UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017
☐ 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)
ZNERGY, INC.
(Exact nameName of registrant as specified in its charter)
Nevada | 46-1845946 | |
(State or other jurisdiction of incorporation or organization) |
IRS I.D. | ||||
1120 N Main StreetElkhart, Indiana 46514 | ||||
(Address of principal executive offices) | ||||
|
(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 whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒☐ No ☐
Indicate by check mark whether the registrant has submitted electronically, and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ☐ No ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large"large accelerated filer,” “accelerated" "accelerated filer,” “smaller" "smaller reporting company,”" and “emerging"emerging growth company”company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ | |
Non-accelerated filer | Smaller reporting company ☒ | |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if hethe registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provide pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Symbol | Name of each exchange on which registered |
Common | ZNRG | OTC |
On November 13, 2017,May 30, 2022 there were 227,624,960349,922,579 shares of the registrant’sregistrant's common stock outstanding.
PART I - FINANCIAL INFORMATION | |||
Item 1. | 4 | ||
Item 2. | 19 | ||
Item 3. | 21 | ||
Item 4. | 21 | ||
Part II - OTHER INFORMATION | |||
Item 1. | 22 | ||
Item 5. | 22 | ||
Item 6. | |||
PART I - FINANCIAL INFORMATION
ZNERGY, INC.
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS: | |
5 | |
6 | |
7 | |
8 | |
9 |
ZNERGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, | December 31, | |||||||
2019 | 2018 | |||||||
(UNAUDITED) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash | $ | 222,478 | $ | 593 | ||||
Accounts receivable, net | 88,778 | - | ||||||
Employee advances | 42,936 | - | ||||||
Prepaid expenses | 90,385 | 61,457 | ||||||
Inventory | 351,268 | 299,428 | ||||||
Total current assets | 795,845 | 361,478 | ||||||
Building, furniture and equipment, net | 7,099 | 28,352 | ||||||
TOTAL ASSETS | $ | 802,944 | $ | 389,830 | ||||
LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | 460,907 | $ | 403,307 | ||||
Accrued expenses | 333,195 | 341,556 | ||||||
Customer deposits | 404,988 | 30,642 | ||||||
Advances from related parties | 270,788 | 222,788 | ||||||
Short term debt | 126,177 | - | ||||||
Loan from related parties | 2,206,814 | 1,290,304 | ||||||
Total current liabilities | 3,802,869 | 2,288,597 | ||||||
COMMITMENTS AND CONTINGENCIES (Note 8) | ||||||||
STOCKHOLDERS' 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; 288,124,960 and 236,724,960 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively | 28,812 | 23,672 | ||||||
Additional paid-in-capital | 18,786,174 | 14,220,537 | ||||||
Accumulated deficit | (21,814,911 | ) | (16,142,976 | ) | ||||
Total stockholders' deficit | (2,999,925 | ) | (1,898,767 | ) | ||||
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 802,944 | $ | 389,830 | ||||
The accompanying notes are an integral part of these consolidated financial statements
| September 30, | December 31, | |||||||
| 2017 | 2016 | |||||||
| (UNAUDITED) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 131,444 | $ | 40,507 | ||||
| Accounts receivable, net of allowance | 697,389 | 79,612 | ||||||
| Prepaid expenses | 76,460 | 3,750 | ||||||
| Inventory | 389,768 | 192,105 | ||||||
| Total current assets | 1,295,061 | 315,974 | ||||||
| Fixed Assets, net | 306,189 | 2,567 | ||||||
| Intangible assets, net | 1,845 | 1,845 | ||||||
| TOTAL ASSETS | $ | 1,603,095 | $ | 320,386 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | 251,131 | $ | 284,930 | ||||
| Accrued expenses | 185,588 | 139,336 | ||||||
| Customer deposits | 64,383 | 6,605 | ||||||
| Advances | - | 60,000 | ||||||
| Loan, building | 225,000 | - | ||||||
| Loan from related party | 892 | 135,749 | ||||||
| Total current liabilities | 726,994 | 626,620 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
Preferred stock, $0.0001 par value, 100,000,000 authorized shares; no shares issued and outstanding | - | - | ||||||
Common stock, $0.0001 par value; 500,000,000 shares authorized; 227,624,960 and 193,150,000 shares issued and outstanding at September 30, 2017 and December 31, 2016 | 22,762 | 19,315 | ||||||
| Additional paid-in-capital | 11,917,435 | 7,626,099 | ||||||
| Accumulated deficit | (11,064,096 | ) | (7,951,648 | ) | ||||
| Total Stockholders’ Equity (Deficit) | 876,101 | (306,234 | ) | |||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | $ | 1,603,095 | $ | 320,386 | ||||
ZNERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THETHREE ANDNINEMONTHS ENDED
(Unaudited)
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Revenue | $ | 997,518 | $ | 556,142 | $ | 1,600,910 | $ | 1,298,696 | ||||||||
Cost of revenue | 914,197 | 259,158 | 1,481,169 | 665,154 | ||||||||||||
Gross profit | 83,321 | 296,984 | 119,741 | 633,542 | ||||||||||||
Selling, general and administrative expenses | 2,766,166 | 668,000 | 5,699,631 | 2,444,393 | ||||||||||||
Loss on sale of assets | - | - | - | 41,608 | ||||||||||||
Total operating expenses | 2,766,166 | 668,000 | 5,699,631 | 2,486,001 | ||||||||||||
Loss from operations | (2,682,845 | ) | (371,016 | ) | (5,579,890 | ) | (1,852,459 | ) | ||||||||
Other income (expense): | ||||||||||||||||
Other income(expense) | 1,732 | 7,730 | 4,967 | (35,758 | ) | |||||||||||
Interest expense | (38,929 | ) | (3,749 | ) | (97,012 | ) | (179,899 | ) | ||||||||
Total other expense | (37,197 | ) | 3,981 | (92,045 | ) | (215,657 | ) | |||||||||
Net loss | $ | (2,720,042 | ) | $ | (367,035 | ) | $ | (5,671,935 | ) | $ | (2,068,116 | ) | ||||
Net loss per common share - basic and diluted | $ | (0.01 | ) | $ | (0.00 | ) | $ | (0.02 | ) | $ | (0.01 | ) | ||||
Weighted average number of shares outstanding - basic and diluted | 273,064,090 | 229,024,960 | 262,905,180 | 228,991,993 | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
ZNERGY, INC.
