UNITED STATESSECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 20162017
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number: 000-55152
ZNERGY, INC.
(Exact Name of Registrant As Specified In Its Charter)
Nevada | | 46-1845946 |
(State or other jurisdiction of incorporation or organization) | | IRS I.D. |
6102 MacDill Avenue, Suite G808 A South Huntington Street
Tampa, Florida 33611Syracuse, Indiana 46567
|
(Address of principal executive offices) (800) 931 5662 (Registrant’s telephone number, including area code) |
Securities registered under 12(b) of the Exchange Act:
None
Securities registered under 12(g) of the Exchange Act:
Common Stock, par value $0.0001
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 212 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☐ No ☒
Indicated by check mark whether the registrant:(1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 if disclosure of delinquent filings pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, , an accelerated filer, , a non-accelerated filer, , or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “smaller reporting“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 ☐ | | | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates as of June 30, 2016May 25, 2018 was $13,200,000.$12,874,695. For purposes of the foregoing calculation only, directors and executive officers and holders of 10% or more of the issuer’s common capital stock have been deemed affiliates.
On March 24, 2017,May 25, 2018, there were 200,150,000232,624,960 shares of the registrant’s common stock outstanding.
| PART I | | |
| Item 1. | | 3 |
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| Item 1A. | | 711 |
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| Item 1B. | | 711 |
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| Item 2. | | 711 |
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| Item 3. | | 711 |
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| Item 4. | | 712 |
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| PART II | | |
| Item 5. | | 813 |
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| Item 6. | | 915 |
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| Item 7. | | 1015 |
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| Item 7A. | | 1420 |
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| Item 8. | | 1420 |
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| Item 9. | | 1420 |
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| Item 9A. | | 1421 |
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| Item 9B. | | 1522 |
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| PART III | | |
| Item 10. | | 1623 |
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| Item 11. | | 1927 |
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| Item 12. | | 2028 |
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| Item 13. | | 2129 |
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| Item 14. | | 2129 |
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| PART IV | | |
| Item 15. | | 2330 |
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| | | |
| 3950 |
PART I
Special Note Regarding Forward-Looking Statements
Information included or incorporated by reference in this Annual Report on Form 10-K contains forward-looking statements. All forward- looking statements are inherently uncertain as they are based on current expectations and assumptions concerning future events or future performance of the Company. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. Forward-looking statements may contain the words “believes,” “projects,” “expects,” “anticipates,” “estimates,” “forecasts,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions, and are subject to numerous known and unknown risks and uncertainties. Additionally, statements relating to implementation of business strategy, future financial performance, acquisition strategies, capital raising transactions, performance of contractual obligations, and similar statements may contain forward-looking statements. In evaluating such statements, prospective investors and shareholders should carefully review various risks and uncertainties identified in this Report, including the matters set forth under the captions “Risk Factors” and in the Company’s other SEC filings. These risks and uncertainties could cause the Company’s actual results to differ materially from those indicated in the forward-looking statements. The Company disclaims any obligation to update or publicly announce revisions to any forward-looking statements to reflect future events or developments.
Although forward - looking statements in this Annual Report on Form 10-K reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward - looking statements are inherently subject to risks and uncertainties, and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the heading “Risk Factors Related to Our Business” below, as well as those discussed elsewhere in this Annual Report on Form 10-K. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report on Form 1 0 -K. We file reports with the Securities and Exchange Commission (“SEC”). You can read and copy any materials we file with the SEC at the SEC’s Public Reference Room, 1 00 F. Street, NE, Washington, D.C. 2 0 549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1 - 800-SEC-0330. In addition, the SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.
We disclaim any obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Annual Report on Form 10-K. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this Annual Report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
General
Prior Business and Operations
Znergy, Inc. (formerly Mazzal Holding Corp., formerly Boston Investment and Development Corp), was formed in the state of Nevada on January 23, 2013.
The business and purpose of the Company previously was to purchase approved multi-family land, and then to develop and build on said land for a profit.
On March 31, 2013, the Company entered into a Standard Land Purchase and Sale Agreement (the “Purchase Agreement”) with the Mazzal Trust, pursuant to which the Company purchased property (the “Taunton Property”) consisting of “the land and all buildings thereon known as 171 Hart St., Taunton MA 02780.” The Taunton Property consists of approximately 25 acres. The Taunton Property is located in the Green Pines Townhomes subdivision, and the subdivision is managed by the Green Pines Townhomes Condominium Trust. (The manager of the Green Pines Townhomes Condominium Trust is Green Pines, LLC, a shareholder of the Company, the manager of which is Marty Trabelsi, the brother of Nissim Trabelsi, the Company’s President.) The purchase price for the Taunton Property was 1,500,000 shares of the Company’s common stock. On May 29, 2013, the purchase of the Taunton Property closed, and the seller delivered the deed, and the Company issued the shares.
Global ITS Transaction
On October 26, 2015, the Company entered into a Share Exchange Agreement (the “Exchange Agreement”) with Global ITS, Inc. (“Global”), a development stage company and the shareholders of Global, pursuant to which the Company exchanged 120,000,000 of its common shares (the “Company Shares”) for 24,000,000 Global common shares held by Global’sGlobal’ s shareholders representing 100% of Global’sGlobal’ s outstanding shares (the “Share Exchange”). Following their issuance, the 120,000,000 shares represented in the aggregate approximately 36% of the issued and outstanding shares of the Company.
Pursuant to the Agreement, the Company became the sole shareholder of Global, and became obligated to issue 120,000,000 shares of the Company’s common stock. Global, a privately held Wyoming development stage corporation, was focused on marketing energy efficiency (“EE”) and commercial security (“CS”) products. Its wholly owned subsidiary, Znergy, Inc., a Florida corporation (“Znergy-FL)”), was focused on financing EE and CS projects for Global’sGlobal’ s customers and for third party projects. Subsequently, Znergy-FL has become the operating subsidiary for the Company, selling and installing energy efficient lighting.
Global intends to grow organically by selling EE and 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 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 other value-added services and for which performance contracting is a core part of its 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. The total energy management services market – which includes ESCOs – will approach $50 billion by 2017, according to a new research report by Verify Markets.
Znergy increases the Company’s competitive position by providing funding for EE projects through its strategic partnership with a well established funding group focused on energy efficiency projects.
In addition, the Company will look for accretive acquisitions in the diverse and fragmented EE marketplace.
Recent Developments
Change in Control Transaction
On November 19, 2015, Mr.Nissam Trabelsi, who was serving at the time as the Company’s President and CEO, entered into a binding term sheet (the “Term Sheet”) to sell 100% of his shares of the Company’s common stock to Peter Peterson or entities designated by him for an aggregate purchase price of $500,000, minus certain expenses to be paid prior to closing. Additionally, the Mazzal Trust (the “Trust”), the Company’s largest shareholder at the time, agreed to return to the Company 150,000,000 shares of the Company’s common stock, in exchange for which the Company will transfertransferred all right, title, and interests in and to the Company’s real property located in Taunton, Massachusetts (the “Taunton Property”), to the Trust.
Subsequently, on February 9, 2016, following additional negotiations between the parties, the Company, Mr. Trabelsi; Shawn Telsi (a significant shareholder); the Mazzal Living Trust, the majority shareholder of the Company (the “Trust”); and B2 Opportunity Fund, LLC, a Nevada limited liability company (“B2”), entered into an Amended Master Stock Purchase Agreement (the “Master Agreement”).
Pursuant to the Master Agreement, Mr. Trabelsi and Mr. Telsi each agreed to sell 100% of the shares of the Company’s common stock owned by them to B2 or its designees. Mr. Trabelsi sold 45,800,000 shares of the Company’s common stock, and Mr. Telsi sold 9,500,000 shares of the Company’s common stock. The aggregate purchase price paid for the 55,300,000 shares was Three Hundred Fifteen Thousand Dollars ($315,000).
Sale of Real Property
In connection with the Master Agreement, the Company agreed to sell to the Trust, and the Trust agreed to purchase from the Company, real property which the Trust had previously sold to the Company, described above as the Taunton Property. Additionally the Company’s subsidiary, Command Control, sold the Hotel Property (collectively with the Taunton Property, the “Property”). As consideration for the purchase of the Property, 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, while retaining 50,000 of the shares.
In connection with the execution of the Master Agreement, the Company canceled the 149,950,000 shares of common stock conveyed by the Trust.
The foregoing description of the Master Agreement is qualified in its entirety with reference to the entire agreement, which was been filed as an exhibit to the Company’s Current Report on Form 8-K, filed with the SEC on February 12, 2016.
New Director; New Officer; Resignation of Mr. Trabelsi
In connection with his sale of his and Mr. Telsi’s shares, Mr. Trabelsi appointed Christopher J. Floyd to the Board of Directors of the Company, Mr. Trabelsi also appointed Mr. Floyd as the CEO, CFO, and Secretary of the Company. Following Mr. Trabelsi’s appointment of Mr. Floyd to the board of directors and as an officer of the Company, Mr. Trabelsi resigned from all positions with the Company, effective immediately. Mr. Floyd, as the Company’s remaining director, accepted the resignations.
In December 2016, Mr. Floyd appointed Arthur E. Fillmore, II, as the second member of the Company’s Board of Directors and as General Counsel to the Company. Mr. Fillmore was also appointed Chair of the Company’s Compensation Committee. Mr. Fillmore was granted 3,000,000 shares of the Company’s restricted stock. At the same time, Mr. Filmore’s law firm, AEGIS Professional Services (new AEGIS Law) was granted 2,000,000 options to purchase the Company’s common stock at $0.10 per shares, vesting immediately, in exchange for AEGIS’ agreement to reduce its hourly billing rate to the Company by 25%. AEGIS distributed said options of 666,000 to each of Mr. Fillmore, Scott Levine and Nicholas Schopp.
There were no disagreements or disputes between Mr. Trabelsi and the Company or the Board of Directors.
A copy of Mr. Trabelsi’s notice of resignation was included as an exhibit to the Company’s Current Report filed on February 12, 2016. The Company provided to Mr. Trabelsi a copy of the Current Report for his review prior to filing.
Change in Control
In connection with the Master Agreement and the cancellation of the Trust’s shares in connection with the sale of the Property, a change of control of the Company occurred.
As noted above, in October 2015, the Company entered into a Share Exchange Agreement with Global and the shareholders of Global ITS, pursuant to which the Company acquired all of the outstanding shares of Global ITS. The Global ITS shareholders tendered their shares of Global ITS common stock in exchange for which the Company has a contractual obligation to issue 120,000,000 shares of its Common Stock to the shareholders of Global ITS. Following their issuance, the 120,000,000 shares represented in the aggregate approximately 36% of the issued and outstanding shares of the Company.
Immediately prior to the execution of the Master Agreement, the Company had 330,000,000 common shares issued and outstanding. Mr. Trabelsi, through his personal ownership and as Trustee of the Trust, beneficially owned approximately 60% of the outstanding shares.
As noted above, in connection with the Master Agreement discussed above, Mr. Trabelsi sold his shares of common stock to B2 or its designees, and the Trust agreed to purchase the Properties from the Company in exchange for 149,950,000 shares of the Company’s common stock, which were canceled by the Company following the closing of the transaction. As such, following the closing of the Master Agreement, the Company had 180,050,000 shares issued and outstanding. As of the date of this Report, to our knowledge, Mr. Trabelsi owned directly, beneficially or indirectly, through the Trust, 50,000200,000 shares of the Company’s common stock.
The Global ITS holders, as a group, hold shares representing approximately 67% of the total issued and outstanding shares. B2’s designee, Lone Cypress LLC, owns shares representing approximately 26.7% of the outstanding common stock.
As such, a change of control of the Company occurred in connection with the execution of the Master Agreement and the cancellation of the Trust’s shares. As noted, the Global ITS shareholders tendered their shares of Global ITS common stock in exchange for the shares of the Company’s common stock.
At the time, Global ITS hashad approximately 50 shareholders, including Lone Cypress, LLC. Following the distribution of Company’s shares to the Global ITS shareholders, none of the former Global ITS shareholders owned 10% or more of the Company’s shares other than Lone Cypress, which received an aggregate of 41,137,120, which was equal to approximately 23% of the total outstanding shares of the Company. Currently no former Global ITS shareholder owns more than 10% of the Company’s shares.
Overview
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.
Managing energy consumption and the associate costs is increasingly important to 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 addition, the Company generates revenue from available utility incentives and rebate programs.
The Company provides its turn-key service though a detailed evaluation of the customer’s needs and performing an audit of the customer’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 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 other value-added services and for which performance contracting is a core part of its 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 increases its competitive position by providing funding for EE projects through its strategic partnership with a well-established funding group focused on energy efficiency projects.
In addition, the Company will look for accretive acquisitions in the diverse and fragmented EE marketplace
Recent Developments
Personnel and Services
In 2017, the Company began to supplement its organization structure by adding new members of the board of directors, new sales and administrative employees, and third-party services to assist the company.
On January 25, 2017, the Company appointed Richard 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. Concomitantly, 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 a price of $0.10 per share said options to vest 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 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.
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 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.
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 $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 $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 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 at 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 on the date of the grant of $30,000, and vested immediately, and 1,000,000 options to purchase common stock of the Company at $0.10 per share. These options have a three-year expiration and vest evenly over two years. The agreement was canceled by the Company on November 30, 2017 and a new agreement was executed effective December 13, 2017. As part of the new agreement, the service provider agreed to return all its vested and unvested options. On August 30, 2017, the Company granted 600,000 performance-based options to purchase common stock of the Company at $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 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 $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 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 $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.
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 and vested immediately, and 400,000 options to purchase common stock of the Company at $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 $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 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 $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 a 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 on the date of the grant of $13,492, which vested immediately, and 500,000 options to purchase common stock of the Company at $0.10 per share. These options have a three-year expiration and vest evenly over two years.
On December 15, 2017 the Company entered into an agreement with William McMahon through his advisory services company – Wm L McMahon Advisors, LLC, to serve as interim Chief Financial Officer of the Company.
As discussed in the Share Based Payments section, the Company has entered into employment agreements with a number of 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 $0.10 per share, vesting over three years. The options granted in the aggregate total 5,700,000 shares to a total of 8 individuals, 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.
Office 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 payment of $225,000. On March 16th, a quitclaim was recorded to Rick Mikles as the new owner of the building. Mr. Mikles and the Company are negotiating the terms of a lease for the office space.
Private Offerings of Common Stock and Warrants
During the period ended June 30, 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 $519,086 has been charged to interest expense.
Debt
On November 6, 2017, the Company executed an unsecured promissory note in the amount of $25,000 payable to Christopher J Floyd. This note was payable on December 15, 2017 with accrued interest at 8% per annum. The note was paid in fully on November 22, 2017.
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.
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 expire on the first anniversary date of the initial exercise date of the warrants.
