The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018
NOTE 1 - NATURE OF BUSINESS AND BASIS OF PRESENTATION
Znergy, Inc., (formerly Mazzal Holding Corp., formerly Boston Investment and Development Corp.) is a Nevada corporation (the “Company” or “Znergy”), incorporated on January 23, 2013. The Company is a provider of energy-efficient lighting products, lighting controls and energy management solutions. The Company offers a full turn-key lighting solution which includes economic assessments, energy efficient analysis, installation and rebate support for the Company’s customers. The Company’s business primarily involves retrofitting existing lighting solutions from traditional high intensity fluorescent lighting to energy efficient LED (Light Emitting Diode) technology.
The spread of a novel strain of coronavirus (COVID-19) around the world in the first half of 2020 has caused significant volatility in U.S. and international markets. There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S. and international economies and, as such, the Company is unable to determine if it will have a material impact to its operations.
The Company is unsure of the outcome of the COVID-19 novel Coronavirus pandemic on its business. The duration of the pandemic, its effect on business in general and its effect on the Company specifically are unknown to management. For example, the Company’s largest client, one of the world’s largest clothing retail stores, was forced to close its doors at the onset of the pandemic and only recently re-opened some of its stores, thereby allowing the Company to continue to retrofit these limited stores with its LED lighting system. We were able to convert 27 stores starting November 26, 2019 through November 20, 2020, with the majority converted in the first quarter of 2020 before the full impact of the pandemic. The expectation is that by the middle of 2021, this retailer will have opened more stores, allowing for the LED retrofit to move forward. A continuation of the pandemic, a second surge of the pandemic, or a failure to find and commercialize a vaccine for COVID-19 could materially impact the Company’s revenues and its operations.
Basis of Presentation
The unaudited condensed consolidated financial statements of the Company for the three and six months ended June 30, 2019 and 2018 have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and pursuant to the requirements 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 the information and footnotes required by GAAP for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the Company's financial position and the results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. The balance sheet information as of December 31, 2018 was derived from the audited consolidated financial statements included in the Company's Annual Report on Form 10-K filed with the SEC on September 4, 2020. These financial statements should be read in conjunction with that report.
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.
Revenue Recognition
The Company accounts for revenue in accordance with ASC 606-10. The Company generally has two revenue sources - installation contracts and sales of lighting products. The installation contracts are short term in duration, typically within a week. The disaggregation of revenue for the three months ended June 30, 2019 was $394,157 and $22,617 for installation contracts and sale of lighting products, respectively. For the six months ended June 30, 2019, the amounts were $554,924 and 48,467 for installation contracts and sale of lighting products, respectively. The disaggregation of revenue for the three months ended June 30, 2018 was $228,974 and $30,608 for installation contracts and sale of lighting products, respectively. For the six months ended June 30, 2018, the amounts were $687,852 and $54,702 for installation contracts and sale of lighting products, respectively.
When Znergy receives an order from a customer, either verbally or through a written purchase order for products such as individual lights or fixtures, but is not part of an installation contract, the Company recognizes the revenue when the goods are shipped, and title has passed to the customer. In these arrangements, we have determined that there is one performance obligation, and that revenue should be recognized at the point in time that title passes to the customer.
Installation contract revenue is recognized when the contract is considered complete by the customer, through a written customer acceptance form. Each contract for installation of lighting and fixtures, consists of labor and materials, and is given a unique number in the system. Each contract is accounted for individually. The Company identifies the performance obligations, which include labor and materials and are accounted for as one contract. The transaction price is identified in advance with an agreed proposal between the Company and the customer and the price can be adjusted if, during the installation process, changes are made during the process. Under this method, contract costs are accumulated as deferred assets and billings and/or cash receipts are recorded to a deferred revenue liability account during the contract period, but no revenues, costs, or profits are recognized in operations until the completion of the contract. Costs include direct material, direct labor, subcontract labor, and allocable indirect costs. All unallocated indirect costs and corporate general and administrative costs are charged in the periods as incurred. However, in the event a loss on a contract is foreseen, the Company will recognize the loss when such loss is determined. A contract is considered complete when accepted by the customer that the Company has satisfied its performance obligations. There were no contracts which were not complete by the end of the quarter.
Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Znergy (FL) and Znergy Holdings (FL). All intercompany transactions have been eliminated in consolidation.
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.
Adoption of recent accounting standards
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606). The guidance in this ASU requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company has adopted Topic 606 as of January 1, 2018 utilizing the full retrospective method of adoption. The adoption of Topic 606 did not have any impact on its results of operations and financial condition.
In February 2016, the FASB issued ASU No. 2016-02, Leases, which supersedes the current lease accounting requirements. This standard requires a lessee to record on the balance sheet the assets and liabilities for the rights and obligations created by leases with lease terms of more than 12 months. In addition, this standard requires lessees to disclose certain key information about lease transactions. Upon implementation, an entity’s lease payment obligations will be recognized at their estimated present value along with a corresponding right-of-use asset. Lease expense recognition will be generally consistent with current practice. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which simplifies adoption of the new lease accounting requirements by allowing an additional transition method that will not require restatement of prior periods and providing a new practical expedient for lessors to avoid separating lease and non-lease components within a contract if certain requirements are met. The provisions of this guidance must be elected upon adoption of the new lease accounting requirements, which will be effective for interim and annual periods beginning after December 15, 2018.
We 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 June 30, 2019. We do not expect that this standard will have a material impact on our financial statements. While we continue to assess all of the effects of adoption, we currently believe the most significant effects relate to the recognition of new right of use assets and lease liabilities on our balance sheet for our real estate and equipment operating leases, and the significant new required disclosures regarding our leasing activities. We do not expect a significant change in our leasing activities between now and adoption.
Recent accounting standards
In April 2019, the FASB issued ASU No. 2019-04 “Codification Improvements to Topic 326, Financial Instruments — Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments”, which provides updates and clarifications to three previously-issued ASUs: 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”; 2016-13, “Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”; and 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities”. The adoption of this standards update is not expected to have a material impact on the Company’s financial statements.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes”. This ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The guidance is effective non-public entities for fiscal years beginning after December 15, 2020, with early adoption permitted. The adoption method is dependent on the specific amendment included in this update as certain amendments require retrospective adoption, modified retrospective adoption, an option of retrospective or modified retrospective, and prospective adoption. The adoption of this standards update is not expected to have a material impact on the Company’s financial statements.
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 after December 15, 2023 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 impact of ASU 2020-06 on our condensed consolidated financial statements
The Company does not believe that there are any new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
NOTE 3 - GOING CONCERN
The accompanying 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 June 30, 2019, the Company has a working capital deficit of $2,574,979, insufficient cash resources to meet its planned business objectives and recurring losses of ($858,529) and ($2,951,893) for the three and six months ended June 30, 2019 and ($608,514) and ($1,701,081) for the three and six months ended June 30, 2018. 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 January 2022, one year from the date the consolidated financial statements were issued.
The Company is dependent upon, among other things, obtaining additional financing to continue operations and to execute its business plan. In response to these problems, management intends to raise additional funds through public or private placement offerings. No assurances can be made that management will be successful in pursuing any of these strategies.
These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern for the next twelve months from the date these consolidated financial statements were issued. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 4 - BUILDING, EQUIPMENT AND FURNITURE, NET
Building, furniture and equipment were comprised of the following:
|
|
June 30
|
|
|
December 31
|
|
|
|
2019
|
|
|
2018
|
|
Equipment and Furniture
|
|
|
59,609
|
|
|
|
59,609
|
|
|
|
|
59,609
|
|
|
|
59,609
|
|
Accumulated Depreciation
|
|
|
(45,426
|
)
|
|
|
(31,257
|
)
|
Net
|
|
$
|
14,183
|
|
|
$
|
28,352
|
|
Depreciation included in Selling, general and administrative expenses
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30
|
|
|
June 30
|
|
|
June 30
|
|
|
June 30
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Depreciation Expense
|
|
$
|
7,084
|
|
|
$
|
7,231
|
|
|
$
|
14,169
|
|
|
$
|
20,394
|
|
NOTE 5 – ADVANCES FROM RELATED PARTIES
Advances from related parties were comprised of the following:
|
|
June 30
|
|
|
December 31
|
|
|
|
2019
|
|
|
2018
|
|
B2 Opportunity Fund
|
|
$
|
154,788
|
|
|
$
|
154,788
|
|
Cary Baskin
|
|
|
116,000
|
|
|
|
68,000
|
|
|
|
$
|
270,788
|
|
|
$
|
222,788
|
|
During the six months ended June 30, 2019, the Company received an aggregate of $50,000 of short-term advances from Cary Baskin and paid back $2,000 short-term advance to Eco Energy. The amounts are non-interest bearing and payable on demand.