For the three and nine months ended September 30, 2019 and September 30, 2018
(Unaudited)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | September 30, | September 30, | |||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Revenue | $ | 873,976 | $ | 2,461 | $ | 1,302,217 | $ | 14,701 | ||||||||
| Cost of revenue | 423,334 | - | 596,661 | - | ||||||||||||
| Gross profit | 450,642 | 2,461 | 705,556 | 14,701 | ||||||||||||
| Selling, general and administrative expenses | 1,404,389 | 231,754 | 3,818,004 | 373,490 | ||||||||||||
| Loss from operations | (953,747 | ) | (229,293 | ) | (3,112,448 | ) | (358,789 | ) | ||||||||
| Other income (expense) | ||||||||||||||||
| Other income | - | - | - | 7,136 | ||||||||||||
| Total other income | - | - | - | 7,136 | ||||||||||||
| Provision for income taxes | - | - | - | - | ||||||||||||
| Net loss | $ | (953,747 | ) | $ | (229,293 | ) | $ | (3,112,448 | ) | $ | (351,653 | ) | ||||
| Net loss per common share - basic and diluted | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.02 | ) | $ | (0.00 | ) | ||||
Weighted average number of shares outstanding - basic and diluted | 214,074,451 | 185,060,753 | 205,493,759 | 203,991,818 | ||||||||||||
Total | ||||||||||||||||||||
Additional | Stockholders' | |||||||||||||||||||
Common Stock | Paid in | Accumulated | Equity | |||||||||||||||||
Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||
Balance at January 1, 2019 | 236,724,960 | $ | 23,672 | $ | 14,220,537 | $ | (16,142,976 | ) | $ | (1,898,767 | ) | |||||||||
Stock based compensation | - | - | 90,183 | - | 90,183 | |||||||||||||||
Shares issued for services | 20,000,000 | 2,000 | 1,798,000 | - | 1,800,000 | |||||||||||||||
Net loss | - | - | - | (2,093,364 | ) | (2,093,364 | ) | |||||||||||||
Balance at March 31, 2019 | 256,724,960 | 25,672 | 16,108,720 | (18,236,340 | ) | (2,101,948 | ) | |||||||||||||
Stock based compensation | - | - | 103,681 | - | 103,681 | |||||||||||||||
Shares issued for services | 4,000,000 | 400 | 295,600 | - | 296,000 | |||||||||||||||
Net loss | - | - | - | (858,529 | ) | (858,529 | ) | |||||||||||||
Balance at June 30, 2019 | 260,724,960 | 26,072 | 16,508,001 | (19,094,869 | ) | (2,560,796 | ) | |||||||||||||
Stock based compensation | - | - | 122,735 | - | 122,735 | |||||||||||||||
Shares issued for cash | 3,700,000 | 370 | 203,130 | - | 203,500 | |||||||||||||||
Shares issued for services | 12,500,000 | 1,250 | 1,135,750 | - | 1,137,000 | |||||||||||||||
Issuance of common stock in exchange for stock options | 11,200,000 | 1,120 | 816,558 | - | 817,678 | |||||||||||||||
Net loss | - | - | - | (2,720,042 | ) | (2,720,042 | ) | |||||||||||||
Balance at September 30, 2019 | 288,124,960 | $ | 28,812 | $ | 18,786,174 | $ | (21,814,911 | ) | $ | (2,999,925 | ) | |||||||||
Total | ||||||||||||||||||||
Additional | Stockholders' | |||||||||||||||||||
Common Stock | Paid in | Accumulated | Equity | |||||||||||||||||
Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||
Balance at January 1, 2018 | 230,724,960 | $ | 23,072 | $ | 12,444,488 | $ | (12,439,218 | ) | $ | 28,342 | ||||||||||
Options issued for services | - | - | 771,129 | - | 322,370 | |||||||||||||||
Shares issued for services | 5,000,000 | 500 | 50,741 | - | 500,000 | |||||||||||||||
Net loss | - | - | - | (1,092,567 | ) | (1,092,567 | ) | |||||||||||||
Balance at March 31, 2018 | 235,724,960 | 23,572 | 13,266,358 | (13,531,785 | ) | (241,855 | ) | |||||||||||||
Options issued for services | - | - | 107,472 | - | 107,472 | |||||||||||||||
Net loss | - | - | - | (608,514 | ) | (608,514 | ) | |||||||||||||
Balance at June 30, 2018 | 235,724,960 | 23,572 | 13,373,830 | (14,140,299 | ) | (742,897 | ) | |||||||||||||
Options issued for services | 229,596 | 229,596 | ||||||||||||||||||
Shares issued for cash | 1,000,000 | 100 | 74,900 | - | 75,000 | |||||||||||||||
Net loss | - | - | - | (367,120 | ) | (367,120 | ) | |||||||||||||
Balance at September 30, 2018 | 236,724,960 | $ | 23,672 | $ | 13,678,326 | $ | (14,507,419 | ) | $ | (805,421 | ) | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
ZNERGY, INC.
(Unaudited)
| Total | ||||||||||||||||||||
| Additional | Stockholders’ | |||||||||||||||||||
| Common Stock | Paid in | Accumulated | Equity | |||||||||||||||||
| Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||
| Balance at December 31, 2016 | 193,150,000 | $ | 19,315 | $ | 7,626,099 | $ | (7,951,648 | ) | $ | (306,234 | ) | |||||||||
| Stock and options issued for services | 19,550,000 | 1,955 | 2,654,370 | - | 2,656,325 | |||||||||||||||
| 506b Offering | ||||||||||||||||||||
| Stock and warrants issued for cash | 10,600,000 | 1,060 | 793,941 | - | 795,000 | |||||||||||||||
| Stock and warrants issued for debt conversion | 4,324,960 | 432 | 843,025 | - | 843,457 | |||||||||||||||
| Net loss | (3,112,448 | ) | (3,112,448 | ) | ||||||||||||||||
| Balance at September 30, 2017 | 227,624,960 | $ | 22,762 | $ | 11,917,435 | $ | (11,064,096 | ) | $ | 876,101 | ||||||||||
For the Nine Months Ended | ||||||||
September 30, | September 30, | |||||||
2019 | 2018 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (5,671,935 | ) | $ | (2,068,116 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 21,253 | 27,478 | ||||||
Loss on sale of fixed assets | - | 41,608 | ||||||
Non-cash interest expense | 75,583 | 173,652 | ||||||
Stock based compensation | 316,599 | - | ||||||
Common stock issued for services | 3,233,000 | 1,183,611 | ||||||
Options exchanged for common stock | 817,678 | - | ||||||
Bad debt expense | - | 53,348 | ||||||
| Gain on extinguishment of accounts payable | (70,421 | ) | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (88,778 | ) | 1,686 | |||||
Prepaid expenses and employee advances | (71,864 | ) | (10,576 | ) | ||||
Inventory | (51,840 | ) | (385,551 | ) | ||||
Accounts payable and accrued expenses | 119,660 | 117,304 | ||||||
Customer deposits | 374,346 | 11,553 | ||||||
Net cash used in operating activities | (996,719 | ) | (854,003 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchase of fixed assets | - | (63,564 | ) | |||||
Proceeds from sale of fixed assets | - | 50,218 | ||||||
Net cash used in investing activities | - | (13,346 | ) | |||||
Cash flows from financing activities: | ||||||||
Proceeds from common stock | 203,500 | - | ||||||
Repayment of advances from related parties | (2,000 | ) | (187 | ) | ||||
Proceeds of advances from related parties | 50,000 | 322,411 | ||||||
Repayment of loan from related parties | (28,200 | ) | (10,000 | ) | ||||
Proceeds of advances from third parties | 126,177 | - | ||||||
Proceeds of loan from related parties | 869,127 | 445,000 | ||||||
Net cash provided by financing activities | 1,218,604 | 757,224 | ||||||
Net change in cash | 221,885 | (110,125 | ) | |||||
Cash, beginning of period | 593 | 116,481 | ||||||
Cash, end of period | $ | 222,478 | $ | 6,356 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Non-cash investing and financing activities: | ||||||||
Common Stock and Warrants issued for Conversion of Debt and Advances | $ | - | $ | 75,000 | ||||
Related party advance paid directly to vendor | $ | - | $ | 125,000 | ||||
Transfer of building to related party in exchange for payment of loan | $ | - | $ | 225,000 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
ZNERGY, INC.
