The accompanying notes are an integral part of these consolidated financial statements
The accompanying notes are an integral part of these consolidated financial statements
The accompanying notes are an integral part of these consolidated financial statements
The accompanying notes are an integral part of these consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
NOTE 1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION
Znergy, Inc., (formerly Mazzal Holding Corp., formerly Boston Investment and Development Corp.) is a Nevada corporation (the “Company”), incorporated on January 23, 2013. The original business plan of the Company was the construction and management of multi-family home developments and the subsequent sale thereof.
On October 26, 2015 the Company acquired Global ITS, Inc. and its wholly owned subsidiary, Znergy, Inc. in order to expand into the Energy Efficiency (EE) marketplace, focusing on commercial lighting and green project financing. On February 9, 2016, the Company agreed to sell to the Mazzal Trust the real property which the Trust had previously sold to the Company and the Trust returned to the Company 149,950,000 of the 150,000,000 shares of the Company’s common stock owned by the Trust. The Company is now focused solely on the EE marketplace with an emphasis on LED retrofitting and relamping.
Basis of Presentation
The Company maintains its accounting records on an accrual basis in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”).
Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts or revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s significant estimates
, judgments and assumptions used in these consolidated financial statements include those related to revenues, accounts receivable and related allowances, contingencies, and the fair values of stock-based compensation. These estimates, judgments, and assumptions are reviewed periodically and the effects of material revisions in estimates are reflected in the financial statements prospectively from the date of the change in estimate.
Cash
Cash and equivalents include investments with initial maturities of three months or less. The Company maintains its cash balances at credit-worthy financial institutions that are insured by the Federal Deposit Insurance Corporation.
Revenue Recognition
The Company accounts for revenue using the “completed contract method” in accordance with ASC 605-35. Under this method, contract costs are accumulated as deferred assets and billings and/or cash receipts are recorded to a deferred revenue liability account during the contract period but no revenues, costs or profits are recognized in operations until the completion of the contract. Costs include direct material, direct labor, subcontract labor and allocable indirect costs. All unallocable indirect costs and corporate general and administrative costs are charged to the periods as incurred. However, in the event a loss on a contract is foreseen, the Company will recognize the loss when such loss is determined. The deferred asset (accumulated contract costs) in excess of the deferred liability (billings and/or cash received) is classified as a current asset under “Costs in excess of billings on uncompleted contracts.” The deferred liability (billings and/or cash received) in excess of the deferred asset (accumulated contract costs) is classified under current liabilities as “Billings in excess of costs on uncompleted contracts.” A contract is considered complete when accepted by the customer.
The Company quotes its customers the total costs of product installation and materials minus the expected rebates, if any, from a given utility. For projects larger than $10,000, rebates must be pre-approved by the utility. Rebate revenue is recognized when a project is completed and the rebate paperwork is submitted to and approved by the utility.
Accounts receivable
Accounts receivable are stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a provision for bad debt expense and an adjustment to a valuation allowance based on their assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the allowance account and a credit to accounts receivable.
ZNERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Inventory
Inventory consists of a variety of LED lamps, all of which are valued at the lower of actual costs from our suppliers or market.
Real estate assets
Real estate assets are stated at cost less accumulated depreciation and amortization. Costs directly related to the acquisition, development and construction of properties are capitalized. Acquisition-related costs are expensed as incurred. Capitalized development and construction costs include pre-construction costs essential to the development of the property, development and construction costs, interest, property taxes, insurance, salaries and other project costs incurred during the period of development.
As of December 31, 2015 the Company’s real estate assets consist of land held for sale which is not subject to depreciation (see Notes 6 and 10).
Furniture, fixtures equipment
Furniture, fixtures and equipment are recorded at cost, net of accumulated depreciation and amortization. Depreciation and amortization are computed on the straight line basis over the estimated useful lives of the assets.
Ordinary repairs and maintenance are expensed as incurred; major replacements and betterments, which improve or
extend the life of the asset, are capitalized and depreciated over their estimated useful lives. Fully-depreciated assets are removed from the accounts.