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. As of the date of this Report, the principal balance 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.
Financing Strategy
The Company only recently has begun to generate revenue from the sale of its services and from rebate income. The Company has invested in additional sales staff and has incurred costs developing its customer auditing process. These expenses are partially funded by cash flow from its revenues, but the Company is currently operating below break-even due to its operating investments. As a result, the Company had to rely on additional debt, primarily from its shareholders. The Company anticipates that it will continue to fund its operations through the revenue it derives from services and rebates but will also need to finance its operations, at least initially,needs through additional debt and through the sale of its shares of common stock, which will result in dilution to the current owners of our shares of common stock, and through future business acquisitions.the Company’s shares. There can be no guarantee,assurance, however, that should we embark upon a strategy to sell our equity securities or make business acquisitions that such offering or acquisitionsthe Company will be successful in providingand raising additional debt or to sell additional securities, or that such offerings, if successful will provide the Company with sufficient capital to implement its business plan.
Competition
The energy efficiency segment for small and medium sized commercial businesses is fragmented and highly competitive. The Company competes with various types and sizes of companies ranging from local and national service providers.
The efficient lighting market, which is part of the energy efficiency market, is also highly competitive, with some of the largest suppliers of lighting components also serving many of the same markets and competing for the same customers. Competition is based on numerous factors, including features and benefits, brand name recognition, product quality, product and lighting system design, energy efficiency, customer relationships, service capabilities, and price. The Company’s largest competitors in the North American lighting market include the lighting divisions of Acuity Brands, Koninklijke Philips N.V., Eaton Corporation, Hubbell Incorporated, Schneider Electric, Cree, Inc., and General Electric Company. The Company estimates that the largest publicly traded manufacturers, which participate in varying degrees in the North American lighting market, have over half of the total market share. In addition to these large competitors, the Company also competes with hundreds of manufacturers of varying size.
Employees
As of the date of this Annual Report, we had six employees.the Company has 14 employees, including the services of the Company’s interim Chief Financial Officer. The Company has recently commenced operations and generated revenue. As such, we relythe Company relies substantially on the services of Mr. Floyd,Baker who serves as boththe Company’s Chief Executive Officer and Mr. Mikles who serves as the Company’s Chairman of the Board and the Chief Financial Officer, and Mr. Baker, our Chief Operating Officer, to set up and grow our business operations.Marketing Officer.
Employment Agreements
We have oneThe Company entered into an employment agreement with Dave Baker
ourto become the Company’s Chief Operating Officer. Mr. Baker’s agreement, dated September 28, 2016,
hashad a term of three years,
specifies an annual base salary of $100,000 which salary
willto be reviewed by the Compensation Committee of the Board of Directors,
by April 15, 2017 and annually thereafter, a signing bonus of $10,000 and a bonus in January 2017 equal to 6% of the total revenue generated by Mr. Baker in the fourth quarter of 2016 which bonus was paid on January 20
th, 2017 in the amount of $10,928 (6% of $182,127). In addition, Mr. Baker was granted 500,000 shares of common stock of the Company, vested immediately, and was granted 5,000,000 options to purchase common stock of the Company at $0.10 per
share (the “Options”). Theshare. These Options have a three-year expiration and vest one option for every two dollars of revenue recognized by the Company. On December 1, 2016, Mr. Baker was promoted from Senior Vice President to Chief Operating Officer and granted a further 4,500,000 shares of the Company’s common stock, which vested immediately.
On May 15, 2017 Mr. Baker was promoted from Chief Operating Officer to Chief Executive Officer. His annual base salary remained at $100,000, he was granted a $6,000 signing bonus and granted a further 5,000,000 shares of the Company’s common stock, which vested immediately and was granted 5,000,000 options to purchase common stock of the Company at $0.10 per share. These options have a three-year expiration and vest one option for every two dollars of revenue recognized by the Company. In December 2017, the compensation committee of the board of directors awarded Mr. Baker a bonus of $40,000 which was partially paid in December and the balance was paid in January 2018.
On December 15, 2017 the Company entered into an employment agreement with William McMahon through his advisory services company – Wm L McMahon Advisors, LLC, to serve as interim Chief Financial Officer of the Company. The employment agreement is for six months and can be terminated at any time upon 10 days written notice. The agreement provides for compensation for services in the amount of $10,000 per month. The initial term for providing the services is six (6) months. There are no other benefits or compensation, other than the reimbursement of approved expenses.
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, which vested immediately and was granted 5,000,000 options to purchase common stock of the Company at $0.10 per share. These options have a three-year expiration and vest one options for every two dollars of revenue recognized by the Company.
Board Committees
The Board formed its Compensation Committee in January 2017 comprising Mr. Fillmore and Mr. Mikles serving as Chairman and member of the Committee, respectively. We are seeking and expectOn September 19, 2017, the Company appointed Jennifer Peek to appoint a fifth independent memberthe board of directors. Ms. Peek serves as Chair of the board who meets the requirements as an “audit committee financial expert” in accordance with applicable SEC regulations and to form our Audit Committee at that time although there can be no assurance that we will be successful in identifying or recruiting such a candidate.of the Board of Directors.
Directors
The maximum number of directors the Company is authorized to have is nine. However, in no event may the Company have fewer than one director. Currently, the Company has fourseven board members; threefour independent directors Rick Mikles (Chairman),- Art Fillmore (director and General Counsel), Kevin Harrington (director), Jennifer Peek (director), Nicole Strothman (director); and onethree employee director, Christopher Floyddirectors - Rick Mikles (director and Chief Marketing Officer), Dave Baker (director and Chief Executive Officer) and William McMahon (director and interim Chief Financial Officer). We are seeking and expect to appoint a fifth independent member
Director Compensation
None.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Not required for Smaller Reporting Companies.
ITEM 1B. UNRESOLVED STAFF COMMENTS
NA
Following the sale of the Taunton Property and the Hotel Property to the Trust, described above, as of the date of this Report, the Company owned no real property.
Company Offices
AsOn 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 datebuilding 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 this Report,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 using office space located at 6102 MacDill Avenue, Suite G, Tampa, Florida 33611 onunable to make the scheduled payment of $225,000. On March 16th, a monthquitclaim was recorded to month basis. The Company’s management believes thatRick Mikles as the current office space is sufficient enoughnew owner of the building. Mr. Mikles and the Company are negotiating the terms of a lease for the Company for the foreseeable future.office space.
ITEM 3. LEGAL PROCEEDINGS.
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.
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, financial impact this matter will have on the Company.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
There is only a very limited established public trading market for our securities and a regular trading market may not develop, or if developed, may not be sustained. A stockholder in all likelihood, therefore, will not be able to resell his or her securities should he or he desire to do so when eligible for public resale. Furthermore, it is unlikely that a lending institution will accept our securities as pledged collateral for loans unless a regular trading market develops. We have no plans, proposals, arrangements, or understandings with any person with regard to the development of a trading market in any of our securities.
In 2013, the Company filed a registration statement (the “Registration Statement”) to register the resale by certain selling shareholders of shares of the Company’s common stock. The Registration Statement was declared effective in February 2014. That Registration Statement was a step toward creating a public market for the Company’s common stock, which may enhance the liquidity of the Company’s shares. However, there can be no assurance that a meaningful trading market will develop. The Company and its management make no representation about the present or future value of the Company’s common stock.
During the period ended June 30, 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.
As of March 23, 2017:May 25, 2018:
| 1. | There were 22,400,00051,416,425 options to purchase common stock of the Company and 17,974,960 warrants to purchase common stock of the Company. There were no other options, warrants or other instruments convertible into equity of the Company; and |
| 2. | There were 200,150,000232,624,960 shares of the Company’s common stock held by approximately 148243 shareholders of record. |
As of the date of this Annual Report, the Company was not classified as a “shell company” under Rule 405 of the Securities Act, and to the knowledge of the management of the Company, the Company has never been a shell company. As such, all restricted securities presently held by the founder and other officers or directors of the Company may be resold in reliance on Rule 144, once all requirements set forth in that Rule have been met.
Penny Stock Considerations
OurThe shares of the Company likely will be “penny stocks” as that term is generally defined in the Exchange Act and the rules and regulations promulgated thereunder to mean equity securities with a price of less than $5.00. OurThe shares thus will be subject to rules that impose sales practice and disclosure requirements on broker-dealers who engage in certain transactions involving a penny stock.
Under the penny stock regulations, a broker-dealer selling a penny stock to anyone other than an established customer or accredited investor must make a special suitability determination regarding the purchaser and must receive the purchaser’s written consent to the transaction prior to the sale. Generally, an individual with a net worth in excess of $1,000,000 or annual income exceeding $200,000 individually or $300,000 together with his or her spouse is considered an accredited investor. In addition, under the penny stock regulations the broker-dealer is required to:
| · | Deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the SEC relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt; |
| | |
| · | Disclose commissions payable to the broker-dealer and our registered representatives and current bid and offer quotations for the securities; |
| | |
| · | Send monthly statements disclosing recent price information pertaining to the penny stock held in a customer’s account, the account’s value and information regarding the limited market in penny stocks; and |
| | |
| · | Make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction, prior to conducting any penny stock transaction in the customer’s account. |
Because of these regulations, broker-dealers may encounter difficulties in their attempt to sell shares of ourthe Company’s Common Stock, which may affect the ability of ourthe stockholders to sell their shares in the secondary market and have the effect of reducing the level of trading activity in the secondary market. These additional sales practice and disclosure requirements could impede the sale of our securities, if our securities become publicly traded.the securities. In addition, the liquidity for our securities may be decreased, with a corresponding decrease in the price of our securities. Our shares in all probability will be subject to such penny stock rules and our stockholders will, in all likelihood, find it difficult to sell their securities.
Holders
As of the date of this Report, wethe Company had approximately 148243 holders of record of our Common Stock.
Dividends
We haveThe Company has not declared any cash dividends on our Common Stock since ourits inception and dodoes not anticipate paying such dividends in the foreseeable future. Any decisions as to future payments of dividends will depend on ourthe Company’s earnings and financial position and such other facts, as the Board of Directors deems relevant.
Securities Authorized for Issuance under Equity Compensation Plans
On January 15, 2015 wethe 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 ourthe 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 ourthe Company’s common stock, options to purchase our common stock, or some combination thereof. If ourthe Board of Directors decides to issue shares of common stock or options to purchase ourthe Company’s common stock, the issuance of such securities would not affect the rights of the holders of ourthe currently outstanding common stock, except for affects incidental to increasing the number of outstanding shares of our common stock, such as dilution of the earnings per share and voting rights of current holders of common stock. As of the date of this Report, the Company had issued 15,000,00045,000,000 shares under the Plan.
Recent Sales of Unregistered Securities
As noted above, on October 26, 2015, the Company entered into a Share Exchange Agreement (the “Exchange Agreement”) with Global ITS, Inc.. (“Global”), and the shareholders of Global, pursuant to which the Company issued 120,000,000 of its common shares (the “Company Shares”) in exchange for 24,000,000 Global common shares held by Global’s shareholders representing 100% of Global’s outstanding shares (the “Share Exchange”).
The Company’s issuance of the Company Shares in connection with the Share Exchange was made without registration under the securities Act of 1933 (the “1933 Act”) in reliance on Section 4(a)(2) of the 1933 Act and the rules and regulations promulgated thereunder.
During the year ended December 31, 2016 the Company issued 13,100,000 shares of its common stock for services provided in the amount of $718,167$926,500 with $208,333 recorded as deferred compensation. These issuances qualified for exemption from registration under the Securities Act of 1933 by virtue of Section 4(2) of the Securities Act, in that the issuances did not involve a public offering.
During the year ended December 31, 2017, the Company issued 22,650,000 shares of its common stock for services provided in the amount of $2,264,446 in stock-based compensation and $821,825 in consulting expense.
Because the Company is a “Smaller Reporting Company,” this information is not required to be provided.
You should read the following discussion of our financial condition and results of operations together with the audited financial statements and the notes to the audited financial statements included in this Annual Report on Form 10-K. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those anticipated in these forward- looking statements.
Our auditors have issued an explanatory note regarding our ability to continue as a going concern. This means that our auditors believe there is substantial doubt that we can continue as an on-going business for the next 12 months. Our auditor’s opinion is based on our suffering initialcontinual losses, having minimal operations,investment requirements for growth, and having a working capital deficiency. Accordingly, to implement our business plan, we must raise cash from sources other than operations. Our only other source forIn 2017 and through the date of this report in 2018, the Company has raised cash at this time is investments by others in our company. We must raise cash to implement our business plan.
Our management does not expect to incur research and development costs. We do not have any off-balance sheet arrangements.
The Company had revenues of $196,828$1,225,867 and $-0-$196,828 for the years ended December 31, 2016,2017, and December 31, 2015,2016, respectively. Revenues in 2016 compriseconsist primarily of LED retrofit and new fixture installations generated in the fourth quarterinstallations. There were minimal sales of that year.individual lamps and fixtures.
The Company had costs of revenue of $151,546$980,996 and $-0-$ 151,546 for the years ended December 31, 2016,2017, and December 31, 2015,2016, respectively. These costs are composed primarily of the costscost of lampslights and fixtures from our supplier.suppliers, plus the cost of installation and rental of lift equipment at the job site.
The Company had selling, general and administrative expenses of $1,033,595$4,138,249 and $469,473$1,033,595 for the years ended December 31, 2016,2017, and December 31, 2015,2016, respectively. GeneralSelling, general and administrative expenses in 20162017 and 20152016 are comprised primarily of consulting expenses of $-0- and $434,010, payroll and $400,000, payrollrelated expenses of $158,305 and $346,245, professional and legal expenses of $282,733 and $51,765, sales and marketing expense of $478,882 and $-0-, and legalother administrative expenses such as insurance and utilities of $51,765$132,058 and $54,354.$-0-. $3,086,271 and $724,347 and $400,000 of our general and administrative expenses for the years ended December 31, 2017 and 2016 and 2015are comprised of shares issued for services and the vesting of options, respectively.
The Company had other income (expense) of $-0- and $7,137 and ($6,028,998)interest expense of $594,192 and $-0- for the years ended December 31, 2016,2017 and December 31, 2015,2016, respectively. The other expense for 2015 included a $5,988,000 expense related to the purchase of Global ITS, Inc. (see Note 9 in the footnotes to the financial statements in this report).
The Company had net losses of $981,176$4,487,570 and $6,498,471$981,176 for the years ended December 31, 2016,2017, and December 31, 2015,2016, respectively.