Since June 30, 2019, through the filing date of this report the Company has received $0 in additional advances to fund operations.
NOTE 6 - LOANS FROM RELATED PARTIES
The table below sets forth a summary of the Company’s loans from related parties at June 30, 2019 and December 31, 2018:
|
|
June 30
|
|
|
December 31
|
|
|
|
2019
|
|
|
2018
|
|
Rick Mikles
|
|
$
|
521,079
|
|
|
$
|
514,579
|
|
Wayne Miller
|
|
|
671,325
|
|
|
|
642,075
|
|
Paul Ladd
|
|
|
58,650
|
|
|
|
58,650
|
|
Cary Baskin
|
|
|
202,333
|
|
|
|
75,000
|
|
|
|
$
|
1,453,387
|
|
|
$
|
1,290,304
|
|
Rick Mikles
On November 15, 2017, the Company executed an unsecured promissory note in the amount of $50,000, payable to the Company’s chairman, Rick Mikles. The note was payable on December 1, 2017 with interest at 4% per annum. On December 1, 2017, the payment date was extended to June 1, 2018. The balance remains outstanding.
On February 15, 2018, the Company executed a promissory note in the amount of $25,000 payable to Rick Mikles, the Company’s Chairman. The note was due and payable on June 1, 2018 together with interest at 4% per annum. Pursuant to the terms of the note, if the note and accrued interest is not paid by the due date, interest at 12% per annum shall be accrued on the outstanding balance until paid in full. The balance at December 31, 2018 was $27,125 which includes unpaid interest.
On March 2, 2018, the Company executed an unsecured promissory note in the amount of $200,000 payable to Rick Mikles, the Company’s Chairman. The note was due on June 1, 2018 together with interest of $2,500. Pursuant to the terms of the note, there was a 15-day grace period, which ended on June 16, 2018 at which time a 15% penalty of the unpaid balance became due and payable together with the unpaid principal and accrued interest. The balance at December 31, 2018 was $232,875, which includes unpaid interest and penalties.
During the year ended December 31, 2018, the Company received various loans from the Company’s chairman, Rick Mikles, with a balance of $475,000 as of December 31, 2018. These loans were non-interest bearing and payment is due on demand.
Since June 30, 2019, through the filing date of this report the company has received $496,238 in additional loans from Mr. Mikles. The notes bear interest at 10%. In February 2019 the Company and Mr. Mikles agreed to consolidate all outstanding debt and accrued interest into a single Note in the amount of $928,238. The Note is payable upon demand
Wayne Miller
On November 27, 2017, the Company executed an unsecured promissory note in the amount of $200,000, payable to Mr. Wayne Miller, a shareholder of the Company. The note was due and payable with interest of $2,000 on December 31, 2017. The note was repaid in full, with interest on December 22, 2017. Under the note agreement, the Company issued warrants to purchase 1,000,000 shares at an exercise price of $0.15 per share. The warrants expired on the first anniversary date of the initial exercise date of the warrants. The Company evaluated the warrants in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging – Contracts in Entity’s Own Stock and determined that the warrants did not meet the definition of a liability and therefore did not account for them as a separate derivative liability. The fair value of the warrants was calculated using the Black-Sholes model amounting to $55,072 and was recorded as a debt discount and amortized over the term of the note. As of December 31, 2017, the debt discount was fully amortized.