Impairment Long-Lived Assets
For purposes of recognition and measurement of an impairment loss, a long-lived asset or assets are grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. The Company assesses the impairment of long-lived assets (including identifiable intangible assets) annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable.
When management determines that the carrying value of long-lived assets may not be recoverable based upon the existence of one or more indicators of impairment, we test for any impairment based on a projected undiscounted cash flow method. Projected future operating results and cash flows of the asset or asset group are used to establish the fair value used in evaluating the carrying value of long-lived and intangible assets. The Company estimates the future cash flows of the long-lived assets using current and long-term financial forecasts. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If this were the case, an impairment loss would be recognized. The impairment loss recognized is the amount by which the carrying amount exceeds the fair value. At December 31, 2016 and 2015, the Company believes that no impairment of its long-lived assets is required.
Accounts payable and accrued expenses
Accounts payable and accrued expenses are carried at amortized cost and represent liabilities for goods and services provided to the Company prior to the end of the financial year that are unpaid and arise when the Company becomes obliged to make future payments in respect of the purchase of these goods and services.
Loss per share
The Company computes net loss per share in accordance with ASC 260, "Earnings Per Share" ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is calculated by dividing the profit or loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to common shareholders and the weighted average number of common shares outstanding for the effects of all potential dilutive common shares, which comprise options granted to employees. At December 31, 2015 and 2016, any potentially dilutive shares (consisting of 7,400,000 options) were not considered in the calculation of the loss per share as their effect would be anti-dilutive.
ZNERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Stock-Based Compensation
Certain employees, officers, directors, and consultants of the Company participate in incentive plans that provide for granting stock options and performance-based awards. Time based stock options generally vest in equal increments over a two -year period and expire on the third anniversary following the date of grant. Performance-based stock options vest once the applicable performance conditions are satisfied.
The Company recognizes stock-based compensation for equity awards granted to employees, officers, directors and consultants as compensation and benefits expense in the consolidated statements of operations. The fair value of stock options is estimated using a Black-Scholes valuation model on the date of grant. Stock-based compensation is recognized over the requisite service period of the individual awards, which generally equals the vesting period. For performance-based stock options, compensation is recognized once the applicable performance condition is satisfied.
The Company recognizes stock-based compensation for equity awards granted as selling, general and administrative expense in the consolidated statements of operations.
The fair value of restricted stock awards is equal to the closing price of the Company’s stock on the date of grant multiplied by the number of shares awarded. Stock-based compensation is recognized over the requisite service period of the individual awards, which generally equals the vesting period.
Income taxes
In accordance with FASB ASC 740, “Income Taxes” (“ASC 740”), deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change. The Company has recorded a valuation allowance against its deferred tax assets based on the history of losses incurred.
ASC 740 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position would be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, and accounting for interest and penalties associated with tax positions. As of December 31, 2016, the Company does not believe a liability for any unrecognized tax benefits exists.
The Company has not filed required income tax returns to date. While for federal income tax purposes the net operating losses would eliminate the federal income tax liability, we may be subject to penalties and minimum state income tax.
All tax periods from inception remain open to examination by taxing authorities due to the non-filing and the net operating losses.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update No. 2014-09,
Revenue From Contracts With Customers
, or ASU 2014-09. Pursuant to this update, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in this update are currently effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and are to be applied retrospectively, or on a modified retrospective basis. Early application is not permitted. In July 2015, the FASB approved a one-year deferral of the effective date for annual reporting periods beginning after December 15, 2017 with early adoption permitted for annual periods beginning after December 15, 2016. We are currently evaluating the impact of adopting ASU 2014-09 on our consolidated financial statements.
ZNERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
In August 2014, FASB issued ASU 2014-15,
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern
, or ASU 2014-15. ASU 2014-15 explicitly requires a company’s management to assess an entity’s ability to continue as a going concern for one year from the date of issuance of our financial statements, and to provide related footnote disclosures in certain circumstances. The new standard became effective in the first annual period ending after December 15, 2016. Management has evaluated the potential impact of the adoption of this standard and believes its adoption has no material impact on our consolidated statements of financial position, results of operations or cash flows.
