The accompanying notes are an integral part of these consolidated financial statements
The accompanying notes are an integral part of these consolidated financial statements
The accompanying notes are an integral part of these consolidated financial statements
The accompanying notes are an integral part of these consolidated financial statements.
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” or “Znergy”), incorporated on January 23, 2013. The Company is a provider of energy-efficient lighting products, lighting controls and energy 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 customers. The Company’s business primarily involves retrofitting existing lighting solutions from traditional high intensity fluorescent lighting to energy efficient LED (Light Emitting Diode) technology.
The spread of a novel strain of coronavirus (COVID-19) around the world in the first half of 2020 has caused significant volatility in U.S. and international markets. There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S. and international economies and, as such, the Company is unable to determine if it will have a material impact to its operations.
Basis of Presentation
The Company maintains its accounting records on an accrual basis in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”).
Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Znergy (FL) and Znergy Holdings (FL). All intercompany transactions have been eliminated in consolidation.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 or revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s significant estimates, judgments, and assumptions used in these consolidated financial statements include those related to revenues, accounts receivable and related allowances, contingencies, and the fair values of stock-based compensation. These estimates, judgments, and assumptions are reviewed periodically and the effects of material revisions in estimates are reflected in the financial statements prospectively from the date of the change in estimate.
Cash
The Company maintains its cash balances at credit-worthy financial institutions that are insured by the Federal Deposit Insurance Corporation.
Revenue Recognition
Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“Topic 606”), became effective for the Company on January 1, 2018. The Company’s revenue recognition disclosure reflects its updated accounting policies that are affected by this new standard. The Company applied the “modified retrospective” transition method for open contracts for the implementation of Topic 606. The Company made no adjustments to its previously-reported total revenues, as those periods continue to be presented in accordance with its historical accounting practices under Topic 605, Revenue Recognition. 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 year ended December 31, 2018 was $1,338,897 and $113,256 for installation contracts and sale of lighting products, respectively.
The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product to a customer. Revenue is measured based on the consideration the Company expects to receive in exchange for those products. In instances where final acceptance of the product is specified by the customer, revenue is deferred until all acceptance criteria have been met. Revenues are recognized under Topic 606 in a manner that reasonably reflects the delivery of the Company’s products and services to customers in return for expected consideration and includes the following elements:
●
|
executed contracts with the Company’s customers that it believes are legally enforceable;
|
●
|
identification of performance obligations in the respective contract;
|
●
|
determination of the transaction price for each performance obligation in the respective contract;
|
●
|
allocation the transaction price to each performance obligation; and
|
●
|
recognition of revenue only when the Company satisfies each performance obligation.
|
Performance Obligations
The Company’s revenue streams can be categorized into the following performance obligations and recognition patterns:
●
|
Completion and delivery of installation contracts. The Company recognizes revenue at a point in time when control transfers to the customer, usually through a written customer acceptance form.
|
●
|
Delivery of lighting products. The Company recognizes revenue at the point of shipment to the customer.
|
Transaction prices for performance obligations are explicitly outlined in relevant agreements, therefore, the Company does not believe that significant judgments are required with respect to the determination of the transaction price.
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, the Company has 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 unallocated indirect costs and corporate general and administrative costs are charged in 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 that the Company has satisfied its performance obligations. There were no contracts which were not complete as of December 31, 2018. Rebate revenue is recognized when the rebate is received by the Company.
Accounts Receivable
Accounts receivable are stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a provision for bad debt expense and an adjustment to a valuation allowance based on their assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the allowance account and a credit to accounts receivable. As of December 31, 2018 and 2017, allowance for doubtful accounts was $82,645 and $216,163, respectively. For the years ended December 31, 2018 and 2017, bad debt expense was $85,993 and $214,002, respectively.
Inventory
Inventory consists of a variety of LED lamps, all of which are valued at the lower of cost or net realizable value. Inventory is accounted for using the FIFO basis.
Building, Equipment and Furniture, net
Real estate assets are stated at cost less accumulated depreciation and amortization. Depreciation was computed on the straight-line basis over the estimated useful life of approximately 10 years.
Furniture, fixtures and equipment are recorded at cost, net of accumulated depreciation and amortization. Depreciation and amortization are computed on the straight-line basis over the estimated useful lives of the assets, ranging from 3-5 years.
Ordinary repairs and maintenance are expensed as incurred; major replacements and betterments, which improve or extend the life of the asset, are capitalized and depreciated over their estimated useful lives. Fully-depreciated assets are removed from the accounts.
Building, equipment and furniture consisted of the following:
|
|
December 31
|
|
|
December 31
|
|
|
|
2018
|
|
|
2017
|
|
Building
|
|
$
|
-
|
|
|
$
|
255,000
|
|
Equipment and Furniture
|
|
|
59,609
|
|
|
|
120,350
|
|
|
|
|
59,609
|
|
|
|
375,350
|
|
Accumulated Depreciation
|
|
|
(31,257
|
)
|
|
|
(11,257
|
)
|
Net
|
|
$
|
28,352
|
|
|
$
|
364,093
|
|
During the years ended December 31, 2018 and 2017, depreciation expense was $34,563 and $11,025 respectively
Impairment of Long-lived Assets
For purposes of recognition and measurement of an impairment loss, a long-lived asset or assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. The Company assesses the impairment of long-lived assets (including identifiable intangible assets) annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
When management determines that the carrying value of long-lived assets may not be recoverable based upon the existence of one or more indicators of impairment, the Company tests for any impairment based on a projected undiscounted cash flow method. Projected future operating results and cash flows of the asset or asset group are used to establish the fair value used in evaluating the carrying value of long-lived and intangible assets. The Company estimates the future cash flows of the long-lived assets using current and long-term financial forecasts. The carrying amount of a long-lived asset is not recoverable if its carrying amount exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If this were the case, an impairment loss would be recognized. The impairment loss recognized is the amount by which the carrying amount exceeds the fair value. During the year ended December 31, 2018, the Company impaired intangible assets having a carrying value of $1,845.
Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses are carried at amortized cost and represent liabilities for goods and services provided to the Company prior to the end of the financial year that are unpaid and arise when the Company becomes obliged to make future payments in respect of the purchase of these goods and services.
Financial Instruments and Fair Value Measurements
FASB ASC 825, Financial Instruments, defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
●
|
Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
|
●
|
Level 2 inputs to the valuation methodology included quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in inactive markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
|
●
|
Level 3 inputs to the valuation methodology is one or more unobservable inputs which are significant to the fair value measurement.
|
The carrying amounts of the Company’s financial instruments, which includes accounts receivable, inventory, accounts payable and accrued expenses, customer deposits and loans for related parties approximate their fair values at December 31, 2018 and 2017, due to their short-term nature. The Company’s cash is measured at fair value under the fair value hierarchy based on Level 1 quoted prices in active markets for identical assets or liabilities.
Loss Per Share
The Company computes net loss per share in accordance with ASC 260, “Earnings Per Share” ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is calculated by dividing the profit or loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to common shareholders and the weighted average number of common shares outstanding for the effects of all potential dilutive common shares, which comprise options granted to employees. At December 31, 2018 and 2017, any potentially dilutive shares (consisting of 39,985,974 options and 45,741,094 options, respectively) and (3,050,000 warrants and 15,924,960 warrants, respectively) were not considered in the calculation of the loss per share as their effect would be anti-dilutive.
Stock-Based Compensation
Certain employees, officers, directors, and consultants of the Company participate in incentive plans that provide for granting stock options and performance-based awards. Time-based stock options generally vest in equal increments over a two-year period and expire on the third anniversary following the date of grant. Performance-based stock options vest once the applicable performance conditions are satisfied.
The Company recognizes stock-based compensation for equity awards granted to employees, officers, directors, and consultants as Selling, general and administrative expense in the consolidated statements 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 fair value of restricted stock awards is equal to the closing price of the Company’s stock on the date of grant multiplied by the number of shares awarded. Stock-based compensation is recognized over the requisite service period of the individual awards, which generally equals the vesting period.
Income Taxes
In accordance with FASB ASC 740, “Income Taxes” (“ASC 740”), deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change. The Company has recorded a valuation allowance against its deferred tax assets based on the history of losses incurred.
ASC 740 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position would be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, and accounting for interest and penalties associated with tax positions. As of December 31, 2018, the Company does not believe a liability exists for any unrecognized tax benefits.
The Company has not filed required income tax returns to date. While for federal income tax purposes the net operating losses would eliminate the federal income tax liability, we may be subject to penalties and minimum state income tax.
All tax periods from inception remain open to examination by taxing authorities due to the non-filing and the net operating losses.
The Tax Cuts and Jobs Act (the “Tax Act”) was signed into law on December 22, 2017. The Tax Act changed many aspects of U.S. corporate income taxation and included a reduction of the corporate income tax rate from 35% to 21%. The Company will continue to assess its provisions for income tax as future guidance is issued but does not currently anticipate significant revisions will be necessary. Any such revisions will be treated in accordance with the measurement period guidance outlined in Staff Accounting Bulletin No. 118, Net Income (Loss) Per Common Share.
Recently Issued Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which significantly changes the accounting for credit losses on instruments within its scope. The new guidance introduces an approach based on expected losses to estimate credit losses on certain financial instruments, including trade receivables, and requires an entity to recognize an allowance based on its estimate of expected credit losses rather than incurred losses. This standard will be effective for interim and annual periods beginning after December 15, 2019, and will generally require adoption on a modified retrospective basis. In February 2020, the FASB issued SU 2020-02, Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842) which amends the effective date of the original pronouncement for smaller reporting companies. ASU 2016-13 and its amendments will be effective for us for interim and annual periods in fiscal years beginning after December 15, 2022. We do not expect the adoption of this guidance to have a significant impact on our financial position, results of operations, or cash flows.
In February 2016, the FASB issued ASU No. 2016-02, Leases, which supersedes the current lease accounting requirements. This standard requires a lessee to record on the balance sheet the assets and liabilities for the rights and obligations created by leases with lease terms of more than 12 months. In addition, this standard requires lessees to disclose certain key information about lease transactions. Upon implementation, an entity’s lease payment obligations will be recognized at their estimated present value along with a corresponding right-of-use asset. Lease expense recognition will be generally consistent with current practice. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements , which simplifies adoption of the new lease accounting requirements by allowing an additional transition method that will not require restatement of prior periods and providing a new practical expedient for lessors to avoid separating lease and non-lease components within a contract if certain requirements are met. The provisions of this guidance must be elected upon adoption of the new lease accounting requirements, which will be effective for interim and annual periods beginning after December 15, 2018.
We will adopt the standard as required on January 1, 2019 and use that date as our date of initial application of the guidance. Consequently, we will not update previously reported financial information and the disclosures under the new standard will not be provided for dates and periods prior to January 1, 2019. We will elect all of the practical expedients available under the transition guidance. The new standard also provides practical expedients for ongoing accounting. We will elect the short-term lease recognition exemption for all leases that qualify. This means we will not recognize right of use assets or lease liabilities for those leases. We will also elect the practical expedient to not separate lease and non-lease components for all of our leases. We do not expect that this standard will have a material impact on our financial statements. While we continue to assess all of the effects of adoption, we currently believe the most significant effects relate to the recognition of new right of use assets and lease liabilities on our balance sheet for our real estate and equipment operating leases, and the significant new required disclosures regarding our leasing activities. We do not expect a significant change in our leasing activities between now and adoption.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows: Clarification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which eliminates the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows, by adding or clarifying guidance on eight specific cash flow issues: debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. ASU 2016-15 is effective for non-public business entities for annual periods beginning after December 15, 2018 and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted. ASU 2016-15 provides for retrospective application for all periods presented. The adoption of this standards updates is not expected to have a material impact on the Company’s financial statements.