On December 6, 2017, the Company executed an unsecured promissory note in the amount of $150,000 payable to Mr. Wayne Miller, a shareholder of the Company. The note was due and payable on March 12, 2018, with interest of $6,000. Under the note agreement, the Company issued warrants to purchase 1,000,000 shares at an exercise price of $0.15 per share. The warrants expire on the first anniversary date of the initial exercise date of the warrants. The Company evaluated the warrants in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging – Contracts in Entity’s Own Stock and determined that the warrants did not meet the definition of a liability and therefore did not account for them as a separate derivative liability. The fair value of the warrants was calculated using the Black-Sholes model amounting to $42,345 and was recorded as a debt discount and amortized over the term of the note. As of December 31, 2018, the debt discount was fully amortized, and the principal balance of the note remains unpaid. Pursuant to the terms of the note, there was a 15-day grace period granted, which ended on March 27, 2018, at which a 15% penalty on the unpaid balance became due and payable along with the unpaid principal and any accrued interest.
On January 8, 2018, the Company executed an unsecured promissory note in the amount of $150,000 payable to Mr. Wayne Miller, a shareholder of the Company. The note was due and payable on April 8, 2018, with interest of $6,000. Pursuant to the terms of the note, there was a 15-day grace period, which ended on April 23, 2018 at which time a 15% penalty of the unpaid balance became due and payable together with the unpaid principal December 31, 2018 was $179,700, which includes unpaid principal, interest, and penalties. Under the note agreement, the Company issued warrants to purchase 1,000,000 shares at an exercise price of $0.15 per share. The warrants expire on the first anniversary date of the initial exercise date of the warrants. The Company evaluated the warrants in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging – Contracts in Entity’s Own Stock and determined that the warrants did not meet the definition of a liability and therefore did not account for them as a separate derivative liability. The fair value of the warrants was calculated using the Black-Sholes model amounting to $47,867 and was recorded as a debt discount and amortized over the term of the note. As of December 31, 2018, the debt discount was fully amortized, and the principal balance of the note remains unpaid.
On March 22, 2018, the Company executed an unsecured promissory note in the amount of $20,000 payable to Mr. Wayne Miller, a shareholder of the Company. The note has interest at accruing at 10% per annum. The balance at December 31, 2018 was $10,250 which includes unpaid interest.
On October 4, 2018, the Company also borrowed $275,000 short-term payable to Wayne Miller. The balance as of December 31, 2018 is $281,875 which includes the unpaid principal and interest. This loan was due on April 3, 2019.
During the six months ended June 30, 2019, the Company executed additional loans to Mr. Miller. The loan proceeds and accrued interest for the period were $0 and $29,250 respectively.
Paul Ladd
On March 22, 2018, the Company executed an unsecured promissory note in the amount of $50,000 payable to Paul Ladd, a shareholder. The note was due and payable on May 21, 2018 together with interest of $1,000. Pursuant to the terms of the note, there was a 15-day grace period, which ended on June 4, 2018 at which time a 15% penalty of the unpaid balance became due and payable together with the unpaid principal and accrued interest. The balance at December31, 2018 was $58,650 which includes the unpaid principal, interest, and penalties. Under the note agreement, the Company issued warrants to purchase 50,000 shares at an exercise price of $0.15 per share. The warrants expire on the first anniversary date of the initial exercise date of the warrants. The Company evaluated the warrants in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging – Contracts in Entity’s Own Stock and determined that the warrants did not meet the definition of a liability and therefore did not account for them as a separate derivative liability. The fair value of the warrants was calculated using the Black-Sholes model amounting to $2,875 and was recorded as a debt discount and amortized over the term of the note. As of December 31, 2018, the debt discount was fully amortized, and the principal balance of the note remains unpaid.
Cary Baskin
On October 23, 2018, the Company also borrowed $75,000 in a non-interest bearing short-term payable to Cary Baskin and was secured by shares owned by the Company’s CEO. The balance as of December 31, 2018 is $75,000. This loan was due on December 31, 2018.
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.
Total interest expense for the three and six months ended June 30, 2019 was $42,078 and $58,083 and $64,591 and $176,150 for the three and six months ended the three and six months ended June 30, 2018. Such interest was capitalized as part of the outstanding loan balance.
Since June 30, 2019, through the filing date of this report the company has received $489,127 in additional loans from Mr. Baskin. The notes bear interest at 10%.