In July 2015, the FASB issued ASU No. 2015-11, (“ASU 2015-11”), Inventory (Topic 330): Simplifying the Measurement of Inventory. ASU 2015-11 requires an entity to measure in scope inventory at the lower of cost and net realizable value. The amendment does not apply to inventory that is measured using the last-in, first-out or the retail inventory method. For public entities, ASU 2015-11 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years, and is to be applied prospectively. We do not expect the adoption of this standard will have a material effect on our consolidated financial statements.
On February 24, 2016, the FASB issued ASU No. 2016-02, Leases, requiring lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases with the exception of short-term leases. For lessees, leases will continue to be classified as either operating or finance leases in the income statement. Lessor accounting is similar to the current model but updated to align with certain changes to the lessee model. Lessors will continue to classify leases as operating, direct financing or sales-type leases. The effective date of the new standard for public companies is for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition and requires application of the new guidance at the beginning of the earliest comparative period presented. We are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.
On March 30, 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which simplifies various aspects related to the accounting and presentation of share-based payments. The amendments require entities to record all tax effects related to share-based payments at settlement or expiration through the income statement and the windfall tax benefit to be recorded when it arises, subject to normal valuation allowance considerations. All tax-related cash flows resulting from share-based payments are required to be reported as operating activities in the statement of cash flows. The updates relating to the income tax effects of the share-based payments including the cash flow presentation must be adopted either prospectively or retrospectively. Further, the amendments allow the entities to make an accounting policy election to either estimate forfeitures or recognize forfeitures as they occur. If an election is made, the change to recognize forfeitures as they occur must be adopted using a modified retrospective approach with a cumulative effect adjustment recorded to opening retained earnings. The effective date of the new standard for public companies is for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. Early adoption is permitted. Adoption of this standard did not have any material effect on the Company’s financial statements for the period ended December 31, 2016.
The Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
NOTE 3 – GOING CONCERN
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. As of December 31, 2016, the Company has a working capital deficit of $310,646, insufficient cash resources to meet its planned business objectives and accumulated losses from operations of $7,951,648. The Company intends to fund operations through equity financing arrangements, which may be insufficient to fund its capital expenditures, working capital and other cash requirements through March 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 consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
ZNERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
NOTE 4 – INTANGIBLE ASSETS
The Company was granted a federally registered trademark for “ZNERGY”. The cost of applying for and prosecuting this trademark was $1,845 which cost was accounted for as an intangible asset.
NOTE 5 – REAL ESTATE HELD FOR SALE AND DEVELOPMENT
During March 2013, the Company entered into a standard Land Purchase and Sale Agreement with the Mazzal Trust, a related party, for the acquisition of land and buildings located in Taunton, MA for the purchase price of one hundred and fifty million shares of common stock in the Company. The land was originally been recorded at $1,500,000 by the Company and the carrying amount was subsequently reduced to $1,072,000 to reflect the actual cost to the Mazzal Trust.
The property title was transferred on May 29, 2013, in accordance with the Land Purchase and Sale Agreement. This property had originally been classified as land held for development and was reclassified as held for sale upon our decision to sell it. The land includes costs attributable to the development activities; such as land, architect, engineering and construction costs amounting to $25,000.
During April, 2015, the Company acquired a parcel of land located in West Roxbury MA for the purchase of $800,000 from a third party. The purchase price was paid with a loan from a bank in the amount of $385,000 and a loan from a related party in the amount of $415,000. The bank loan was paid off on September 30, 2015, by the related party and the balance paid including accrued interest was added to his related party loan (see Notes 6 and 11). At December 31, 2015, all real estate held by the Company was classified as real estate held for sale.
NOTE 6 – LOAN WITH RELATED PARTY
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Loans with related parties:
|
|
|
|
|
|
|
Mazzal Holding Corp. affiliates
|
|
$
|
-
|
|
|
$
|
860,743
|
|
Znergy, Inc. officers and stockholders
|
|
|
135,749
|
|
|
|
-
|
|
TOTAL
|
|
$
|
135,749
|
|
|
$
|
860,743
|
|
The above loans are unsecured, bear no interest and are repayable on demand.