Liquidity and Capital Resources
As of December 31, 2016,2017, the Company had total current assets of $315,974$709,270 comprising $40,507$116,481 in cash, $79,612$112,818 in accounts receivable, $3,750$35,365 in prepaid expenses and $192,105$444,606 in inventory, and total current liabilities of $626,620$1,046,866 comprising $284,930$431,267 in accounts payable, $139,336$179,628 in accrued expenses, $6,605$39,453 in customer deposits, $135,749$225,000 in a loan with aon the office building in Syracuse, Indiana and $171,518 in loans from related party and $60,000 in advances from third parties. Use of cash for operating activities totaled $146,799$933,498 and was primarily for funding inventory and accounts receivable in the amounts of $192,104$252,501 and $79,612,$80,983, respectively, offset by an increase in accounts payable and accrued expenses of $365,399.$200,754. The primary source of funds was advances from our affiliate in the amount of $128,827 and advances from third parties of $60,000.$626,750 and the sale of common stock of $795,000. There are no guarantees that our affiliate will continue to advance funds to the Company or that the Company will be successful in raising funds from third parties to sustain our operations.
Plan of Operation
The Company’s anticipated plan of operation is to continue to (1) identify and train 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 continues to expand its solutions portfolio for both indoor and outdoor applications in an effort to capitalize on the evolving 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 opportunity for lighting to be integrated with other building automation systems to create an optimal platform for enabling the “Internet of Things” (IoT), which will support the advancement of smart buildings, smart cities, and the smart grid.
The Company’s ability to grow its incipient operations is primarily dependent upon its ability to raise additional capital, most likely through the sale of additional shares of the Company’s common stock or other securities. There can be no guarantee that the Company will be able raise additional capital on terms that are acceptable to the Company, or at all.
The realization of revenues in the next twelve months is important in the execution of the plan of operations. However, if the Company cannot raise additional capital by issuing capital stock in exchange for cash, or through obtaining commercial or bank financing, in order to continue as a going concern, the Company may have to curtail or cease its operations. As of the date of this Report, there were no formal or informal agreements to attain such financing. The Company cannot assure any investor that, if needed, sufficient financing can be obtained or, if obtained, that it will be on reasonable terms. Without realization of additional capital, it would be unlikely for operations to continue.
Critical Accounting Policies
The SEC has issued Financial Reporting Release No. 60,“Cautionary “Cautionary Advice Regarding Disclosure About Critical Accounting Policies” (“FRR 60”), suggesting companies provide additional disclosure and commentary on their most critical accounting policies. In FRR 60, the Commission has defined the most critical accounting policies as the ones that are most important to the portrayal of a company’s financial condition and operating results and require management to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, the Company’s most critical accounting policies include (a) use of estimates, (b) revenue recognition, (c) going concern, and (d) share based payments. The methods, estimates and judgments the Company uses in applying these most critical accounting policies have a significant impact on the results the Company reports in its financial statements.
(a) 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.
(b) Revenue Recognition
The Company accounts for revenue using the “completed contract method” in accordance with ASC 605-35. 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 unallocable indirect costs and corporate general and administrative costs are charged to 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. The deferred asset (accumulated contract costs) in excess of the deferred liability (billings and/or cash received) is classified as a current asset under “Costs in excess of billings on uncompleted contracts.” The deferred liability (billings and/or cash received) in excess of the deferred asset (accumulated contract costs) is classified under current liabilities as “Billings in excess of costs on uncompleted contracts.” A contract is considered complete when accepted by the customer. The Company quotes its customers the total costs of product installation and materials minus the expected rebates, if any, from a given utility. For projects larger than $10,000, rebates must be pre-approved by the utility. Rebate revenue is recognized when a project is completed and the rebate paperwork is submitted to and approvedreceived by the utility.Company.
(c) 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 at December 31, 2016,2017, the Company has a working capital deficit of $310,646,$337,596, insufficient cash resources to meet its planned business objectives and accumulated losses from operations of $7,951,648.$12,439,218. 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 March 2018.May 2019.
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. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
(d) Share-Based Payments
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 compensation and benefits 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 Company recognizes stock-based compensation for equity awards granted as selling, general, and administrative expense in the consolidated statements of operations.
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.
JOBS Act
On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company,” we have the option to delay adoption of new or revised accounting standards until those standards would otherwise apply to private companies, until the earlier of the date that (i) we are no longer an emerging growth company or (ii) we affirmatively and irrevocably opt out of the extended transition period for complying with such new or revised accounting standards. We have elected to opt out of this extended transition period. As noted, this election is irrevocable.
Our significant accounting policies, as described in our financial statements in the Summary of Significant Accounting Policies, should be read in conjunction with this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update No. 2014-09, Revenue From Contracts With Customers, or ASU 2014-09. Pursuant to this update, an entity should recognize revenue to depict 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 amendments in this update are currently effective for annual reporting periods beginning after December 15, 2016,2017, including interim periods within that reporting period, and are to be applied retrospectively, or on a modified retrospective basis. Early application is not permitted. In July 2015, the FASB approved a one-year deferral of the effective date for annual reporting periods beginning after December 15, 2017 with early adoption permitted for annual periods beginning after December 15, 2016. We are currently evaluating the impact ofhave determined that adopting ASU 2014-09 on our consolidated financial statements.
In August 2014, FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, or ASU 2014-15. ASU 2014-15 explicitly requires a company’s management to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosures in certain circumstances. The new standard became effective in the first annual period ending after December 15, 2016. Management has evaluated the potential impact of the adoption of this standard and believes its adoption has no impact on our consolidated statements of financial position, results of operations or cash flows.
In July 2015, the FASB issued ASU No. 2015-11, (“ASU 2015-11”), Inventory (Topic 330): Simplifying the Measurement of Inventory. ASU 2015-11 requires an entity to measure in scope inventory at the lower of cost and net realizable value. The amendment does not apply to inventory that is measured using the last-in, first-out or the retail inventory method. For public entities, ASU 2015-11 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years, and is to be applied prospectively. We do not expect the adoption of this standard will have a material effectimpact on our consolidated financial statements.
On February 24, 2016, the FASB issued ASU No. 2016-02, Leases, requiring lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases with the exception of short-term leases. For lessees, leases will continue to be classified as either operating or finance leases in the income statement. Lessor accounting is similar 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 our consolidated financial statements and related disclosures.
On March 30, 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which simplifies various aspects related to the accounting and presentation of share-based payments. The amendments require entities to record all tax effects related to share-based payments at settlement or expiration through the income statement and the windfall tax benefit to be recorded when it arises, subject to normal valuation allowance considerations. All tax-related cash flows resulting from share-based payments are required to be reported as operating activities in the statement of cash flows. The updates relating to the income tax effects of the share-based payments including the cash flow presentation must be adopted either prospectively or retrospectively. Further, the amendments allow the entities to make an accounting policy election to either estimate forfeitures or recognize forfeitures as they occur. If an election is made, the change to recognize forfeitures as they occur must be adopted using a modified retrospective approach with a cumulative effect adjustment recorded to opening retained earnings. The effective date of the new standard for public companies is for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. Early adoption is permitted. Adoption of this standard did not have any effect on the Company’s financial statements.
On May 10, 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718), which was issued to clarify and reduce both (1) diversity in practice and (2) 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. An entity may change the terms or conditions of a share-based payment award for many different reasons. The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment aware require an entity to apply modification accounting in Topic 718. The amendments in the update are effective for all entities for annual periods, and interim periods within those annual periods beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (10) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. We are currently evaluating the period ended December 31, 2016.effect that the updated standard will have on our consolidated financial statements and related disclosures.
The Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
Off-Balance Sheet Arrangements
None.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required for smaller reporting companies.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Audited financial statements as of and for the years ended December 31, 20162017 and 2015,2016, are presented in a separate section of this report following Item 15.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On March 9, 2016, the Company’s Board of Directors approved the Company’s dismissal of Weinstein & Co. (“Weinstein”) as independent auditors for the Company and its subsidiaries.
Weinstein’s reports on the Company’s financial statements for the fiscal years ending December 31, 2014 and 2013, and through the date of dismissal did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles. Weinstein’s reports for the years ended December 31, 2014 and 2013, were modified to include an emphasis regarding uncertainty about the Company’s ability to continue as a going concern.
There have been no disagreements with Weinstein on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Weinstein, would have caused it to make reference to the subject matter of the disagreement in connection with its report. None of the events described in Item 304(a)(1)(v) of Regulation S-K has occurred with respect to Weinstein.
The Company provided to Weinstein the disclosure contained in the Form 8-K and requested Weinstein to furnish a letter addressed to the Commission stating whether it agrees with the statements made by the Company hereinin said 8-K and, if not, stating the respects in which it does not agree. A letter from Weinstein was attached as Exhibit 16.1 to the Form 8-K and incorporated herein by reference.
On March 9, 2016, the Board of Directors approved the Company’s engagement of Frazier & Deeter, LLC (“F&D”) as independent auditors for the Company and its subsidiaries. The Company engaged F&D on March 9, 2016.
Neither the Company nor anyone on its behalf during its two most recent fiscal years or during any subsequent interim period prior to F&D’s appointment as the Company’s independent registered public accounting firm consulted F&D regarding (i) the application of accounting principles to a specific completed or contemplated transaction, (ii) the type of audit opinion that might be rendered on the Company’s financial statements, or (iii) any matter that was the subject of a disagreement or event identified in response to Item 304(a)(2) of Regulation S-K (there being none).
ITEM 9A. CONTROLS AND PROCEDURES
Management’s Report on Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, to allow for timely decisions regarding required disclosure.
As of December 31, 2016,2017, the end of our fiscal year covered by this report, we carried out an evaluation, under the supervision of our principal executive officer and our principal financial officer who is the same person, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, we concluded that our disclosure controls and procedures were ineffective as of the end of the period covered by this annual report for the reasons discussed below. In light of the conclusion that our internal controls were ineffective as of December 31, 2016,2017, we have applied processes and procedure as necessary to insureensure reliability of our financial reporting.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act, as amended). In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of control procedures. The objectives of internal control include providing management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management’smanagement's authorization and recorded properly to permit the preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2016.2017. In making this assessment, our management used the criteria set forth by the 2013 Committee of Sponsoring Organizations framework. Our management has concluded that, as of December 31, 2016,2017, we identified a material weakness in our internal control over financial reporting that was not effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with US generally accepted accounting principles for the reasons discussed below.
Our board of directors for the periodprinciples. The Company has not had one member. We do not have a formal audit committee and there isinternal accounting personnel working at their corporate office which has led to a lack of segregation of duties. The accounting functions have been handled by third parties off-site. This was a result of the early stage in the Company's growth. The Company will be adding internal accounting personnel in 2018 in place of outside parties which should allow the Company to address its internal control issues.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
Inherent limitations on effectiveness of controls
Internal control over financial reporting has inherent limitations which include but is not limited to the use of independent professionals for advice and guidance, interpretation of existing and/or changing rules and principles, segregation of management duties, scale of organization, and personnel factors. Internal control over financial reporting is a process which involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis, however these inherent limitations are known features of the financial reporting process and it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control over Financial Reporting
There have been no significant changes in our internal controls over financial reporting that occurred during the year ended December 31, 2016,2017, that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.
Code of Ethics
As of the date of this Report, we had not adopted a formal, written code of conduct (“Code of Ethics”) within the specific guidelines promulgated by the SEC, although we intend to adopt a Code of Ethics during the second or third quarter of 2017.in 2018.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS
Set forth in the table below are the names, ages and positions of each person on our Board:
| Name | | Age | | Position |
| Richard Mikles | | 60 | | Chairman |
Christopher J. FloydDavid Baker | | 5441 | | CEO, CFO, director Director and Chief Executive Officer |
| Arthur Fillmore | | 6869 | | Director and General Counsel |
| Kevin Harrington | | 6061 | | Director |
| William McMahon | | 65 | | Director and Interim Chief Financial Officer |
| Jennifer Peek | | 48 | | Director and Audit Committee Chair |
| Nicole Strothman | | 39 | | Director |
| | | | |
Rick Mikles, Chairman
Mr. Mikles was the co-CEO of Ideal Image and co-founded the Company in 2001.2001 with Joseph Acebal. He was initially responsible for managing the day-to-day operations of Ideal Image’s Tampa location until mid-2003 when the focus shifted to franchising the model. In this position, Mr. Mikles developed the Company’s marketing and branding message through radio and billboard advertisements. He named the company “Ideal Image” and designed the original Ideal Image center concept, including its “look and feel.” Mr. Mikles also developed Ideal Office, the Company’s proprietary core management tool, and launched the first version of the system in 2003. In addition, he has worked to develop the Ideal Image corporate brand and the I-Learn training system. In 2011 Mikles and co-founder Joseph Acebal became winners of the Ernst & Young entrepreneur of the year for the State of Florida. Steiner Leisure acquired Ideal Image in 2011 for $175 million dollars.
Christopher J. Floyd, CEO, CFO,Dave Baker, Director and SecretaryChief Executive Officer
Mr. FloydBaker has workedhad a distinguished career in a variety of financial and operational capacities in startups and turnaroundsupper level management for several firms and as a consultant, investment bankerfounder of his own companies, exhibiting leadership and auditor.creativity in driving revenue growth and customer satisfaction. From 2007 to 2016, Mr. Baker was partner in Prevail Property Management, a top property services company, responsible for sales, marketing and operations, during which time sales growth ranged from 20% to over 100% per year. In 2004 Mr. Baker founded Extreme Green, a property services company, which he grew from startup to over 2,300 clients in three years before selling the business. From 1995 through 2003, Mr. Baker held several positions in sales and marketing and sales management with TruGreen Chemlawn, a Fortune 500 company, where he was ranked in the top three out of 3,500 sales members for nine years. He has deep experiencewas key in public company reporting, fundraising,developing and transactions. Since 2012 he has run several companies as well as worked for a numberrolling out many successful sales campaigns and implementing operational procedures to successfully drive revenue and customer satisfaction. In addition, Mr. Baker was crucial in the recruiting and training of clients performing financial modeling, fundraising, accounting and strategic and business planning engagements. In 2010 and 2011 Mr. Floyd was the CFO for Blackhawk Healthcare, a $75 million revenue hospital group. Hired to effect a turnaround of the business, he created and implemented the plan, driving a $600K monthly net loss to a $100K monthly net income in four weeks. Mr. Floyd then negotiated the sale of the company, eliminating a $4 million personal liability to the Chairman. Previously, Mr. Floyd co-founded and lead Progressive Medical Care in New Orleans, a successful multi-physician clinic. Prior to that he worked as COO, CFO and as a consultant at a number of companies. Following the fall of the Berlin Wall, Mr. Floyd worked for Ernst & Young in Berlin, Germany, performing audit and privatization engagements. Mr. Floyd has a Master of Business Administration from the Wharton School of the University of Pennsylvania, 1991. He has a Bachelor of Science in Electrical Engineering from the University of South Florida, 1986.new team members.