In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”). ASU 2017-09 provides clarity and reduces both (i) diversity in practice and (ii) cost and complexity when applying the guidance in Topic 718, Compensation-Stock Compensation, to a change to the terms or conditions of a share-based payment award. The amendments in ASU 2017-09 provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU 2017-09 is effective for all annual periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted. The adoption of ASU 2017-09 did not have a material impact on the Company’s financial statements.
In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which changes the measurement date for share-based awards to the grant date, instead of the previous requirement to remeasure the awards through the performance completion date. ASU No. 2018-07 is effective for the Company for fiscal years beginning after December 31, 2018, including interim periods within that fiscal year. Early adoption is permitted. The Company does not believe adopting ASU No. 2018-07 will have a material impact on its consolidated financial statements.
In July 2018, the FASB issued ASU No. 2018-09, Codification Improvements, (“ASU 2018-09”), which affects a wide variety of topics, including the following. Amendments to Subtopic 220-10, Income Statement - Reporting Comprehensive Income - Overall relates to income taxes not payable in cash. Amendments to Subtopic 470-50, Debt—Modifications and Extinguishments relates to debt extinguishment and requires that the net carrying amount of extinguished fair value elected debt equals its fair value at reacquisition and related gains or losses in other comprehensive income must be included in net income upon extinguishment of the debt. Amendments to Subtopic 480-10, Distinguishing Liabilities from Equity - Overall relates to combinations of freestanding financial instruments with non-controlling interests. Amendments to Subtopic 718-740, Compensation - Stock Compensation - Income Taxes relate to recognition timing clarification for excess tax benefits or deficiencies for compensation expense. Amendments to Subtopic 805-740, Business Combinations - Income Taxes relate to allocating tax provisions to an acquired entity. Amendments to Subtopic 815-10, Derivatives and Hedging - Overall relate to accounting for offsetting derivatives. Amendments to Subtopic 820-10, Fair Value Measurement - Overall relate to the wording with respect to how transfer restrictions effect the fair value of an asset and adds explicit wording to allow entities to measure fair value on a net basis for those portfolios in which financial assets and financial liabilities and nonfinancial instruments are managed and valued together. Amendments to Subtopic 940-405, Financial Services - Brokers and Dealers - Liabilities relate to guidance about offsetting on the balance sheet. Amendments to Subtopic 962-325, Plan Accounting - Defined Contribution Pension Plans – Investments - Other relate to plan evaluation of whether a readily determinable fair value exists to determine whether those investments may qualify for the practical expedient to measure at net asset value in accordance with Topic 820. The transition and selection of an effective date is based on the facts and circumstances of each amendment, but many of the amendments have transition guidance with effective dates for annual periods beginning after December 15, 2018, for public business entities. The Company does not expect this ASU to have a material impact on its financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which removed certain disclosure requirements regarding transfers between fair value hierarchy levels and modified disclosure requirements for Level 3 fair value measurements and the timing of liquidation of investments in certain entities that calculate net asset value. ASU 2018-13 is effective for all entities for annual periods beginning after December 15, 2019. Certain amendments should be applied prospectively for only the most recent interim or annual period presented in the initial year of adoption; all other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. The Company does not expect the new guidance to have a material impact on its financial statements.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles--Goodwill and Other--Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract , which aligns the requirements for capitalizing implementation costs in a cloud computing service contract with the requirements for capitalizing implementation costs incurred for an internal-use software license. This standard will be effective for interim and annual periods beginning after December 15, 2019. We do not expect the adoption of this guidance to have a significant impact on our financial position, results of operations, or cash flows.
In November 2018, the FASB issued ASU No. 2018-18, “Collaborative Arrangements (Topic 808) Clarifying the Interaction between Topic 808 and Topic 606” (“ASU 2018-18”), which makes targeted improvements to generally accepted accounting principles for collaborative arrangements. The new guidance clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the participant is a customer in the context of a unit of account. It aligns unit-of-account guidance in Topics 808 and 606 and precludes presenting a transaction together with revenue recognized under Topic 606 for a collaborative arrangement participant that is not directly related to sales to third parties and the participant is not a customer. ASU 2018-18 is effective for public entities for fiscal years beginning after December 15, 2019. Early adoption is permitted; however, an entity may not adopt the amendments of ASU 2018-18 earlier than its adoption date of Topic 606. The amendments of ASU 2018-18 should be applied retrospectively to the date of initial adoption of Topic 606, and the cumulative effect of initially applying the amendments as an adjustment to the opening balance of retained earnings of the later of the earliest annual period presented and the annual period that includes the date of the entity’s initial application of Topic 606 should be recognized. The Company does not expect the new guidance to have a material impact on its financial statements.
In April 2019, the FASB issued ASU No. 2019-04 “Codification Improvements to Topic 326, Financial Instruments — Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments”, which provides updates and clarifications to three previously-issued ASUs: 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”; 2016-13, “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”; and 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities”. The adoption of this standards update is not expected to have a material impact on the Company’s financial statements.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes”. This ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The guidance is effective non-public entities for fiscal years beginning after December 15, 2020, with early adoption permitted. The adoption method is dependent on the specific amendment included in this update as certain amendments require retrospective adoption, modified retrospective adoption, an option of retrospective or modified retrospective, and prospective adoption. The adoption of this standards update is not expected to have a material impact on the Company’s financial statements.