NOTE 7 – STOCKHOLDERS’ EQUITY
Common Stock
On January 15, 2015 Mazzal Holding Corp. adopted the 2015 Stock Option and Restricted Stock Plan (the “Plan”). In connection with adopting the Plan, the Voting Shareholders also approved a resolution that up to 45,000,000 shares of our common stock may be issued under the terms and conditions of the Plan .
On January 23, 2015, the Company increased its authorized shares of common stock to 500,000,000.
On January 26, 2015, the Board authorized a 10 for 1 forward stock split. All share and per share data in the accompanying financial statements and footnotes has been adjusted retrospectively for the effects of the stock split.
On April 7, 2015, the Company issued 10,000,000 shares of common stock for services registered on Form S-8. These shares were valued at the trading price of the shares of $.04 on the date it was agreed that the shares would be issued of $400,000.
ZNERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
On October 26, 2015, the Company entered into a Share Exchange Agreement with Global ITS, Inc. (Global), and the shareholders of Global, pursuant to which the Company exchanged 120,000,000 of its common shares valued at the trading price of our common stock of $5,988,000 for 24,000,000 Global common shares held by Global’s shareholders representing 100% of Global’s outstanding shares.
On February 9, 2016, the Company agreed to sell to the Mazzal Trust the real property which the Trust had previously sold to the Company and the Trust returned to the Company 149,950,000 of the 150,000,000 shares of the Company’s common stock owned by the Trust. These shares returned to the Company were canceled.
On June 6, 2016, the Company issued 5,000,000 shares of common stock for future services registered on Form S-8. These shares were valued at $0.10 per share ($500,000), the closing price of the shares on that date. The value of these shares has been booked as Deferred Compensation which is being amortized over the one-year term of the agreement.
On September 28, 2016, the Company entered into an employment agreement with Dave Baker (see Note 12) to serve as our Senior Vice President. As part of the agreement, Mr. Baker was granted 500,000 shares of common stock of the Company, vested immediately, which shares were valued at $30,500 ($0.061 per share, the closing price of the shares on the date of grant) and was granted 5,000,000 options to purchase common stock of the Company at $0.10 per share (the “Options”). The Options have a three-year expiration and vest one option for every two dollars in revenue recognized by the Company.
On November 12, 2016, in conjunction with the execution of an Advisory Agreement, the Company issued to Renitia Bertoluzzi 100,000 shares of its common stock, vested immediately, which shares were valued at $6,000 ($0.060 per share, the closing price of the shares on the date of grant) and options to purchase up to 400,000 shares of common stock of the Company at a price of $0.10 per share. The options vest in equal amounts over the eight quarters following the date of execution of the Advisory Agreement.
On December 1, 2016, in conjunction with his promotion to Chief Operating Officer, the Company issued to Dave Baker 4,500,000 shares of its common stock, vested immediately, which shares were value at $270,000 ($0.060 per share, the closing price of the shares on the date of grant).
On December 31, 2016 the Company appointed Arthur Fillmore to the board of directors as well as General Counsel to the Company. In conjunction with his appointment, the Company issued to Mr. Fillmore 3,000,000 shares of its common stock vested immediately, which shares were valued at $120,000 ($0.040 per share, the closing price of the shares on the date of grant). Concomitantly, the Company entered into a consulting agreement with Mr. Fillmore’s employer, AEGIS Professional. This consulting agreement has a term of three years. Upon executing the agreement, the Company issued AEGIS Professional an option to purchase 2,000,000 shares of its common stock at $0.10 per share and a term of 3-years.