| For the Nine | For the Nine | |||||||
| Months Ended | Months Ended | |||||||
| September 30, | September 30, | |||||||
| 2017 | 2016 | |||||||
| CASH FLOWS USED IN OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (3,112,448 | ) | $ | (351,653 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 1,862 | 2,500 | ||||||
| Common stock and options issued for services | 2,656,325 | 197,169 | ||||||
| Common stock and options issued for interest on debt converted | 519,085 | - | ||||||
| Contributed services | - | 10,640 | ||||||
| Accounts receivable | (617,777 | ) | (23,480 | ) | ||||
| Prepaid expenses | (72,710 | ) | - | |||||
| Inventory | (197,663 | ) | (19,341 | ) | ||||
| Accounts payable & accrued expenses | 21,818 | 69,534 | ||||||
| Customer deposits | 57,778 | - | ||||||
| Net cash used in operating activities | (743,730 | ) | (114,631 | ) | ||||
| CASH FLOWS USED IN INVESTING ACTIVITIES: | ||||||||
| Purchase of fixed assets | (80,483 | ) | (1,213 | ) | ||||
| Net cash used in investing activities | (80,483 | ) | (1,213 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance of common stock | 795,000 | - | ||||||
| Repayment of advances from third parties | (106,340 | ) | - | |||||
| Payments of Loan from Related Parties | (260 | ) | - | |||||
| Advances from third parties | 226,750 | 123,526 | ||||||
| Net cash provided by financing activities | 915,150 | 123,526 | ||||||
| INCREASE IN CASH | 90,937 | 7,682 | ||||||
| CASH, BEGINNING OF PERIOD | 40,507 | 1,279 | ||||||
| CASH, END OF PERIOD | $ | 131,444 | $ | 8,961 | ||||
| Supplemental Disclosures | ||||||||
| Non-cash investing and financing activities: | ||||||||
| Transfer of assets and liabilities to related party for return of common shares | $ | - | $ | 1,018,679 | ||||
| Purchase of building with note | $ | 225,000 | $ | - | ||||
| Repayment of debt with common stock and options | $ | 324,372 | $ | - | ||||
SEPTEMBER 30, 2017
NOTE 1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION
Znergy, Inc., (formerly Mazzal Holding Corp., formerly Boston Investment and Development Corp.) isInc.is a Nevada corporation (the “Company” or “Znergy”), incorporated on January 23, 2013. The originalCompany 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 planprimarily involves retrofitting existing lighting solutions from traditional high intensity metal halide and fluorescent lighting to energy efficient LED (Light Emitting Diode) technology.
The spread of a novel strain of coronavirus (COVID-19) around the world in the first half of 2020 has caused significant volatility in U.S. and international markets. There were significant business disruptions related to COVID-19 and it impacted the U.S. and international economies and, as such, the Company had a material impact to its operations.
The Company’s largest client, one of the Companyworld’s largest clothing retail stores, was forced to close its doors at the constructiononset of the pandemic and managementre-opened some of multi-family home developments and the subsequent sale thereof.
On September 22, 2021, the Company formed RluxRV, LLC. This LLC is joint owned subsidiary, Znergy, Inc.by the Company and Royalux Lighting, LLP (RoyaLux), an Indian company. The purpose of this LLC is to supply lighting and technology parts to the recreational vehicle (“RV”) market. The parts manufacturing will be done exclusively by Royalux Lighting. All of the sales and distribution of the parts will the responsibility of RluxRV. This business is meant for a strategic change in Znergy’s business. All the Company’s employees with the exception of the Chief Executive Officer were terminated in December 2021 in order to expand into the Energy Efficiency (EE) marketplace, focusing on commercial lightingconserve cash 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 toevaluate RluxRV’s potential impact. A limited liability operating agreement was executed between the Company and RoyaLux on November 15, 2021. As of the Trust returned todate of filing, the Company 149,950,000has not rehired any 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.
Basis of Presentation
The accompanying interimunaudited condensed consolidated financial statements are unauditedof the Company for the three and nine months ended September 30, 2019 and 2018 have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”("GAAP") for interim financial information and pursuant to the instructions torequirements for reporting on Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission ("SEC"). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.
September 30, 2017 | December 31, 2016 | |||||||
| Loans from related party | $ | 892 | $ | 135,749 | ||||
Number of Options | Weighted Average Exercise Price | |||||||
| Options outstanding at beginning of year | 2,400,000 | $ | 0.10 | |||||
| Changes during the period: | ||||||||
| Granted - at market price | 11,800,000 | $ | 0.10 | |||||
| Exercised | - | |||||||
| Expired | - | |||||||
| Options outstanding at end of period | 14,200,000 | $ | 0.10 | |||||
| Options exercisable at end of period | 5,204,168 | $ | 0.10 | |||||
Number of Options | Weighted Average Exercise Price | |||||||
| Options outstanding at beginning of year | 5,000,000 | $ | 0.10 | |||||
| Changes during the period: | ||||||||
| Granted - at market price | 30,800,000 | $ | 0.10 | |||||
| Exercised | - | |||||||
| Expired | - | |||||||
| Options outstanding at end of period | 35,800,000 | $ | 0.10 | |||||
| Options exercisable at end of period | 3,641,815 | $ | 0.10 | |||||
| Weighted | ||||||||
| Number | Average | |||||||
| Of | Exercise | |||||||
| Warrants | Price | |||||||
| Warrants outstanding at beginning of year | - | |||||||
| Changes during the period: | ||||||||
| Granted | 14,924,960 | $ | 0.15 | |||||
| Exercised | - | |||||||
| Expired | - | |||||||
| Warrants outstanding at end of period | 14,924,960 | $ | 0.15 | |||||
| Warrants exercisable at end of period | 14,924,960 | |||||||
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 anythe change in estimate.