The Company does not believe that there are any new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
NOTE 3 – GOING CONCERN
The accompanying 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 December 31, 2018, the Company has a working capital deficit of $1,927,119, insufficient cash resources to meet its planned business objectives and accumulated deficit of $16,142,976. The Company intends to fund operations through debt and equity financing arrangements, which may be insufficient to fund its capital expenditures, working capital and other cash requirements through August 2021, one year from the date the consolidated financial statements were issued.
The Company is dependent upon, among other things, obtaining 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 for the next twelve months from the date these consolidated financial statements were issued. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 4 – INTANGIBLE ASSETS
The Company was granted a federally registered trademark for “ZNERGY”. The cost of applying for and prosecuting this trademark was $1,845 which cost was accounted for as an intangible asset. During the year ended December 31, 2018, the Company determined the trademark had no further value and recorded an impairment expense of $1,845 to write-off the balance as of December 31, 2018.
NOTE 5 – LOAN, BUILDING
On July 22, 2017, the Company entered into a purchase agreement for a property located at 808A South Huntington Street, Syracuse, Indiana. The purchase price was $255,000 of which $30,000 was paid on July 22, 2017 with the balance of $225,000 due 180 days after closing. There was no interest accruing on the debt. The square footage of the building is approximately 2,348 and has 27 storage units which generate approximately $19,000 per year in rental income. 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 16, 2018, a quitclaim was recorded to Rick Mikles as the new owner of the building.
NOTE 6 – LOANS FROM RELATED PARTIES
|
|
December 31
|
|
|
December 31
|
|
|
|
2018
|
|
|
2017
|
|
Rick Mikles
|
|
$
|
514,579
|
|
|
$
|
47,248
|
|
Wayne Miller
|
|
|
642,075
|
|
|
|
124,270
|
|
Paul Ladd
|
|
|
58,650
|
|
|
|
-
|
|
Cary Baskin
|
|
|
75,000
|
|
|
|
-
|
|
|
|
$
|
1,290,304
|
|
|
$
|
171,518
|
|
Rick Mikles
On November 15, 2017, the Company executed an unsecured promissory note in the amount of $50,000, payable to the Company’s chairman, Rick Mikles. The note was payable on December 1, 2017 with interest at 4% per annum. On December 1, 2017, the payment date was extended to June 1, 2018. The balance remains outstanding.
On February 15, 2018, the Company executed a promissory note in the amount of $25,000 payable to Rick Mikles, the Company’s Chairman. 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 not paid by the due date, interest at 12% per annum shall be accrued on the outstanding balance until paid in full. The balance at December 31, 2018 was $27,125 which includes unpaid interest.
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 December 31, 2018 was $232,875, which includes unpaid interest and penalties.
During the year ended December 31, 2018, the Company received various loans from the Company’s chairman, Rick Mikles, with a balance of $200,000 as of December 31, 2018. These loans were non-interest bearing and payment is due on demand.
Wayne Miller
On November 27, 2017, the Company executed an unsecured promissory note in the amount of $200,000, payable to Mr. Wayne Miller, a shareholder of the Company. The note was due and payable with interest of $2,000 on December 31, 2017. The note was repaid in full, with interest on December 22, 2017. 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 expired on the first anniversary date of the initial exercise date of the warrants. The Company evaluated the warrants in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging – Contracts in Entity’s Own Stock and determined that the warrants did not meet the definition of a liability and therefore did not account for them as a separate derivative liability. The fair value of the warrants was calculated using the Black-Sholes model amounting to $55,072, and was recorded as a debt discount and amortized over the term of the note. As of December 31, 2017, the debt discount was fully amortized.
On December 6, 2017, the Company executed an unsecured promissory note in the amount of $150,000 payable to Mr. Wayne Miller, a shareholder of the Company. The note was due and payable on March 12, 2018, with interest of $6,000. 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. The Company evaluated the warrants in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging – Contracts in Entity’s Own Stock and determined that the warrants did not meet the definition of a liability and therefore did not account for them as a separate derivative liability. The fair value of the warrants was calculated using the Black-Sholes model amounting to $42,345, and was recorded as a debt discount and amortized over the term of the note. As of December 31, 2018, the debt discount was fully amortized and the principal balance of the note remains unpaid. Pursuant to the terms of the note, there was a 15-day grace period granted, which ended on March 27, 2018, at which a 15% penalty on the unpaid balance became due and payable along with the unpaid principal and any accrued interest.
On January 8, 2018, the Company executed an unsecured promissory note in the amount of $150,000 payable to Mr. Wayne Miller, a 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 December 31, 2018 was $179,700, which includes unpaid principal, interest, and penalties. 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. The Company evaluated the warrants in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging – Contracts in Entity’s Own Stock and determined that the warrants did not meet the definition of a liability and therefore did not account for them as a separate derivative liability. The fair value of the warrants was calculated using the Black-Sholes model amounting to $47,867, and was recorded as a debt discount and amortized over the term of the note. As of December 31, 2018, the debt discount was fully amortized and the principal balance of the note remains unpaid.
On March 22, 2018, the Company executed an unsecured promissory note in the amount of $20,000 payable to Mr. Wayne Miller, a shareholder of the Company. The note has interest at accruing at 10% per annum. The balance at December 31, 2018 was $10,250 which includes unpaid interest.
On October 4, 2018, the Company also borrowed $275,000 short-term payable to Wayne Miller. The balance as of December 31, 2018 is $281,875 which includes the unpaid principal and interest. This loan was due on April 3, 2019.
