UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10
GENERAL
FORM FOR REGISTRATION OF SECURITIES
Pursuant
to Section 12(b) or (g) of The Securities Exchange Act of 1934
THE
CHRON ORGANIZATION, INC.
(Exact
name of registrant as specified in its charter)
Nevada
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20-8881686
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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5851
Legacy Circle, Suite 600, Plano TX
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75024
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code (469) 626-5275 Securities to be registered pursuant to Section 12(b) of the Act:
Title
of each class
to be so registered
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Name
of each exchange on which
each class is to be registered
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Securities
to be registered pursuant to Section 12(g) of the Act:
Class
A Common Stock, $0.001 par value per share
(Title
of Class)
(Title
of Class)
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer, “accelerated filer “and “smaller reporting
company “in Rule 12b- 2 of the Exchange Act.
Large
accelerated filer [ ]
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Accelerated filer
[ ]
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Non-accelerated
filer [ ] (Do not check if a smaller reporting company)
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Smaller reporting
company [X]
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Indicate
by check mark whether the registrant is an “emerging growth company” as defined in Section 2(a) of the Securities
Act and Section 3(a) of the Exchange Act. Yes [X] No [ ]
Indicate
by check mark whether the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act and Section 13(a) of the Exchange
Act.
[ ]
Table
of Contents
TABLE
OF CONTENTS
FORWARD
LOOKING STATEMENTS
This
report contains forward-looking statements. The Securities and Exchange Commission encourages companies to disclose forward-looking
information so that investors can better understand a company’s future prospects and make informed investment decisions.
This report and other written and oral statements that we make from time to time contain such forward-looking statements that
set out anticipated results based on management’s plans and assumptions regarding future events or performance. We have
tried, wherever possible, to identify such statements by using words such as “anticipate,” “estimate,”
“expect,” “project,” “intend,” “plan,” “believe,” “will”
and similar expressions in connection with any discussion of future operating or financial performance. In particular, these include
statements relating to future actions, future performance or results of current and anticipated sales efforts, expenses and financial
results.
We
caution that the factors described herein and other factors could cause our actual results of operations and financial condition
to differ materially from those expressed in any forward-looking statements we make and that investors should not place undue
reliance on any such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which such
statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of anticipated or unanticipated events or circumstances.
New factors emerge from time to time, and it is not possible for us to predict all of such factors. Further, we cannot assess
the impact of each such factor on our results of operations or the extent to which any factor, or combination of factors, may
cause actual results to differ materially from those contained in any forward-looking statements.
INFORMATION
REQUIRED IN REGISTRATION STATEMENT
Item
1. Business.
DESCRIPTION
OF BUSINESS
Our
Corporate History
We
were incorporated in Nevada on May 28, 1999 as Paragon Polaris Strategies.com, Inc. In May 2010, we merged with Texas Hill Country
Barbecue, Inc., and on June 2, 2010, changed our name to Texas Hill Country Barbecue, Inc. On August 21, 2010, we filed our Initial
Company Information and Disclosure Statement with the OTC Markets, changed our name to Texas Hill Country Barbecue, Inc. and our
stock-trading symbol to “THCB”. In March 2013, we changed our name to South American Properties with the new stock
symbol of “SAMP”. In October 2014, we changed our name to USA Restaurant Funding, Inc. and our trading symbol to “USAR.”
Effective on March 24, 2016, we changed our name to The Chron Organization, Inc. and our stock trading symbol to “CHRO”.
We are now engaged in the business of selling retail smart home technologies with plans to sell electric energy to retail customers
in Texas.
Business
Overview
Our
business model is built around the philosophy that smart home services such as automation and video safety, the Internet of Things
(IoT), energy conservation, and overall responsible decision making that supports sustainability are burgeoning trends. Combined,
these are creating two megatrends known as the “Internet of Everything” and the “Smart Home”. Towards
making our claim in this emerging industry, we have built a “Smart Services” platform and “Retail Energy Platform”
that combined will allow us to provide a unique suite of products and services to both residential and commercial customers. Currently,
we are engaged in the business of (i) selling retail smart home technology, controls and monitoring services, (ii) commercial
energy conservation equipment, LED lighting and lighting controls, and (iii) residential and commercial energy utility services.
As
part of our smart home technology offering, we provide home automation, controls, security, video, and energy conservation services
to homeowners through our wholly owned subsidiary, Zen Technologies, Inc. (“Zen”). We provide eight core product packages,
designed to accommodate a range of home configurations from the one-bedroom townhome all the way up to the 6,000-square foot single-family
home. The basis for our core product offering is to, at a minimum, automate the customers’ lights, locks, and thermostats;
from here, the customer can add video options, or other technologies for entertainment or comfort (e.g. smart doorbell, automated
blinds or smart water sprinkler systems). For our business-to-business sector, we offer a Zero Cost Program™. This is a
turnkey solution that will upgrade older, inefficient equipment and lighting controls at no up-front cost to our client with the
cost of the Program paid for out of the savings it creates. In our retail energy sector, through a Texas PUC approved and licensed
“Retail Electric Provider” or “REP”, we will target our base of customers in both our smart home technology
and commercial sectors.
We
believe that the combination of our smart controls technologies and energy conservation products, coupled with the ability to
provide retail energy services, provides us with a significant advantage over our competitors. Furthermore, this combination allows
us to provide a very unique value proposition to the customer.
Business
Strategy & Roadmap
The
following sets forth the Company’s three-phase deployment plan:
Phase
I: 6-12 Months (From Official Launch of Zen Technologies Brand - September 2016))
The
Company has executed its soft launch by leveraging white label technologies from strategic vendors and implementing a proprietary
blend and product offering using the same. It has established its brand and mission and is mastering order processing via its
customized proprietary e-commerce platform: zenhomeservices.com and livewithzen.com. The Company has also begun targeting business
customers (commercial, industrial, and municipal) through its innovative Zero-Cost Program
TM
rollout, wherein it has
several noteworthy clients already under engagement.
Phase
II: 12-24 Months
The
Company plans to deploy its energy offering, converging its services to become seamless in its integration of Smart Home technology
and green energy services. The Company expects to launch new sales channels toward dominating the markets. In addition to homeowners
and apartment dwellers, the Company plans to target business accounts (commercial, industrial, and municipal).
Phase
III: >24 Months
The
Company plans to deploy a proprietary Zen IoT (Internet of Things)/Automation platform that will be designed to feature one of
a kind and/or first of its kind features and services designed to facilitate our customers’ lives. This platform is expected
to create a considerable base of intellectual property for the Company while also significantly reducing our cost to serve each
customer with respect to the monthly service fee. We plan to establish credibility, notoriety, and a strong lobbying position
in the industry. The Company will also create innovative benchmarking metrics for mass adoption of its products and services.
Additionally, the Company will focus on the unique value proposition of its offerings: automation/lifestyle, protection/security,
energy efficiency, water conservation, and cost-efficient social responsibility.
Zen
Technologies, Inc.
Zen
is currently in the soft launch stage of rolling out our products and services; meaning that we are up and operational, however,
still picking and choosing our customers, clients, and marketing channels. Zen is a 21st century home services company whose mission
is to bring all the benefits of the “Smart Home” to millions of homeowners across the United States; including smart
controls and innovative energy products and services to business customers. Zen provides eight different Smart Home packages that
cover all dwelling/living scenarios including apartments and up to 6,000 square foot single-family homes. These packages enable
a homeowner to automate their lights, locks, and thermostats. These also include video solutions, security, monitoring, and an
application that can accommodate all smart home appliances (washers, dryers, dish washers, refrigerators, coffee makers, blinds,
water sprinkler systems and entertainment systems) that may be added at the time of purchase or at a later date. Zen combines
our exclusive and customizable product solutions with green energy services, which allows our consumers to save money on their
monthly energy costs while reducing their long-term carbon footprint. Today, Zen supports approximately 50 different stock keeping
units (SKUs), however, the Company plans to expand that number to nearly a thousand over the next 12-18 months. In that spirit,
a very recent and noteworthy development was Zen’s approval to become a Bose™ distributor.
Additionally,
with Zen’s Zero Cost Program™, the Company has entered into the commercial side of the industry with the ability to
upgrade its customers with the latest energy saving equipment and controls at no upfront cost to them. This line of equipment
and services includes, but is not limited to, LED lighting, weatherization services, motor controllers, EC motor controllers,
HVAC accessories, smart devices and controls, solar, geo-thermal generation, oxidized water solutions, energy capacitors and energy
storage devices.
The
Smart Home Market
We
believe that based on the benefits of our products and their affordability, the time is ripe for consumers to adopt
this wave of home automation. Smart home solutions and related technologies are increasingly becoming mainstream by allowing customers
to control and dial up most everything in their home, from remotely turning on and off lights, switches and appliances, adjusting
and setting the thermostat, to seeing who’s at the front door or reviewing video footage of what happened in the living
room a few hours earlier, and so much more.
Consumer
Confidence & Maturation
According
to a report by iControl Networks
1
, the Smart Home Market is projected to grow into a $121.73 billion a
year industry by 2022, and the typical family home will consist of 500 smart devices by that same year. The report further noted
it would be the automation of lights, locks, and thermostats (energy usage), and video monitoring playing a cornerstone role in
the bridge to mainstream consumerism. Some key statistics show that:
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70%
are excited about the potential cost savings from energy efficiency and monitoring
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48%
are excited about the convenience in programming home settings and maintenance
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47%
are excited about the potential to help the environment with greater energy efficiency
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Smart
Home Product Offerings
Historically,
the ability to have a Smart Home (automated controls for lights, locks and thermostats – combined with entertainment systems),
was a luxury only affordable to the affluent. According to our research , we have estimated the average entry price for a
system at $150,000. However, thanks to advances in technology, standardization in data protocols, bandwidth abundance, and consumer
demand, the overall ability for the average homeowner to enjoy a Smart Home has become a reality today. Herein lies the Zen mission
–
to make the Smart Home a reality for the masses
.
1
https://www.icontrol.com/wp-content/uploads/2015/06/Smart_Home_Report_2015.pdf
Zen’s
product packages, which cover a range of dwelling types and living scenarios, are designed to allow homeowners to automate their
lights, locks, and thermostats among other compatible devices. It should be noted that by design, all of our product packages
can be viewed as a “starting point”. Customers can add items on an a-la-carte basis, such as extra video cameras,
blinds, extra sensors, entertainment options (TV, entertainment centers, sound systems), appliances (washers, dryers, refrigerators,
coffee makers), intercom systems, and many other technology options. As an example, we’ve included an image of the
Zen
Smart Pro
Home Automation & Security Kit. This is one of our eight different packages and is ideal for homes up to 2,500
square feet.
Zen
Smart Pro
Zero-Cost
Program
™ For Commercial, Industrial and Municipal Customers
The
Zero-Cost Program™ is a turnkey solution that will upgrade older, inefficient equipment and lighting controls at no up-front
cost to our client and future service fees are effectively paid for out of the savings it creates.
The
process for the Program starts with a site survey to determine the current equipment and operating environment of the prospective
customer. Once a survey is complete, Zen creates a proposal detailing the solutions needed in order to maximize savings out of
that individual business. Every business is different and solutions are tailored for each business. Upon approval from the customer,
Zen will install the upgrades, controls and components that power the customer’s business, enabling it to be more energy-efficient.
The savings is expected to range anywhere between 15% and as much as 60%.
The
Zero-Cost Program works through a “Services Agreement”. This means that our clients will have no initial upfront costs.
This Services Agreement carries a full warranty for the term of the initial agreement. The business are expected to begin saving
money immediately from lower energy consumption. Through the Services Agreement, Zen will finance the equipment and installation
for all the chosen upgraded technologies and conservation solutions, which are billable in a separate invoice over the term of
the agreement.
