing lighting fixtures with new energy efficient LED fixtures. In connection with the Master Agreement, B2 paid $315,000 to Mr. Trabelsi for his and Mr. Telsi’s shares.
The Company provides its turn-key service though a detailed evaluation of the Companycustomer’s needs and to the Board of Directors of Command Control Center Corp. (“Command Control”), a wholly owned subsidiaryperforming an audit of the Company. Mr. Trabelsi also appointed Mr. Floydcustomer’s current energy consumptions and costs, together with an analysis of the benefits of retrofitting their lights. Typically, the customer experiences an average payback on their investment between 12 and 24 months.
The Company intends to grow organically by selling energy efficiency (EE) and commercial security (CS) products to industrial and commercial businesses as well as municipal and state governments, universities and colleges, K-12 schools, and hospitals (the “MUSH” market). Strained government budgets have convinced state and local governments across the CEO, CFO,United States to embrace a new form of performance-based investments in energy efficiency offered by Energy Services Companies, or ESCOs. An ESCO provides energy-efficiency-related and Secretaryother value-added services and for which performance contracting is a core part of bothits energy-efficiency services business. In a performance contract, the ESCO guarantees energy or financial savings for the project, which means ESCOs only make money if the project performs as promised. A study prepared by Allied Market Research indicated that the market is expected to grow at a Compound Annual Growth Rate of 13.76% during the forecast period 2014-2020 and reach $44.4 billion by 2020.
The Company plans to increase its competitive position by providing financing to customers for installation projects through a strategic partnership the Company and of Command Control. Following Mr. Trabelsi’s appointment of Mr. Floyd to the boards of directors and as an officer of the Company and Command Control, Mr. Trabelsi resigned from all positionshas developed with the Company and with Command Control, effective immediately.
Results of Operations
The Company had revenues of $1,302,217$1,298,696 and $14,701$1,015,217 for the nine-month periods ended September 30, 2017,2018, and September 30, 2016,2017, respectively. The Company had revenues of $873,976$556,142 and $2,461$586,976 for the three-month periods ended September 30, 2017,2018, and September 30, 2016,2017, respectively. Revenues in 2018 and 2017 comprise LED installation projects and associated rebates from utilities while revenues in 2016 consist of consulting services.utilities. The increasedecrease in revenues for the three-month period is due to the increase in personnel, implementinglonger than anticipated implementation of formalized training programs resulting in increasedof new sales representatives and marketing efforts.due to timing of installations. The Company expects to continue to see increased revenue in future periods but can make no assumptions as to size of any increases or certainty thereof.
The Company incurred costs of revenue of $596,661$665,154 and $-0-$596,661 for the nine-month periods ended September 30, 2017,2018 and September 30, 2016,2017, respectively. The Company incurred costs of revenue of $423,334$259,158 and $-0-$423,334 for the three-month periods ended September 30, 2017,2018 and September 30, 2016,2017, respectively. Costs of revenue in 2018 and 2017 comprise primarily LED product and installation costs, including labor and rental equipment.
The Company had selling, general and administrative expenses of $3,818,004$2,486,001 and $373,490$3,654,877 for the nine-month periods ended September 30, 2017,2018 and September 30, 2016,2017, respectively. The Company had general and administrative expenses of $1,404,389$668,000 and $231,754$1,241,262 for the three-month periods ended September 30, 2018 and 2017, and September 30, 2016, respectively. General and administrative expensesThe decrease for the nine monthsnine-month period is primarily due to a reduction in stock-based compensation costs. The decrease for the three-month period is also primarily due to reduced equity-based compensation costs.
The Company incurred interest expense of $3,749 and zero for the three and nine-month periods ended September 30, 2017 are comprised primarily of $2,656,325 in common stock and options issued for services, $519,085 in common stock and warrants issued for interest related2018. This is compared to the conversion of debt, $208,973 in salaries and wages, and $54,060 in legal and auditing fees. General and administrative costszero for the nine months ended September 30, 2016 consisted primarilysame periods in 2017. This is the result of $203,548 in consulting feesthe additional Notes Payable and $57,545 in legal and auditing fees. General and administrative costs forAdvances the three months ended September 30, 2017 are comprised primarilycompany has entered into to finance the operations of stock based compensation and consulting costs of $584,875 and personnel expenses of $229,815. General and administrative costs for the three months ended September 30, 2016 are comprised primarily of stock based consulting costs of $166,667 and professional fees of $29,998.