Paul Ladd
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 December31, 2018 was $58,650 which includes the unpaid principal, interest, and penalties. 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. The Company evaluated the warrants in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging – Contracts in Entity’s Own Stock and determined that the warrants did not meet the definition of a liability and therefore did not account for them as a separate derivative liability. The fair value of the warrants was calculated using the Black-Sholes model amounting to $2,875, and was recorded as a debt discount and amortized over the term of the note. As of December 31, 2018, the debt discount was fully amortized and the principal balance of the note remains unpaid.
Cary Baskin
On October 23, 2018, the Company also borrowed $75,000 in a non-interest bearing short-term payable to Cary Baskin, and was secured by shares owned by the Company’s CEO. The balance as of December 31, 2018 is $75,000. This loan was due on December 31, 2018.
Total interest expense under the related party loans was $119,803 and $75,106 during the years ended December 31, 2018 and 2017, respectively. Such interest was capitalized as part of the outstanding loan balance.
NOTE 7 – ADVANCES FROM RELATED PARTY
|
|
December 31
|
|
|
December 31
|
|
|
|
2018
|
|
|
2017
|
|
B2 Opportunity Fund
|
|
$
|
154,788
|
|
|
$
|
-
|
|
Other
|
|
|
68,000
|
|
|
|
-
|
|
|
|
$
|
222,788
|
|
|
$
|
-
|
|
On April 20, 2018, the Company received $125,000 as a short-term advance from an investor, B2 Opportunity Fund, via a payment to a vendor on the Company’s behalf. On June 5, 2018, the Company received an additional $29,975 in cash as an additional short-term advance. These advances were offset by $187 of repayments to the investor. Currently the advances are non-interest bearing and payable on demand.
NOTE 8 – STOCKHOLDERS’ (DEFICIT) EQUITY
Common Stock
Year ended December 31, 2017
On January 25, 2017 the Company appointed Rick Mikles as Chairman of the board of directors and issued to Mr. Mikles 3,000,000 shares of its common stock, valued at its trading price on the date of the grant of $300,000, which vested immediately, and 4,000,000 options to purchase shares of common stock of the Company at a price of $0.10 per share said options vesting equally over eight quarters and having an expiration of three years from the date of issue. Concurrently, the Company entered into a consulting agreement with Mr. Mikles to provide marketing, strategic, and organizational services to the Company. Upon execution of this consulting agreement the Company issued 2,000,000 shares of common stock, valued at its trading price on the date of the grant of $200,000, which vested immediately, and 5,000,000 options to purchase shares of common stock of the Company at an exercise price of $0.10 per share that vests quarterly in the amount of one option for every two dollars of revenue recognized by the Company.
On January 27, 2017 the Company appointed Kevin Harrington to its Board of Directors and issued 2,000,000 shares of its common stock, valued at its trading price on the date of the grant of $100,000, which vested immediately, and 4,000,000 options to purchase shares of common stock of the Company at an exercise price of $0.10 per share vesting equally over eight quarters and having an expiration of three years from the date of issue.
On February 2, 2017 the Company entered into a consulting agreement with Venture Legal Services, PLC, 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 an exercise price of $0.10 per share. The options have an expiration of three years from the date of issuance and vest quarterly one option for every two dollars of revenue recognized by the Company.
On May 15, 2017, the Company entered into an employment agreement with Mr. Baker, as the Company’s CEO. Mr. Baker was granted 5,000,000 shares of common stock of the Company, valued at its trading price on the date of the grant of $500,000, which vested immediately, and was granted 5,000,000 options to purchase common stock of the Company at an exercise price of $0.10 per share. These options have a three-year expiration and vest quarterly one option for every two dollars of revenue recognized by the Company.
On May 15, 2017, the Company entered into an employment agreement with Mr. Floyd, as the Company’s CFO. Mr. Floyd was granted 10,000,000 options to purchase common stock of the Company at an exercise price of $0.10 per share. These options have a three-year expiration and vest quarterly, at a rate of one option for every two dollars of revenue recognized by the Company. On November 15, 2017, the Company terminated the employment agreement, effective December 31, 2017 and entered into an amended agreement, pursuant to which Mr. Floyd would be paid a salary through the effective date of the termination and for four consecutive calendar months thereafter. In addition, Mr. Floyd forfeited his unvested options of 9,313,955 shares and the Company issued 3,000,000 shares of its common stock, valued at its trading price on the date of the grant of $269,700, which vested immediately.
On June 1, 2017, the Company entered into a service agreement with a provider of investor relations services. Under the agreement, the Company issued 1,000,000 shares of common stock to the provider, valued at its trading price on the date of the grant of $98,000, vesting 500,000 on June 1, 2017, 250,000 shares on October 1, 2017 and 250,000 shares on January 1, 2018.
On June 13, 2017, the Company entered into a service agreement with a provider of bookkeeping, accounting, payroll and human resources services. Under the agreement, the Company issued 250,000 shares of common stock to the provider, valued at its trading price at the date of the grant of $30,000, which vested immediately, and 1,000,000 options to purchase common stock of the Company at an exercise price of $0.10 per share. These options have a three-year expiration and vest evenly over two years. On August 30, 2017, the Company granted 600,000 performance-based options to purchase common stock of the Company at an exercise price of $0.10 per share. These options have a three-year expiration and vest quarterly, a rate of one option for every two dollars of revenue recognized by the Company from customers referred directly by the service provider.
On June 19, 2017, the Company entered into an agreement with Profit Motivators and the Company granted 600,000 performance-based options to purchase common stock of the Company at an exercise price of $0.10 per share. These options have a three-year expiration and vest quarterly, at a rate of one option for every two dollars of revenue recognized by the Company from customers referred directly by Profit Motivators.