Over
the first quarter of 2017, Zen has created a pipeline of commercial prospects and has acquired eight commercial clients, representing
approximately 400 different actual locations where site surveys are being scheduled. These include convenience stores, gas stations,
hotels, and schools, several with the initial phase of installations already underway while we are seeking credit approval from
some. For example, one of our clients owns a chain of over 50 convenience stores (with gas stations). Zen also has an open agreement
with The Oklahoma Groceries Association representing over 1,800 locations to offer this Program to its members. Additionally,
Zen has partnered with one of the largest suppliers of equipment and services in the hotel industry, which itself owns over 300
hotels and represents thousands of locations nationwide. We are currently in the planning stages of a joint marketing relationship
with this particular organization.
Marketing
The
Company plans to utilize several distribution channels for our product offerings including, but not limited to, the following:
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Company
Branded & Affiliate Internet Marketing:
This encompasses our own Internet marketing efforts, as well as working with
third party websites that provide utility connection services to new homeowners or families moving into a new city.
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Referral
Partner Network:
Also, known as an “Agent Network”, is a network of independent contractors who serve as referral
sources for our products and services in exchange for an ongoing commission fee. This model has been the source of most all
of our “Zero-Cost” customers and prospects to date.
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Network
Marketing Channels:
Also referred to as “Multi-Level-Marketing” or “Direct Sales Organizations”,
these consist of groups of independent contractors who market and serve as distributors for similar or related products and
services. We are currently engaged in discussions with several different Network Marketing entities for the purposes of entering
into a joint marketing/client vendor relationship.
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●
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Homebuilders:
It is common for homebuilders to work with home alarm companies as they develop and begin to market homes. While we are
still in the early stages, we believe that his trend is being replaced by working with Smart Home companies instead of traditional
home alarm companies. We are in early stage discussions with these types of companies today and expect to establish our first
relationship sometime in the latter part of 2017.
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Door-to-Door
Teams:
These are traditional marketing channels that are used by other industries such as cable, internet, pesticide,
energy, and/or home alarm services companies. While this model requires a considerable capital commitment, it can be very
effective and methodical. We plan on launching such channels sometime in 2018.
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Operations
Chairman,
Mr. Byron Young and CEO and President, Mr. Alex Rodriguez, two renowned entrepreneurs with a proven track record of building hyper-growth
companies, lead our management team. Together, they represent a combined 40 years of experience in the deregulated services industries
(telecommunications, wireless, internet services, electricity and natural gas retail services). Under this executive leadership
duo, we’ve begun to build a management team comprising senior management members who represent an additional 50 years of
cumulative experience in the home alarm, home automation, and home entertainment industries.
We’ve
developed a fully customized, internal enterprise resource planning (ERP) system (“Zen Plus”) that is designed
to allow us to accommodate thousands of customer enrollments from a myriad of marketing channels, on a national basis. Zen Plus
allows the Company to automate and manage, in real time, customers’ needs from point of sale through logistics and installation,
and all the way through the renewal process at the end of the three or five-year service term. We believe that this operational
infrastructure will allow us to deliver a consistent, quality customer experience.
Furthermore,
our fully integrated customer experience allows our sales representatives, customer service representatives and installation technicians
to work closely together to provide the customer with an integrated process from contract origination to daily use. We believe
that our customer service representatives deliver a quality customer service experience that enhances our brand and improves customer
satisfaction. Customer service representatives will generally resolve most maintenance and service related questions over the
telephone or through remote-access to the customer’s system.
Field
Service Operations
We’ve
created a network of professional third-party field service technicians (“FSTs”) throughout the United
States, who reside in their service territories, to provide prompt service to our residential and commercial customers. FSTs undergo
comprehensive training on our products and service packages. FSTs are also trained and equipped to handle everything from installation
to general day-to-day maintenance or services issues that may come up. Many of our FST’s are independent contractors or
third party service organizations whom provide outsourced service personnel for several service providers such as cable or alarm
companies.
We
do not maintain a costly physical warehouse, retail or office locations for our FSTs. Instead, we provide FSTs with adequate supplies
of products and materials. Field service inventories are replenished by shipments that are processed through the Zen Plus platform
and made from our strategic suppliers straight to the customer’s location. The Zen Plus platform is fully integrated with
all of our various trading partners, such as monitoring stations, infrastructure providers, ordering systems, and logistical and
shipment systems. Moreover, it provides a user interface and/or log-in capabilities for Zen employees, Zen FST’s, and even
for customers, wherein they can make payments, research past billing history or make ad-hoc product purchases. The Zen Plus platform
also schedules appointments, routes technicians, and follows up with customers to ensure that every service was performed to their
satisfaction.
Customer
Service and Alarm Monitoring
Our
customer service center is in Dallas, Texas and is staffed with our employees. Hours of operation are Mon - Fri from 9:00
am to 6:00 pm Central Standard Time. We have contracted with a third-party for monitoring facilities that are open 24 hours a
day, 7 days a week, and 365 days a year. All employees who work in our customer service department undergo training on regulatory
requirements, general corporate, product and technical training and billing related issues. Customer service representatives are
required to pass background checks and, depending upon their job function, may require licensing by certain state jurisdictions.
Key
Systems
As
previously stated above, we have developed our own customized ERP/CRM software platform, which we implemented in August of 2016.
This operating platform is an integrated enterprise resource planning and a customer relationship management and billing system,
which we’ve aptly named “Zen Plus”. The Zen Plus system is based on a well-established enterprise-scale cloud
solution. We believe that the Zen Plus system will be able to scale with our business, providing the flexibility to accommodate
the multiple customer support and billing models resulting from the anticipated expansion in our product and service packages
over time. It also allows for operational efficiency by not requiring the entry of data multiple times and improving data accuracy.
Billing
Customers
can enroll through any of our various enrollment websites or by an inbound telesales call into our call center to make their initial
order; these orders are paid for electronically either via ACH or credit card. After the initial enrollment process, customers
are then billed each month for our monitoring service. This is done electronically through ACH or credit card details each customer
provided during their enrollment process, all of which is managed through and by the Zen Plus platform.
Competition
and Competitive Landscape
We
believe that the Smart Home industry is disparate and fragmented because of its infancy. To date, there are only a handful of
players in the industry that would be considered full-fledged Smart Home Services providers – most of them brand new companies
with very little market share. Today, the segment is getting growth from three different types of companies. The first types are
traditional home alarm companies; these are longstanding companies that have built legacy businesses out of fear-based marketing
tactics in order to sell alarm systems. They are working diligently on pivoting their business models. The second types are hardware
manufacturers; these are companies that create some type of hardware and/or line of hardware that can be used and implemented
by the user in his/her home. Most these companies sell under the Do-It-Yourself (“DIY”) model; examples include notification
devices, cameras, or thermostats. The third type typically encompass local or regional companies (small businesses) that focus
on providing low voltage hardwire services while selling high-end entertainment systems.
We
believe that the only true player in home automation has been industry giant, Crestron Electronics (“Crestron”). This
company meets all of the requirements to qualify as a true smart home product line. However, Crestron operates in a niche market
of high net worth individuals or families, with product offerings not affordable to the masses. According to most industry experts,
the entry-level price for a Crestron system is in the $150,000 range. These types of systems rule out the masses, which is Zen’s
target audience – from $100,000- townhomes up to $2,000,000 single-family homes.
To
further contrast against the industry at large, Zen is positioned as a modern technology and utility company making the Smart
Home a reality for the masses by offering affordable home automation, security, and energy conservation/management products and
services. Like the bigger, more established players, Zen also offers traditional security services, with a deliberate focus on
a customizable turnkey solution for small to medium-sized businesses.
Zen
Energy, Inc. (Wholly-Owned Subsidiary)
Background
on Energy Industry and Deregulation
Until
the 1980s, generation, transmission, distribution and sales/marketing or supply of electricity and natural gas in the United States
were conducted by local publicly-funded monopolies. In the 1980s and 1990s, state legislatures began passing laws designed to
create competitive retail sales and supply in the natural gas markets. Electricity deregulation in the United States followed
approximately a decade later with 24 states that allow the resale of electricity in one form or another.
Electricity
Industry Overview
There
are three primary components of the electricity industry:
Generation:
Electricity is most often generated at a power plant or station. The industry employs a variety of technologies to generate
electricity such as traditional thermal (coal, natural gas, and oil), nuclear power, as well as renewable resources, including
wind, water, sunlight, biofuels, and wood waste. Historically, government and private investor-owned utility companies controlled
the electricity generation component.
Transmission
& Distribution:
Following the generation of electricity, high voltage transmission lines carry the electricity throughout
the power system to electrical substations. In many markets, Regional Transmission Organizations (RTOs) and Independent System
Operators (ISOs) manage the electricity flows, maintain reliability, and administer transmission access for the electric transmission
grid in a defined region. RTOs and ISOs coordinate and monitor communications among the generator, distributor and Energy Retailer.
Additionally, RTOs and ISOs manage the real-time electricity supply and demand. The transmission system is regulated by FERC.
Once
the electricity has been transmitted through the high voltage power grid, Local Distribution Company’s (LDCs) direct the
electricity from the high voltage transmission systems to lower voltage distribution networks, which ultimately connect the ‘‘last
mile’’ to the customer. These networks are comprised of lines of various voltage levels, substations, transformers,
and meters. These lines are regulated by state public utility commissions and managed by the LDCs.
Retail
Sales of Energy (Customer Service & Billing):
In states that have authorized deregulation or retail competition, Energy
Retailers (also referred to as “Retail Energy Providers”) market and sell electricity to end-users, providing customers
with alternatives to purchasing their electricity from their LDC. Energy Retailers typically do not generate electricity and instead
buy wholesale electricity from a variety of sources, including, but not limited to, directly from a generation facility, from
financial institutions, from the ISOs and RTOs, or from energy companies that actively trade power. Energy Retailers then resell
the electricity to end-user customers at unregulated rates, earning the difference between the delivered wholesale price and the
end-user price.
Retail
Electricity Market
The
retail electricity market can be categorized into two main customer segments: (i) residential and small business, and (ii) large
commercial and industrial. Energy Retailers operate in the retail electricity market by providing a variety of renewable, fixed
and variable rate electricity contracts to customers for varying periods of time. In general, large commercial and industrial
customers are serviced by fixed price contracts for up to five years. By contrast, residential and small-to-medium size commercial
customers are typically serviced by short-term month-to-month variable price contracts or fixed term, fixed price contracts for
up to one or two years. Some Energy Retailers focus only on one customer segment (e.g. residential), while others focus on the
full spectrum of customers.
In
many cases (dependent by state), Energy Retailers may use the LDC to invoice and collect from customers for energy supply and
other costs. Under arrangements entered into between the Energy Retailers and the LDCs, LDCs remain responsible for the delivery
of the electricity from the ISO or RTO to the customer’s residence or place of business. This ensures reliability to the
markets.
Competitive
Landscape
The
deregulation of the electricity industry is a practice that has been occurring since the 1990’s. However, because of the
complex nature and various aspects of the energy industry, the pace has been slow. The reason behind this is that the deregulation
of the energy industry happens upon two, in some cases, three different frameworks. First, you have the wholesale aspects of the
energy industry, which include the building of, owning and managing independent power plants or power trading companies. Secondly,
you have the retail aspect of deregulation. In some cases, these happen at a federal level, however, in most cases of the retail
aspects of deregulation, this must occur on a state-by-state basis, as it is largely a legislative action. The legislative action
must then be followed up and supported by the respective Independent System Operator (ISO), in other words “the grid”
in that geographic area.
As
it pertains to Zen Energy, we plan to enter into and expand into all deregulated energy markets, however, today, we are exclusively
concerned with and focused on the retail electric industry in the state of Texas, otherwise known as the ERCOT (Electric Reliability
Council of Texas) market. The deregulation of Texas has been considered by many industry insiders and policy makers as the
“poster child for deregulation”, as cited by ABACCUS Report in the Albany Times when reporting that the state of “New
York ranked 2
nd
best for electricity competition”, after the Texas market taking 1
st
place
2
.
This is mostly because it has been very successful; it has been an economic stimulus and has fostered competition. Texans pay
among the lowest electricity rates in the nation and the age of innovative products in electricity is now showing early signs
of potential success. This latter aspect is where Zen Energy plans to differentiate itself from the rest of the market.