There were no options issued or outstanding as of December 31, 2015. The following table shows the stock option activity during the year ended December 31, 2016:
|
|
Number
Of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at beginning of year
|
|
|
-
|
|
|
|
|
Changes during the year:
|
|
|
|
|
|
|
|
Granted - at market price
|
|
|
7,400,000
|
|
|
|
0.10
|
|
Exercised
|
|
|
-
|
|
|
|
0.10
|
|
Expired
|
|
|
-
|
|
|
|
0.10
|
|
Options outstanding at end of year
|
|
|
7,400,000
|
|
|
|
0.10
|
|
Options exercisable at end of year
|
|
|
112,359
|
|
|
|
|
|
Weighted average fair value of options granted during the year
|
|
$
|
375,800
|
|
|
|
|
|
Options issued were valued using the Black-Sholes model assuming zero dividends, a $0.10 strike price, 3-year expiration, 2% risk-free rate and volatility of 205%. Costs incurred in respect of stock based compensation for employees, advisors and consultants, for the years ended December 31, 2016 and 2015 were $724,347 and $-0- respectively. Deferred compensation cost related to common stock issuances was $208,333, which amount is expected to be recognized over approximately 5 months and unrecognized compensation costs related to options was $369,620 which is expected to be recognized over approximately 22 months.
ZNERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
As of December 31, 2016, none of the currently exercisable stock options had intrinsic value. The intrinsic value of each option share is the difference between the fair market value of our common stock and the exercise price of such option share to the extent it is “in-the-money”. Aggregate intrinsic value represents the value that would have been received by the holders of in-the-money options had they exercised their options on the last trading day of the year and sold the underlying shares at the closing stock price on such day. The intrinsic value calculation is based on the assumed market value of our common stock on December 31, 2016 of $0.04 per share. There were no in-the-money options outstanding and exercisable as of December 31, 2016, since the exercise prices of the stock options outstanding and expected to vest were all greater than the fair value of our common stock.
The following table presents changes in the number of non-exercisable options during 2016:
Non-exercisable options
|
|
Number
Issued
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-exercisable options outstanding - December 31, 2015
|
|
|
-
|
|
|
|
|
Options issued
|
|
|
7,400,000
|
|
|
|
0.10
|
|
Options expired
|
|
|
-
|
|
|
|
0.10
|
|
Options cancelled
|
|
|
-
|
|
|
|
0.10
|
|
Options vested
|
|
|
(112,359
|
)
|
|
|
0.10
|
|
Total non-exercisable options outstanding - December 31,2016
|
|
|
7,287,641
|
|
|
|
|
|
NOTE 8 – INCOME TAXES
No provision was made for federal income taxes since the Company has net operating losses for which the related deferred tax asset has been offset by a full valuation allowance. At December 31, 2016, the Company had operating loss carryforwards of approximately $630,968 as shown in the table below:
Accumulated deficit
|
|
$
|
7,951,648
|
|
Shares and options issued for services
|
|
|
(1,332,680
|
)
|
Shares issued for purchased research in acquisition
|
|
|
(5,988,000
|
)
|
Operating loss available to offset income
|
|
$
|
630,968
|
|
The net operating loss carry-forwards may be used to reduce taxable income through the year 2035. The principal difference between the net operating loss for book purposes and income tax purposes results from non-cash charges to operations related to common shares issued for services and acquisitions that are not currently deductible for income tax purposes. The availability of the Company’s net operating loss carry-forwards are subject to significant limitation if there is more than 50% positive change in the ownership of the Company’s stock.
Income Tax at Statutory Rate
|
|
|
34
|
%
|
Effect of Valuation Allowance
|
|
|
(34
|
%)
|
|
|
|
-
|
|
NOTE 9 – ACQUISITION
On October 26, 2015, the Company entered into a Share Exchange Agreement (the Agreement) with Global ITS, Inc. (Global), a Wyoming corporation and its wholly owned subsidiary Znergy, Inc (Znergy) a Florida corporation and the shareholders of Global, pursuant to which the Company exchanged 120,000,000 of our common shares (the Company Shares) for 24,000,000 Global common shares held by Global’s shareholders representing 100% of Global’s outstanding shares (the Share Exchange). Global’s financial results are consolidated with Mazzal’s as of the acquisition date. Global’s and Znergy’s operations were nominal since their inceptions. The transaction was accounted for as a business combination.
ZNERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
Fair values of the assets acquired and liabilities assumed in acquisition of Global are summarized below:
Current assets – cash
|
|
$
|
100
|
|
Intangible assets
|
|
|
5,595
|
|
Total assets acquired
|
|
|
5,695
|
|
Current liabilities
|
|
|
7,222
|
|
Net liabilities assumed
|
|
|
1,527
|
|
Purchased research and development
|
|
|
5,988,000
|
|
Purchase price
|
|
$
|
5,989,527
|
|
The Consideration consisted of the issuance of 120,000,000 common shares with a fair value of $5,988,000 which was expensed as purchased research and development.
The unaudited results of operations had the acquisition been made at the beginning of 2015 would have been as follows:
2015:
|
|
|
|
Revenue
|
|
$
|
-
|
|
Net loss
|
|
$
|
(6,499,000
|
)
|
Net loss per share
|
|
$
|
(0.03
|
)
|
NOTE 10 – SALE OF REAL ESTATE AND RETIREMENT OF COMMON STOCK
On February 9, 2016, the Company agreed to sell to the Mazzal Trust (the “Trust”) all of its real property with a carrying value of $1,897,000 and the Trust assumed the related party loan with a carrying value of $860,743 and accounts payable and accrued expenses with a carrying value of $16,364. In exchange the Trust returned to the Company 149,950,000 of the 150,000,000 shares of the Company’s common stock owned by the Trust and the Company canceled the 149,950,000 shares of common stock conveyed by the Trust.
In connection with his sale of his and Mr. Telsi’s shares, Mr. Trabelsi appointed Christopher J. Floyd to the Board of Directors of the Company. Mr. Trabelsi also appointed Mr. Floyd as the CEO, CFO, and Secretary of the Company. Following Mr. Trabelsi’s appointment of Mr. Floyd to the boards of directors and as an officer of the Company, Mr. Trabelsi resigned from all positions with the Company effective immediately.
NOTE 11 – LEGAL ISSUES
16(b) Litigation
On September 26, 2016, Registrant filed in the United States District Court for the Middle District of Florida a Complaint against defendants The Mazzal Trust, Nissim S. Trabelsi and Shawn Telsi (collectively the “Defendants”), seeking the disgorgement of profits obtained by Defendants and certain of their shareholder affiliates defined under Rule 16a-1(a)(1) under the Exchange Act defined below (collectively, the “Group”) through “short swing profits” in violation of Section 16(b) of the Securities Exchange Act of 1934 (the “Exchange Act”). Specifically, Registrant alleged that the Group acted under the guidance and control of the Defendants, whose individual defendants had filed forms 3 and 4 with the Securities and Exchange Commission (the “SEC”, declaring themselves to be “insiders” for the purpose of Section 16(b). The Group owned 100% of the shares of Registrant at the time that members of the group were engaged in the sale and purchase of such shares. The sales and purchases referenced all occurred with six months of other sales and purchases, subjecting Defendants to disgorge to Registrant all profits made by the Group in such sales and purchases. As detailed in paragraphs 16-22 of the Complaint, the total profits received by the Group is $1,695,689. Accordingly, Registrant has demanded the return of all such profits to Registrant plus the statutory payment of attorneys’ fees.
ZNERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
VStock Transfer Communications
On January 26, 2017, the Company received an email from its transfer agent, VStock Transfer, LLC, (“VStock”) informing the Company that it had been served with a Summons and Complaint (B2 Opportunity Fund (“B2”) v. Trabelsi et al. - Index No.:17-CV-10043, the “Claim”) and further stating that the Company was obligated to indemnify VStock for fees and expenses incurred in defending the Claim. The Company responded on February 24, 2017 stating that (1) we reviewed the Transfer Agent and Registrar Agreement between Mazzal and VStock dated May 20, 2014 and that in Article VI(c) of that agreement it states that indemnification will not be offered if the acts of VStock constitute bad faith or gross negligence, (2) we reviewed the lawsuit filed by B2 against VStock and others and find that VStock’s actions constitute gross negligence and perhaps bad faith, and we therefore deny indemnification of VStock relating to the Claim, and (3) should VStock take any action to seek indemnification by Znergy in any manner, Znergy will either join B2 in its lawsuit or will file an action on its own. The Company terminated its agreement with VStock. Management cannot at this time estimate what, if any, financial impact this matter will have on the Company.