Art Fillmore, Director and General Counsel
Mr. Fillmore has a distinguished career, practicing law for more than 40 years in the areas of mergers and acquisitions, capital formation, financial transactions and securities law. Mr. Fillmore has represented, on a national basis, many public and privately held companies in areas ranging from startup formation to going public to acquiring other companies or being acquired. He has been recognized as Super Lawyers of Missouri and was named One of 50 Missourians You Should Know by Ingram’s Magazine in 2014. He has also been named Best in Bar and one of 10 Legal Leaders of Kansas City. He has also served as Chairman and CEO of a microprocessor miniaturization company in San Diego, California.
Prior to entering Law School, where he was the Managing Editor and Lead Article Editor of the Missouri Law Review, he served in the United States Army, where he achieved the rank of Captain. He is a combat veteran of Vietnam, where he received numerous awards, including several Bronze Stars, and is a member of the United States Army Artillery School Hall of Fame. Mr. Fillmore is a passionate veterans’ advocate, chairing several foundations which assist homeless and disabled veterans.
Kevin Harrington, Director
Kevin Harrington has been a successful entrepreneur over the last 40 years. He is an Original Shark on the ABC hit, Emmy winning TV show, “Shark Tank.” He is also the Inventor of the Infomercial, As Seen On TV Pioneer, Co- Founder of the Electronic Retailers Association (ERA) and Co- Founder of the Entrepreneurs’ Organization (EO). Kevin has launched more than 20 businesses that have grown to over $100 million in sales each. He has been involved in more than a dozen public companies and has launched over 500 products generating more than $5 billion in sales worldwide with iconic brands and celebrities such as Jack Lalanne, Tony Little, George Foreman, and the new I-Grow hair restoration product on QVC. Kevin has extensive experience in business all over the world, opening distribution outlets in over 100 countries worldwide. His success led Mark Burnett to hand pick Kevin to become an Original Shark on Shark Tank where he filmed over 175 segments.
Kevin got his start as a young entrepreneur in the early 80’s when he invested $25,000 and launched Quantum International. This turned into a $500 million per year business on the New York Stock Exchange and drove the stock price from $1 to $20 per share. After selling his interest in Quantum International, he formed a joint Venture with the Home Shopping Network, called HSN Direct, which grew to hundreds of millions of dollars in sales. Entrepreneur Magazine has called him one of the top Entrepreneurs of our time.
Aside from speaking to audiences across five continents, Kevin’s influence has reached over 100 million people through his multi-media presence and industry dominance. A prominent business thought leader, he is often featured and quoted as a business leader in the Wall Street Journal, New York Times, USA Today, CNBC, Forbes, Inc., Entrepreneur, Fortune, The Today Show, Good Morning America, CBS Morning News, The View, Squawk Box, Fox Business, and more. He is a regular contributor to Forbes.com and Inc.com, and has published acclaimed books like Act Now! How I Turn Ideas Into Million Dollar Products as well as the best seller, Key Person of Influence. As co-founder of the EO (Entrepreneurs Organization), he has grown this organization to 45 countries and thousands of members, generating over $500 Billion of member sales. In 1990 he co founded the global direct to consumer organization and trade show, the Electronic Retailers Association (ERA).Today ERA is the exclusive trade association to represent a global $350 billion direct-to-consumer market place, encompassing 450 different companies in 45 countries.
Nicole Strothman, Director Nicole Strothman is a strategic thinker with over 14 years of broad-based corporate and executive management experience. She has a background in corporate transactions, employment, mergers and acquisitions, healthcare, commercial real estate, litigation, franchising, and corporate governance. She currently is the General Counsel and Director of Franchise Operations of Ideal Image, a multi-state retail concept in North America. Prior to Ideal Image, she worked in-house for an international car rental and car sales company. Nicole received her B.A. from Florida State University and a J.D./M.B.A from Stetson University.
Jennifer Peek, Director
Ms. Peek has had a distinguished career in Finance, Audit and Mergers and Acquisitions. From 2010 until the present she has led her own firm Peek Valuation, which specializes in financial mergers and acquisitions, outsource CFO services, business valuations and due diligence. From 1996 through 2010, Ms. Peek was a member of finance team at Sprint, where her responsibilities started with development and drafting of 10Q and 10K filings and ranged to coordination and integration of over $3 billion of 8 affiliated acquisitions over 5 years. From 1991 through 1996, she was an audit team member as a CPA at Baird, Kurtz and Dobson, primarily working with clients in manufacturing, distribution and construction. Over the course of her 25-year career, Ms. Peek has utilized a wide range of financial expertise that covers finance, mergers and acquisitions and valuations. Ms. Peek earned a Bachelor of Science in Business Administration degree from University of Central Missouri and a Master of Business Administration from Rockhurst University.
EXECUTIVE OFFICERS
Set forth in the table below are the names, ages and positions of each executive officer of the company:
| Name | | Age | | Position |
Christopher J. Floyd | | 54 | | CEO, CFO |
| Dave Baker | | 4041 | | COOChief Executive Officer |
| William McMahon | | 65 | | Interim Chief Financial Officer |
Christopher J. Floyd, CEO, CFO24
Dave Baker, Chief Executive Officer
Biographical information for Mr. FloydBaker is set forth above under “Directors”.
Dave Baker, COOWilliam McMahon, Interim Chief Financial Officer
Mr. BakerMcMahon has hadbeen a distinguished careerprincipal since 2017 in upper level management for several firmsNperspective CFO & Strategic Services, a fractional CFO company which provides interim and aspart-time CFO services. From 2012 to 2017, he was providing CFO services to Neptune Minerals, Inc., a founder of his own companies, exhibiting leadershipcompany engaged in deep ocean minerals exploration and creativity in driving revenue growth and customer satisfaction.resource development. From 2007August 2015 to September 2016, Mr. BakerMcMahon was partner in Prevail Property Management,Chief Financial Officer and Treasurer for Rock Creek Pharmaceuticals, Inc., a top property servicesdrug development company responsible for sales, marketing and operations, during which time sales growth ranged from 20% to over 100% per year. In 2004 Mr. Baker founded Extreme Green, a property services company, which he grew from startup to over 2,300 clients in three years before sellingfocused on the business. From 1995 through 2003, Mr. Baker held several positions in sales and marketing and sales management with TruGreen Chemlawn, a Fortune 500 company, where he was ranked in the top three out of 3,500 sales members for nine years. He was key in developing and rolling out many successful sales campaigns and implementing operational procedures to successfully drive revenue and customer satisfaction. In addition, Mr. Baker was crucial in the recruiting and trainingdevelopment of new team members.
Meetingsdrugs and compounds that provide therapies for chronic inflammatory diseases such as psoriasis. During his 40 plus year career, Mr. McMahon has served as Chief Financial Officer, Controller and Treasurer for various small to medium size public and private companies. Mr. McMahon has a diverse industry background working in manufacturing, distribution, transportation and logistics, as well as retail, hospitality and LED manufacturing. His background includes working with customers and suppliers internationally in Europe, China, Japan, Africa and Australia. Mr. McMahon has a Bachelor of the Board of Directors
As noted above, the Company’s prior officer and director resignedScience degree from DePaul University in February 2016 and new board member replaced him.Chicago, Illinois.
The Board of Directors and Committees
The maximum number of directors the Company is authorized to have is nine. However, in no event may the Company have fewer than one director. Currently, the Company has fourseven board members.
Audit Committee
AsJennifer Peek is Chair of the date of this Report, we did not have a standing Audit Committee. We intend to establish an Audit Committeeaudit committee and is currently the only member of the Board of Directors, which will consist of independent directors, of which at least one director will qualifycommittee. Ms. Peek qualifies as a qualified financial expert as defined in the regulations of the SEC. The Audit Committee’s duties would beare to recommend to ourthe Company’s Board of Directors the engagement of independent auditors to audit ourthe consolidated financial statements and to review ourthe accounting and auditing principles. The Audit Committee would review the scope, timing and fees for the annual audit and the results of audit examinations performed by the internal auditors, if any, and independent public accountants, including their recommendations to improve the system of accounting and internal control. The Audit Committee would at all times be composed exclusively of directors who are, in the opinion of ourthe Board of Directors, free from any relationship that would interfere with the exercise of independent judgment as a committee member and who possess an understanding of financial statements and generally accepted accounting principles. As of the date of this Report, we did not have an audit committee financial expert although we intend to review this issue as the Company grows, especially as the Company implements a standing Audit Committee.
Compensation Committee
The Board formed its Compensation Committee in February 2017, comprising Mr. Fillmore and Mr. Mikles serving as Chairman and member of the Committee, respectively. The Compensation Committee reviews and approves ourthe salary and benefits policies, including compensation of executive officers. The Compensation Committee also administers any stock option plans that wethey may adopt and recommend and approve grants of stock options under such plans.
Nominating and Corporate Governance Committee
As of the filing date of this Report, wethe Company did not have a standing Nominating and Corporate Governance Committee. We intendThe Company intends to establish a Nominating and Corporate Governance Committee of the Board of Directors to assist in the selection of director nominees, approve director nominations to be presented for stockholder approval at ourthe annual meeting of stockholders and fill any vacancies on our Board of Directors, consider any nominations of director candidates validly made by stockholders, and review and consider developments in corporate governance practices.
Code of Ethics
As of the filing date of this Report, wethe Company had not adopted a formal, written code of conduct (“Code of Ethics”) within the specific guidelines promulgated by the SEC, although we intendthe Company intends to adopt a Code of Ethics during the second or third quarter2018.
Corporate Governance
As of the filing date of this Annual Report, wethe Company had fourseven directors and two executive officers. The Company intends to approve an Internal Control Manual so that management has an organizational guide for the purpose of establishing policy toward Company-wide treatment of check writing and receiving, as well as the items relating to disclosure to shareholders and regulators.
Indemnification
Under our Articles of Incorporation and Bylaws, wethe Company may indemnify an officer or director who is made a party to any proceeding, including a lawsuit, because of his position, if he acted in good faith and in a manner he reasonably believed to be in our best interest. WeThe Company may advance expenses incurred in defending a proceeding. To the extent that the officer or director is successful on the merits in a proceeding as to which he is to be indemnified, wethe Company must indemnify him against all expenses incurred, including attorney’s fees. With respect to a derivative action, indemnity may be made only for expenses actually and reasonably incurred in defending the proceeding, and if the officer or director is judged liable, only by a court order. The indemnification is intended to be to the fullest extent permitted by the laws of the State of Nevada.
Regarding indemnification for liabilities arising under the Securities Act which may be permitted to directors or officers under Nevada law, we arethe Company is informed that, in the opinion of the Securities and Exchange Commission, indemnification is against public policy, as expressed in the Securities Act and is, therefore, unenforceable.
Directors’ Compensation
There was no compensation in 2015 or 2016 for our sole employee director, Mr. Floyd. The following table summarizes the compensation earned by and paid to our non-employee director for the year ended December 31, 2016:2017:
| | | Fees Earned | | | | | | | | | | | | | |
| | | or Paid | | | Option | | | Stock | | | All Other | | | Total | |
| Director | | in Cash | | | Awards (1) | | | Awards (2) | | | Compensation | | | Compensation | |
| | | | | | | | | | | | | | | | |
| Arthur Fillmore | | $ | - | | | $ | 78,000 | | | $ | 120,000 | | | $ | - | | | $ | 198,000 | |
| Director & General Counsel | | | | | | | | | | | | | | | | | |
| Name | | Position | | Fees Earned or Paid in Cash | | | Option Awards | | | Stock Awards | | | All other Compensation | | | Total Compensation | |
| Richard Mikles | | Chairman | | | | | | $ | 250,577 | | | $ | 672,800 | | | | | | | $ | 923,377 | |
| Arthur Fillmore | | Director and General Counsel | | | | | | $ | - | | | $ | - | | | | | | | $ | - | |
| Kevin Harrington | | Director | | | | | | $ | 174,167 | | | $ | 100,000 | | | | | | | $ | 274,167 | |
| Nicole Strothman | | Director and Secretary | | | | | | $ | 76,410 | | | $ | - | | | | | | | $ | 76,410 | |
| Jennifer Peek | | Audit Committee Chair | | | | | | $ | 18,375 | | | $ | 76,350 | | | | | | | $ | 94,725 | |
| (1) | Mr. Fillmore’s firm, AEGIS Professional Group, was granted 2,000,000 options to purchase shares of the Company’s common stock upon Mr. Fillmore’s appointment as director and General Counsel to the Company on December 31, 2016. These options have a strike price of $0.10 and an expiration of three years from the date of issue. |
| (2) | Mr. Fillmore was granted 3,000,000 shares of Company common stock upon his appointment as director and General Counsel to the Company on December 31, 2016. These shares were valued at $120,000 ($0.04 per share, the closing price of the trading price on that date). |
| (3) | Mr. Mikles was granted 3,000,000 shares of Company common stock upon his appointment as Chairman of the Board and 2,000,000 shares of Company common stock upon the execution of his consulting agreement. These shares were valued at $500,000 ($0.10 per share, the closing price of the trading price on that date). |
| (4) | Mr. Mikles was granted 9,000,000 options to purchase share of the Company’s common stock, upon Mr. Mikles appointment as Chairman of the Board and upon the execution of his consulting agreement. 4,000,000 options have a strike price of $0.10 per share and vest equally over 8 quarters and have an expiration of three years from the date of issue. 5,000,000 options have a strike price of $0.10 per shares and vest quarterly in the amount of one option for every two dollars of revenue recognized by the Company and an expiration of three years from the date of issue. On July 13, 2017, the Company amended and extended a consulting agreement, originally executed on January 23, 2017. Under the amended and extended agreement, the Company issued 1,6000,000 shares of common stock to Mr. Mikles, valued at its trading price of $0.11 per share, which vested immediately. |
| (5) | Mr. Harrington was issued 2,000,000 shares of Company common stock upon his appointment as director on January 27, 2017. These shares were valued at $100,000 ($0.10 per share, the closing price of the trading price on that date). |
| (6) | Mr. Harrington was granted 4,000,000 options to purchase shares of the Company’s common stock. These options have a strike price of $0.10 per share and vest equally over 8 quarters and have an expiration of three years from the date of issue. |
| (7) | On February 2, 2017, upon the execution of a consulting agreement, Nicole Strothman, through Venture Legal Services PLC, was granted 2,000,000 options to purchase shares of the Company’s common stock. These options have a strike price of $0.10 per shares and vest quarterly one option for every two dollars of revenue recognized by the Company and an expiration of three years from the date of issue. |
| (8) | On September 19, 2017, the Company appointed Jennifer Peek to its Board of Directors and as its Audit Committee chair. Ms. Peek was granted 1,500,000 shares of Company common stock. These shares were valued at $0.0509, the closing trading price on that date. |
| (9) | Ms. Peek was also granted 1,500,000 options to purchase shares of common stock of the Company at a price of $0.10 per share. The options vest equally over 8 quarters and have an expiration of three years from the date of issue. |
There are no other formal or informal arrangements or agreements to compensate directors for services provided as directors.