As
of the time of this filing, there are well over 100 entities that are licensed as a Retail Electric Provider in the state of Texas.
However, only approximately 60 of these are operational and of these 60, some are focused only on commercial customers, some only
on residential, and a few equally on both of these customer demographics. Moreover, of the 60 operational Retail Energy Providers,
it is safe to assume that only approximately 15 to 20 are relevant; by this, we mean any Retain Energy Provider that is serving
over 10,000 customers.
Since
2009 and the constant of low natural gas prices, most markets, including Texas, have experienced a very low cost of goods sold.
This has brought most Retail Energy Providers into a margin game where they are paying very little attention to the actual value
they could bring to their customers. Very few are focused on their value and even fewer are focused on being different. Most of
the differentiation in the market is around who can write their contracts more creatively to fool their customers.
Conversely,
Zen Energy is entering the market differently with most of our focus on our differentiation and the value we plan to bring to
customers. Zen Energy’s plans are different in the following ways:
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|
Smart
Home Offering:
Texas and its consumers have spent a fortune building out a mass smart meter infrastructure that is uniform
throughout the entire deregulated territory; however, there is very little to show for this massive investment in the way
of product innovation. Zen Energy plans to bring an entire portfolio of Smart Home solutions, thereby making it the first
and only company in the industry that can control lighting, air conditioning, major appliances, and the electricity meter.
No other Energy Retailer offers this capability.
|
2.
See New York Ranks 2
nd
-best for electricity competition (
https://www.plymouthenergy.com/new-york-ranks-2nd-best-for-electricity-competition/),
Texas Competitive Model Spreads to Pennsylvania and Illinois (
http://www.powermag.com/texas-competitive-model-spreads-to-pennsylvania-and-illinois/)
and Growing competitive electricity could make Pennsylvania the next Texas (https://electricityrates.com/growing-competitive-electricity-could-make-pennsylvania-the-next-texas/
).
●
|
Time
of Use Products (TOU) and Renewable Focused:
Zen Energy plans to offer a fully integrated TOU electricity product to work
in conjunction with its smart home solutions to completely integrate a consumer’s behavior with their energy usage.
A TOU product offers a variable price throughout the day so that consumers can adjust their behavior to coincide with lower
energy prices. Additionally, Zen Energy plans to purchase primarily from renewable sources, so consumers can be assured to
know they are doing their part in contributing to a cleaner environment and more sustainable lifestyle.
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Demand
Response:
This term essentially means the ability to turn off (or power down) energy-consuming devices during peak times
when energy prices are at their highest. In the Texas market place, energy prices change every 15 minutes throughout the day.
During the peak season, it’s not uncommon for prices to increase 10, 50, or even 100-fold during super peak hours. Zen
Energy will have the opportunity to offer customers on-demand, demand-response options that will allow customers to participate
in revenue share opportunities.
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Energy
Business Operations
The
Company will take advantage of synergies between Zen Technologies and Zen Energy, customer services, marketing, and most all back-office
functions would be considered shared services between the companies. The most important functions that require subject matter
experts include customer provisioning and energy risk management (procurement, margin control, forecasting, and wholesale settlements).
For these two areas, the Company has begun the hiring process for the appropriate managers and executives.
Entry
into the Energy Marketplace
The
Company is in the final stages of completing its acquisition of a Texas-based licensed Retail Electric Provider . On January 20,
2017, the Company’s wholly owned subsidiary, Zen Energy, entered into an agreement to acquire 80% of Enertrade Electric,
LLC, (“Enertrade”) a Texas licensed Retail Energy Provider from its members (the “Sellers”). Conditions
precedent to closing the transaction include, but are not limited to, (i) the Sellers obtaining all material consents, approvals,
permits, authorization from, notifications to, and filings with any governmental entities including, without limitations, the
Texas Public Utilities Commission (PUCT) and (ii) all approvals, consents and waivers shall have been obtained from Enertrade’
s wholesale supplier.
The
purchase price for the interest in Enertrade is $1,500,000 with the initial payment of $500,000 at closing (subject to certain
adjustments that may increase or decrease the initial amount) and a $1,000,000 promissory note without interest (subject to be
adjusted downward for any increase in the initial payment) and payable in two equal installments, the first of which is due 90
days from the closing date and the second due 180 days from the closing date. The Company was obligated to close this transaction
no later than March 21, 2017. Although the Company did not close by this date, the parties have continued to pursue obtaining
the required consents in cooperation with Enertrade and the Sellers and have an oral understanding with such parties to extend
the closing date while pursuing such consents.
As
partial consideration for the Sellers’ retention of an interest in Enertrade, the Sellers or their principals agreed to
enter into a services agreement pursuant to which the Sellers shall be obligated to present to the Company all opportunities to
provide retail electricity and electric services to residential and commercial consumers within the Republic of Mexico as and
when such opportunities arise and pursuant to which the Company will agree to purchase electricity supply to service such Republic
of Mexico business opportunities accepted by the Company subject to credit terms established by its supplier.
Employees
As
of the date of this filing, we had approximately ten full-time employees, excluding our installation technicians, sales representatives,
contract IT developers and certain other support professionals. None of our employees are currently represented by labor unions
or trade councils. We believe that we generally have good relationships with our employees. Most our employees are located in
the Dallas/Ft. Worth metropolitan area. We maintain a satisfactory working relationship with our employees and have not experienced
any labor disputes.
Legal
Proceedings
From
time to time, we are involved in various claims and legal actions arising in the ordinary course of business. There are no legal
proceedings currently pending against us that we believe would have a material effect on our business, financial position or results
of operations, and, to the best of our knowledge, there are no such legal proceedings contemplated or threatened.
Item
1A. Risk Factors.
Not
applicable for a smaller reporting company.
Item
2. Financial Information.
The
Company’s discussion and analysis provides an overview of the Company’s financial activities primarily for the year
ended December 31, 2016 since its activities in the restaurant business were discontinued and written off as of December 31, 2015.
Since this information is designed to focus on the current year’s activities, resulting changes, and currently known facts,
it should be read in conjunction with the audited consolidated financial statements of the Company included in pages F-1 through
F-[ ] of this Registration Statement on Form 10 .
Balance Sheet
|
|
Year Ended December 31
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Audited)
|
|
Assets
|
|
|
|
Cash
|
|
$
|
51,710
|
|
|
$
|
-
|
|
Prepaid and other assets
|
|
|
40,750
|
|
|
|
-
|
|
Total Current assets
|
|
|
92,460
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Fixed assets - software
|
|
|
66,710
|
|
|
|
-
|
|
Total assets
|
|
$
|
159,170
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
358,594
|
|
|
$
|
7,298
|
|
Subscription liability
|
|
|
75,000
|
|
|
|
-
|
|
Note payable
|
|
|
188,342
|
|
|
|
132,923
|
|
Total current liabilities
|
|
|
621,936
|
|
|
|
140,221
|
|
|
|
|
|
|
|
|
|
|
Long term notes payable
|
|
|
233,836
|
|
|
|
-
|
|
Total liabilities
|
|
|
855,772
|
|
|
|
140,221
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ Deficit
|
|
|
|
|
|
|
|
|
Mezzanine equity
|
|
|
494,123
|
|
|
$
|
185,500
|
|
Class A Common stock par value $.001, 1,000,000,000 shares authorized 853,262,525 and 540,552,127, respectively issued and outstanding
|
|
|
853,262
|
|
|
|
540.552
|
|
Class B Common stock par value $.001, 10,000,000 shares authorized,10,000,000 and 0, issued and outstanding respectively
|
|
|
10,000
|
|
|
|
-
|
|
Additional paid-in capital (deficit)
|
|
|
274,903
|
|
|
|
(309,121
|
)
|
Accumulated deficit
|
|
|
(2,328,890
|
)
|
|
|
(557,152
|
)
|
Total shareholders’ deficit
|
|
|
(1,190,725
|
)
|
|
|
(140,221
|
)
|
Total Liabilities and Shareholders’ Deficit
|
|
$
|
159,170
|
|
|
$
|
-
|
|
Statement of Operations
|
|
Year Ended December 31
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(Audited)
|
|
|
|
|
Continuing Operations
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
5,051
|
|
|
|
$
|
|
Cost of goods sold
|
|
|
20,431
|
|
|
|
|
|
Net Revenue (Loss)
|
|
|
(15,380
|
)
|
|
|
—
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
Selling, General and administrative expenses
|
|
|
1,522,183
|
|
|
|
62,546
|
|
Total Operating Expenses
|
|
|
1,522,183
|
|
|
|
62,546
|
|
Operating Loss
|
|
|
(1,537,563
|
)
|
|
|
(62,546
|
)
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
(234,175
|
)
|
|
|
(68,718
|
)
|
Loss from Continuing Operations
|
|
|
(1,771,738
|
)
|
|
|
(131,264
|
)
|
|
|
|
|
|
|
|
|
|
Loss from Discontinued Operations
|
|
|
-
|
|
|
|
(184,592
|
)
|
Net Loss
|
|
$
|
(1,771,738
|
)
|
|
|
$ (315,856
|
)
|
The
Company has accounted for discontinued operations prior to January 1, 2016 under Accounting Standards Update No. 2014-08,
Reporting
Discontinued Operations and Disclosures of Disposals of Components of an Entity
. Under this guidance, a discontinued operation
is defined as a strategic shift that has (or will have) a major effect on an entity’s operations and financial results.
In November 2015, the Company has exited the restaurant industry and has shifted its strategy to home automation and energy conservation
services. Management believes this adequately qualifies as a strategic shift under Update No. 2014-08. As of December 31, 2015,
the Company has not generated any revenue from its new services. A reconciliation of amounts included in the statements of operations
for the year ended December 31, 2015 as follows:
|
|
2015
|
|
Revenue
|
|
$
|
20,100
|
|
Selling general and administrative expenses
|
|
|
(201,161
|
)
|
Other Expenses
|
|
|
(3,531
|
)
|
Loss from continued operations
|
|
$
|
(184,592
|
)
|
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
Certain
portions of the statement of operations for the year ended December 31, 2015 have been classified as discontinued operations and
therefore are not comparable. Comparative information for continuing operations for 2016 as compared to 2015 follows:
Year
Ended December 31, 2016 Compared to Year Ended December 31, 2015
Certain
portions of the statement of operations for the year ended December 31, 2015 have been classified as discontinued operations and
therefore are not comparable. Comparative information for continued operations for 2016 as compared to 2015 follows:
Operations
The
Company reported a net loss of $1,771,738 and $315,856 for the twelve months ended December 31, 2016 and 2015, respectively,
a loss from continuing operations of $1,537,563 and 62,546 for the same periods and an accumulated deficit of $2,328,890 and
$557,152 for the twelve months ended December 31, 2016 and 2015, respectively. The increase in net loss is primarily a result
of factors noted below. At December 31, 2016 and 2015, the Company had a working capital deficit of $529,476 and $140,221
respectively, and negative cash flow from continuing operating activity of $1,205,814 and $62,546, respectively, for the
twelve months ended December 31, 2016 and 2015.
For
the year ended December 31, 2016, the Company reported $5,051 in revenue with cost of sales of $20,431 for a gross loss of $15,380
as compared to nil for the year ended December 31, 2015. The increase is primarily a result of the Company’s soft launch
of its products during the fourth quarter of 2016.
Selling,
general and administrative expenses were $
1,522,183
in 2016 as compared to $62,546 in 2015 for an increase of $1,459,637.
This increase is a result of our efforts to launch our current business and consisted primarily of increases in salary and wages
of $876,691, legal and professional expense of $138,726, Advertising and promotions of $148,236, travel and entertainment of $74,026
and other expenses totaling $222,715.
Liquidity
and Capital Resources
Liquidity
is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. We had a working
capital deficit of $529,476 and $51,710 of cash as of December 31, 2016.
Net
cash flow used in operating activities was $1,205,814 for the year ended December 31, 2016 as compared to $62,546 for the year
ended December 31, 2015, an increase of $1,143,268. The increase is primarily a result of the launch of our current business.