Revenue is measured based on the amount of consideration specified in a contract with a customer. Revenue is recognized when and as performance obligations under the terms of the contract are satisfied which generally occurs with the transfer of control of the goods or services to the customer.
Contracts are considered to have a single performance obligation if the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts primarily because the Company provides a significant service of integrating a complex set of tasks and components into a single project or capability. The Company’s contracts generally have a single performance obligation.
The Company accountsrecognizes revenues for fixed price and modified fixed price contracts over time, as performance obligations are satisfied, for substantially all contracts due to the continuous transfer of control to the customer. For most of the Company’s contracts, the customer contracts with the Company to provide a significant service of integrating a complex set of tasks and components into a single project or capability and are, therefore, accounted for as single performance obligations.
The Company recognizes revenue using the “completed contract method” in accordance with ASC 605-35. Under thiscost-to-cost input method, based primarily on contract costs incurred to date compared to total estimated contract costs. This method is the most accurate measure of the Company’s contract performance because it directly measures the value of the goods and services transferred to the customer. Contract costs include all direct material, labor and subcontractors and indirect costs related to contract performance. Pre-contract costs are accumulatedexpensed as deferredincurred unless they are expected to be recovered from the client.
The payment terms for the Company’s contracts from time to time require the customer to make advance payments as well as interim payments as work progresses. The advance payment generally is not considered a significant financing component as the Company expects to recognize those amounts in revenue within a year of receipt as work progresses on the related performance obligation.
Consolidation
The Company has no active subsidiaries as of September 30, 2019, therefore the condensed consolidated financial statements include the accounts of the Company. As of the filing date, the Company’s condensed consolidated financial statements will include the accounts of the Company and its wholly owned subsidiaries, RluxRV, LLC. All intercompany transactions will be eliminated in consolidation.
Inventory
Inventory consists of a variety of LED lamps, all of which are valued at the lower of cost or net realizable value. Inventory is accounted for using the FIFO basis.
Reclassification
Certain amounts reported in prior years in the financial statements have been reclassified to conform to the current year’s presentation. The 2018 statement of cash flows reclassified certain accounts within the operating cash flows of the Company and the income statement reclassified certain operating expenses.
Adoption of recent accounting standards
In February 2016, the FASB issued ASU No. 2016-02, Leases, which supersedes the current lease accounting requirements. This standard requires a lessee to record on the balance sheet the assets and billings and/or cash receipts are recordedliabilities for the rights and obligations created by leases with lease terms of more than 12 months. In addition, this standard requires lessees to disclose certain key information about lease transactions. Upon implementation, an entity’s lease payment obligations will be recognized at their estimated present value along with a deferred revenue liability account duringcorresponding right-of-use asset. Lease expense recognition will be generally consistent with current practice. In July 2018, the contract period but no revenues, costs or profits are recognized in operations until the completionFASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which simplifies adoption of the contract. Costs include direct material, direct labor, subcontract labornew lease accounting requirements by allowing an additional transition method that will not require restatement of prior periods and allocable indirect costs. All unallocable indirect costsproviding a new practical expedient for lessors to avoid separating lease and corporate generalnon-lease components within a contract if certain requirements are met. The provisions of this guidance must be elected upon adoption of the new lease accounting requirements, which will be effective for interim and administrative costs are chargedannual periods beginning after December 15, 2018.
We adopted the standard as required on January 1, 2019. Consequently, we did not update previously reported financial information and the disclosures under the new standard will not be provided for dates and periods prior to January 1, 2019, and elected all of the practical expedients available under the transition guidance. The new standard also provides practical expedients for ongoing accounting. We elected the short-term lease recognition exemption for all leases that qualify and did not recognize right of use assets or lease liabilities for those leases. We also elected the practical expedient to not separate lease and non-lease components for all of our leases.
The adoption did not impact the business as no long-term, reportable leases existed as of September 30, 2019. We currently believe the most significant effects relate to the recognition of new right of use assets and lease liabilities on our balance sheet for our real estate and equipment operating leases, and the significant new required disclosures regarding our leasing activities.
Recent accounting standards
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes”. This ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The guidance is effective non-public entities for fiscal years beginning after December 15, 2020, with early adoption permitted. The adoption method is dependent on the specific amendment included in this update as certain amendments require retrospective adoption, modified retrospective adoption, an option of retrospective or modified retrospective, and prospective adoption. The adoption of this standards update is not expected to have a material impact on the Company’s financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity and improves and amends the related EPS guidance for both Subtopics. The ASU will be effective for annual reporting periods as incurred. However,after December 15, 2021 and interim periods within those annual periods and early adoption is permitted in annual reporting periods ending after December 15, 2020. We are still assessing the event a lossimpact of ASU 2020-06 on a contract is foreseen, the Company will recognize the loss when such loss is determined. A contract is considered complete when accepted by the customer. our condensed consolidated financial statements
The Company quotesdoes not believe that there are any new accounting pronouncements that have been issued that might have a material impact on its customers the total costsfinancial position or results 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.
NOTE 3 – GOING CONCERN
The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. As of September 30, 2017, while2019, the Company has a working capital surplusdeficit of $568,067,$3,007,024, insufficient cash resources to meet its planned business objectives and recurring losses of ($2,720,042) and ($5,671,935) for the accumulated losses from operations aggregated $11,064,096three and it continues to experience operating losses.nine months ended September 30, 2019. 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 September 2018.
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 condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The following funding was received by the company subsequent September 30, 2019:
Since September 30, 2019, through the filing date of this report the Company has received $1,055,705 in additional advances and consultantsloans from the Chairman of the Board. This amount includes $367,205 for inventory purchases used by RluxRV. The $367,205 was repaid by the Company, $100,000 was repaid December 6, 2021 and $267,205 was repaid April 20, 2022, as well as an additional $348,579. On April 18, 2022, the Company agreed to consolidate the total loans, advances and accrued interest into a single Note in the amount of $1,126,955, the full amount of which is payable upon demand bearing an interest rate of 10%.
Since September 30, 2019 through the filing date of this report the Company received $145,000 from related parties, On November 19, 2019, Richard and Jerald Horowitz each loaned the Company $10,000. The notes were due December 21, 2019 (Maturity Date). They have an interest rate of 10% per annum and a penalty of 15% if not paid by the maturity date. On September 4, 2020, Richard and Jerald Horowitz each loaned the Company $12,500. The notes were due November 4, 2020 (Maturity Date). They have an interest rate of 5% per annum with an increase to 12% if not paid by the maturity date. On February 8, 2021, Richard and Jerald Horowitz each loaned the Company $25,000. The notes were due May 15, 2021 (Maturity Date). They have an interest rate of 5% per annum with an increase to 12% if not paid by the maturity date. On June 30, 2021, Richard and Jerald Horowitz each loaned the Company $25,000. Repayment terms are 3% of project revenue until the loans and unpaid interest are satisfied. The notes bear interest of 12% per annum and have not been satisfied as of the date of this report.