ITEM 11. EXECUTIVE COMPENSATION
The Company was formed in January 2013. No executive received any compensation in 2015.2016. The following table gives forth the compensation for our two executives as of December 31, 2016.2017.
| Name and Principal | | | | | | | | | | Option | | | Stock | | | Total | |
| Position | | Year | | Salary | | | Bonus | | | Awards (1) | | | Grants (2) | | | Compensation | |
| | | | | | | | | | | | | | | | | | |
| Christopher J. Floyd | | 2016 | | $ | 17,000 | | | $ | - | | | $ | - | | | $ | - | | | $ | 17,000 | |
| Chief Executive Officer and | | 2015 | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| Chief Financial Officer | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Dave Baker | | 2016 | | $ | 23,077 | | | $ | 10,000 | | | $ | 275,000 | | | $ | 300,500 | | | $ | 578,077 | |
| Chief Operating Officer | | 2015 | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| Name | | Position | | Year | | Salary | | | Bonus | | | Option Award | | | Stock Grants | | | Total Compensation | |
| Christopher J. Floyd | | CEO, CFO | | 2016 | | | 17,000.00 | | | | | | | | | | | | | 17,000.00 | |
| | | | 2017 | | | 70,329.00 | | | | | | | | | | 269,700.00 | | | | 340,029.00 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| David J. Baker | | COO, CEO | | 2016 | | | 23,077.00 | | | | 10,000.00 | | | | 275,000.00 | | | | 300,500.00 | | | | 608,577.00 | |
| | | | 2017 | | | 102,493.67 | | | | 40,000.00 | | | | 69,866.00 | | | | 500,000.00 | | | | 712,359.67 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Ryan Smith | | COO | | 2016 | | | | | | | | | | | | | | | | | | | - | |
| | | | 2017 | | | 51,881.81 | | | | | | | | 56,250.00 | | | | 300,000.00 | | | | 408,131.81 | |
| (1) | Mr. Baker received a grant of 5,000,000 options to purchase shares of common stock of the Company in conjunction with his employment agreement. These options have a strike price of $0.10 per share and a three year expiration. |
| (2) | Mr. Baker received a grant of 500,00500,000 shares of the Company’s common stock upon executing his employment agreement on September 28, 2016. These shares were valued at $30,500 ($0.061 per share, the closing price of the trading price on that date). Mr. Baker received a grant of 4,500,004,500,000 shares of the Company’s common stock upon his promotion to Chief Operating Officer on December 1, 2016. These shares were valued at $270,000 ($0.060 per share, the closing price of the trading price on that date). |
| (3) | On May 15, 2017, Mr. Baker was granted 5,000,000 shares of common stock of the Company in conjunction with his employment as Chief Executive Officer of the Company. |
| (4) | Mr. Baker was granted 5,000,000 options to purchase common stock of the Company at $0.10 per share. These options have a three-year expiration and vest quarterly one options for every two dollars of revenue recognized by the Company and have an expiration of three years from the date of issue. |
| (5) | On July 10, 2017, Mr. Smith entered into an employment agreement with the Company as Senior Vice President. He was granted 3,000,000 shares of common stock of the Company. |
| (6) | Mr. Smith was granted 7,000,000 options to purchase common stock of the Company at $0.10 per shares. The options have a three-year expiration and vest quarterly one options for every two dollars of revenue recognized by the Company. |
On January 15, 2015 the Company adopted the 2015 Stock Option and Restricted Stock Plan. In connection with adopting the Plan, the Voting Shareholders also approved a resolution that up to 50,000,000 shares of our 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 50,000,000 newly issued shares of our common stock, options to purchase our common stock, or some combination thereof. If our Board of Directors decides to issue shares of common stock or options to purchase our common stock, the issuance of such securities would not affect the rights of the holders of our currently outstanding common stock, except for affects incidental to increasing the number of outstanding shares of our common stock, such as dilution of the earnings per share and voting rights of current holders of common stock.
The Company does not have a standing audit committee, nomination committee, or committees performing similar functions. We anticipate that we will form such committees of the Board of Directors once we have a full Board of Directors.in 2018.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides the names and addresses of each person known to the Company to own more than 5% of the outstanding common stock as of March 23, 2017,April 14, 2018, and by the Officers and Directors, individually and as a group. Except as otherwise indicated, all shares are owned directly.
| | | | | | Number of | | | Total | | | | |
| Name and Address | | Shares | | | Outstanding | | | Beneficial | | | Percent of | |
| of Beneficial Owner | | Owned | | | Options Owned | | | Ownership | | | Class* | |
| | | | | | | | | | | | | |
| Christopher J. Floyd | | | 65,150,000 | | (1) | | - | | | | 65,150,000 | | | | 32.6 | % |
| CEO, CFO, director, Secretary | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Lone Cypress, LLC | | | 55,150,000 | | | | - | | | | 55,150,000 | | | | 27.6 | % |
| 6102 S. MacDill Avenue | | | | | | | | | | | | | | | | |
| Tampa, FL 33611 | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Dave Baker | | | 5,000,000 | | | | 5,000,000 | | | | 10,000,000 | | | | 4.9 | % |
| COO | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Richard Mikles | | | 5,000,000 | | | | 9,000,000 | | | | 14,000,000 | | | | 6.7 | % |
| Chairman | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Arthur Fillmore | | | 3,000,000 | | | | 2,000,000 | | | | 5,000,000 | | | | 2.5 | % |
| Director and General Counsel | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Kevin Harrington | | | 2,000,000 | | | | 4,000,000 | | | | 6,000,000 | | | | 2.9 | % |
| Director | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Officers and Directors as a Group (5 Persons) | | | 80,150,000 | | | | 20,000,000 | | | | 100,150,000 | | | | 41.7 | % |
| | | | | | Number of | | | Total | | | | |
| Name and Address | | Shares | | | Outstanding | | | Beneficial | | | Percent of | |
| of Beneficial Owner | | Owned | | | Options Owned | | | Ownership | | | Class | |
| Dave Baker | | | 20,000,000 | | | | 10,000,000 | | | | 30,000,000 | | | | 13.10 | % |
| Chief Executive Officer | | | | | | | | | | | | | | | | |
| Syracuse, IN | | | | | | | | | | | | | | | | |
| B2 Opportunity Fund | | | 18,124,614 | | | | - | | | | 18,124,614 | | | | 7.91 | % |
| Las Vegas, NV | | | | | | | | | | | | | | | | |
| C&M Baskin Investments, Inc. | | | 17,448,335 | | | | - | | | | 17,448,335 | | | | 7.62 | % |
| Livingston, TX | | | | | | | | | | | | | | | | |
| David J. Miller | | | 11,766,495 | | | | - | | | | 11,766,495 | | | | 5.14 | % |
| Fountain Hills, AZ | | | | | | | | | | | | | | | | |
| Richard Mikles | | | 8,800,000 | | | | 9,000,000 | | | | 17,800,000 | | | | 7.77 | % |
| Chairman and Director | | | | | | | | | | | | | | | | |
| Homes Beach, FL | | | | | | | | | | | | | | | | |
| Arthur Fillmore | | | 3,000,000 | | | | 666,666 | | | | 3,666,666 | | | | 0.016 | % |
| General Counsel and Director | | | | | | | | | | | | | | | | |
| Ryan Smith | | | 3,000,000 | | | | 7,000,000 | | | | 10,000,000 | | | | 4.37 | % |
| Larwill, IN | | | | | | | | | | | | | | | | |
| Kevin Harrington | | | 2,000,000 | | | | 4,000,000 | | | | 6,000,000 | | | | 2.62 | % |
| St. Petersburg, FL | | | | | | | | | | | | | | | | |
| Venture Legal Services PLLC | | | 333,333 | | | | 2,000,000 | | | | 2,333,333 | | | | 1.02 | % |
| Tampa, FL | | | | | | | | | | | | | | | | |
| Jennifer Peek | | | 1,500,000 | | | | 1,500,000 | | | | 3,000,000 | | | | 1.31 | % |
| Kansas City, MO | | | | | | | | | | | | | | | | |
| Officers & Directors | | | 18,633,333 | | | | 24,166,666 | | | | 42,799,999 | | | | 18.69 | % |
| As a Group | | | | | | | | | | | | | | | | |
*The percent of class is based on 200,150,000229,024,960 shares of common stock issued and outstanding as of March 23, 2017.
(1) | Includes 10,000,000 shares of common stock owned directly by Mr. Floyd, and 55,150,000 shares of common stock owned by Lone Cypress, LLC, an entity of which Mr. Floyd is the sole managing member and of which Mr. Floyd exercises sole voting and dispositive control. Mr. Floyd disclaims beneficial ownership of the shares owned of record by Lone Cypress, LLC. |
April 17, 2018.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS WITH RELATED PERSONS
As noted above,previously, pursuant to the Master Agreement, Mr. Trabelsi and Mr. Telsi each agreed to sell 100% of the shares of the Company’s common stock owned by them to B2 or its designees. Mr. Trabelsi sold 45,800,000 shares of the Company’s common stock, and Mr. Telsi sold 9,500,000 shares of the Company’s common stock. The aggregate purchase price paid for the 55,300,000 shares was Three Hundred Fifteen Thousand Dollars ($315,000). B2’s designee, Lone Cypress LLC, owns shares representing approximately 27.6% of the outstanding common stock. Mr. Floyd is an officer of Lone Cypress LLC.
Other than these, to the Company’s knowledge, no Selling Stockholder has, or had, any material relationship with our officers or directors.
Director Independence
As of the date of this Report, we had three independent directors as defined by the rules of the SEC or any securities exchange or inter-dealer quotation system. Our stock has been accepted for trading on the OTC Markets, which does not impose standards relating to director independence or the makeup of committees with independent directors or provide definitions of independence.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
During the year ended December 31, 2016,2017, the Company’s executive officers, directors and 10% stockholders were required under Section 16 of the Securities Exchange Act of 1934, as amended, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Copies of these reports must also be furnished to the Company.
To the best knowledge of the Company’s current management, based solely on their review of the copies of the reports received by the Company and written representations from certain reporting persons, we note that all of our directors, executive officers, and greater than 10 percent shareholders have filed all required reports during or with respect to the year ended December 31, 2016,2017, on a timely basis.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
As noted above, onOn March 9, 2016, the Company’s Board of Directors approved the Company’s dismissal of Weinstein & Co. (“Weinstein”) as independent auditors for the Company and its subsidiaries. Weinstein was the Company’s independent registered public accounting firm through March 9, 2016.
Weinstein Audit Fees
The aggregate fees billed or to be billed by Weinstein for professional services rendered for the audit of our annual financial statements, review of our quarterly financial statements or services that are normally provided in connection with statutory and regulatory filings were $6,571 for the year ended December 31, 2015.
Weinstein Audit Related Fees
There were no fees billed by Weinstein for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements for the year ended December 31, 2015.
Weinstein Tax Fees
There were no fees billed by Weinstein for professional services for tax compliance, tax advice, tax planning for the year ended December 31, 2015.
All Other Fees
There were no fees billed by Weinstein for other products and services for the year ended December 31, 2015.
As noted above, Also, on March 9, 2016, the Company’s Board of Directors approved the Company’s engagement of Frazier and Deeter, LLC (“Frazier”) as independent auditors for the Company and its subsidiaries.
Frazier Audit Fees
The aggregate fees billed or to be billed by Frazier for professional services rendered for the audit of our annual financial statements, review of our quarterly financial statements or services that are normally provided in connection with statutory and regulatory filings were $27,500 for the year ended December 31, 2016.2016 and estimated to be between $47,000 and $55,000 for the year ended December 31, 2017.
Frazier Audit Related Fees
There were no fees billed by Frazier for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements for the yearyears ended December 31, 2016.2016 or December 31, 2017, respectfully.
Frazier Tax Fees
There were no fees billed by Frazier for professional services for tax compliance, tax advice taxor planning for the yearyears ended December 31, 2016.2016 or December 31, 2017.
All Other Fees
There were no fees billed by Frazier for other products and services for the yearyears ended December 31, 2017 or 2016.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
15(a)(1). Financial Statements.
The following financial statements, and related notes and Report of Independent Registered Public Accounting Firm are filed as part of this Annual Report.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors and Shareholders of
Znergy, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Znergy, Inc. (the “Company”) as of December 31, 20162017 and 2015,2016, and the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for the years then ended. ended, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of their operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on thesethe Company’s consolidated financial statements based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the auditsaudit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. OurAs part of our audits included considerationwe are required to obtain an understanding of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position31
Emphasis of Matter
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has incurred recurring losses from operations, has negative working capital, a stockholders’ deficit and has ongoing requirements for additional capital investment. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Frazier & Deeter, LLCWe have served as the Company’s auditor since 2016.
Frazier & Deeter, LLC
Tampa, FL
AprilJune 6, 2017
Tampa, Florida
2018
ZNERGY, INC.