Net
cash flow used in investing activities was $66,710 for the year ended December 31, 2016 as compared to nil for the year ended
December 31, 2015. During the year ended December 31, 2015, the $66,710 was used to develop software.
Net
cash provided by financing activities was $1,324,234 for the year ended December 31, 2016 as compared to $247,138 for the year
ended December 31, 2015. During the year ended December 31, 2016, we received $687,234 from the sale of common stock, $75,000
for subscription for common stock that had yet to be issued and $562,000 from the sale of convertible promissory notes.. During
the year ended December 31, 2015, we received net proceeds of $247,138 from the sale of convertible promissory notes.
Our
primary source of liquidity has been proceeds from the issuance of debt securities and sales of common stock. During the twelve
months ended December 31, 2016, the Company issued 2,368,300 shares of its Class A common stock to providers of professional services
to the Company, in lieu of the payment of cash for such services. The value of the transactions total approximately $42,500. During
the same period, the Company has issued 282,753,210 shares and $687,234. Additionally, during 2016, the Company
sold convertible promissory notes totaling $562,000.
Subsequent
to year end, the Company sold 14,333,334 shares of its restricted Class A common stock for $65,000 in a private placement subject
to Rule 144. Additionally, on March 17, 2017, the Company entered into a Securities Purchase Agreement containing convertible
promissory notes (the “Notes”) and Warrants. The aggregate principal amount of the Notes is $165,000 to be taken down
in two $82,500 tranches of which the Company has taken down the first tranche. The notes are convertible at a price equal to the
lower of $.03 per share or 60% of the lowest closing price for the Company’s Common Stock on the Trading Market for the
20 Trading Days prior to the conversion. Additionally, upon funding of each tranche, three year warrants for 500,000 shares of
the Company’s restricted Class A common stock shall be granted with an exercise price of $0.03 and $0.05 respectively.
Cash
Requirements
Our
management does not believe that our current capital resources will be adequate to continue operating our company and maintaining
our business strategy for more than 12 months. Accordingly, we will have to raise additional capital in the near future to meet
our working capital requirements. There can be no assurance that additional financing will be available to us when needed or,
if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing
on a timely basis, if and when it is needed, we will be forced to scale down or perhaps even cease the operation of our business.
Going
Concern
The
accompanying audited financial statements for the twelve months ended December 31, 2016 and 2015 have been prepared on a going
concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course
of business. The Company reported a net loss of $1,771,738 and $315,856 for the twelve months ended December 31, 2016 and 2015,
respectively, and an accumulated deficit of $2,328,890 and $557,152 for the twelve months ended December 31, 2016 and 2015, respectively.
At December 31, 2016 and 2015, the Company had a working capital deficit of $529,476 and $140,221 respectively, and negative cash
flow from continuing operating activity of $1,205,814 and $62,546, respectively, for the twelve months ended December 31, 2016
and 2015.
The
Company’s revenue from operations is not sufficient to meet its working capital needs and will be dependent on funds raised
to satisfy its ongoing capital requirements for at least the next 12 months. The Company will require additional financing in
order to execute its operating plan and continue as a going concern. The Company cannot predict whether this additional financing
will be in the form of equity or debt, or be in another form. The Company may not be able to obtain the necessary additional capital
on a timely basis, on acceptable terms, or at all.
In
any of these events, the Company may be unable to implement its current plans for expansion or respond to competitive pressures,
any of these circumstances would have a material adverse effect on its business, prospects, financial condition and results of
operations.
Critical
Accounting Policies
We
have identified the following policies below as critical to its business and results of operations. Our reported results are impacted
by the application of the following accounting policies, certain of which require management to make subjective or complex judgments.
These judgments involve making estimates about the effect of matters that are inherently uncertain and may significantly impact
quarterly or annual results of operations. For all of these policies, management cautions that future events rarely develop exactly
as expected, and the best estimates routinely require adjustment. Specific risks associated with these critical accounting policies
are described in the following paragraphs.
Use
of Estimates
– The preparation of financial statements in conformity with generally accepted accounting principles in
the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of sales and expenses during the reporting periods. Key estimates in the accompanying financial statements include, among
others, revenue recognition, allowances for doubtful accounts, valuation of long-lived assets, and deferred income tax asset valuation
allowances.
The
financial statements are presented on the basis of the Company’s ability to continue as a going concern. Other than continued
current involvement, some transactions prior to December 31, 2015 have been reclassified as discontinued operations in these financial
statements. See further information in Note 7.
Discontinued Operations
.
Cash
and Cash Equivalents
– The Company considers all highly-liquid investments with a maturity of three months or less,
when purchased, to be cash equivalents. Cash on-hand at December 31, 2016 were $51,710. There were no cash equivalents on-hand
at December 31, 2015.
Revenue
Recognition
-
The Company recognizes sales, which include shipping fees where applicable,
net of estimated returns, at the time the customer takes possession of merchandise or receives services. When the Company collects
payments from customers prior to the transfer of ownership of merchandise or the performance of services, the amounts received
are generally recorded as deferred sales, included in other current liabilities on the consolidated balance sheets, until the
sale or service is completed. The Company reserves for estimated sales returns based on historical trends in merchandise returns,
net of the estimated net realizable value of merchandise inventories to be returned and any estimated disposition costs. Amounts
collected from members, which under common trade practices are referred to as sales taxes, are recorded on a net basis.
Software
Development Costs –
The Company capitalizes certain expenditures to the development of its software application. Capitalization
begins when technological feasibility is established. Capitalized costs are amortized using the straight-line method over the
estimated useful life of the developed product.
Beneficial
Conversion Feature -
The Company accounts for convertible notes payable in accordance with the guidelines established by the
Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic
470-20, Debt with Conversion and Other Options, Emerging Issues Task Force (“EITF”) 98-5, Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios, and EITF 00-27, Application of Issue
No 98-5 To Certain Convertible Instruments. The Beneficial Conversion Feature (“BCF”) of a convertible note is normally
characterized as the convertible portion or feature of certain notes payable that provide a rate of conversion that is below market
value or in-the-money when issued. The Company records a BCF related to the issuance of a convertible note when issued and records
the estimated fair value of any warrants issued with those convertible notes. Beneficial conversion features that are contingent
upon the occurrence of a future event are recorded when the contingency is resolved.
The
BCF of a convertible note is measured by allocating a portion of the note’s proceeds to the warrants, if applicable, and
as a discount on the carrying amount of the convertible note equal to the intrinsic value of the conversion feature, both of which
are credited to additional paid-in-capital. The value of the proceeds received from a convertible note is then allocated between
the conversion features and warrants and the debt on an allocated fair value basis. The allocated fair value is recorded in the
financial statements as a debt discount (premium) from the face amount of the note and such discount is amortized over the expected
term of the convertible note (or to the conversion date of the note, if sooner) and is charged to interest expense.
Recent
Accounting Pronouncements
We
implemented all new accounting standards that are in effect and that may impact its consolidated financial statements. We do not
believe that there are any other new accounting pronouncements that have been issued that might have a material impact on the
consolidated financial position or results of operations.
Off-Balance
Sheet Arrangements
As
of December 31, 2016, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current
or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement”
generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party,
under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained
or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market
risk support for such assets.
Item
3. Properties.
The
Company leases approximately 8,000 square feet of office space under a sublease arrangement on a month to month basis. Rent for
this space is $12,000 per month which includes furniture and communications equipment.
Item
4. Security Ownership of Certain Beneficial Owners and Management.
The
following table sets forth information about the beneficial ownership of our Class A Common Stock and Class B Common Stock as
of April 7, 2017, by (i) each person known by us to be the beneficial owner of more than 5% of our outstanding capital stock,
(ii) each director and each of our named executive officers and (iii) all executive officers and directors as a group.
Unless
otherwise noted below, the address for each beneficial owner listed on the table is in care of The Chron Organization, Inc., 15505
Long Vista Drive, Suite 250, Austin, Texas 78728. We have determined beneficial ownership in accordance with the rules of the
SEC. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities
named in the tables below have sole voting and investment power with respect to all shares of capital stock that they beneficially
own, subject to applicable community property laws.
In
computing the number of shares of Class A Common Stock beneficially owned by a person and the percentage ownership of that
person, we deemed outstanding shares of Class A Common Stock subject to options or issuable upon conversion of preferred stock
held by that person that are currently exercisable or exercisable within 60 days of April 7, 2017. We did not deem these shares
outstanding, however, for the purpose of computing the percentage ownership of any other person.
Name and Address of Beneficial Owner
|
|
Class A Common Stock Beneficial Ownership
|
|
|
Percent of Class
(1)
|
|
|
Class B Common Stock Beneficial Ownership
|
|
|
Percent of Class
(2)
|
|
Named Executive Officers and Directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Byron T. Young
(3)
|
|
|
237,152,650
|
|
|
|
24.9
|
%
|
|
|
5,000,000
|
|
|
|
50.0
|
%
|
Alex Rodriguez
(4)
|
|
|
140,000,000
|
|
|
|
16.3
|
%
|
|
|
5,000,000
|
|
|
|
50.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
All executive officers and directors as a group (two people)
|
|
|
280,652,650
|
|
|
|
32.7
|
%
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other 5% Stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United My Funds, LLC
(5)
|
|
|
100,000,000
|
|
|
|
11.7
|
%
|
|
|
-
|
|
|
|
-
|
|
|
(1)
|
Calculated
on the basis of 853,262,127 issued and outstanding shares of Class A Common Stock as of April 7, 2017. Share amount
excludes shares which Mr. Young has a right to acquire. See Note 3 below. Holders of our Class A Common Stock are entitled
to one vote per share.
|
|
(2)
|
Calculated
on the basis of 10,000,000 issued and outstanding shares of Class B Common Stock as of April 7, 2017. Holders of our Class
B Common Stock are entitled to 100 votes per share.
|
|
(3)
|
Shares
consist of 140,652,650 shares owned, 64,333,333 shares issuable upon conversion of promissory notes and 32,166,667 issuable
upon exercise of warrants. Calculation of percent are based upon 949,762,127 shares which include the convertible and warrant
shares. Shares are owned by various partnerships, retirement accounts and personal account of Mr. Young who beneficial owns
such shares. Mr. Young’s address is 4200 South Freeway, #408, Ft. Worth, TX 76115.
|
|
(4)
|
Shares
are owned by NAUP Investments, LLC which is an entity owned or controlled by Mr. Rodriguez who is deemed the beneficial owner
of such shares. NAUP Investments, LLC’s address is 1861 Brown Blvd, Ste. 217-703, Arlington, TX 76006.
|
|
(5)
|
United
My Funds, LLC is an entity owned or controlled by James Yoo. Its address is 2600 Royal Lane #215, Dallas, TX 75229.
|
Item
5. Directors and Executive Officers.
The
following table sets forth the names, positions and ages of our directors and executive officers as of the date of this Registration
Statement. Each director is elected at our annual meeting of shareholders and holds office for three years, or until his successor
is elected and qualified. Officers are elected by our board of directors and their terms of office are at the discretion of our
board.
Name
|
|
Age
|
|
Position
|
Alex Rodriguez
|
|
42
|
|
President, Chief Executive Officer, Chief Financial Officer & Director
|
Byron T. Young
|
|
42
|
|
Chairman of the Board & Treasurer
|
Alex
Rodriguez has served as our President, Chief Executive Officer, Secretary and as a member of our board of directors since December
2015. Mr. Rodriguez has 15 years of energy experience and a total of 20 years of business experience at the C-Level across the
energy, telecom and information technology industries. Mr. Rodriguez is a business development and marketing executive that has
successfully launched five different companies that were collectively responsible for nearly $6 billion in sales revenue over
the course of his career in the energy industry. This experience includes, but is not limited to the following private companies
SYNRG Marketing (Chief Business Officers & Partner) and Utility Choice Electric (VP of Sales & Marketing) from 2001 through
2003, AmPro Energy (VP if Business Development) from 2003 through 2004, Stream Energy and Ignite (Founder & Managing Partner)
from 2004 through end of 2009. In August 2004, Mr. Rodriguez co-founded and served as Managing Partner of Stream Energy, a fast-growing
retail energy provider that provided electricity and natural gas services to approximately 400,000 customers and grossed over
$2 billion within the first four years of operation. Upon his exit from Stream Energy in late 2009, Mr. Rodriguez founded and
still serves as Chairman of NAUP Capital, LP (today known as NAUP Investments, LLC), which is an energy holding company and venture
development firm with holdings in energy, solar, energy brokerage and energy software related entities. In his position at NAUP,
Mr. Rodriguez founded and grew several companies. Diversegy LLC and EPIQ Energy, LLC were among these NAUP projects. Rodriguez
served as CEO for these companies and was successful in selling both of these companies to an NYSE publicly traded energy company
(Genie Energy) in December of 2013.