On July 10, 2017 the Company entered into an employment agreement with Ryan Smith, to serve as Senior Vice President of the Company. The agreement has a term of three years, and Mr. Smith’s employment with the Company is on an at-will basis. The agreement specifies an annual base salary of $100,000 and a performance-based bonus within 45 days from the end of the Company’s fiscal year as determined by the Compensation Committee of the Board of Directors. In addition, Mr. Smith was granted 3,000,000 shares of common stock of the Company, valued at its trading price at the date of the grant of $300,000, which vested immediately, and was granted 7,000,000 options to purchase common stock of the Company at an exercise price of $0.10 per share. The Options have a three-year expiration and vest quarterly at a rate of one option for every two dollars of revenue recognized by the Company.
On July 13, 2017, the Company entered into a service agreement with a provider of tax services. Under the agreement, the Company issued 100,000 shares of common stock to the provider, valued at its trading price on the date of the grant of $10,800, which vested immediately, and 400,000 options to purchase common stock of the Company at an exercise price of $0.10 per share. These options have a three-year expiration and vest evenly over two years. On August 30, 2017, The Company granted 600,000 performance-based options to purchase common stock of the Company at an exercise price of $0.10 per share. These options have a three-year expiration and vest quarterly at a rate of one option for every two dollars of revenue recognized by the Company from customers referred directly by the provider of tax services.
On July 13, 2017, the Company amended and extended a consulting agreement, originally executed on January 23, 2017, with its Chairman, Rick Mikles. Under the amended and extended agreement, the Company issued 1,600,000 shares of common stock to Mr. Mikles, valued at its trading price on the date of the grant of $172,800, which vested immediately.
On August 31, 2017, the Company entered into an advisory agreement with Donald Herrmann. Under the agreement, the Company issued 100,000 shares of common stock to Mr. Herrmann, valued at its trading price on the date of the grant of $6,550, which vested immediately, and 900,000 options to purchase common stock of the Company at an exercise price of $0.10 per share. These options have a three-year expiration and vest evenly over two years.
On September 19, 2017, the Company appointed Jennifer Peek to its Board of Directors and as its Audit Committee Chair and issued 1,500,000 shares of its common stock, valued at its trading price on the date of the grant of $76,350, which vested immediately, and 1,500,000 options to purchase shares of common stock of the Company at an exercise price of $0.10 per share. The options vest equally over eight quarters and having an expiration of three years from the date of issue.
On November 1, 2017, the Company entered into a service agreement with a provider for information technology related services. Under the agreement, the Company issued 100,000 shares of common stock to the provider, valued at its trading price at the date of the grant of $13,492, which vested immediately, and 500,000 options to purchase common stock of the Company at an exercise price of $0.10 per share. These options have a three-year expiration and vest evenly over two years.
The Company has entered into employment agreements with its sales representatives, either as independent contractors or employees of the Company. The employees or contractors have at will contracts to provide sales and sales support services. In addition to a salary and commission, the Company has issued options to purchase common stock of the Company. The expiration periods range from 1-3 years, with options to purchase shares at an exercise price of $0.10 per share vesting over 3 years. The options granted in the aggregate total 5,700,000 shares of which 5,000,000 shares are performance-based options that vest one option for every two dollars of revenue recognized by the Company and 700,000 are time-based options which vest over 8 quarters, to a total of 8 individuals.
In June 2017, the Company completed a private offering of common stock and warrants to accredited and unaccredited investors for gross proceeds of $1,119,372 which securities were offered under Regulation D, Rule 506(b) of the Securities and Exchange Act of 1933. The Company accepted subscriptions, in the aggregate, for 14,924,960 shares of common stock and one-year warrants to purchase 14,924,960 shares of common stock of which 10,600,000 shares of its common stock and 10,600,000 warrants were issued for $795,000 in cash and 4,324,960 shares of its common stock and 4,324,960 warrants were issued for $324,372 in the conversion of debt. Investors received one-year fully vested warrant to purchase up to 100% of the number of shares purchased in the offering. The warrants have an exercise price of $0.15 per share. The purchase price for each share of common stock together with the warrants was $0.075. For the debt converted, the difference between the amount of debt converted and the fair value of the common stock and warrants issued of $519,085 has been charged to interest expense.
Year ended December 31, 2018
On February 12, 2018, the Company entered into an employment agreement with Rick Mikles, the Company’s Chairman, to become Chief Marketing Officer. The agreement has a three-year term, an annual base salary of $26,000 and a quarterly payment based on 3% of the quarterly revenue recognized by the Company. Mr. Mikles was granted 5,000,000 shares of the Company’s common stock, valued at its trading price of $0.10 per share, which vested immediately. He was granted 5,000,000 options to purchase common stock of the Company at an exercise price of $0.10 per share. These options have a three-year expiration and vest one option per every 2 dollars of revenue recognized by the Company.
In September 2018, the Company issued 1,000,000 shares of the Company’s common stock to Gary Cook in exchange for advances during 2018 amounting to $75,000.
Stock Options
On January 15, 2015, the Company adopted the 2015 Stock Option and Restricted Stock Plan (the "Plan"). In connection with adopting the Plan, the Voting Shareholders also approved a resolution that up to 45,000,000 shares of the Company's common stock may be issued under the terms and conditions of the Plan. That is, at its discretion, the Board of Directors may elect to have issued to directors, employees and consultants it deems deserving, up to 45,000,000 newly issued shares of the Company's common stock, options to purchase our common stock, or some combination thereof. If the Board of Directors decides to issue shares of common stock or options to purchase the Company's common stock, the issuance of such securities would not affect the rights of the holders of the currently outstanding common stock, except for affects incidental to increasing the number of outstanding shares of common stock, such as dilution of the earnings per share and voting rights of current holders of common stock.