CONSOLIDATED BALANCE SHEETS
| | | December 31, | | | December 31, | |
| | | 2016 | | | 2015 | | | 2017 | | | 2016 | |
| | | | | | | | | | | | | |
| ASSETS | | | | | | | | | | | | |
| CURRENT ASSETS | | | | | | | | | | | | |
| Cash | | $ | 40,507 | | | $ | 1,279 | | | $ | 116,481 | | | $ | 40,507 | |
| Accounts receivable | | | 79,612 | | | | - | | |
| Accounts receivable, net | | | | 112,818 | | | | 79,612 | |
| Prepaid expenses | | | 3,750 | | | | - | | | | 35,365 | | | | 3,750 | |
| Inventory | | | 192,105 | | | | - | | | | 444,606 | | | | 192,105 | |
| Total current assets | | | 315,974 | | | | 1,279 | | | | 709,270 | | | | 315,974 | |
| | | | | | | | | | | | | | | | | |
| Properties held for sale | | | - | | | | 1,897,000 | | |
| Equipment and furniture, net | | | 2,567 | | | | - | | |
| | | | | | | | | | |
| Building, equipment and furniture, net | | | | 364,093 | | | | 2,567 | |
| Intangible assets, net | | | 1,845 | | | | 4,345 | | | | 1,845 | | | | 1,845 | |
| | | | | | | | | | | | | | | | | |
| TOTAL ASSETS | | $ | 320,386 | | | $ | 1,902,624 | | | $ | 1,075,208 | | | $ | 320,386 | |
| | | | | | | | | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| CURRENT LIABILITIES | | | | | | | | | | | | | | | | |
| Accounts payable | | $ | 284,930 | | | $ | 20,799 | | | $ | 431,267 | | | $ | 284,930 | |
| Accrued expenses | | | 139,336 | | | | 61,354 | | | | 179,628 | | | | 139,336 | |
| Customer deposits | | | 6,605 | | | | - | | | | 39,453 | | | | 6,605 | |
| Advances | | | 60,000 | | | | - | | | | - | | | | 60,000 | |
| Loan from related party | | | 135,749 | | | | 860,743 | | |
| Loan, building | | | | 225,000 | | | | - | |
| Loans from related parties | | | | 171,518 | | | | 135,749 | |
| Total current liabilities | | | 626,620 | | | | 942,896 | | | | 1,046,866 | | | | 626,620 | |
| | | | | | | | | | | | | | | | | |
| COMMITMENTS AND CONTINGENCIES | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| STOCKHOLDERS' DEFICIT | | | | | | | | | |
| 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; 193,150,000 and 330,000,000 shares issued and outstanding at December 31, 2016 and December 31, 2015 | | | 19,315 | | | | 33,000 | | |
Common stock, $0.0001 par value; 500,000,000 shares authorized; 230,724,960 and 193,150,000 shares issued and 227,624,960 and 193,150,000 shares outstanding at December 31, 2017 and December 31, 2016, respectively | | | | 23,072 | | | | 19,315 | |
| Additional paid-in-capital | | | 7,626,099 | | | | 7,897,200 | | | | 12,444,488 | | | | 7,626,099 | |
| Accumulated deficit | | | (7,951,648 | ) | | | (6,970,472 | ) | | | (12,439,218 | ) | | | (7,951,648 | ) |
| Total stockholders' deficit | | | (306,234 | ) | | | 959,728 | | |
| Total stockholders’ equity (deficit) | | | | 28,342 | | | | (306,234 | ) |
| | | | | | | | | | | | | | | | | |
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | | $ | 320,386 | | | $ | 1,902,624 | | |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | | | $ | 1,075,208 | | | $ | 320,386 | |
The accompanying notes are an integral part of these consolidated financial statements
ZNERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| | | For the Year Ended | | | For the Year Ended | |
| | | December 31, | | | December 31, | | | December 31, | | | December 31, | |
| | | 2016 | | | 2015 | | | 2017 | | | 2016 | |
| | | | | | | | | | | | | |
| Revenue | | $ | 196,828 | | | $ | - | | | $ | 1,225,867 | | | $ | 196,828 | |
| Cost of revenue | | | 151,546 | | | | - | | | | 980,996 | | | | 151,546 | |
| Gross profit | | | 45,282 | | | | - | | | | 244,871 | | | | 45,282 | |
| | | | | | | | | | | | | | | | | |
| Selling, general and administrative expenses | | | 1,033,595 | | | | 469,473 | | | | 4,138,249 | | | | 1,033,595 | |
| | | | | | | | | | | | | | | | | |
| Loss from operations | | | (988,313 | ) | | | (469,473 | ) | | | (3,893,378 | ) | | | (988,313 | ) |
| | | | | | | | | | | | | | | | | |
| Other income (expense) | | | | | | | | | | | | | | | | |
| Other income | | | 7,137 | | | | - | | | | - | | | | 7,137 | |
| Interest expense | | | - | | | | (40,998 | ) | |
| Purchased research and development | | | - | | | | (5,988,000 | ) | |
| Total other income | | | 7,137 | | | | (6,028,998 | ) | |
| Interest (expense) | | | | (594,192 | ) | | | - | |
| | | | | | | | | | |
| Total other income (expense) | | | | (594,192 | ) | | | 7,137 | |
| | | | | | | | | | | | | | | | | |
| Provision for income taxes | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | |
| Net loss | | $ | (981,176 | ) | | $ | (6,498,471 | ) | | $ | (4,487,570 | ) | | $ | (981,176 | ) |
| | | | | | | | | | | | | | | | | |
| Net loss per common share - basic and diluted | | $ | (0.00 | ) | | $ | (0.03 | ) | | $ | (0.02 | ) | | $ | (0.00 | ) |
| | | | | | | | | | | | | | | | | |
Weighted average number of shares outstanding during the year - basic and diluted | | | 197,543,151 | | | | 227,315,068 | | | | 214,644,216 | | | | 197,543,151 | |
The accompanying notes are an integral part of these consolidated financial statements
ZNERGY, INC.
CONSOLIDATED STATEMENT OF CHANGE IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 20162017 AND 20152016
| | | | | | | | | | | | | | | Total | |
| | | | | | | | | Additional | | | | | | Stockholders’ | |
| | | Common Stock | | | Paid in | | | Accumulated | | | Equity | |
| | | Shares | | | Amount | | | Capital | | | Deficit | | | (Deficit) | |
| | | | | | | | | | | | | | | | |
| Balance at December 31, 2015 | | | 330,000,000 | | | $ | 33,000 | | | $ | 7,897,200 | | | $ | (6,970,472 | ) | | $ | 959,728 | |
| | | | | | | | | | | | | | | | | | | | | |
Common stock retired upon exchange of real estate assets | | | (149,950,000 | ) | | | (14,995 | ) | | | (1,004,897 | ) | | | - | | | | (1,019,892 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Contributed services | | | - | | | | - | | | | 10,760 | | | | - | | | | 10,760 | |
| | | | | | | | | | | | | | | | | | | | | |
| Shares issued for services | | | 13,100,000 | | | | 1,310 | | | | 925,190 | | | | - | | | | 926,500 | |
| | | | | | | | | | | | | | | | | | | | | |
| Deferred compensation | | | - | | | | - | | | | (208,333 | ) | | | - | | | | (208,333 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Stock options | | | - | | | | - | | | | 6,180 | | | | - | | | | 6,180 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss | | | - | | | | - | | | | - | | | | (981,176 | ) | | | (981,176 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2016 | | | 193,150,000 | | | | 19,315 | | | | 7,626,099 | | | | (7,951,648 | ) | | | (306,234 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Warrants issued with debt | | | - | | | | - | | | | 97,417 | | | | - | | | | 97,417 | |
| | | | | | | | | | | | | | | | | | | | | |
| Shares and options issued for services | | | 22,650,000 | | | | 2,265 | | | | 3,084,006 | | | | - | | | | 3,086,271 | |
| | | | | | | | | | | | | | | | | | | | | |
| 506b Offering | | | | | | | | | | | | | | | | | | | | |
| Stock and warrants issued for cash | | | 10,600,000 | | | | 1,059 | | | | 793,941 | | | | | | | | 795,000 | |
| Stock and warrants issued for debt conversion | | | 4,324,960 | | | | 433 | | | | 843,025 | | | | | | | | 843,458 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss | | | - | | | | - | | | | - | | | | (4,487,570 | ) | | | (4,487,570 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2017 | | | 230,724,960 | | | $ | 23,072 | | | $ | 12,444,488 | | | $ | (12,439,218 | ) | | $ | 28,342 | |
| | | | | | | | | | | | | | | Total | |
| | | | | | | | | Additional | | | | | | Stockholders' | |
| | | Common Stock | | | Paid in | | | Accumulated | | | Equity | |
| | | Shares | | | Amount | | | Capital | | | Deficit | | | (Deficit) | |
| | | | | | | | | | | | | | | | |
| Balance at December 31, 2014 | | | 200,000,000 | | | $ | 20,000 | | | $ | 1,522,200 | | | $ | (472,001 | ) | | $ | 1,070,199 | |
| | | | | | | | | | | | | | | | | | | | | |
Common stock issued for services at a price of $0.04 per share | | | 10,000,000 | | | | 1,000 | | | | 399,000 | | | | - | | | | 400,000 | |
| | | | | | | | | | | | | | | | | | | | | |
Common stock issued for acquisition of Global ITS, Inc. at a price of $0.049 per share | | | 120,000,000 | | | | 12,000 | | | | 5,976,000 | | | | - | | | | 5,988,000 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss | | | - | | | | - | | | | - | | | | (6,498,471 | ) | | | (6,498,471 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2015 | | | 330,000,000 | | | | 33,000 | | | | 7,897,200 | | | | (6,970,472 | ) | | | 959,728 | |
| | | | | | | | | | | | | | | | | | | | | |
| Common stock retired upon exchange of real estate assets | | | (149,950,000 | ) | | | (14,995 | ) | | | (1,004,897 | ) | | | - | | | | (1,019,892 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Contributed services | | | - | | | | - | | | | 10,760 | | | | - | | | | 10,760 | |
| | | | | | | | | | | | | | | | | | | | | |
| Issue shares for services | | | 13,100,000 | | | | 1,310 | | | | 925,190 | | | | - | | | | 926,500 | |
| | | | | | | | | | | | | | | | | | | | | |
| Deferred compensation | | | - | | | | - | | | | (208,333 | ) | | | - | | | | (208,333 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Stock options | | | - | | | | - | | | | 6,180 | | | | - | | | | 6,180 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss | | | - | | | | - | | | | - | | | | (981,176 | ) | | | (981,176 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2016 | | | 193,150,000 | | | $ | 19,315 | | | $ | 7,626,099 | | | $ | (7,951,648 | ) | | $ | (306,234 | ) |
The accompanying notes are an integral part of these consolidated financial statements
ZNERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | For the Year Ended | | | For the Year Ended | |
| | | December 31, | | | December 31, | | | December 31, | | | December 31, | |
| | | 2016 | | | 2015 | | | 2017 | | | 2016 | |
| | | | | | | | | | | | | |
| CASH FLOWS USED IN OPERATING ACTIVITIES: | | | | | | | | | | | | |
| Net loss | | $ | (981,176 | ) | | $ | (6,498,471 | ) | | $ | (4,487,570 | ) | | $ | (981,176 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | | | | | | | | |
| Depreciation and amortization | | | 2,733 | | | | 1,250 | | | | 11,025 | | | | 2,732 | |
| Common stock issued for purchased research and development | | | - | | | | 5,988,000 | | |
| Common stock and options issued for services | | | 724,346 | | | | 400,000 | | | | 3,086,271 | | | | 724,347 | |
| Common stock and warrants issued for interest | | | | 588,273 | | | | - | |
| Contributed services | | | 10,760 | | | | - | | | | - | | | | 10,760 | |
| Bank fees and interest paid by related party | | | - | | | | 41,000 | | |
| Accounts receivable | | | (79,612 | ) | | | - | | | | (80,983 | ) | | | (79,612 | ) |
| Inventory | | | (192,104 | ) | | | | | | | (252,501 | ) | | | (192,104 | ) |
| Prepaid expenses | | | (3,750 | ) | | | 300 | | | | (31,615 | ) | | | (3,750 | ) |
| Accounts payable & accrued expenses | | | 365,399 | | | | 58,529 | | | | 200,754 | | | | 365,399 | |
| Deferred revenue | | | 6,605 | | | | - | | |
| Customer deposits | | | | 32,848 | | | | 6,605 | |
| Net cash used in operating activities | | | (146,799 | ) | | | (9,392 | ) | | | (933,498 | ) | | | (146,799 | ) |
| | | | | | | | | | | | | | | | | |
| CASH FLOWS USED IN INVESTING ACTIVITIES: | | | | | | | | | | | | | | | | |
| Equipment & furniture | | | (2,800 | ) | | | - | | |
| Cash acquired with acquisition | | | - | | | | 100 | | |
| Net cash (used in) provided by investing activities | | | (2,800 | ) | | | 100 | | |
| Purchase of fixed assets | | | | (99,774 | ) | | | (2,800 | ) |
| Net cash used in investing activities | | | | (99,774 | ) | | | (2,800 | ) |
| | | | | | | | | | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | | | | | |
| Proceeds (repayment) advances from third parties | | | 60,000 | | | | - | | |
| Proceeds (repayment) advances from related party | | | 128,827 | | | | 7,571 | | |
| Proceeds from common stock | | | | 795,000 | | | | - | |
| Advances from third parties | | | | (60,000 | ) | | | 60,000 | |
Proceeds from advances from related parties | | | | 374,246 | | | | 128,827 | |
| Net cash provided by financing activities | | | 188,827 | | | | 7,571 | | | | 1,109,246 | | | | 188,827 | |
| | | | | | | | | | | | | | | | | |
| INCREASE (DECREASE) IN CASH | | | 39,228 | | | | (1,721 | ) | |
| INCREASE IN CASH | | | | 75,974 | | | | 39,228 | |
| | | | | | | | | | | | | | | | | |
| CASH, BEGINNING OF YEAR | | | 1,279 | | | | 3,000 | | | | 40,507 | | | | 1,279 | |
| | | | | | | | | | | | | | | | | |
| CASH, END OF YEAR | | $ | 40,507 | | | $ | 1,279 | | | $ | 116,481 | | | $ | 40,507 | |
Supplemental Disclosures | | | | | | |
| Interest paid in cash for the period | | $ | - | | | $ | - | |
| Income taxes paid in cash for the period | | $ | - | | | $ | - | |
| | | | | | | | | |
Non-cash investing and financing activities: | | | | | | | | |
| Warrants issued with debt | | $ | 97,417 | | | $ | - | |
| Purchase of building with note | | $ | 225,000 | | | $ | - | |
| Repayment of debt with common stock and options | | $ | 843,458 | | | $ | - | |
| Purchase of recreational vehicle in exchange for receivable payment | | $ | 47,776 | | | | | |
| Transfer of assets and liabilities to related party for return of common shares | | $ | - | | | $ | 1,019,892 | |
Supplemental Disclosures | | | | | | |
| Interest paid in cash for the period | | $ | - | | | $ | - | |
| Income taxes paid in cash for the period | | $ | - | | | $ | - | |
| | | | | | | | | |
Non-cash investing and financing activities: | | | | | | | | |
| Net liabilities assumed in acquisition | | $ | - | | | $ | 1,527 | |
| Related party loans - direct payments for real property | | $ | - | | | $ | 415,000 | |
| Real property acquired with bank loan | | $ | - | | | $ | 385,000 | |
| Direct repayment of bank loan by related party | | $ | - | | | $ | 385,000 | |
| Transfer of assets and liabilities to related party for return of common shares | | $ | 1,019,893 | | | $ | - | |
The accompanying notes are an integral part of these consolidated financial statements
ZNERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 20162017 AND 20152016
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. The Company is now focused solely on the EE marketplace with an emphasis on LED retrofitting and relamping.installing new lamps.
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. On October 1, 2017, the Company sold 100% of its shares in Global to Peter Peterson, a shareholder of the Company and a creditor of Global for a nominal amount.
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.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
Cash and equivalents include investments with initial maturities of three months or less. The Company maintains its cash balances at credit-worthy financial institutions that are insured by the Federal Deposit Insurance Corporation.