On November 26, 2019, the Company received a third-party factoring loan from the Korenstra Family Foundation (“Korenstra”) for $150,000. This loan is factored against several open accounts receivable of the Company. The interest rate shall be $5,000 per month with the loan not exceeding 90 days. If delinquent, after 90 days, the interest rate will increase to $10,000 per month. On December 1, 2021, the Company executed a $550,000 convertible promissory note which satisfied the $150,000 factoring loan and loaned the Company an additional $400,000. The outstanding principal and interest shall be paid on or before December 31, 2024 (the “Maturity Date”). In order to satisfy the $134,000 of unpaid interest on the $150,000 note, the Company transferred 4,466,667 shares to Korenstra. Additionally, on December 1, 2021 Korenstra was issued 5,500,000 warrants with an exercise price of $.10 per share. The interest on this loan shall be 18% per annum. If the loan is not satisfied by the maturity date, the default interest rate shall be 24% on all unpaid principal and interest. The monthly payment amount shall be equal to 3% of the net sales for the previous month of the Company’s RluxRV subsidiary. Monthly payments will continue until the maturity date even if the payback is greater than the borrowed amount plus interest. In addition, the Company shall pay one third of one percent of the net sales of RluxRV in perpetuity. On May 27, 2022, the Korenstra Family Foundation increased the loan by $100,000 under the same terms as the convertible promissory note.
On December 19, 2019, the Company issued 2,500,000 shares to an accredited non-related investor for $250,000. In addition, on December 19, 2019 the Company issued 7,000,000 warrants with an exercise price of $.10 per share.
On December 7, 2020, the Company issued a convertible promissory note to Tysadco Partners, LLC for the sum of $156,750. The Note bears interest of 12% per annum until the Note becomes due and payable on December 7, 2022 (Maturity Date). Any amount of principal or interest on this Note which is note repaid by the Maturity Date shall then bear interest at 20% per annum. At any time after 180 days from the Note’s inception until the Maturity Date or payment date, Tysadco may convert the balance or any portion of the balance to Common Stock at the lower of $.15 per share or 80% of the Market Price. Where the Market Price is defined as the ten day trading period prior to the conversion date.
On October 7, 2021, a $100,000 loan factoring agreement was issued to Nancy White. The loan repayment is required within 180 days and shall have interest of $10,000. The amount of $110,000 was paid on April 28, 2022 which fully satisfied the loan.
On November 23, 2021, the Company issued a 10% convertible note to Joseph Acebel for the sum of $40,000. The principal and any unpaid interest was due prior to April 1, 2022. Interest shall accrue on any unpaid principal at 10% per annum. The note, or any part of at least $10,000 shall be convertible into shares of the Company participatecommon stock at a conversion price of $.02 per share. Prior to the filing date, the note has been satisfied in incentive plans that providefull in cash.
On February 10, 2022, the Company issued a promissory note to Wayne Miller for granting stock options$1,190,000. This note includes satisfying all previous notes of $585,000 plus unpaid interest and performance-based awards. Time based stock options generally vest in equal increments over a two -year periodan additional loan of $500,000. This note is due on June 10, 2024. This note is to be paid with 3% of the gross sales of RluxRV with the first payment made on June 10, 2022.
NOTE 4 – ADVANCES FROM RELATED PARTIES
Advances from related parties were comprised of the following:
September 30 | December 31 | |||||||
2019 | 2018 | |||||||
B2 Opportunity Fund | $ | 154,788 | $ | 154,788 | ||||
Cary Baskin | 116,000 | 68,000 | ||||||
| $ | 270,788 | $ | 222,788 | |||||
During the nine months ended September 30, 2019, the Company received an aggregate of $50,000 of short-term advances from Cary Baskin. The amounts are non-interest bearing and expirepayable on demand.
Since September 30, 2019, through the third anniversary following thefiling date of grant. Performance-based stock options vest oncethis report the applicable performance conditions are satisfied.Company has received $0 in additional advances from related parties to fund operations.
NOTE 5 – LOANS FROM RELATED PARTIES
September 30 | December 31 | |||||||
2019 | 2018 | |||||||
Rick Mikles | $ | 521,829 | $ | 514,579 | ||||
Wayne Miller | 685,950 | 642,075 | ||||||
Paul Ladd | 58,650 | 58,650 | ||||||
Cary Baskin | 665,385 | 75,000 | ||||||
Randy Fluitt | 275,000 | - | ||||||
| $ | 2,206,814 | $ | 1,290,304 | |||||
Rick Mikles
Since September 30, 2019, through the filing date of this report the Company has received $1,055,705 in additional advances and loans from the Chairman of the Board. This amount includes $367,205 for inventory purchases used by RluxRV. The $367,205 was repaid by the Company in cash as well as an additional $348,579. On April 18, 2022, the Company agreed to consolidate the total loans, advances and accrued interest into a single Note in the amount of $1,126,955, the full amount of which is payable upon demand.
Wayne Miller
During the nine months ended September 30, 2019, the Company executed no additional loans to Mr. Miller. The loan proceeds and accrued interest for the period were $0 and $43,875 respectively.
Cary Baskin
On April 4, 2019, the Company executed an unsecured promissory note in the amount of $100,000 payable to Mr. Cary Baskin, a shareholder of the Company. The note has interest at accruing at 10% per annum. The Note is payable on demand.
On September 13, 2019, the Company executed an unsecured promissory note in the amount of $500,000 payable to Mr. Cary Baskin, a shareholder of the Company. The note has interest at accruing at 10% per annum. The Note is payable on demand.
Randy Fluitt
On September 10, 2019, the Company executed an unsecured $275,000 promissory note payable to Randy Fluitt, a Company shareholder. The Note bears interest of 10% per annum. The Note is due and payable in the amount of $302,500 on or before the Maturity Date of February 1, 2020. The Company’s failure to pay the principal and interest within 15 days of the Maturity Date, will trigger a penalty of 10% of any amounts unpaid at the end of this period. The Company recognizes stock-based compensationdid not repay the loan by the Maturity Date and accrued the penalty as interest expense.
Since September 30, 2019, through the filing date of this report the Company has received $175,000 in additional loans from other related parties. The notes bear interest at 10%. All of the additional Notes are due on demand.