Since June 30, 2019, through the filing date of this report the company has received an additional $450,000 in additional loans from related parties.
NOTE 8 - STOCKHOLDERS' EQUITY
Common Stock
On January 1, 2019, under an employment agreement, the Company issued 20,000,000 shares to its Chief Executive Officer. Under this agreement there is no specific performance or time-based metrics. The shares were valued at fair on the date of issuance.
On May 15, 2019, the Company issued 4,000,000 shares to a Director, Jerald Horowitz for business development efforts. The shares were valued at fair on the date of issuance. Through these efforts, the Company was introduced to a large retailer which resulted in a multi-store contract.
Stock Based Compensation
The Company has issued and outstanding two types of options, time vesting and performance vesting.
Options - Time Vesting
The following table shows the stock option activity during the period ended June 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
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Adjustments
|
|
|
-
|
|
|
|
-
|
|
Options outstanding at end of period
|
|
|
13,904,166
|
|
|
|
0.10
|
|
Options exercisable at end of period
|
|
|
13,841,666
|
|
|
|
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 six month periods ended June 30, 2019 were $17,563 and $66,791, respectively. Costs incurred in respect of stock based compensation for employees, advisors and consultants for the three and six month periods ended June 30, 2018 were $119,554 and $249,116, respectively. The expense is included in selling, general and administrative expenses in the statement of operations
Unrecognized compensation costs related to options as of June 30, 2019 was $8,375, which is expected to be recognized ratably over a weighted average period of approximately 9 months.
Options - Performance Vesting
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 period ended June 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
|
|
|
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Expired/forfeited
|
|
|
(36,967
|
)
|
|
|
0.10
|
|
Adjustments
|
|
|
|
|
|
|
-
|
|
Options outstanding at end of period
|
|
|
26,044,841
|
|
|
|
0.10
|
|
Options exercisable at end of period
|
|
|
10,690,742
|
|
|
|
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 employees, advisors and consultants for the three and six month periods ended June 30, 2019 were $86,118 and $127,073, respectively. Costs incurred in respect of stock based compensation for employees, advisors and consultants for the three and six month periods ended June 30, 2018 were $(12,082) and $118,646, respectively. The expense is included in selling, general and administrative expenses in the statement of operations.
Unrecognized compensation costs related to options as of June 30, 2019 was $1,335,481 which is expected to be recognized ratably over a weighted average period of approximately 10 months.
Warrants
The following table shows the warrant activity during the period ended June 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
|
|
|
-
|
|
|
|
0.15
|
|
Warrants exercisable at end of period
|
|
|
-
|
|
|
$
|
0.15
|
|
Costs incurred for warrants issued to related parties for the conversion of debt were recorded as interest expense for the three and six months ended June 30, 2019 were $-0- and $367,662, respectively.
NOTE 9 - BASIC AND DILUTED LOSS PER SHARE
Basic net loss per share is calculated by dividing the loss by the weighted-average number of shares outstanding for the period. Diluted net loss per share is computed by dividing the net attributable to common stockholders by the sum of the weighted average number of shares of common stock outstanding and the dilutive common stock equivalent shares outstanding during the period. The Company's dilutive common stock equivalent shares, which include incremental common shares issuable upon i) the exercise of outstanding stock options and warrants and (ii) vesting of restricted stock units and restricted stock awards, are only included in the calculation of diluted net loss per share when their effect is dilutive. Since the Company had net losses for all periods presented, all potentially dilutive securities are anti-dilutive. Accordingly, basic and dilutive net loss per share are equal.
The following potential common stock equivalents were not included in the calculation of diluted net loss per common share because the inclusion thereof would be anti-dilutive.