Diversegy
LLC is a national energy brokerage company that advises commercial, industrial and municipal customers regarding their natural
gas and power needs. The board of directors believes that Mr. Rodriguez’s experience in business development and successful
growth and sales in the energy industry, as well as his understanding of energy sector business operations, will be valuable in
executing our business strategy.
Byron
T. Young has served as our Treasurer and as our Chairman of the Board since December 2015. As the Company’s Chairman, Mr.
Young oversees the Company’s vision, growth, strategies and expansion efforts. He has over 20 years of entrepreneurial experience
founding several technology-based companies and leading them through an exit strategy and/or into profitable growth stages. His
experience encompasses the telecommunications, wireless, software and energy industries. In the early 1990s, Mr. Young founded
several paging services companies that operated profitably through the peak of the paging services space. This led him to found
a Competitive Local Exchange Carrier (C-LEC) in 2001 under the name of Extel Enterprises, which was ultimately sold to publicly
traded Usurf America, Inc. in 2004. Shortly thereafter, Mr. Young founded a Retail Energy Provider in 2005 under the name Young
Energy, LLC, which provides electricity and natural gas services to residential and commercial customers in Texas and where Mr.
Young currently serves as a senior advisor and board member. Most recently, in 2010, Mr. Young founded Assist Wireless, a wireless
communication company providing prepaid cellular voice and data as well as government subsidized lifeline services to over 130,000
customers across four states. He currently serves as CEO of Assist Wireless. The board of directors believes that Mr. Young’s
experience founding and operating technology-based companies provides him with an intimate knowledge of our day-to-day operations,
business and competitive environment, as well as our opportunities, challenges and risks.
Involvement
in Certain Legal Proceedings
None
of our directors, executive officers, significant employees or control persons has been involved in any legal proceeding listed
in Item 401(f) of Regulation S-K in the past 10 years.
Corporate
Governance
Our
board of directors has not established any committees, including an audit committee, a compensation committee or a nominating
committee, or any committee performing a similar function. The functions of those committees are being undertaken by our board.
Because we do not have any independent directors, our board believes that the establishment of committees of our board would not
provide any benefits to our company and could be considered more form than substance.
We
do not have a policy regarding the consideration of any director candidates that may be recommended by our stockholders, including
the minimum qualifications for director candidates, nor has our officers and directors established a process for identifying and
evaluating director nominees. We have not adopted a policy regarding the handling of any potential recommendation of director
candidates by our stockholders, including the procedures to be followed. Our officers and directors have not considered or adopted
any of these policies as we have never received a recommendation from any stockholder for any candidate to serve on our board
of directors.
Given
our relative size and lack of directors’ and officers’ insurance coverage, we do not anticipate that any of our stockholders
will make such a recommendation in the near future. While there have been no nominations of additional directors proposed, in
the event such a proposal is made, all current members of our board will participate in the consideration of director nominees.
As
with most small, early stage companies until such time as we further develop our business, achieve a stronger revenue base and
have sufficient working capital to purchase directors’ and officers’ insurance, we do not have any immediate prospects
to attract independent directors. When we are able to expand our board to include one or more independent directors, we intend
to establish an audit committee of our board of directors. It is our intention that one or more of these independent directors
will also qualify as an audit committee financial expert. Our securities are not quoted on an exchange that has requirements that
a majority of our board members be independent and we are not currently otherwise subject to any law, rule or regulation requiring
that all or any portion of our board of directors include “independent” directors, nor are we required to establish
or maintain an audit committee or other committee of our board.
Code
of Ethics
We
expect that we will adopt a code of business conduct and ethics that applies to all of our employees, officers and directors,
including those officers responsible for financial reporting. Once adopted, we will make the code of business conduct and ethics
available on our website at
www.chronorganization.com
. We intend to post any amendments to the code, or any waivers of
its requirements, on our website.
Board
Structure
Our
Board has not chosen to separate the positions of Chief Executive Officer and Chairman of the Board in recognition of the fact
that our operations are sufficiently limited that such separation would not serve any useful purpose.
Role
of Board in Risk Oversight Process
Management
is responsible for the day-to-day management of risk and for identifying our risk exposures and communicating such exposures to
our board. Our board is responsible for designing, implementing and overseeing our risk management processes. The board does not
have a standing risk management committee, but administers this function directly through the board as a whole. The whole board
considers strategic risks and opportunities and receives reports from its officers regarding risk oversight in their areas of
responsibility as necessary. We believe our board’s leadership structure facilitates the division of risk management oversight
responsibilities and enhances the board’s efficiency in fulfilling its oversight function with respect to different areas
of our business risks and our risk mitigation practices.
Communications
with the Board of Directors
Stockholders
with questions about the Company are encouraged to contact the Company by sending communications to the attention of the Chief
Executive Officer at 15505 Long Vista Drive, Suite 250, Austin, Texas 78728. If stockholders feel that their questions have not
been sufficiently addressed through communications with the Chief Executive Officer, they may communicate with the Board of Directors
by sending their communications to the Board of Directors, c/o the Chief Executive Officer at the same address.
Director
Compensation
Historically,
our non-employee directors have not received compensation for their service outside the compensation set forth in the Summary
Compensation Table below, but we may compensate our directors for their service in the future. We reimburse our non-employee directors
for reasonable travel expenses incurred in attending board and committee meetings. We also intend to allow our non-employee directors
to participate in any equity compensation plans that we adopt in the future.
Item
6. Executive Compensation.
EXECUTIVE
COMPENSATION
The
following table summarizes all compensation recorded by us in the past two fiscal years for:
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●
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our
principal executive officer or other individual serving in a similar capacity,
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●
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our
two most highly compensated executive officers other than our principal executive officer who were serving as executive officers
at December 31, 2015 whose compensation exceed $100,000, and
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●
|
up
to two additional individuals for whom disclosure would have been required but for the fact that the individual was not serving
as an executive officer at December 31, 2016.
|
For
definitional purposes, these individuals are sometimes referred to as the “named executive officers.”
2016
Summary Compensation Table
Name and Principal Position
|
|
Fiscal Year Ended
|
|
|
Salary ($)
|
|
|
Bonus ($)
|
|
|
Stock Awards ($)
|
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|
Option Awards ($)
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|
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All Other Compensation ($)
|
|
|
Total ($)
|
|
Alejandro Rodriguez
(1)
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|
|
12/31/2016
|
|
|
|
180,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
180,000
|
|
Byron T. Young
(2)
|
|
|
12/31/2016
|
|
|
|
102,000
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|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
102,000
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|
|
|
|
12/31/2015
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
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(1)
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Mr.
Rodriguez was appointed as a Director and our President on November 23, 2015 and as our Chief Executive Officer on February
4, 2016 in addition to the offices he previously held.
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(2)
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Mr.
Young was appointed as Chairman of the Board, Chief Executive Officer, Secretary and Treasurer of the Company on November
18, 2015 and on February 4, 2016 relinquished his role as Chief Executive Officer upon the appointment of Mr. Rodriguez to
such position.
|
Executive
Employment Agreements
The
Company has an oral agreement with Mr. Rodriguez pursuant to which he receives a salary of $180,000 per year for his services
as our President, Chief Executive Officer and Chief Financial Officer. During the twelve months ended December 31, 2016, Mr. Rodriguez
was paid $160,000 and has accrued the balance of $20,000.
Mr.
Young currently receives $102,000 per year as compensation for his services as Chairman of the Board. Mr. Young has not been paid
and has accrued the balance.
Neither
of Messrs. Rodriguez or Young received a salary or any other compensation for the years ended December 31, 2014 and 2015.
Historically,
our directors that are employees of the Company have not received compensation for their service as directors. The Company may
adopt a policy to compensate independent members of our board in the future.
Outstanding
Equity Awards At Fiscal Year End
None.
Item
7. Certain Relationships and Related Transactions, and Director Independence.
Stock
Purchases
On
February 1, 2016, the Company entered into a Stock Purchase Agreement with Mr. Alex Rodriguez, its President, Chief Executive
Officer, Chief Financial Officer and director pursuant to which Mr. Rodriguez purchased 2,000,000 of the Company’s shares
of the Company’s Class B Common Stock in exchange for $6,000. On February 1, 2016, the Company also entered into a Stock
Purchase Agreement with Mr. Byron Young, its Chairman, pursuant to which Mr. Young purchased 2,000,000 of the Company’s
shares of Class B Common Stock in exchange for $6,000.
On
June 30, 2016, the Company entered into a Stock Purchase Agreement with Mr. Rodriguez pursuant to which Mr. Rodriguez purchased
3,000,000 shares of the Company’s Class B Common Stock for $9,000. On June 30, 2016, the Company also entered into a Stock
Purchase Agreement with Mr. Young pursuant to which he purchased 3,000,000 shares of the Class B Common Stock for $9,000.
On
July 1, 2016, the Company exchanged 165,000,000 shares of the Company’s unregistered shares of common stock for 100% of
the outstanding common stock of Chron Energy, Inc. (“CEI”), a Nevada corporation to related parties in which Alex
Rodriguez had a 50% beneficial interest.
Loan
from Chairman
On
November 20, 2015, the Company issued a convertible secured promissory note in the amount of up to $200,000 of which $193,000
in loan advances have been made by Mr. Young to the Company. Interest on the amount outstanding under the note accrues at an annual
rate equal to the lesser of 2.0% or the highest lawful rate, as defined in the note. The outstanding principal amount and all
accrued and unpaid interest shall be due and payable on December 31, 2016 . Through an amendment to the note, the due date has
been extended to April 1, 2017.
The
note may be prepaid in whole or in part without premium or penalty to the extent that Mr. Young has not exercised his conversion
rights.
Upon
an event of default, Mr. Young may declare all amounts due under the note due and payable without the need to give notice or demand.
Events of default under the note include the failure to pay any amount due under the note and a failure to remedy the nonpayment
within five calendar days and the bankruptcy, liquidation, reorganization, dissolution, winding up or other similar event of the
Company. From and after the occurrence of an event of default, amounts due under the note shall bear interest at a rate per annum
equal to the lesser of 18% or the highest lawful rate, payable on demand.
Mr.
Young has the option at any time and from time to time to convert all or a portion of the outstanding principal amount and accrued
interest under the note into shares of the Company’s Class A Common Stock at a conversion price of $0.003, subject to adjustment
in the event of any stock dividend, stock split, combination and reclassification of our Common Stock.
The
note may be transferred upon prior written notice to the Company to ensure compliance with applicable federal and state securities
laws.
In
further consideration for the $200,000 loan to the Company, the Company issued Mr. Young a warrant to purchase 32,166,667
shares of its Class A Common Stock that may be exercised in whole or in part at any time and from time to time until the
last calendar day of the month in which the fifth anniversary of the issuance date occurs.
The
exercise price of the warrant is the greater of (i) $0.05 or (ii) 200% of the conversion price per share of Common Stock as defined
in the convertible promissory note. If the market price of one share of Common Stock is greater than the exercise price, Mr. Young
may elect a cashless exercise pursuant to the terms set forth in the warrant.
The
exercise price and the number of shares of Common Stock purchasable upon the exercise of the warrant are subject to adjustment
upon the occurrence of specific events, including stock dividends, stock splits, combinations and reclassifications of our Common
Stock, as well as the issuance of options or other rights to purchase Common Stock at a price less than the exercise price of
the warrant.