Total interest expense under the related party loans was $75,583 and $119,803 for equity awards granted to employees, officers, directorsthe periods ended September 30, 2019 and consultantsDecember 31, 2018, respectively. Interest expense under related party loans for the three and nine months ended September 30, 2019 was $17,500 and $173,652 and $2,250 and $90,929 for the three and nine months ended September 30, 2018. Such interest was capitalized as compensation and benefits expensepart of the outstanding loan balance.
NOTE 6 – STOCKHOLDERS' EQUITY
Common Stock
During the Third Quarter of 2019, the Company issues 12,500,000 shares of Common Stock in payment for services. On September 3, 2019, Laura Knepper received 1,000,000 shares of Common Stock for bookkeeping services provided. On September 10, 2019, Arthur Filmore, a Director in the consolidated statementsCompany, was issued 10,000,000 shares for legal services provided. On September, 20, 2019, the Company issued 1,500,000 shares of operations. TheCommon Stock to Howard Nathan for CFO services. All shares were valued at fair value of stock options is estimated using a Black-Scholes valuation model on the date of grant. Stock-based compensation is recognized overissuance.
On July 3, 2019, the requisite service periodCompany received cash of $203,500 in exchange for 3,700,000 share sold to an unrelated accredited investor.
On August 9, 2019, 11,200,000 shares were issued to the Company’s Chairman of the individual awards, which generally equalsBoard in exchange for the cancellation of 14,000,000 stock options. Expenses incurred in this transaction were $817,678 and included in selling, general and administrative expenses in the statement of operations.
Stock Based Compensation
The Company has issued and outstanding two types of options, time vesting period. For performance-basedand performance vesting.
Options - Time Vesting
The following table shows the stock option activity during the period ended September 30, 2019:
Weighted | ||||||||
Number of | Average | |||||||
Options | Exercise Price | |||||||
Options outstanding at beginning of period | 13,904,166 | $ | 0.10 | |||||
Changes during the period: | ||||||||
Granted - at market price | - | - | ||||||
Cancelled | (4,000,000 | ) | - | |||||
Forfeited | - | - | ||||||
Options outstanding at end of period | 9,904,166 | 0.10 | ||||||
Options exercisable at end of period | 9,904,166 | 0.10 | ||||||
Weighted average fair value of options granted during the period | $ | - | $ | - | ||||
Costs incurred in respect of stock based compensation for employees, advisors and consultants for the three and nine month periods ended September 30, 2019 were $8,375 and $75,167, respectively. Costs incurred in respect of stock-based compensation for employees, advisors and consultants for the three and nine month periods ended September 30, 2018 were $133,129 and $382,246, respectively. The expense is included in selling, general and administrative expenses in the statement of operations.
On August 9, 2019, 11,200,000 shares were issued to the Company’s Chairman of the Board in exchange for the cancellation of 14,000,000 stock options, 4,000,000 of which were time vesting options and 10,000,000 were performance vesting options. The Company expensed $817,678 during the third quarter, 2019 for the value differential between the restricted stock and the cancelled options
Unrecognized compensation is recognized once the applicable performance condition is satisfied.
Options - Performance Vesting
The options vest based on Company recognizesperformance with one option vesting for every two dollars of revenue, vesting quarterly. The following table shows the stock option activity during the period ended September 30, 2019:
Weighted | ||||||||
Number of | Average | |||||||
Options | Exercise Price | |||||||
Options outstanding at beginning of period | 26,081,808 | $ | 0.10 | |||||
Changes during the period: | ||||||||
Granted - at market price | - | |||||||
Cancelled | (10,000,000 | ) | - | |||||
Expired/forfeited | (41,258 | ) | 0.10 | |||||
Adjustments | - | |||||||
Options outstanding at end of period | 16,040,550 | 0.10 | ||||||
Options exercisable at end of period | 9,169,905 | 0.10 | ||||||
Weighted average fair value of options granted during the period | - | $ | - | |||||
These options were issued to individuals for their business development efforts. The costs incurred in respect of stock-based compensation for equity awards granted asemployees, advisors and consultants for the three and nine month periods ended September 30, 2019 were $114,360 and $241,433 respectively. Costs incurred in respect of stock-based compensation for employees, advisors and consultants for the three and nine month periods ended September 30, 2018 were $96,466 and $215,113, respectively. The expense is included in selling, general and administrative expense in the consolidated statements of operations.
Unrecognized compensation costs related to options as of September 30, 2019 was $556,790 which is expected to be recognized ratably over a weighted average period of approximately 8 months based on estimated future revenues.
Warrants
The updates relatingfollowing table shows the warrant activity during the period ended September 30, 2019:
Weighted | ||||||||
Number of | Average | |||||||
Warrants | Exercise Price | |||||||
Warrants outstanding at beginning of period | 2,000,000 | $ | 0.10 | |||||
Changes during the period: | ||||||||
Granted | - | |||||||
Exercised | - | - | ||||||
Expired/forfeited | (2,000,000 | ) | 0.10 | |||||
Warrants outstanding at end of period | - | - | ||||||
Warrants exercisable at end of period | - | $ | - | |||||
There were no Warrants granted for the three and nine months ended September 30, 2019.
Costs incurred for warrants issued to related parties for the income tax effectsconversion of debt were recorded as interest expense for the share-based payments including the cash flow presentation may 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, 2016three 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.
NOTE 7 – BASIC AND DILUTED LOSS PER SHARE
Basic net loss per share is calculated by dividing the controls and other procedures that are designed to provide reasonable assurance that information required to be disclosedloss by the issuerweighted-average number of shares outstanding for the period. Diluted net loss per share is computed by dividing the net attributable to common stockholders by the sum of the weighted average number of shares of common stock outstanding and the dilutive common stock equivalent shares outstanding during the period. The Company's dilutive common stock equivalent shares, which include incremental common shares issuable upon i) the exercise of outstanding stock options and warrants and (ii) vesting of restricted stock units and restricted stock awards, are only included in the reports that it files or submits undercalculation of diluted net loss per share when their effect is dilutive. Since the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarizedCompany had net losses for all periods presented, all potentially dilutive securities are anti-dilutive. Accordingly, basic and reported within the time periods specifieddilutive net loss per share are equal.