The Company had net losses of $3,112,448$2,068,116 and $351,653$3,236,321 for the nine-month periods ended September 30, 2018 and 2017, and September 30, 2016, respectively.
The Company had net losses of $953,747$367,035 and $229,293$1,077,620 for the three-month periods ended September 30, 2018 and 2017, and September 30, 2016, respectively.
Liquidity and Capital Resources
The agreement stipulates a purchase price of $255,000 of which $30,000 was paid on July 22, 2017 with the balance of $225,000 due 180 days after closing. There is no interest payable on the balance due. The square footage of the building itself is approximately 2,348. The property also includes 27 storage units generating approximately $19,000 per year rental income. The Company closed on the property on September 1, 2017.
The CompanyCompany’s success is dependent upon, among other things, obtaining the additional financing to continue operations and to execute its business plan. In response to these problems, management intends to raise additional funds through public or private placement offerings. No assurances can be made that management will be successful in pursuing any of these strategies.
These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Plan of Operation
The Company’s anticipated plan of operation is to continue to (1) identify and consultantstrain sales personnel in regions of the country that have advantageous utility company rebate programs, (2) identify and train lighting installation personnel where we have established sales personnel, (3) seek out the best current and incipient solutions in the Energy Efficiency marketplace and become a reseller of those solutions, (4) develop our own solutions for the EE marketplace, and (5) seek to acquire other businesses in the market where such acquisitions makes strategic sense and are accretive to earnings.
The Company participate in incentive plans that providecontinues to expand its solutions portfolio for granting stock optionsboth indoor and performance-based awards. Time based stock options generally vest in equal increments over a two -year period and expireoutdoor applications to capitalize on the third anniversary followingevolving and growing market for intelligent networked systems that collect and exchange data to increase efficiency as well as provide a host of other economic benefits resulting from data analytics to better enable smart buildings and smart cities. The transition to solid-state lighting provides the dateopportunity for lighting to be integrated with other building automation systems to create an optimal platform for enabling the “Internet of grant. Performance-based stock options vest onceThings” (IoT), which will support the applicable performance conditions are satisfied.
The Company recognizes stock-based compensation for equity awards grantedCompany’s ability to employees, officers, directors and consultants as compensation and benefits expense ingrow its incipient operations is primarily dependent upon its ability to raise additional capital, most likely through the consolidated statementssale of operations. The fair value of stock options is estimated using a Black-Scholes valuation model on the date of grant. Stock-based compensation is recognized over the requisite service period of the individual awards, which generally equals the vesting period. For performance-based stock options, compensation is recognized once the applicable performance condition is satisfied.
The realization of grant multiplied byrevenues in the number of shares awarded. Stock-based compensationnext twelve months is recognized overimportant in the requisite service periodexecution of the individual awards, which generally equalsplan of operations. However, if the vesting period.
Critical Accounting Policies
There have been no changes to our consolidated statements of financial position, results of operations or cash flows.
Recently Issued Accounting Pronouncements
We are required to be classified as either operating or finance leases in the income statement. Lessoradopt certain new accounting is similarpronouncements. See Note 1 to the current model but updated to align with certain changes to the lessee model. Lessors will continue to classify leases as operating, direct financing or sales-type leases. The effective date of the new standard for public companies is for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition and requires application of the new guidance at the beginning of the earliest comparative period presented. We are currently evaluating the effect that the updated standard will have on ourcondensed consolidated financial statements and related disclosures.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements or issued guarantees to third parties.
Not applicable.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are the controls and other procedures that are designed to provide reasonable assurance that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including the principal executive and principal financial officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
We have carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act as of the end of the period covered by this Quarterly Report.
Based upon that evaluation we have concluded that our disclosure controls and procedures were ineffective as of the end of the period covered by this report due to a material weakness in our internal control over financial reporting, which is described below.
Our management identified the following material weaknesses which are indicative of many small companies with small staff: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines.