Subject
to applicable laws, the warrant may be transferred at Mr. Young’s option in compliance with applicable federal and state
securities laws.
Policy
Regarding Transactions with Related Persons
We
do not have a formal, written policy for the review, approval or ratification of transactions between us and any director or executive
officer, nominee for director, 5% stockholder or member of the immediate family of any such person that are required to be disclosed
under Item 404(a) of Regulation S-K. However, our policy is that any activities, investments or associations of a director or
officer that create, or would appear to create, a conflict between the personal interests of such person and our interests must
be assessed by our Chief Executive Officer and must be at arms’ length.
Item
8. Legal Proceedings.
None
Item
9. Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters.
Our
Class A common stock is currently quoted on the OTC Pink tier of the OTC Markets Group under the symbol “CHRO”. The
OTC Market is a computer network that provides information on current “bids” and “asks”, as well as volume
information.
The
following table sets forth the range of high and low closing bid quotations for our common stock for each of the periods indicated
as reported by the OTC Markets. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission
and may not necessarily represent actual transactions.
2015
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Low
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High
|
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Jan 1 - Mar 31
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0.0005
|
|
|
|
0.0026
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|
Apr 1 - Jun 30
|
|
|
0.0005
|
|
|
|
0.0013
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July 1 - Sep 30
|
|
|
0.0004
|
|
|
|
0.0007
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Aug 1 - Dec 31
|
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0.0001
|
|
|
|
0.0038
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2016
|
|
|
|
|
|
|
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Jan 1 - Mar 31
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0.0020
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|
|
|
0.0391
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Apr 1 - Jun 30
|
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0.0248
|
|
|
|
0.0550
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|
July 1 - Sep 30
|
|
|
0.0201
|
|
|
|
0.0403
|
|
Aug 1 - Dec 31
|
|
|
0.0225
|
|
|
|
0.0300
|
|
Holders
of Common Stock
As
of April 7, 2017, 853,262,525 shares of our Class A Common Stock were issued and outstanding and held by approximately 1,191 holders
of record. As of this same date, 10,000,000 shares of our Class B Common Stock were issued and outstanding and held by approximately
two holders of record. We have not issued any shares of Preferred Stock.
The
following table sets forth the number of shares of Class A Common Stock subject to outstanding warrants and underlying a convertible
promissory notes.
|
|
December 31 2016
|
|
|
December 31 2015
|
|
Convertible promissory notes
|
|
$
|
25,000,000
|
|
|
$
|
20,000,000
|
|
Related party convertible promissory notes
|
|
|
64,333,333
|
|
|
|
43,666,667
|
|
Related Party Warrants
|
|
|
32,166,667
|
|
|
|
21,833,333
|
|
Warrants
|
|
|
10,000,000
|
|
|
|
—
|
|
Dilutive shares outstanding
|
|
$
|
131,500,000
|
|
|
$
|
85,500,000
|
|
The
Company has not paid a dividend to holders of its Common Stock. We currently intend to retain any earnings to finance growth and
development of our business and do not anticipate paying cash dividends in the near future.
Dividends
We
have never declared or paid dividends on our common stock. Moreover, we currently intend to retain any future earnings for use
in our business and, therefore, do not anticipate paying any dividends on our common stock in the foreseeable future.
Item
10. Recent Sales of Unregistered Securities.
During
the three years ended December 31, 2016, the Company issued shares as follows:
On
November 20, 2015, the Company issued a convertible secured promissory note in the amount up to $200,000 of which $193,000
in loan advances have been made by Mr. Young to the Company. Interest on the amount outstanding under the note accrues at an
annual rate equal to the lesser of 2.0% or the highest lawful rate, as defined in the note. The outstanding principal amount
and all accrued and unpaid interest shall be due and payable on December 31, 2016. Through an amendment to the note, the due
date has been extended to April 1, 2017. As of December 31, 2016, the outstanding principal and accrued interest due totals
$196,386.
The
holder of the note has the option at any time and from time to time to convert all or a portion of the outstanding principal amount
and accrued interest under the note into shares of the Company’s Class A Common Stock at a conversion price of $0.003, subject
to adjustment in the event of any stock dividend, stock split, combination and reclassification of our Common Stock
As
of December 31, 2016, warrants to purchase 32,166,667 shares of Class A Common Stock was issued and outstanding. The warrants
were issued in connection with the related party convertible promissory notes and are exercisable in whole or in part at any time
and from time to time until the last calendar day of the month in which the fifth anniversary of the issuance date occurs.
On
September 6, 2016, the Company issued a Convertible Promissory Note totaling $300,000 to a third-party (the “September 2016
Convertible Promissory Note”). The September 2016 Convertible Promissory Note matures on September 5, 2018, and accrues
interest at a rate of 10% per annum. As of December 31, 2016, the outstanding principal and accrued interest balance was $300,000
and $9,945, respectively.
On
November 25, 2016, the Company issued two Convertible Promissory Notes totaling $200,000 to third-parties (the “November
2016 Convertible Promissory Notes”). The November 2016 Convertible Promissory Notes mature on November 24, 2017, and accrues
interest at a rate of 10% per annum. As of December 31, 2016, the outstanding principal and accrued interest balance was $200,000
and $2,027, respectively.
On
February 1, 2016, the Company entered into a Stock Purchase Agreement with Mr. Alex Rodriguez, its President, Chief Executive
Officer, Chief Financial Officer and director pursuant to which Mr. Rodriguez purchased 2,000,000 of the Company’s shares
of the Company’s Class B Common Stock in exchange for $6,000. On February 1, 2016, the Company also entered into a Stock
Purchase Agreement with Mr. Byron Young, its Chairman, pursuant to which Mr. Young purchased 2,000,000 of the Company’s
shares of Class B Common Stock in exchange for $6,000.
On
June 30, 2016, the Company entered into a Stock Purchase Agreement with Mr. Rodriguez pursuant to which Mr. Rodriguez purchased
3,000,000 shares of the Company’s Class B Common Stock for $9,000. On June 30, 2016, the Company also entered into a Stock
Purchase Agreement with Mr. Young pursuant to which he purchased 3,000,000 shares of the Class B Common Stock for $9,000.
On
July 1, 2016, the Company exchanged 165,000,000 shares of the Company’s unregistered shares of Class A Common Stock for
100% of the outstanding common stock of Chron Energy, Inc. (“CEI”), a Nevada corporation to related parties in which
Alex Rodriguez had a 50% beneficial interest.
Issuances
of Class A Common Stock, par value $0.001:
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●
|
During
the year ended December 31, 2015, the Company issued 398,184,100 shares upon conversion of $63,028 of convertible notes.
|
|
|
|
|
●
|
During
the year ended December 31, 2016, the Company issued 286,798,255 shares on conversion of $122,500 of convertible notes.
|
|
|
|
|
●
|
During
the year ended December 31, 2016, the Company issued 2,368,300 shares for services valued at $42,500.
|
|
|
|
|
●
|
During
the year ended December 31, 2016, the Company issued 2,368,300 shares for cash consideration totaling $762,234.
|
Issuances
of Class B Common Stock, par value $0.001:
|
●
|
During
the year ended December 31, 2016, the Company issued 10,000,000 shares to related parties for cash consideration totaling
$30,000.
|
Subsequent
to December 31, 2016 the Company issued the following:
`
Issuances
of Class A Common Stock, par value $0.001:
|
●
|
Subsequent
to December 31, 2016, the company received $65,000 in stock subscriptions for the for the issuance of 4,333,334 shares of
Class A Common Stock.
|
The
shares of Class A Common Stock, Class B Common Stock, convertible notes and warrants issued by the Company were issued in reliance
upon the exemption from securities registration afforded by the provisions of Section 4(a)(2) of the Securities Act of 1933, as
amended, (“Securities Act”).
The
Class A Common Stock issued in connection with the conversion of a convertible note were issued in reliance upon the exemption
from securities registration afforded by the provisions of Section 3(a)(9) of the Securities Act.
Item
11. Description of Registrants Securities Registered.
At
December 31, 2016, the Company’s Amended and Restated Articles of Incorporation authorize 1,510,000,000 shares for issuance,
each with a par value of $0.001 per share, as follows: 1,000,000,000 shares of Class A Common Stock, 10,000,000 shares of Class
B Common Stock and 500,000,000 shares of Preferred Stock. As of December 20, 2016, 851,342,649 shares of our Class A Common Stock
and 10,000,000 shares of our Class B Common Stock were issued and outstanding. There are no shares of Preferred Stock outstanding.
Effective
March 2, 2017, the Company amended its Amended and Restated Articles of Incorporation as follows.
Article
Five was amended to set the aggregate number of shares which the Corporation shall have the authority to issue at 1,500,000,000
shares, of which 1,450,000,000 shares shall be Class A Common Stock, par value $.001 per share (the “Class A Common Stock”),
10,000,000 shares shall be Class B Common Stock, par value $.001 per share (the “Class B Common Stock”) and 40,000,000
shares shall be Preferred Stock, par value $.001 per share (the “Preferred Stock”) of which, 2,000,000 shares are
designated as “Series A Preferred Stock”. The rights, preferences and restrictions for the Series A Preferred Stock
are set forth in the new Article Five, Section C which includes the following:
1.
|
DESIGNATION
OF SERIES. (a) There shall be a series of the Preferred Stock of the Corporation which shall be designated as the “Series
A Preferred Stock,” $0.001 par value, and the number of shares constituting such series shall be Two million (2,000,000).
Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, however, that no decrease
shall reduce the number of shares of Series A Preferred Stock to a number less than that of the shares then outstanding.
|
|
|
2.
|
DIVIDENDS.
The holders of Series A Preferred Stock shall not be entitled to receive dividends paid on the Common Stock.
|
|
|
3.
|
LIQUIDATION
PREFERENCE. The holders of Series A Preferred Stock shall not be entitled to any liquidation preference.
|
|
|
4.
|
VOTING.
Except as otherwise expressly set forth herein or as required by law, the holders of the Series A Preferred Stock shall not
entitle the holders thereof to vote on any matter submitted for shareholder action, and the consent of the holders thereof
shall not be required for the taking of any corporate action.
|
5.
|
CONVERSION
RIGHTS. The holders of the shares of Series A Preferred Stock shall have the right to convert the Series A Preferred Stock
into Class A Common Stock at the rate of ten (10) common shares for each preferred share (10-1 conversion rate) (the “Conversion
Right”). The holder of the Series A Preferred Stock shall be entitled to exercise the Conversion Right one year from
purchase date of the Series A Preferred Stock.
|
|
|
6.
|
REDEMPTION
RIGHTS; REDEMPTION. To the extent not prohibited by law, all or a portion of the then-outstanding shares of Series A Preferred
Stock may be redeemed by the Corporation for a period of one year from the date of issuance at an amount equal to one hundred
thirty percent (130%) of the original issue price.
|
Article
Seven was amended by deleting the existing Article Seven and adding a new Article 7 as follows:
Rights
of Holders of Common Stock. The following rights, powers, privileges and restrictions, qualifications, and limitations apply to
the Common Stock.
(a)
General
. The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by
the rights, powers and privileges of the holders of the Series A Preferred Stock.
(b)
Voting
. The holders of the Class A Common Stock are entitled to one vote for each share of Class A Common Stock held at
all meetings of stockholders (and written actions in lieu of meetings) and the holders of the Class B Common Stock are entitled
to 200 votes for each share of Class B Common Stock held at all meetings of stockholders (and written actions in lieu of meetings).
Unless required by law, there shall be no cumulative voting. The number of authorized shares of Common Stock may be increased
or decreased (but not below the number of shares thereof then outstanding) by (in addition to any vote of the holders of one or
more series of Series A Preferred Stock that may be authorized by the Board) the affirmative vote of the holders of shares of
capital stock of the Corporation representing a majority of the votes represented by all outstanding shares of capital stock of
the Corporation entitled to vote. Further, holders of the Common Stock shall have no right to vote on the designations, preferences,
limitations and relative or other rights of the Series A Preferred Stock or any series thereof (collectively, the “Preferences”),
or on any amendment, alteration or repeal of the Preferences or the Series A Preferred Stock, at any time, whether before or after
the issuance thereof.