Options - Time Vesting
The following table shows the stock option activity during the years ended December 31, 2018 and 2017:
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Average
|
|
|
Number of
|
|
|
Average
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Options
|
|
|
Exercise Price
|
|
Options outstanding at beginning of year
|
|
|
14,400,000
|
|
|
$
|
0.10
|
|
|
|
2,400,000
|
|
|
$
|
0.10
|
|
Changes during the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted - at market price
|
|
|
1,000,000
|
|
|
|
0.10
|
|
|
|
13,000,000
|
|
|
|
0.10
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(1,495,834
|
)
|
|
|
0.10
|
|
|
|
(1,000,000
|
)
|
|
|
0.10
|
|
Adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Options outstanding at end of year
|
|
|
13,904,166
|
|
|
|
0.10
|
|
|
|
14,400,000
|
|
|
|
0.10
|
|
Options exercisable at end of year
|
|
|
13,008,334
|
|
|
|
0.10
|
|
|
|
6,675,002
|
|
|
|
0.10
|
|
Weighted average fair value of options granted during the year
|
|
$
|
74,000
|
|
|
$
|
0.10
|
|
|
$
|
1,087,000
|
|
|
$
|
0.10
|
|
During the year ended December 31, 2018, options issued were valued using the Black-Sholes model assuming zero dividends, a $0.10 strike price, 3-year expiration, 1.53% average risk-free rate and 265.18% average volatility. Costs incurred in respect of stock-based compensation for employees, advisors and consultants for the years ended December 31, 2018 and December 31, 2017 were $675,200 and $923,639, respectively.
Unrecognized compensation costs related to options was $75,166 which is expected to be recognized ratably over approximately 18 months.
Options - Performance Vesting
The following table shows the stock option activity during the years ended December 31, 2018 and 2017:
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Average
|
|
|
Number of
|
|
|
Average
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Options
|
|
|
Exercise Price
|
|
Options outstanding at beginning of year
|
|
|
31,341,094
|
|
|
$
|
0.10
|
|
|
|
5,000,000
|
|
|
$
|
0.10
|
|
Changes during the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted - at market price
|
|
|
7,500,000
|
|
|
|
0.10
|
|
|
|
35,800,000
|
|
|
|
0.10
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired/forfeited
|
|
|
(12,759,286
|
)
|
|
|
0.10
|
|
|
|
(9,458,906
|
)
|
|
|
0.10
|
|
Adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Options outstanding at end of year
|
|
|
26,081,808
|
|
|
|
0.10
|
|
|
|
31,341,094
|
|
|
|
0.10
|
|
Options exercisable at end of year
|
|
|
8,627,850
|
|
|
|
0.10
|
|
|
|
3,917,052
|
|
|
|
0.10
|
|
Weighted average fair value of options granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
during the year
|
|
$
|
623,500
|
|
|
$
|
0.10
|
|
|
$
|
3,114,600
|
|
|
$
|
0.10
|
|
Options issued were valued using the Black-Sholes model assuming zero dividends, a $0.10 strike price, 3-year expiration, 2.34% average risk-free rate and 209% average volatility. Costs incurred in respect of stock-based compensation for employees, advisors and consultants for the twelve months ended December 31, 2018 and 2017 was $355,460 and $384,940.
During the year ended December 31, 2018, options issued, including 2,500,000 options granted to non-officer employees, were valued using the Black-Sholes model.
Unrecognized compensation costs related to options was $1,523,866 which is expected to be recognized ratably over approximately 17 months.
Warrants
The following table shows the warrant activity during the periods ended December 31, 2018 and 2017:
|
|
December 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Average
|
|
|
Number of
|
|
|
Average
|
|
|
|
Warrants
|
|
|
Exercise Price
|
|
|
Warrants
|
|
|
Exercise Price
|
|
Warrants outstanding at beginning of year
|
|
|
15,924,960
|
|
|
$
|
0.15
|
|
|
|
-
|
|
|
$
|
-
|
|
Changes during the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
2,050,000
|
|
|
|
0.15
|
|
|
|
15,924,960
|
|
|
|
0.15
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired/forfeited
|
|
|
(14,924,960
|
)
|
|
|
0.15
|
|
|
|
-
|
|
|
|
-
|
|
Warrants outstanding at end of year
|
|
|
3,050,000
|
|
|
|
0.15
|
|
|
|
15,924,960
|
|
|
|
0.15
|
|
Warrants exercisable at end of year
|
|
|
3,050,000
|
|
|
|
0.15
|
|
|
|
15,924,960
|
|
|
|
0.15
|
|
Warrants issued were valued using the Black-Scholes model assuming zero dividends, a $0.15 strike price, 1-year expiration, risk-free rate and volatility were calculated as of the respective dates of the issuance. Costs incurred for warrants issued to related parties for the conversion of debt were recorded as interest expense and were $199,219 and $367,662 for years ended December 31, 2018 and December 31, 2017, respectively.
NOTE 9 – INCOME TAXES
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cut and Jobs Act (the “Tax Act”). The Tax Act establishes new tax laws that affects 2018 and future years, including a reduction in the U.S. federal corporate income tax rate to 21%, effective January 1, 2018.