The following potential common stock equivalents were not included in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required tocalculation of diluted net loss per common share because the inclusion thereof would be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including the principal executive and principal financial officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
For the Period Ended | ||||||||
September 30, | ||||||||
2019 | 2018 | |||||||
Stock Options | 25,944,716 | 42,841,094 | ||||||
Warrants | - | 3,050,000 | ||||||
Total | 25,944,716 | 45,891,094 | ||||||
NOTE 8 – COMMITMENTS AND CONTINGENCIES
16(b) Litigation
On September 26, 2016, the CompanyRegistrant filed in the United States District Court for the Middle District of Florida a Complaint against defendants The Mazzal Trust, Nissim S. Trabelsi and Shawn Telsi (collectively the “Defendants”), seeking the disgorgement of profits obtained by Defendants and certain of their shareholder affiliates defined under Rule 16a-1(a)(1) under the Exchange Act defined below (collectively, the “Group”) through “short swing profits” in violation of Section 16(b) of the Securities Exchange Act of 1934 (the “Exchange Act”). Specifically, the CompanyRegistrant alleged that the Group acted under the guidance and control of the Defendants, whose individual defendants had filed forms 3 and 4 with the Securities and Exchange Commission (the “SEC”, declaring themselves to be “insiders” for the purpose of Section 16(b). The Group owned 100% of the shares of the CompanyRegistrant at the time that members of the group were engaged in the sale and purchase of such shares. The sales and purchases referenced all occurred with six months of other sales and purchases, subjecting Defendants to disgorge to the CompanyRegistrant all profits made by the Group in such sales and purchases. As detailed in paragraphs 16-22 of the Complaint, the total profits received by the Group is $1,695,689. Accordingly, the CompanyRegistrant has demanded the return of all such profits to Registrant plus the statutory payment of attorneys’ fees.
On August 24, 2017, the court grantedPlaintiff received a Clerk’s Entry of Default against Nissim Trabelsi. The Plaintiff filed a Motion for Default Judgment for damages against Trabelsi on September 13, 2017, which to date has not been addressed by the 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.
NOTE 9 – CONCENTRATIONS
For the three months ended September 30, 2019, five customers represented 73% of net revenue. For the three months ended September 30, 2018 two customers represented 89% of net revenue.
For the nine months ended September 30, 2019, two customers represented 27% of net revenue. For the nine months ended September 30, 2018, five customers represented 54% of net revenue.
At September 30, 2019, three customers represented 67% of accounts receivable.
The Company purchases substantially all of its inventory from one supplier. The Company does not have any commitments with this supplier for minimum purchases.
NOTE 10 – SUBSEQUENT EVENTS
In April 2020, the Company received an unsecured loan (the “SBA Loan”) under the Small Business Administration (“SBA”) Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Security Act CARES Act through Chase Bank (“Lender”). The SBA Loan has a default judgment against Defendants. two-year term expiring on April 2022. The SBA Loan has a principal amount of $237,458 with an interest rate of 1.0%. The Company expects that the full principal amount of the loan will be forgiven. Interest accrues during the period between funding date and the date the loan is forgiven. The Company applied for loan forgiveness on July 30, 2021 and was granted on August 12, 2021
In May 2020, the Company received an unsecured loan under the Small Business Administration (“SBA”), Economic Injury Disaster Loan (“EIDL”) program to assist business businesses effected by the COVID-19 pandemic. The EIDL Loan has a thirty-year term and has a principal amount of $149,900 with an interest rate of 3.75%.
In March 2021, the Company received an unsecured loan (the “SBA Loan”) under the Small Business Administration (“SBA”) Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Security Act CARES Act through Chase Bank (“Lender”). The SBA Loan has a two-year term expiring on March 2023. The SBA Loan has a principal amount of $216,127 with an interest rate of 1.0%. The Company expects that a partial principal amount of the loan will be forgiven. Interest accrues during the period between funding date and the date the loan is forgiven. The Company applied for loan forgiveness on May 25, 2022, and has not yet received a determination on forgiveness.
On October 27, 2020 Jerald Horowitz, a Company Director, received 10,000,000 shares of restricted stock, which vested immediately for his service to the Company.
On March 11, 2021, the Company closed a purchase agreement between the Company and Quantum Energy and the Company and Quantum’s owner, Jim Collins. Customer lists and name recognition were acquired from Quantum for $1. Further, the Company shall pay a 10% commission for any sales derived from Quantum’s pre-existing sales or audits that generate revenue for the Company. Quantum’s owner, Jim Collins agreed to a consulting agreement with the Company for a three year period. This consulting agreement states that Mr. Collins shall act as a sales manager, primarily in the Washington State area and he shall receive an 8% commission on any new sale generated. During this three year period, Mr. Collins shall receive 2,000,000 shares of the Company, vesting one third each year. The Company executed a consulting agreement with Justin Collins to be the Company’s National Project Manager. Under this agreement, Mr. Justin Collins, shall receive a commission of 6% on new sales and an additional bonus of 20% on the differential between budgeted and actual expense, should budgeted expense exceed actual. After a 90 day period, the Company has agreed to negotiations, at its sole discretion, for Mr. Justin Collins to become the Company’s Chief Operating Officer. The stated salary for this position is $80,000 per annum.
On March 25, 2021, the Company executed an employment agreement with Justin Collins to become the Company’s National Project Manager. The term of the employment agreement is three (3) years commencing on March 29, 2021. This position reports to the Company’s CEO and will encompass the head of Company operations and management of the Company’s Washington location. The salary for this position shall be $80,000 per annum. Under this agreement, Mr. Justin Collins, shall receive a commission of 6% on new sales and an additional bonus of 20% on the differential between budgeted and actual expense, should budgeted expense exceed actual. Mr. Justin Collins also receives 1,000,000 options with a strike price of $.10 per share with annual vesting over a three year time period and expiring three years from the grant date.
On August 10, 2021, we announced the appointment of Mr. Bruce R. Albertson to our Board of Directors. Mr. Albertson replaces Jennifer Peek, whose business demands, and travel schedule prevent her from continuing to fulfill her role. Mr. Albertson will also serve as Chair of Znergy’s Audit Committee, a position formerly held by Ms. Peek. Mr. Albertson was issued 2,000,000 shares of Znergy stock in compensation for actively serving on the Board of Directors.
On March 21, 2022, the company issued restricted stock which was immediately vested. 25,000,000 shares were issued to Rick Mikles, Chairman of the Board. 10,000,000 shares were issued to Dave Baker, CEO. Both share grants were approved by the Board of Directors on September 10, 2020 due to market volatility.
On March 21, 2022, 2,000,000 restricted common stock shares were issued to both Brett Swift and Steven Paulik for accounting services performed. The restricted stock immediately vested.
On June 1, 2022, the Company moved its headquarters, warehouse and distribution center to 1120 N. Main St., Elkhart, Indiana 46514.
CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). We have based these forward-looking statements on our current expectations and projections about future events, and they are applicable on as of the dates of such statement. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "could," "would," "forecast," "expect," "plan," anticipate," believe," estimate," continue," or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those listed under the heading "Risk Factors" and those listed in our other SEC filings. You should not put undue reliance on any forward-looking statements. These statements speak only as of the date of this Quarterly Report on Form 10-Q, even if subsequently made available on our website or otherwise, and we undertake no obligation to update or revise these statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q. The following discussion should be read in conjunction with our Financial Statements and related Notes thereto included elsewhere in this report. Throughout this Quarterly Report on Form 10-Q we will refer to Znergy, Inc., together with its subsidiaries, as the "Company," "we," "us," and "our"
The following discussion and analysis of our financial condition should be read together with our unaudited Consolidated Financial Statements and related notes included in this Form 10-Q as well as our audited Financial Statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 filed with the SEC on September 4, 2020.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
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 metal halide and 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 vigorously pursue satisfactiongrow 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.