Convertible
Secured Promissory Notes and Warrants
Related
Party Convertible Promissory Note
On
November 20, 2015, the Company issued a convertible secured promissory note in the amount up to $200,000 of which $193,000 in
loan advances have been made by Mr. Young to the Company. Interest on the amount outstanding under the note accrues at an annual
rate equal to the lesser of 2.0% or the highest lawful rate, as defined in the note. The outstanding principal amount and all
accrued and unpaid interest shall be due and payable on December 31, 2016. Through an amendment to the note, the due date has
been extended to April 1, 2017. As of December 31, 2016, the outstanding principal and accrued interest due totals $196,386.
The
note may be prepaid in whole or in part without premium or penalty to the extent that the payee has not exercised its conversion
rights.
Upon
an event of default, the payee may declare all amounts due under the note due and payable without the need to give notice or demand.
Events of default under the note include the failure to pay any amount due under the note and a failure to remedy the nonpayment
within five calendar days and the bankruptcy, liquidation, reorganization, dissolution, winding up or other similar event of the
Company. From and after the occurrence of an event of default, amounts due under the note shall bear interest at a rate per annum
equal to the lesser of 18% or the highest lawful rate, payable on demand.
The
holder of the note has the option at any time and from time to time to convert all or a portion of the outstanding principal
amount and accrued interest under the note into shares of the Company’s Class A Common Stock at a conversion price of
$0.003, subject to adjustment in the event of any stock dividend, stock split, combination and reclassification of our Class
A Common Stock.
The
note may be transferred upon prior written notice to the Company to ensure compliance with applicable federal and state securities
laws.
Related
Party Warrants
As
of December 31, 2016, warrants to purchase 32,166,667 shares of Class A Common Stock was issued and outstanding. The warrants
were issued in connection with the related party convertible promissory notes and are exercisable in whole or in part at any time
and from time to time until the last calendar day of the month in which the fifth anniversary of the issuance date occurs.
The
exercise price of the warrants is $0.03. If the market price of one share of Class A Common Stock is greater than the exercise
price, the holder of the warrant may elect a cashless exercise pursuant to the terms set forth in the warrant.
The
exercise price and the number of shares of Class A Common Stock purchasable upon the exercise of the warrant are subject to adjustment
upon the occurrence of specific events, including stock dividends, stock splits, combinations and reclassifications of our Common
Stock, as well as the issuance of options or other rights to purchase Class A Common Stock at a price less than the exercise price
of the warrant.
Subject
to applicable laws, the warrant may be transferred at the option of the holder in compliance with applicable federal and state
securities laws.
September
6, 2016 Convertible Promissory Note
On
September 6, 2016, the Company issued a Convertible Promissory Note totaling $300,000 to a third-party (the “September 2016
Convertible Promissory Note”). The September 2016 Convertible Promissory Note matures on September 5, 2018, and accrues
interest at a rate of 10% per annum. As of December 31, 2016, the outstanding principal and accrued interest balance was $300,000
and $9,945, respectively.
The
Holder of the Convertible Promissory Note has the right to convert all or any part of the outstanding principal and accrued interest
to shares of common stock of the Company. The Convertible Promissory Note can be converted by the Holder in part from time to
time after the issuance date by submitting notice of conversion. The September 2016 Convertible Promissory Note is convertible
at the option of the Holder into that number of shares of the Company’s common stock determined by dividing such principal
amount and accrued interest by the Conversion Rate. The Conversion Rate is defined as seventy percent (70%) of the volume weighted
average price over the prior ten (10) day trading period from the date of notice of conversion, but in no event shall the Conversion
price be less than $0.02.
In
connection with the September 2016 Convertible Promissory Note, the Holder was issued 6,000,000 warrants to purchase shares
of Class A Common Stock exercisable at $0.05 expiring in September 2019.
September
6, 2016 Convertible Promissory Notes
On
November 25, 2016, the Company issued two Convertible Promissory Notes totaling $200,000 to third-parties (the “November
2016 Convertible Promissory Notes”). The November 2016 Convertible Promissory Notes mature on November 24, 2017, and accrues
interest at a rate of 10% per annum. As of December 31, 2016, the outstanding principal and accrued interest balance was $200,000
and $2,027, respectively.
The
Holder of the Convertible Promissory Note has the right to convert all or any part of the outstanding principal and accrued interest
to shares of common stock of the Company. The Convertible Promissory Note can be converted by the Holder in part from time to
time after the issuance date by submitting notice of conversion. The November 2016 Convertible Promissory Notes are convertible
at the option of the Holder into that number of shares of the Company’s common stock determined by dividing such principal
amount and accrued interest by the Conversion Rate. The Conversion Rate is defined as seventy percent (70%) of the volume weighted
average price over the prior ten (10) day trading period from the date of notice of conversion, but in no event, shall the Conversion
price be less than $0.02.
In
connection with the November 2016 Convertible Promissory Notes, the Holders were issued 4,000,000 warrants to purchase shares
of Class A Common Stock exercisable at $0.05 expiring in November 2019.
Anti-Takeover
Effects of Various Provisions of Nevada Law and Our Amended and Restated Articles of Incorporation
Provisions
of the Nevada Revised Statutes (“NRS”) and our Amended and Restated Articles of Incorporation and Amended and Restated
Bylaws could make it more difficult to acquire us by means of a tender offer, a proxy contest or otherwise, or to remove incumbent
officers and directors. These provisions, summarized below, would be expected to discourage certain types of coercive takeover
practices and takeover bids our board of directors may consider inadequate and to encourage persons seeking to acquire control
of us to first negotiate with us. We believe that the benefits of increased protection of our ability to negotiate with the proponent
of an unfriendly or unsolicited proposal to acquire or restructure us will outweigh the disadvantages of discouraging takeover
or acquisition proposals because, among other things, negotiation of these proposals could result in an improvement of their terms.
Blank
Check Preferred Stock
Our
Amended and Restated Articles of Incorporation provide for the authority to issue up to 40,000,000 shares of “blank check”
Preferred Stock, of which 2,000,000 have been designated as Series A Preferred Stock as described above. The balance of the Preferred
Stock, which if issued, could make it more difficult and could discourage a third party from acquiring us.
Prohibition
on Cumulative Voting
Our
Amended and Restated Articles of Incorporation prohibit cumulative voting in the election of directors.
Removal
of Directors
Our
Amended and Restated Bylaws provide that a director may only be removed from office for cause by a vote of the majority of shares
entitled to vote at a meeting of the shareholders held for the purpose of removing a director.
Authorized
but Unissued Shares
Our
authorized but unissued shares of Common Stock and Preferred Stock are available for future issuance without shareholder approval.
The existence of authorized but unissued shares of Common Stock and Preferred Stock could render more difficult or discourage
an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.
Interested
Stockholder Statute
We
are subject to Nevada’s Combination with Interested Stockholders Statute (NRS Law Sections
78.411
and 78.444) which prohibits an “interested stockholder” from entering into a “combination” with the Company,
unless certain conditions are met. An “interested stockholder” is a person who, together with affiliates and associates,
beneficially owns (or within the prior two years, did beneficially own) 10% or more of the Company’s capital stock entitled
to vote.
Limitations
on Liability and Indemnification of Officers and Directors
NRS
limits or eliminates the personal liability of directors to corporations and their stockholders for monetary damages for breaches
of directors’ fiduciary duties as directors. Our Amended and Restated Articles of Incorporation include provisions that
require the Company to indemnify, to the fullest extent allowable under the NRS, our directors or officers against monetary damages
for actions taken as a director or officer of our company, or for serving at our request as a director or officer or another position
at another corporation or enterprise, as the case may be. Our Amended and Restated Articles of Incorporation also provide that
we must indemnify and advance reasonable expenses to our directors and officers, subject to our receipt of an undertaking from
the indemnified party as may be required under the NRS. We are also expressly authorized to carry directors’ and officers’
insurance to protect our company, our directors, officers and certain employees for some liabilities.
The
limitation of liability and indemnification provisions under the NRS and in our Amended and Restated Articles of Incorporation
may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duties. These provisions may
also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action,
if successful, might otherwise benefit us and our stockholders. However, these provisions do not limit or eliminate our rights,
or those of any stockholder, to seek non-monetary relief such as injunction or rescission in the event of a breach of a director’s
fiduciary duties. Moreover, the provisions do not alter the liability of directors under the federal securities laws.
Transfer
Agent and Registrar
The
registrar and transfer agent for our Common Stock is Securities Transfer Agent Corp located at 2591 Dallas Parkway, Suite 102,
Frisco, Texas 75034, (466) 633-0101.
Item
12. Indemnification of Directors and Officers.
Subsection
1 of Section 78.7502 of the NRS empowers a corporation to indemnify any person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the fact that he or she is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee
or agent of another corporation or other enterprise, against expenses (including attorneys’ fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if
he or she (i) is not liable pursuant to Section 78.138 of the NRS or (ii) acted in good faith and in a manner which he or she
reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his or her conduct was unlawful. Section 78.138 of the NRS provides that, with
certain exceptions, a director or officer is not individually liable to the corporation or its stockholders or creditors for any
damages as a result of any act or failure to act in his or her capacity as a director or officer unless it is proven that (i)
his or her act or failure to act constituted a breach of his or her fiduciary duties as a director or officer, and (ii) his or
her breach of those duties involved intentional misconduct, fraud or a knowing violation of law.
Subsection
2 of Section 78.7502 empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor
by reason of the fact that such person acted in any of the capacities set forth above against expenses, including amounts paid
in settlement and attorneys’ fees actually and reasonably incurred by him or her in connection with the defense or settlement
of such action or suit if he or she (i) is not liable pursuant to Section 78.138 of the NRS, or (ii) acted in good faith and in
a manner which he or she reasonably believes to be in or not opposed to the best interests of the corporation, except that no
indemnification may be made in respect of any claim, issue or matter as to which such person shall have been adjudged by a court
of competent jurisdiction to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only
to the extent that the court in which such action or suit was brought or other court of competent jurisdiction determines that,
in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as
the court deems proper.
Section
78.7502 further provides that to the extent that a director, officer, employee or agent of a corporation has been successful in
the defense of any action, suit or proceeding referred to in subsections (1) and (2), or in the defense of any claim, issue or
matter therein, he or she shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred
by him or her in connection with the defense. Subsection 3 of Section 78.751 of the NRS provides that the indemnification provided
for by Section 78.7502 does not exclude any other rights to which the indemnified party may be entitled (except that indemnification
will generally not be available to a director or officer if a final adjudication establishes that his or her acts or omissions
involved intentional misconduct, fraud or a knowing violation of the law and was material to the cause of action) and that the
indemnification shall continue for directors, officers, employees or agents who have ceased to hold such positions, and inures
to the benefit of their heirs, executors and administrators.
Section
78.752 of the NRS empowers the corporation to purchase and maintain insurance or make other financial arrangements on behalf of
a person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or other enterprise, for any liability asserted against him or
her and expenses incurred by him or her in any such capacity or arising out of his or her status as such whether or not the corporation
has the power to indemnify him or her against such liabilities or expenses. We maintain a customary directors’ and officers’
liability insurance policy.
Our
Amended and Restated Articles of Incorporation provide that the Company shall, to the fullest extent permitted by law, indemnify
any person who was, is, or is threatened to be made a defendant or respondent to any threatened, pending or completed action,
suit or proceeding and any investigation that could lead to such action, suit or proceeding, because such person is or was a director
or officer of the Company, or, while a director or officer, is or was serving at the request of the Company as a director, officer,
partner or other agent of another corporation or other entity, against any judgments, penalties, fines, settlements and reasonable
expenses (including attorneys’ fees) actually incurred by such person in connection with such action, suit or proceeding.
In addition, the Company is authorized to advance such reasonable expenses to such person for such actions.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933, as amended (the “Securities Act”), may
be permitted to our directors, officers or control persons pursuant to the foregoing provisions, we have been informed that in
the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities
Act and is therefore unenforceable.