NOTE 12 – COMMITMENTS AND CONCENTRATIONS
The Company at this time has one principal supplier. All EE sales were made in the fourth quarter of 2016 and aggregated $182,127. 82% of the Company’s revenue was generated from one customer and 91% of accounts receivable consisting of rebates is due from one utility.
The Company has no leases and no employment agreements other than that with our Chief Operating Officer, Mr. Baker. Mr. Baker’s agreement, dated September 28, 2016, has a term of three years, specifies an annual base salary of $100,000 which salary will be reviewed by the Compensation Committee of the Board of Directors by April 15, 2017 and annually thereafter, a signing bonus of $10,000 and a bonus in January 2017 equal to 6% of the total revenue generated by Mr. Baker in the fourth quarter of 2016. In addition, Mr. Baker was granted 500,000 shares of common stock of the Company, vested immediately, and was granted 5,000,000 options to purchase common stock of the Company at $0.10 per share (the “Options”). The Options have a three-year expiration and vest one option for every two dollars of revenue recognized by the Company.
NOTE 13 – SUBSEQUENT EVENTS
On January 23, 2017 the Company entered into a consulting agreement with Venture Legal Services, PLLC, to provide legal and strategic advisory services for the Company. In conjunction with the execution of this agreement, the Company granted Venture options to purchase up to 2,000,000 shares of its common stock at a price of $0.10 per share. The options have an expiration of three years from the date of issue and vest one option for every two dollars of revenue recognized by the Company on a quarterly basis.
On January 26, 2017 the Company appointed Richard Mikles as Chairman of the board of directors and issued to Mr. Mikles 3,000,000 shares of its common stock vested immediately, and 4,000,000 options to purchase shares of common stock of the Company at a price of $0.10 per share said options vesting equally over eight quarters and having an expiration of three years from the date of issue. Concomitantly, the Company entered into a consulting agreement with Mr. Mikles to provide marketing, strategic, and organizational services to the Company. Upon execution of this consulting agreement the Company issued 2,000,000 shares of common stock, vested immediately, and 5,000,000 options to purchase shares of common stock of the Company at a price of $0.10 per share said options to vest quarterly in the amount of one option for every two dollars of revenue recognized by the Company.
On January 31, 2017 the Company appointed Kevin Harrington to its Board of Directors and issued 2,000,000 shares of its common stock, vested immediately, and 4,000,000 options to purchase shares of common stock of the Company at a price of $0.10 per share said options vesting equally over eight quarters and having an expiration of three years from the date of issue.
15(a)(2). Financial Statement Schedules.
None.
15(a)(3). Exhibits.
Exhibit No.
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Description
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3.1
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Articles of Incorporation for BIDC (previously filed as an exhibit to the Company’s registration statement on Form S-1, filed with the Commission on June 10, 2013)
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3.2
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By laws of BIDC (previously filed as an exhibit to the Company’s registration statement on Form S-1, filed with the Commission on June 10, 2013)
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4
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2015 Incentive Stock Option and Restricted Stock Plan (previously filed as an exhibit to the Company’s Definitive Information Statement on Schedule 14C filed on March 3, 2015, and incorporated herein by reference)
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10.1
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Share Exchange Agreement, dated as of October 26, 2015 (previously filed as an exhibit to the Company’s Current Report on Form 8-K filed October 27, 2015, and incorporated by reference)
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10.2
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Master Stock Purchase Agreement (previously filed as an exhibit to the Company’s Current Report on Form 8-K filed February 12, 2016, and incorporated by reference)
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31
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32
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101 INS
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XBRL Instance Document*
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101 SCH
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XBRL Schema Document*
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101 CAL
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XBRL Calculation Linkbase Document*
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101 DEF
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XBRL Definition Linkbase Document*
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101 LAB
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XBRL Labels Linkbase Document*
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101 PRE
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XBRL Presentation Linkbase Document*
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* The XBRL related information in Exhibit 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.