The Company plans to increase its competitive position by providing financing to customers for installation projects through a strategic partnership the Company has developed with a well-established funding group focused on energy efficiency projects.
On September 22, 2021, the Company formed RluxRV, LLC. This LLC is joint owned by the Company and Royalux Lighting, LLP (RoyaLux), an Indian company. The purpose of this judgment althoughLLC is to supply lighting and technology parts to the recreational vehicle (“RV”) market. The parts manufacturing will be done exclusively by Royalux Lighting. All of the sales and distribution of the parts will the responsibility of RluxRV. This business is meant for a strategic change in Znergy’s business. All the Company’s employees with the exception of the Chief Executive Officer were terminated in December, 2021 in order to conserve cash and evaluate RluxRV’s potential impact. As of the date of filing, there were limited sales by RluxRV in a test market of RV manufactures. The Company is leasing warehouse space and purchased of two (2) vehicles for expected business growth.
Results of Operations
The Company had revenues of $997,518 and $556,142 for the three-month periods ended September 30, 2019, and 2018, respectively. The Company had revenues of $1,600,910 and $1,298,696 for the nine-month periods ended September 30, 2019, and 2018, respectively. Revenues in 2019 and 2018 comprise LED installation projects. The increase in revenues for the three-month and nine-month periods are due to continued organic growth of the core business.
The Company incurred costs of revenue of $914,197 and $259,158 for the three-month periods ended September 30, 2019 and 2018, respectively. The Company incurred costs of revenue of $1,481,169 and $665,154 for the nine-month periods ended September 30, 2019 and 2018, respectively. Costs of revenue in 2019 and 2018 comprise primarily LED product and installation costs, including labor and rental equipment. Cost of revenue as a percentage of revenue can be impacted by the type of jobs and if the job requires customized lighting.
The Company had general and administrative expenses of $2,766,166 and $668,000 for the three-month periods ended September 30, 2019 and 2018, respectively. The Company had selling, general and administrative expenses of $5,699,631 and $2,486,001 for the nine-month periods ended September 30, 2019 and 2018, respectively. The increase for the three-month period is also primarily due to the issuance of 12,500,000 shares for services rendered. The increase for the nine-month period is primarily due to an increase in stock-based compensation costs for the issuance of 20,000,000 shares to the Company’s CEO and 12,500,000 shares for services rendered as well as the conversion costs of the Company’s Chairman’s options to restricted stock.
The Company incurred interest expense of $38,929 and $97,012 for the three and nine-month periods ended September 30, 2019. This is compared to $3,749 and $179,899 for the same periods in 2018. This is the result of the additional Notes Payable and Advances the company has entered into to finance the operations of the Company.
The Company had net losses of $2,720,042 and $367,035 for the three-month periods ended September 30, 2019 and 2018, respectively, and net losses of $5,671,935 and $2,068,116 for the nine-month periods ended September 30, 2019 and 2018, respectively.
Liquidity and Going Concern Discussion
The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. As of September 30, 2019, the company had a working capital deficit of $3,007,025, insufficient cash resources to meet its planned business objectives, and recurring losses of ($2,720,042) and ($5,671,934) for the three and nine months ended September 30, 2019 and ($367,035) and ($2,068,116) for the three and nine months ended September 30, 2018. The Company intends to fund operations through equity and debt financing arrangements, which may be insufficient to fund its capital expenditures, working capital and other cash requirements through June 2023. As a result, the Company is seeking additional funding through debt and equity financing arrangements, or other funding opportunities.
The Company's success is dependent upon, among other things, obtaining the additional financing to continue operations and to execute its business plan. No assurances can be made that management will be successful in pursuing any of these strategies.
These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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 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 assurance of the recovery of any funds from Defendants.
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 fees and expenses incurredcash, or through obtaining commercial or bank financing, in defendingorder to continue as a going concern, the Claim.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 respondedcannot assure any investor that, if needed, sufficient financing can be obtained or, if obtained, that it will be on Februaryreasonable terms. Without realization of additional capital, it would be unlikely for operations to continue.
Critical Accounting Policies
There have been no changes to our critical accounting policies from those included in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on September 4, 2020.
Recently Issued Accounting Pronouncements
We are required to adopt certain new accounting pronouncements. See Note 1 to the condensed consolidated financial statements included in Item 1 of this Form 10-Q.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements or issued guarantees to third parties.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are the controls and other procedures that are designed to provide reasonable assurance that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including the principal executive and principal financial officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. We have carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act as of the end of the period covered by this Quarterly Report.
Based upon that evaluation we have concluded that our disclosure controls and procedures were ineffective as of the end of the period covered by this report due to a material weakness in our internal control over financial reporting, which is described below.
Our management identified the following material weaknesses which are indicative of many small companies with small staff: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines although we plan to take steps to enhance and improve the design of our internal control over financial reporting, we have not been able to remediate the material weaknesses identified above.
The Company has not had sufficient internal accounting personnel working at their corporate office which has led to a lack of segregation of duties and timely closing processes, nor did we perform an effective assessment of our system of internal control. The accounting functions have been handled by a combination of third parties off-site and internal personnel which has hindered the Company’s ability to timely reconcile its accounts, maintain the proper controls under the underlying documentation and close its books and records. This was a result of the early stage in the Company's growth. The Company added accounting expertise in 2020 which should allow the Company to start to remediate its internal control issues. The Company also hired a GAAP experienced consulting firm in January 2020 and other external consultants throughout 2020.
Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the three-month period ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
PART II. OTHER INFORMATION
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, stating that (1) we reviewed the Transfer AgentPlaintiff 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 Registrar Agreement betweenthe Court has yet to address the service issues with the 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.
None
(a) Exhibits
Exhibit No. | Description | |
3.1 | ||
3.2 | ||
3.3 | ||
10.1 | ||
10.2 | ||
10.3 | ||
10.4 | ||
10.5 | ||
10.6 | ||
31.1 | ||
32.1 | ||
101 INS | XBRL Instance Document | |
101 | XBRL | |
101 CAL | XBRL Calculation Linkbase | |
101 DEF | XBRL Definition Linkbase | |
101 LAB | XBRL Labels Linkbase | |
101 PRE | XBRL Presentation Linkbase | |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
ZNERGY, INC.
By: /s/ Dave Baker | ||
Dave Baker | ||
Chief Executive Officer and Director | ||
(Principal Executive and Financial Officer) | ||
Date: | ||