The components of the income tax provisions for 2019 and 2018 are as follows:
|
|
December 31
|
|
|
December 31
|
|
|
|
2018
|
|
|
2017
|
|
Current
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred
|
|
|
(685,198
|
)
|
|
|
1,525,774
|
|
|
|
|
(685,198
|
)
|
|
|
1,525,774
|
|
Valuation Allowance
|
|
|
685,198
|
|
|
|
(1,525,774
|
)
|
Total provision
|
|
$
|
-
|
|
|
$
|
-
|
|
The difference between the income tax provision and income taxes computed using the U. S. federal income tax rate of 21% consisted of the following:
|
|
2018
|
|
|
2017
|
|
Provision at statutory rate
|
|
|
21.0
|
%
|
|
|
34.0
|
%
|
Nondeductible and other items
|
|
|
(1.2
|
)%
|
|
|
-
|
%
|
Change in valuation allowance
|
|
|
(18.5
|
)%
|
|
|
(34.0
|
)%
|
|
|
|
(1.3
|
)%
|
|
|
-
|
|
Total
|
|
|
(0.0
|
)%
|
|
|
(0.0
|
)%
|
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. Significant components of the Company's deferred taxes as of December 31, 2018 and 2017 are as follows:
|
|
2018
|
|
|
2017
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Stock-based compensation for services
|
|
|
1,201,147
|
|
|
|
927,980
|
|
Net operating loss carryforward
|
|
|
763,000
|
|
|
|
426,776
|
|
Accrued expenses
|
|
|
57,399
|
|
|
|
-
|
|
Allowance for bad debts
|
|
|
17,862
|
|
|
|
-
|
|
Charitable contribution
|
|
|
545
|
|
|
|
-
|
|
Total deferred tax assets
|
|
|
2,039,953
|
|
|
|
1,354,756
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(2,039,953
|
)
|
|
|
(1,354,756
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax assets, net
|
|
$
|
-
|
|
|
$
|
-
|
|
A full valuation allowance has been provided against the Company's deferred tax assets at December 31, 2018 as the Company believes it is more likely than not that sufficient taxable income will not be generated to realize these temporary differences.
The Company has not filed its federal and state tax returns for the years ended December 31, 2019, 2018, 2017, 2016 and 2015. The Net operating losses (“NOLs”) for these years will not be available to reduce future taxable income until the returns are filed. Assuming these returns are filed, as of December 31, 2019, the Company had approximately $3.7 million of federal net operating losses that may be available to offset future taxable income. The net operating loss carry-forward arising in taxable years beginning before December 31, 2017 will begin to expire in the year 2035. For losses arising in taxable years beginning after December 31, 2017, the net operating loss carryforward has an indefinite life.
Management will be taking on a project to file delinquent tax returns in the upcoming reporting periods and updated values will be disclosed in the following reporting periods. Pursuant to Section 382 of the Internal Revenue Code, use of the Company's NOLs and credit carry forwards may be limited if the Company experiences a cumulative change in ownership of greater than 50% in a moving three-year period.
The Company provides for uncertain tax positions when such tax positions do not meet the recognition thresholds or measurement standards as set forth in ASC Topic 740 Income Taxes, regarding accounting for uncertainty in income taxes. Amounts for uncertain tax positions are adjusted in periods when new information becomes available or when positions are effectively settled. There are no unrecognized benefits related to uncertain tax positions as of December 31, 2018. The Company does not anticipate that there will be material change in the liability for unrecognized tax benefits within the next 12 months.
NOTE 10 – COMMITMENTS AND CONTINGENCIES
Commitments
The Company has no long-term leases. It has a warehouse lease which terminates in December 2018. The Company’s inventory is stored in that location. The Company owned its office building until February 2018 when the building was sold to the Company’s Chairman. The Company is currently paying on a month-to-month basis for this warehouse lease and office space at $2,400 per month.
Legal Contingencies
16(b) Litigation
On September 26, 2016, 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 with 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 Plaintiff 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 Court. On March 5, 2018, Nissim Trabelsi filed a notice of bankruptcy. The Plaintiff is still pursuing its options in the Case and the Court has yet to address the service issues with the Mazzal Trust.
VStock Transfer Communications
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. The issue in its entirety was settled with no impact to the Company on April 25, 2018.
NOTE 11 – CONCENTRATIONS
The revenue reported by the Company are from sales of LED installations, product sales and rebate income. For the year ended December 31, 2018, 20% of the Company's revenue was generated by one customer. For the year ended December 31, 2017, 64% of the Company's revenue was generated by one customer and 21% of its accounts receivable is from one customer for the year ended December 31, 2017.
The Company purchases substantially all of its inventory from one supplier. The Company does not have any commitments with this supplier for minimum purchases.
NOTE 12 – SUBSEQUENT EVENTS
On January 1, 2019, Mr. Baker entered into an Employment Agreement to become Chief Executive Officer. His annual base salary under the agreement was $250,000 and is eligible for cash bonuses to be determined by the Compensation Committees. He also received a grant of 20,000,000 shares of common stock that were immediately vested.
Subsequent to December 31, 2018 through the filing date, the Company has issued 50,450,000 shares of common stock. In December 2019, the Company issued 2,500,000 shares in exchange for $250,000 to an unrelated accredited investor. For the shares that were granted, 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 9, 2019, the Company issued 20,000,000 shares to its Chief Executive Officer. The remainder of shares were issued to various parties for services to the Company.
In April 2020, the Company received an unsecured loan (the "SBA Loan") under the Small Business Administration ("SBA") Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Security Act CARES Act through Chase Bank (“Lender”). The SBA Loan has a two-year term expiring on April 2022. The SBA Loan has a principal amount of $237,457 with an interest rate of 1.0%. The Company expects that the full principal amount of the loan will be forgiven. Interest accrues during the period between funding date and the date the loan is forgiven.
The Company has borrowed $1,624,127 from related parties since December 31, 2018. These loans from related parties were made on various dates in March 2019, April 2019 and October 2019 to August 2020, and have various payment terms up to six (6) months. All of these loans are unsecured.
The Company has borrowed $527,962 from various third-party lenders, none of which are financial institutions. These loans were made on various dates in August 2019 and October 2019 to December 2019, have various terms payment terms up to ten (10) months and all are secured by, inventory, receivables or the equity in the corporate headquarters building.
15(a)(2). Financial Statement Schedules.
None.
15(a)(3). Exhibits.
Exhibit No. Description
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*
|
* The XBRL related information in Exhibit 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.