Revenue Recognition
The Company accounts for revenue using the “completed"completed contract method”method" in accordance with ASC 605-35. 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 unallocable indirect costs and corporate general and administrative costs are charged to 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. The deferred asset (accumulated contract costs) in excess of the deferred liability (billings and/or cash received) is classified as a current asset under “Costs"Costs in excess of billings on uncompleted contracts.”" The deferred liability (billings and/or cash received) in excess of the deferred asset (accumulated contract costs) is classified under current liabilities as “Billings"Billings in excess of costs on uncompleted contracts.”" A contract is considered complete when accepted by the customer.
The Company quotes its customers the total costs of product installation and materials minus the expected rebates, if any, from a given utility. For projects larger than $10,000, rebates must be pre-approved by the utility. Rebate revenue is recognized when a projectcollectability is completed and the rebate paperworkassured which is submitted to and approvedwhen payment is received by the utility.Company.
ZNERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2016
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.
ZNERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Inventory
Inventory consists of a variety of LED lamps, all of which are valued at the lower of actual costs from our suppliers or market.
Real estate assetsBuilding, equipment and furniture, net
Real estate assets are stated at cost less accumulated depreciation and amortization. Costs directly related to the acquisition, development and construction of properties are capitalized. Acquisition-related costs are expensed as incurred. Capitalized development and construction costs include pre-construction costs essential to the development of the property, development and construction costs, interest, property taxes, insurance, salaries and other project costs incurred during the period of development.
As of December 31, 2015 the Company’s real estate assets consist of land held for sale which is not subject to depreciation (see Notes 6 and 10).
Furniture, fixtures equipment
Furniture, fixtures and equipment are recorded at cost, net of accumulated depreciation and amortization. Depreciation and amortization are computed on the straight linestraight-line basis over the estimated useful lives of the assets.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.
Impairment 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, we test 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 itits 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. At December 31, 20162017 and 2015,2016, the Company believes that no impairment of its long-lived assets is required.
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.
Loss per share
The Company computes net loss per share in accordance with ASC 260, "Earnings“Earnings Per Share"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, 20152017 and 2016, any potentially dilutive shares (consisting of 7,400,00045,741,094 options) were not considered in the calculation of the loss per share as their effect would be anti-dilutive.
ZNERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
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 -yeartwo-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.
ZNERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
The Company recognizes stock-based compensation for equity awards granted to employees, officers, directors and consultants as compensationSelling, general and benefitsadministrative 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 Company recognizes stock-based compensation for equity awards granted as selling, general and administrative expense in the consolidated statements of operations.
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, 2016,2017, the Company does not believe a liability for any unrecognized tax benefits exists.
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 May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update No. 2014-09, Revenue From Contracts With Customers, or ASU 2014-09. Pursuant to this update, an entity should recognize revenue to depict 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 amendments in this update are currently effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and are to be applied retrospectively, or on a modified retrospective basis. Early application is not permitted. In July 2015, the FASB approved a one-year deferral of the effective date for annual reporting periods beginning after December 15, 2017 with early adoption permitted for annual periods beginning after December 15, 2016. We are currently evaluating the impact ofhave determined that adopting ASU 2014-09 does not have a material impact on our consolidated financial statements.
ZNERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
In August 2014, FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, or ASU 2014-15. ASU 2014-15 explicitly requires a company’s management to assess an entity’s ability to continue as a going concern for one year from the date of issuance of our financial statements, and to provide related footnote disclosures in certain circumstances. The new standard became effective in the first annual period ending after December 15, 2016. Management has evaluated the potential impact of the adoption of this standard and believes its adoption has no material impact on our consolidated statements of financial position, results of operations or cash flows.
In July 2015, the FASB issued ASU No. 2015-11, (“ASU 2015-11”), Inventory (Topic 330): Simplifying the Measurement of Inventory. ASU 2015-11 requires an entity to measure in scope inventory at the lower of cost and net realizable value. The amendment does not apply to inventory that is measured using the last-in, first-out or the retail inventory method. For public entities, ASU 2015-11 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years, and is to be applied prospectively. We do not expect the adoption of this standard will have a material effect on our consolidated financial statements.
On February 24, 2016, the FASB issued ASU No. 2016-02, Leases, requiring lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases with the exception ofexcept for short-term leases. For lessees, leases will continue to be classified as either operating or finance leases in the income statement. Lessor accounting is similar 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 our consolidated financial statements and related disclosures.
ZNERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
On March 30, 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which simplifies various aspects related to the accounting and presentation of share-based payments. The amendments require entities to record all tax effects related to share-based payments at settlement or expiration through the income statement and the windfall tax benefit to be recorded when it arises, subject to normal valuation allowance considerations. All tax-related cash flows resulting from share-based payments are required to be reported as operating activities in the statement of cash flows. The updates relating to the income tax effects of the share-based payments including the cash flow presentation must be adopted either prospectively or retrospectively. Further, the amendments allow the entities to make an accounting policy election to either estimate forfeitures or recognize forfeitures as they occur. If an election is made, the change to recognize forfeitures as they occur must be adopted using a modified retrospective approach with a cumulative effect adjustment recorded to opening retained earnings. The effective date of the new standard for public companies is for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. Early adoption is permitted. Adoption of this standard did not have any material effect on the Company’s financial statements for the period ended December 31, 2016.statements.
On May 10, 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718), which was issued to clarify and reduce both (1) diversity in practice and (2) 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. An entity may change the terms or conditions of a share-based payment award for many different reasons. The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment aware require an entity to apply modification accounting in Topic 718. The amendments in the update are effective for all entities for annual periods, and interim periods within those annual periods beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (10) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. We are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.
On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company,” we have the option to delay adoption of new or revised accounting standards until those standards would otherwise apply to private companies, until the earlier of the date that (i) we are no longer an emerging growth company or (ii) we affirmatively and irrevocably opt out of the extended transition period for complying with such new or revised accounting standards. We have elected to opt out of this extended transition period. As noted, this election is irrevocable.
The Company does not believe that there are any other 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, 2016,2017, the Company has a working capital deficit of $310,646,$337,596, insufficient cash resources to meet its planned business objectives and accumulated losses from operationsdeficit of $7,951,648.$12,439,218. 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 March 2018.May 2019.
ZNERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
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. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
ZNERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
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.
NOTE 5 – REAL ESTATE HELD FOR SALE AND DEVELOPMENT
During March 2013,On July 22, 2017, the Company entered into a standard Land Purchase and Sale Agreement with the Mazzal Trust,purchase agreement for a related party, for the acquisition of land and buildingsproperty located in Taunton, MA for the purchase price of one hundred and fifty million shares of common stock in the Company. The land was originally been recorded at $1,500,000 by the Company and the carrying amount was subsequently reduced to $1,072,000 to reflect the actual cost to the Mazzal Trust.
The property title was transferred on May 29, 2013, in accordance with the Land Purchase and Sale Agreement. This property had originally been classified as land held for development and was reclassified as held for sale upon our decision to sell it. The land includes costs attributable to the development activities; such as land, architect, engineering and construction costs amounting to $25,000.
During April, 2015, the Company acquired a parcel of land located in West Roxbury MA for the purchase of $800,000 from a third party.808A South Huntington Street, Syracuse, Indiana. The purchase price was $255,000 of which $30,000 was paid on July 22, 2017 with a loan from a bankthe 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 (See Note 12).
NOTE 6 – LOANS FROM RELATED PARTIES
| | | December 31, 2017 | | | December 31, 2016 | |
| Loans with related parties: | | | | | | |
| Znergy, Inc. officers and stockholders | | $ | 171,518 | | | $ | 135,749 | |
On November 6, 2017, the Company executed an unsecured promissory note in the amount of $385,000 and a loan from a related party$25,000 payable to Christopher J Floyd. This note was payable on December 15, 2017 with accrued interest at 8% per annum. The note was paid in full on November 22, 2017.
On November 15, 2017, the Company executed an unsecured promissory note in the amount of $415,000.$50,000, payable to the Company’s chairman, Rick Mikles. The bank loannote was paid offpayable on September 30, 2015, byDecember 1, 2017 with interest at 4% per annum. On December 1, 2017, the related party and the balance paid including accrued interestpayment date was addedextended to his related party loan (see Notes 6 and 11). At December 31, 2015, all real estate held by the Company was classified as real estate held for sale.
NOTE 6 – LOAN WITH RELATED PARTY
| | | December 31, 2016 | | | December 31, 2015 | |
| Loans with related parties: | | | | | | |
| Mazzal Holding Corp. affiliates | | $ | - | | | $ | 860,743 | |
| Znergy, Inc. officers and stockholders | | | 135,749 | | | | - | |
| TOTAL | | $ | 135,749 | | | $ | 860,743 | |
The above loans are unsecured, bear no interest and are repayable on demand.
NOTE 7 – STOCKHOLDERS’ EQUITY
Common StockJune 1, 2018.
On January 15, 2015 Mazzal Holding Corp. adoptedNovember 27, 2017, the 2015 Stock Option and Restricted Stock Plan (the “Plan”). In connection with adoptingCompany executed an unsecured promissory note in the Plan, the Voting Shareholders also approvedamount of $200,000, payable to Mr. Wayne Miller, a resolution that up to 45,000,000 shares of our common stock may be issued under the terms and conditionsshareholder of the Plan .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 expire on the first anniversary date of the initial exercise date of the warrants.
On January 23, 2015,December 6, 2017, the Company increased its authorized shares of common stock to 500,000,000.
On January 26, 2015, the Board authorized a 10 for 1 forward stock split. All share and per share dataexecuted an unsecured promissory note in the accompanying financial statements and footnotes has been adjusted retrospectively for the effectsamount of $150,000 payable to Mr. Wayne Miller, a shareholder of the stock split.
On April 7, 2015,Company. The note was due and payable on March 12, 2018, with interest of $6,000. Under the note agreement, the Company issued 10,000,000warrants to purchase 1,000,000 shares of common stock for services registered on Form S-8. These shares were valued at the tradingan exercise price of the shares of $.04$0.15 per share. The warrants expire on the first anniversary date itof the initial exercise date of the warrants. As of the date of this Report, the principal balance remains unpaid. Pursuant to the terms of the note, there was agreed thata 15-day grace period granted, which ended on March 27, 2018, at which a 15% penalty on the shares would be issued of $400,000.unpaid balance became due and payable along with the unpaid principal and any accrued interest.
ZNERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 20162017 AND 20152016
On October 26, 2015, the Company entered into a Share Exchange Agreement with Global ITS, Inc. (Global), and the shareholders of Global, pursuant to which the Company exchanged 120,000,000 of its common shares valued at the trading price of our common stock of $5,988,000 for 24,000,000 Global common shares held by Global’s shareholders representing 100% of Global’s outstanding shares.NOTE 7 – STOCKHOLDERS’ EQUITY (DEFICIT)
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. These shares returned to the Company were canceled.
On June 6, 2016, the Company issued 5,000,000 shares of common stock for future services registered on Form S-8. These shares were valued at $0.10 per share ($500,000),$500,000, based on the closingtrading price of the shares on that date.the date of grant. The value of these shares has been booked as Deferred Compensation which is being amortized over the one-year term of the agreement.
On September 28, 2016, the Company entered into an employment agreement with Dave Baker (see Note 12)11) to serve as our Senior Vice President. As part of the agreement, Mr. Baker was granted 500,000 shares of common stock of the Company, vested immediately, which shares were valued at $30,500 ($0.061 per share,based on the closingtrading price of the shares on the date of grant)grant and was granted 5,000,000 options to purchase common stock of the Company at $0.10 per share (the “Options”). The Options have a three-year expiration and vest one option for every two dollars in revenue recognized by the Company.
On November 12, 2016, in conjunction with the execution of an Advisory Agreement, the Company issued to Renitia Bertoluzzi 100,000 shares of its common stock, vested immediately, which shares were valued at $6,000 ($0.060 per share,based on the closingtrading price of the shares on the date of grant)grant and options to purchase up to 400,000 shares of common stock of the Company at a price of $0.10 per share. The options vest in equal amounts over the eight quarters following the date of execution of the Advisory Agreement.
On December 1, 2016, in conjunction with his promotion to Chief Operating Officer, the Company issued to Dave Baker 4,500,000 shares of its common stock, vested immediately, which shares were valuevalued at $270,000 ($0.060 per share,based the closingtrading price of the shares on the date of grant).grant.
On December 31, 2016 the Company appointed Arthur Fillmore to the board of directors as well as General Counsel to the Company. In conjunction with his appointment, the Company issued to Mr. Fillmore 3,000,000 shares of its common stock vested immediately, which shares were valued at $120,000 ($0.040 per share,based on the closingtrading price of the shares on the date of grant).grant. Concomitantly, the Company entered into a consulting agreement with Mr. Fillmore’s employer, AEGIS Professional. This consulting agreement has a term of three years. Upon executing the agreement, the Company issued AEGIS Professional an option to purchase 2,000,000 shares of its common stock at $0.10 per share and a term of 3-years.3-years with immediate vesting.
On January 25, 2017 the Company appointed Richard 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. Concomitantly, 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 a price of $0.10 per share said options to vest 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 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.
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 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.
ZNERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
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 $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 $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 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 $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 $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 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 $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 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 $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.
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 $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 $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 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 $0.10 per share. These options have a three-year expiration and vest evenly over two years.
ZNERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
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 a 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 $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 $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 options 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.
During the period ended June 30, 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.
Stock Options
Options - Time Vesting
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.
There were no2,400,000 options issued orand outstanding as of December 31, 2015.2016. The following table shows the stock option activity during the yearyears ended December 31, 2017 and 2016:
| | | Number Of Options | | | Weighted Average Exercise Price | | |
| | | | | | | December 31, 2017 | | | December 31, 2016 | |
| | | | | | | Number of Options | | | Weighted Average Exercise Price | | | Number of Options | | | Weighted Average Exercise Price | |
| | | | | | | | | | | | | | | | | | | |
| Options outstanding at beginning of year | | | - | | | | | | | 2,400,000 | | | $ | 0.10 | | | | - | | | $ | 0.10 | |
| Changes during the year: | | | | | | | | | | | | | | | | | | | | | | | |
| Granted - at market price | | | 7,400,000 | | | | 0.10 | | | | 13,000,000 | | | $ | 0.10 | | | | 2,400,000 | | | $ | 0.10 | |
| Exercised | | | - | | | | 0.10 | | | | - | | | | | | | | - | | | | | |
| Expired | | | - | | | | 0.10 | | |
| Forfeited | | | | 1,000,000 | | | $ | 0.10 | | | | - | | | $ | 0.10 | |
| Options outstanding at end of year | | | 7,400,000 | | | | 0.10 | | | | 14,400,000 | | | $ | 0.10 | | | | 2,400,000 | | | $ | 0.10 | |
| Options exercisable at end of year | | | 112,359 | | | | | | | | 6,675,002 | | | $ | 0.10 | | | | - | | | $ | 0.10 | |
| Weighted average fair value of options granted during the year | | $ | 375,800 | | | | | | | $ | 1,087,000 | | | $ | 0.10 | | | $ | 100,800 | | | $ | 0.10 | |
ZNERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
Options issued were valued using the Black-Sholes model assuming zero dividends, a $0.10 strike price, 3-year expiration, 1.49% average risk-free rate and 243.75% average volatility. Costs incurred in respect of stock based compensation for employees, advisors and consultants for the twelve month periods ended December 31, 2017 and December 31, 2016 were $406,933 and $79,900, respectively.