Changes in Internal Control over Financial Reporting
There was no changehave not been any changes in the Company’sour internal control over financial reporting that occurred(as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the Company’s most recently completed fiscal quarterthree-month period ended September 30, 2018 that hashave materially affected, or isare reasonably likely to materially affect, the Company’sour internal controlcontrols over financial reporting.
PART II. OTHER INFORMATION
On September 26, 2016, the CompanyZnergy (“Registrant”) filed in the United States District Court for the Middle District of Florida a Complaint against defendants The Mazzal Trust, Nissim S. Trabelsi and Shawn Telsi (collectively the “Defendants”), seeking the disgorgement of profits obtained by Defendants and certain of their shareholder affiliates defined under Rule 16a-1(a)(1) under the Exchange Act defined below (collectively, the “Group”) through “short swing profits” in violation of Section 16(b) of the Securities Exchange Act of 1934 (the “Exchange Act”). Specifically, the CompanyRegistrant alleged that the Group acted under the guidance and control of the Defendants, whose individual defendants had filed forms 3 and 4 with the Securities and Exchange Commission (the “SEC”, declaring themselves to be “insiders” for the purpose of Section 16(b). The Group owned 100% of the shares of the CompanyRegistrant at the time that members of the group were engaged in the sale and purchase of such shares. The sales and purchases referenced all occurred with six months of other sales and purchases, subjecting Defendants to disgorge to the CompanyRegistrant all profits made by the Group in such sales and purchases. As detailed in paragraphs 16-22 of the Complaint, the total profits received by the Group is $1,695,689. Accordingly, the CompanyRegistrant has demanded the return of all such profits to Registrant plus the statutory payment of attorneys’ fees.
On August 24, 2017, the court grantedPlaintiff received a Clerk’s Entry of Default against Nissim Trabelsi. The Plaintiff filed a Motion for Default Judgment for damages against Trabelsi on September 13, 2017, which to date has not been addressed by the CompanyCourt. On March 5, 2018, Nissim Trabelsi filed a default judgment against Defendants.notice of bankruptcy. The Company intendsPlaintiff is still pursuing its options in the Case and the Court has yet to vigorously pursue satisfaction of this judgment although there can be no assurance ofaddress the recovery of any funds from Defendants.
On January 26, 2017, the Company received an email from its transfer agent, at that time, VStock Transfer, LLC, (“VStock”) informing the Company that it had been served with a Summons and Complaint (B2 Opportunity Fund (“B2”) v. Trabelsi et al. - Index No.:17-CV-10043, the “Claim”) and further stating that the Company was obligated to indemnify VStock for fees and expenses incurred in defending the Claim. The Company responded on February 24, 2017 stating that (1) we reviewed the Transfer Agent and Registrar Agreement between Mazzal and VStock dated May 20, 2014 and that in Article VI(c) of that agreement it states that indemnification will not be offered if the acts of VStock constitute bad faith or gross negligence, (2) we reviewed the lawsuit filed by B2 against VStock and others and find that VStock’s actions constitute gross negligence and perhaps bad faith, and we therefore deny indemnification of VStock relating to the Claim, and (3) should VStock take any action to seek indemnification by Znergy in any manner, Znergy will either join B2 in its lawsuit or will file an action on its own. The Company terminated its agreement with VStock. Management cannot at this time estimate what, if any, financialThe issue in its entirety was settled with no impact this matter will haveto the Company on the Company.
None
(a) Exhibits
Exhibit No. | Description | |
3.1 | ||
3.2 | ||
3.3 | ||
10.1 | ||
10.2 | ||
10.3 | ||
10.4 | ||
10.5 | ||
10.6 | ||
31.1 | ||
32.1 | ||
101 INS | XBRL Instance Document* | |
101 SCH | XBRL Schema Document* | |
101 CAL | XBRL Calculation Linkbase Document* | |
101 DEF | XBRL Definition Linkbase Document* | |
101 LAB | XBRL Labels Linkbase Document* | |
101 PRE | XBRL Presentation Linkbase Document* | |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
ZNERGY, INC.
By: /s/ Dave Baker | ||
Dave Baker | ||
Chief Executive Officer and Director | ||
(Principal Executive Officer) | ||
Date: | ||