|
|
For the Period Ended
|
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
|
39,949,007
|
|
|
|
42,841,094
|
|
Warrants
|
|
|
-
|
|
|
|
3,050,000
|
|
Total
|
|
|
39,949,007
|
|
|
|
45,891,094
|
|
NOTE 10 - COMMITMENTS AND CONTINGENCIES
16(b) Litigation
On September 26, 2016, Registrant filed in the United States District Court for the Middle District of Florida a Complaint against defendants The Mazzal Trust, Nissim S. Trabelsi and Shawn Telsi (collectively the “Defendants”), seeking the disgorgement of profits obtained by Defendants and certain of their shareholder affiliates defined under Rule 16a-1(a)(1) under the Exchange Act defined below (collectively, the “Group”) through “short swing profits” in violation of Section 16(b) of the Securities Exchange Act of 1934 (the “Exchange Act”). Specifically, Registrant alleged that the Group acted under the guidance and control of the Defendants, whose individual defendants had filed forms 3 and 4 with the Securities and Exchange Commission (the “SEC”, declaring themselves to be “insiders” for the purpose of Section 16(b). The Group owned 100% of the shares of Registrant at the time that members of the group were engaged in the sale and purchase of such shares. The sales and purchases referenced all occurred with six months of other sales and purchases, subjecting Defendants to disgorge to Registrant all profits made by the Group in such sales and purchases. As detailed in paragraphs 16-22 of the Complaint, the total profits received by the Group is $1,695,689. Accordingly, Registrant has demanded the return of all such profits to Registrant plus the statutory payment of attorneys’ fees.
On August 24, 2017, the Plaintiff received a Clerk’s Entry of Default against Nissim Trabelsi. The Plaintiff filed a Motion for Default Judgment for damages against Trabelsi on September 13, 2017, which to date has not been addressed by the Court. On March 5, 2018, Nissim Trabelsi filed a notice of bankruptcy. The Plaintiff is still pursuing its options in the Case and the Court has yet to address the service issues with the Mazzal Trust.
NOTE 11 - CONCENTRATIONS
For the three months ended June 30, 2019, four customers represented 30%, 29%, 18% and 11% of net revenue. For the three months ended June 30, 2018, one customer represented 36% of net revenue.
For the six months ended June 30, 2019, three customers represented 30%, 23% and 14% of net revenue. For the six months ended June 30, 2018, one customer represented 24% and one customer represented 12% of net revenue.
At June 30, 2019, three customers represented 35%, 32% and 25% 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 12 - SUBSEQUENT EVENTS
Since June 30, 2019, through the filing date of this report the Company has received $496,000 in additional advances and loans from the Chairman of the Board. In February 2021, the Company agreed to consolidate the total loans, advances and accrued interest into a single Note in the amount of $928,238, the full amount of which is payable upon demand. Since June 30, 2019 through the filing date of this report the Company received $489,126 from Mr. Baskin and a further $450,000 from other related parties.
Subsequent to June 30, 2019 through the filing date, the Company has issued 44,983,333 shares of common stock. 11,200,000 shares were issued to the Chairman of the Board in exchange for the cancellation of 14,000,000 stock options outstanding.
On July 3, 2019, the Company issued 2,500,000 shares in exchange for $192,500, which was discounted from fair value, to an unrelated accredited investor.
On November 26, 2019, the Company received a third-party loan from the Korenstra Family Foundation for $150,000.
In April 2020, the Company received an unsecured loan (the "SBA Loan") under the Small Business Administration ("SBA") Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Security Act CARES Act through Chase Bank (“Lender”). The SBA Loan has a two-year term expiring on April 2022. The SBA Loan has a principal amount of $87,457 with an interest rate of 1.0%. The Company expects that the full principal amount of the loan will be forgiven. Interest accrues during the period between funding date and the date the loan is forgiven. The Company has not yet applied for loan forgiveness but plans to in a future period.
On February 11, 2020, the Company entered into a Factoring and Security Agreement with Factors Southwest, LLC (“FSW”). The Company agrees to offer all of its accounts arising time to time from the ordinary course of business to FSW. FSW accepts those accounts at its sole discretion and is under no obligation to purchase the accounts. The purchase price for each factored account will be the net face account less a factoring fee of .58%. Upon purchase, FSW will advance the Company the advanced purchase amount equal to 80% of the net face amount. The remaining amounts will be held by FSW in a reserve account until all obligations of the Company are met.
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 $150,000 with an interest rate of 3.75%. The Company expects that the full principal amount of the loan will be forgiven. Interest accrues during the period between funding date and the date the loan is forgiven. The Company has not yet applied for loan forgiveness but plans to in a future period.
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 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.
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.