Unrecognized compensation costs related to options was $633,967 which is expected to be recognized ratably over approximately 21 months.
Options - Performance Vesting
There were 5,000,000 options issued and outstanding as of December 31, 2016. The options 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 during the years ended December 31, 2017 and 2016:
| | | December 31, 2017 | | | December 31, 2016 | |
| | | Number of Options | | | Weighted Average Exercise Price | | | Number of Options | | | Weighted Average Exercise Price | |
| | | | | | | | | | | | | |
| Options outstanding at beginning of year | | | 5,000,000 | | | $ | 0.10 | | | | - | | | $ | 0.10 | |
| Changes during the year: | | | | | | | | | | | | | | | | |
| Granted - at market price | | | 35,800,000 | | | $ | 0.10 | | | | 5,000,000 | | | $ | 0.10 | |
| Exercised | | | - | | | | | | | | - | | | | | |
| Expired/Forfeit | | | 9,458,906 | | | $ | 0.10 | | | | - | | | $ | 0.10 | |
| Options outstanding at end of year | | | 31,341,094 | | | $ | 0.10 | | | | 5,000,000 | | | $ | 0.10 | |
| Options exercisable at end of year | | | 3,917,052 | | | $ | 0.10 | | | | 112,359 | | | $ | 0.10 | |
| Weighted average fair value of options granted during the year | | $ | 3,114,600 | | | $ | 0.10 | | | $ | 275,000 | | | $ | 0.10 | |
Options issued were valued using the Black-Sholes model assuming zero dividends, a $0.10 strike price, 3-year expiration, 2%1.98% average risk-free rate and volatility of 205%.246% average volatility. Costs incurred in respect of stock based compensation for employees, advisors and consultants for the yearstwelve months ended December 31, 2016 and 2015 were $724,347 and $-0- respectively. Deferred compensation cost related to common stock issuances2017 was $208,333, which amount is expected to be recognized over approximately 5 months and unrecognized$384,940.
Unrecognized compensation costs related to options was $369,620$2,503,990 which is expected to be recognized ratably over approximately 2224 months.
ZNERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
As of December 31, 2016,2017, none of the currently exercisable stock options had intrinsic value. The intrinsic value of each option share is the difference between the fair market value of our common stock and the exercise price of such option share to the extent it is “in-the-money”. Aggregate intrinsic value represents the value that would have been received by the holders of in-the-money options had they exercised their options on the last trading day of the year and sold the underlying shares at the closing stock price on such day. The intrinsic value calculation is based on the assumed market value of our common stock on December 31, 20162017 of $0.04 per share. There were no in-the-money options outstanding and exercisable as of December 31, 2016,2017, since the exercise prices of the stock options outstanding and expected to vest were all greater than the fair value of our common stock.
The following table presents changes in the number of non-exercisable options during 2016:2017:
| Non-exercisable options | | | | | |
| | | Number Issued | | Average Exercise Price | |
| | | | | | |
| Total non-exercisable options outstanding - December 31, 2016 | | | 7,287,641 | | | |
| Options issued | | | 48,800,000 | | | | 0.10 | |
| Options expired | | | (10,346,547 | ) | | | 0.10 | |
| Options cancelled | | | - | | | | 0.10 | |
| Options vested | | | (10,592,054 | ) | | | 0.10 | |
| Total non-exercisable options outstanding - December 31, 2017 | | | 35,149,040 | | | | | |
| Non-exercisable options | | Number Issued | | | Average | |
| | | | | |
| | | | | | | |
| Total non-exercisable options outstanding - December 31, 2015 | | | - | | | | |
| Options issued | | | 7,400,000 | | | | 0.10 | |
| Options expired | | | - | | | | 0.10 | |
| Options cancelled | | | - | | | | 0.10 | |
| Options vested | | | (112,359 | ) | | | 0.10 | |
| Total non-exercisable options outstanding - December 31,2016 | | | 7,287,641 | | | | | |
ZNERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
Warrants
There were no warrants issued and outstanding as of December 31, 2016. The following table shows the warrant activity during the period ended December 31, 2017:
| | | | Weighted | |
| | Number | | Average | |
| | Of | | Exercise | |
| | Warrants | | Price | |
| | | | | |
| Warrants outstanding at beginning of year | | | - | | | |
| Changes during the year: | | | | | | |
| Granted | | | 16,924,960 | | | $ | 0.15 | |
| Exercised | | | - | | | | | |
| Expired | | | - | | | | | |
| Warrants outstanding at end of year | | | 16,924,960 | | | $ | 0.15 | |
| Warrants exercisable at end of year | | | 16,924,960 | | | | | |
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 $0 and $367,662 for years ended December 31, 2016 and December 31, 2017, respectively.
NOTE 8 – INCOME TAXES
No provision was made for federal income taxes since the Company has net operating losses for which the related deferred tax asset has been offset by a full valuation allowance. At December 31, 2016,2017, the Company had operating loss carryforwards of approximately $630,968$2,032,267 as shown in the table below:
| Accumulated deficit | | $ | 7,951,648 | | | $ | 12,439,218 | |
| Shares and options issued for services | | | (1,332,680 | ) | | | (4,418,951 | ) |
| Shares issued for purchased research in acquisition | | | (5,988,000 | ) | | | (5,988,000 | ) |
| Operating loss available to offset income | | $ | 630,968 | | | $ | 2,032,267 | |
The net operating loss carry-forwards may be used to reduce taxable income through the year 2035. The principal difference between the net operating loss for book purposes and income tax purposes results from non-cash charges to operations related to common shares issued for services and acquisitions that are not currently deductible for income tax purposes. The availability of the Company’s net operating loss carry-forwards are subject to significant limitation if there is more than 50% positive change in the ownership of the Company’s stock.
| Income Tax at Statutory Rate | | | 34 | % |
| Effect of Valuation Allowance | | | (34 | %) |
| | | | - | |
NOTE 9 – ACQUISITION
On October 26, 2015, the Company entered into a Share Exchange Agreement (the Agreement) with Global ITS, Inc. (Global), a Wyoming corporation and its wholly owned subsidiary Znergy, Inc (Znergy) a Florida corporation and the shareholders of Global, pursuant to which the Company exchanged 120,000,000 of our common shares (the Company Shares) for 24,000,000 Global common shares held by Global’s shareholders representing 100% of Global’s outstanding shares (the Share Exchange). Global’s financial results are consolidated with Mazzal’s as of the acquisition date. Global’s and Znergy’s operations were nominal since their inceptions. The transaction was accounted for as a business combination.
ZNERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Fair values of the assets acquired and liabilities assumed in acquisition of Global are summarized below:
| Current assets – cash | | $ | 100 | |
| Intangible assets | | | 5,595 | |
| Total assets acquired | | | 5,695 | |
| Current liabilities | | | 7,222 | |
| Net liabilities assumed | | | 1,527 | |
| Purchased research and development | | | 5,988,000 | |
| Purchase price | | $ | 5,989,527 | |
The Consideration consisted of the issuance of 120,000,000 common shares with a fair value of $5,988,000 which was expensed as purchased research and development.
The unaudited results of operations had the acquisition been made at the beginning of 2015 would have been as follows:
| 2015: | | | |
| Revenue | | $ | - | |
| Net loss | | $ | (6,499,000 | ) |
| Net loss per share | | $ | (0.03 | ) |
NOTE 109 – SALE OF REAL ESTATE AND RETIREMENT OF COMMON STOCK
On February 9, 2016, the Company agreed to sell to the Mazzal Trust (the “Trust”) all of its real property with a carrying value of $1,897,000 and the Trust assumed the related party loan with a carrying value of $860,743 and accounts payable and accrued expenses with a carrying value of $16,364. In exchange 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 and the Company canceled the 149,950,000 shares of common stock conveyed by the Trust.
In connection with his sale of his and Mr. Telsi’s shares, Mr. Trabelsi appointed Christopher J. Floyd to the Board of Directors of the Company. Mr. Trabelsi also appointed Mr. Floyd as the CEO, CFO, and Secretary of the Company. Following Mr. Trabelsi’s appointment of Mr. Floyd to the boards of directors and as an officer of the Company, Mr. Trabelsi resigned from all positions with the Company effective immediately.
ZNERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
NOTE 1110 – LEGAL ISSUES
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.
ZNERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
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. Management cannot at this time estimate what, if any, financial impact this matter will have on the Company.
NOTE 1211 – COMMITMENTS AND CONCENTRATIONS
The revenue reported by the Company at this time has are from sales of LED installations, product sales and rebate income. For the year ended December 31, 2017, 64% of the Company's revenue was generated by one principal supplier. All EE sales were made incustomer and 21% of accounts receivable is from one customer. For the fourth quarter ofyear ended December 31, 2016, and aggregated $182,127. 82% of the Company’sCompany's revenue was generated fromby one customer and 91% of its accounts receivable, consisting of rebates, iswas due from one utility.
The Company purchases substantially all of its inventory from one supplier. The Company does not have any commitments with this supplier for minimum purchases.
The Company has no leases and nolong-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 negotiating the terms of a lease for the office space.
The Company has employment agreements other than that with ourits employees. Except as noted, the agreements are “at-will”. The Company entered into an employment agreement with Dave Baker to become the Company’s Chief Operating Officer, Mr. Baker.Officer. Mr. Baker’s agreement, dated September 28, 2016, hashad a term of three years, specifies an annual base salary of $100,000 which salary willto be reviewed by the Compensation Committee of the Board of Directors, by April 15, 2017 and annually thereafter, a signing bonus of $10,000 and a bonus in January 2017 equal to 6% of the total revenue generated by Mr. Baker in the fourth quarter of 2016.2016 which bonus was paid on January 20th, 2017 in the amount of $10,928 (6% of $182,127). In addition, Mr. Baker was granted 500,000 shares of common stock of the Company, vested immediately, and was granted 5,000,000 options to purchase common stock of the Company at $0.10 per share (the “Options”). Theshare. These Options have a three-year expiration and vest one option for every two dollars of revenue recognized by the Company. On December 1, 2016, Mr. Baker was promoted from Senior Vice President to Chief Operating Officer and granted a further 4,500,000 shares of the Company’s common stock, which vested immediately.
ZNERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
On May 15, 2017 Mr. Baker was promoted from Chief Operating Officer to Chief Executive Officer. His annual base salary remained at $100,000, he was granted a $6,000 signing bonus and granted a further 5,000,000 shares of the Company’s common stock, which vested immediately and was granted 5,000,000 options to purchase common stock of the Company at $0.10 per share. These options have a three-year expiration and vest one option for every two dollars of revenue recognized by the Company. In December 2017, the compensation committee of the board of directors awarded Mr. Baker a bonus of $40,000, which was partially paid in December and the balance was paid in January 2018.
NOTE 1312 – SUBSEQUENT EVENTS
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. 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. As of the date of this Report, the principal and one interest payment of $3,000 remains unpaid. Pursuant to the terms of the note, there was a 15-day grace period, which ended on April 23, 2018 at which time the principal and unpaid interest is due. If payment is not made after on or before that date, a 15% penalty of the unpaid balance becomes due and payable along with the unpaid principal and interest.
On January 23, 2017February 12, 2018, the Company entered into a consultingan employment agreement with Venture Legal Services, PLLC,Rick Mikles, the Company’s Chairman, to provide legalbecome Chief Marketing Officer. The agreement has a three-year term, an annual base salary of $26,000 and strategic advisory services fora quarterly payment based on 3% of 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 one option for every two dollars ofquarterly revenue recognized by the Company on a quarterly basis.
On January 26, 2017 the Company appointed RichardCompany. Mr. Mikles as Chairmanwas granted 5,000,000 shares of the board of directors and issued to Mr. Mikles 3,000,000 shares of itsCompany’s common stock, which vested immediately and 4,000,000was granted 5,000,000 options to purchase shares of common stock of the Company at a price of $0.10 per share saidshare. These options vesting equally over eight quartershave a three-year expiration and having an expiration of three years from the date of issue. Concomitantly, 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, vested immediately, and 5,000,000vest one options to purchase shares of common stock of the Company at a price of $0.10 per share said options to vest quarterly in the amount of one option for every two dollars of revenue recognized by the Company.
On January 31, 2017February 15, 2018, the Company appointed Kevin Harringtonexecuted a $25,000 promissory note in the amount of $25,000 payable to its BoardRick Mikles, the Company’s Chairman and secured by the Company’s inventory. The note is due and payable on June 1, 2018 together with interest at 4% per annum.
On March 2, 2018, the Company executed a $200,000 unsecured promissory note in the amount of Directors and issued 2,000,000 shares$200,000 payable to Rick Mikles, the Company’s Chairman. The note is due on June 1, 2018 together with interest of its common stock, vested immediately, and 4,000,000 options to purchase shares of common stock$2,500.
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 which was $225,000 as the Company atfailed to make the scheduled $225,000 payment when due. On March 16th, a pricequitclaim was recorded to Rick Mikles as the new owner of $0.10 per share said options vesting equally over eight quartersthe building. Mr. Mikles and havingthe Company are negotiating the terms of a lease for the office space.
On March 22, 2018, the Company executed an expirationunsecured promissory note in the amount of three years from$50,000 payable to Paul Ladd, a shareholder. The note was due and payable on May 21, 2018 together with interest of $1,000 and as of the date of issue.this report remains unpaid.
On May 11, 2018, the Company received $30,000 as a short-term advance from its Chairman, Rick Mikles and on May 18, 2018, the Company received an additional $50,000 as a short term advance from its Chairman, Rick Mikles.
15(a)(2). Financial Statement Schedules.
None.
15(a)(3). Exhibits.
Exhibit No. | Description |
| | |
| 3.1 | |
| | |
| 3.2 | |
| | |
| 4 | |
| | |
| 10.1 | |
| | |
| 10.2 | |
| | |
| 31 | |
| | |
| 32 | |
| | |
| 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.
Pursuant to the requirements of section 13 or 15 (d) 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/ Christopher J. Floyd David Baker
Christopher J. FloydDavid Baker
President, CEO CFO,and Director
(Principal Executive Officer, Principal Financial Officer)
Date: AprilJune 6, 20172018
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Dated: AprilJune 6, 20172018 | By: /s/ Christopher J. FloydDavid Baker |
| | Christopher J. FloydDavid Baker |
| | President, CEO CFO,and Director |
| | (Principal Executive Officer, Principal Financial Officer) |
| | |
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