Item
13. Financial Statements and Supplementary Data.
The
audited consolidated financial statements of the Company are included in pages F-1 through F-[13] of this registration
statement on Form 10.
Item
14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None
Item
15. Financial Statements and Exhibits.
(a)
|
(a)
The following financial statements are filed as part of this registration statement on Form 10 and incorporated herein by
reference:
|
Exhibit
No.
|
|
Description
|
|
|
|
2.1
|
|
Agreement
and Plan of Merger among The Chron Organization, Inc. and Chron Energy, Inc. dated as of April 1, 2016.
|
|
|
|
3.1
|
|
Amended
and Restated Articles of Incorporation filed with the Nevada Secretary of State on February 11, 2016.
|
|
|
|
3.2
|
|
Certificate
of Amendment to Amended and Restated Articles of Incorporation filed with the Nevada Secretary of State on March 2, 2017.
|
|
|
|
3.3
|
|
Amended
and Restated Bylaws effective as of February 1, 2016.
|
|
|
|
4.1
|
|
10%
Original Issue Discount Convertible Debenture dated March 17, 2017 issued by The Chron Organization, Inc. to Bellridge Capital
LLC.
|
|
|
|
4.2
|
|
Common
Stock Purchase Warrant dated March 17, 2017 issued by The Chron Organization, Inc. to Bellridge Capital LLC.
|
|
|
|
10.1
|
|
Form
of Securities Purchase Agreement for Convertible Note and Warrants.
|
|
|
|
10.2
|
|
Equity
Interest Purchase Agreement among Zen Energy, Inc., Luccirelli & Gomez, LLC, TCN Holdings, LLC, Genaro Gomez Castanares
and Donnie Goodwin dated as of January 20, 2017.
|
|
|
|
10.3
|
|
Securities
Purchase Agreement among The Chron Organization, Inc. and certain investors dated March 17, 2017.
|
|
|
|
21.1
|
|
List
of Subsidiaries.
|
SIGNATURES
Pursuant
to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized.
THE
CHRON ORGANIZATION, INC.
|
|
|
|
|
By:
|
|
|
|
Alex
Rodriguez, President, CEO and Director
|
|
|
|
|
Date:
April 21, 2017
|
|
|
|
|
By:
|
|
|
|
Byron
T. Young, Chairman of the Board, Treasurer
|
|
|
|
|
Date:
April 21, 2017
|
|
THE CHRON ORGANIZATION, INC.
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
For the twelve months ended December 31, 2016
and 2015
THE CHRON ORGANIZATION, INC.
CONSOLIDATED FINANCIAL
STATEMENTS
For the twelve months
ended December 31, 2016 and 2015
Table of Contents
Montgomery
Coscia Greilich LLP
972.748.0300
p
972.748.0700
f
INDEPENDENT AUDITOR’S REPORT
To the Board of Directors of
The Chron Organization, Inc.:
We have audited the accompanying consolidated financial statements of The Chron Organization, Inc. (the “Company”),
which comprise the consolidated balance sheets as of December 31, 2016 and 2015, and the related consolidated statements of operations
and changes in members’ equity, and cash flows for the year ended, and the related notes to the financial statements.
Management’s Responsibility for the
Financial Statement
Management is responsible for the preparation
and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States
of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of the financial statement that is free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion
on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statement is free from material misstatement.
An audit involves performing procedures to
obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s
judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation
of the financial statement in order to design audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion.
An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting
estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of The Chron Organization, Inc. as
of December 31, 2016 and 2015, and the result of its operations and its cash flows for the year then ended in accordance with accounting
principles generally accepted in the United States of America.
Montgomery Coscia Greilich LLP
Plano, Texas
April 12, 2017
2500 Dallas Parkway, Suite 300 Plano, Texas 75093
|
300 Throckmorton Street, Suite 520
Fort Worth, Texas 76102
|
2901 Via Fortuna, Building 6, Suite 550
Austin, Texas 78746
|
|
THE CHRON ORGANIZATION, INC.
BALANCE SHEETS
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
51,710
|
|
|
$
|
-
|
|
Other assets
|
|
|
12,000
|
|
|
|
-
|
|
Prepaid expenses
|
|
|
28,750
|
|
|
|
-
|
|
Total current assets
|
|
|
92,460
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Fixed Assets
|
|
|
|
|
|
|
|
|
Software
|
|
|
66,710
|
|
|
|
-
|
|
Total fixed assets
|
|
|
66,710
|
|
|
|
-
|
|
Total assets
|
|
$
|
159,170
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES & SHAREHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
111,207
|
|
|
$
|
-
|
|
Accrued interest
|
|
|
20,382
|
|
|
|
7,298
|
|
Accrued payroll
|
|
|
212,000
|
|
|
|
|
|
Other current liabilities
|
|
|
15,005
|
|
|
|
-
|
|
Note payable
|
|
|
-
|
|
|
|
68,000
|
|
Subscription liabilities
|
|
|
75,000
|
|
|
|
|
|
Related party convertible promissory note, net
|
|
|
188,342
|
|
|
|
10,423
|
|
Convertible promissory note, net
|
|
|
-
|
|
|
|
54,500
|
|
Total current liabilities
|
|
|
621,936
|
|
|
|
140,221
|
|
Long-term Liabilities
|
|
|
|
|
|
|
|
|
Convertible promissory note, net
|
|
|
233,836
|
|
|
|
-
|
|
Total long-term liabilities
|
|
|
233,836
|
|
|
|
-
|
|
Total Liabilities
|
|
|
855,772
|
|
|
|
140,221
|
|
Mezzanine Equity
|
|
|
|
|
|
|
|
|
Beneficial conversion feature
|
|
|
413,231
|
|
|
|
160,109
|
|
Warrants
|
|
|
80,892
|
|
|
|
25,391
|
|
Total Mezzanine equity
|
|
|
494,123
|
|
|
|
185,500
|
|
Shareholders' deficit
|
|
|
|
|
|
|
|
|
Class A Common stock par value $.001, 1,000,000,000 shares authorized, 853,262,525 and 540,552,127, respectively issued and outstanding
|
|
|
853,262
|
|
|
|
540,552
|
|
Class B Common stock par value $.001, 10,000,000 shares authorized, 10,000,000 and 0, issued and outstanding respectively
|
|
|
10,000
|
|
|
|
-
|
|
Additional paid-in capital (deficit)
|
|
|
274,903
|
|
|
|
(309,121
|
)
|
Accumulated deficit
|
|
|
(2,328,890
|
)
|
|
|
(557,152
|
)
|
Total shareholders' deficit
|
|
|
(1,190,725
|
)
|
|
|
(325,721
|
)
|
TOTAL LIABILITIES & SHAREHOLDERS' DEFICIT
|
|
$
|
159,170
|
|
|
$
|
-
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
THE CHRON ORGANIZATION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
Twelve Months Ended
|
|
|
Twelve Months Ended
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
Continuing Operations
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
5,051
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
20,431
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
(15,380
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
1,522,183
|
|
|
|
62,546
|
|
Total Operating Expense
|
|
|
1,522,183
|
|
|
|
62,546
|
|
Operating loss
|
|
|
(1,537,563
|
)
|
|
|
(62,546
|
)
|
|
|
|
|
|
|
|
|
|
Other expense
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(234,175
|
)
|
|
|
(68,718
|
)
|
Loss from continued operations
|
|
|
(1,771,738
|
)
|
|
|
(131,264
|
)
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
-
|
|
|
|
(184,592
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,771,738
|
)
|
|
$
|
(315,856
|
)
|
|
|
|
|
|
|
|
|
|
Per share information:
|
|
|
|
|
|
|
|
|
Basic and diluted losses from discontinued operations per common share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted losses from continuing operations per common share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic
|
|
|
605,975,340
|
|
|
|
450,043,140
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - diluted
|
|
|
727,142,007
|
|
|
|
535,543,140
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
THE CHRON ORGANIZATION, INC.
CONSOLIDATED STATEMENTS OF CHANGE IN SHAREHOLDERS’
DEFICIT
|
|
Class
A Common Stock
|
|
|
Class
B Common Stock
|
|
|
Accumulated
|
|
|
Additional
Paid-in
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Deficit
|
|
|
Capital
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
|
142,368,027
|
|
|
$
|
142,368
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
(241,296
|
)
|
|
$
|
26,035
|
|
|
$
|
(72,893
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(315,856
|
)
|
|
|
-
|
|
|
|
(315,856
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of notes payable
|
|
|
398,184,100
|
|
|
|
398,184
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(335,156
|
)
|
|
|
63,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
540,552,127
|
|
|
$
|
540,552
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
(557,152
|
)
|
|
$
|
(309,121
|
)
|
|
$
|
(325,721
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,771,738
|
)
|
|
|
-
|
|
|
|
(1,771,738
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for service
|
|
|
2,368,300
|
|
|
|
2,368
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
40,132
|
|
|
|
42,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of notes payable
|
|
|
27,588,888
|
|
|
|
27,589
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
149,411
|
|
|
|
177,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued
|
|
|
282,753,210
|
|
|
|
282,753
|
|
|
|
10,000,000
|
|
|
|
10,000
|
|
|
|
-
|
|
|
|
394,481
|
|
|
|
687,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
853,262,525
|
|
|
$
|
853,262
|
|
|
|
10,000,000
|
|
|
$
|
10,000
|
|
|
$
|
(2,328,890
|
)
|
|
$
|
274,903
|
|
|
$
|
(1,190,725
|
)
|
The accompanying notes are an integral part
of these consolidated financial statements.
THE CHRON ORGANIZATION INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(1,771,738
|
)
|
|
$
|
(131,264
|
)
|
Adjustments to reconcile net loss to net
|
|
|
|
|
|
|
|
|
Cash used in operating activities
|
|
|
|
|
|
|
|
|
Amortization of debt discount
|
|
|
212,877
|
|
|
|
64,923
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Prepaid expenses and other assets
|
|
|
(40,750
|
)
|
|
|
-
|
|
Accounts payable and other current liabilities
|
|
|
126,212
|
|
|
|
-
|
|
Accrued interest
|
|
|
13,085
|
|
|
|
-
|
|
Accrued payroll
|
|
|
212,000
|
|
|
|
3,795
|
|
Services paid in stock
|
|
|
42,500
|
|
|
|
-
|
|
Net cash used in provided in operating activities
|
|
|
(1,205,814
|
)
|
|
|
(62,546
|
)
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Software
|
|
|
(66,710
|
)
|
|
|
-
|
|
Net cash used in investing activities
|
|
|
(66,710
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from issuance of stock
|
|
|
687,234
|
|
|
|
-
|
|
Proceeds from subscription issuance
|
|
|
75,000
|
|
|
|
|
|
Proceeds from notes payable
|
|
|
-
|
|
|
|
61,638
|
|
Proceeds from convertible promissory notes
|
|
|
500,000
|
|
|
|
54,500
|
|
Proceeds from related party convertible promissory notes and warrants
|
|
|
62,000
|
|
|
|
131,000
|
|
Net cash provided by financing activities
|
|
|
1,324,234
|
|
|
|
247,138
|
|
|
|
|
|
|
|
|
|
|
CASHFLOWS FROM DISCONTINUED OPERATIONS
|
|
|
|
|
|
|
|
|
Net loss from discontinued operations
|
|
|
-
|
|
|
|
(184,592
|
)
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD
|
|
$
|
-
|
|
|
$
|
-
|
|
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD
|
|
$
|
51,710
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non cash transactions
|
|
|
|
|
|
|
|
|
Conversion of notes payable to common stock
|
|
$
|
122,500
|
|
|
$
|
63,028
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest expense
|
|
$
|
1,179
|
|
|
$
|
-
|
|
The accompanying notes are an integral part
of these consolidated financial statements.
.
THE CHRON ORGANIZATION, INC.
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL
STATEMENTS
DECEMBER 31, 2016 AND 2015
1. Organization – Nature of Operations
The Chron Organization, Inc. (the “Company”
or “CHRO”) was incorporated under the laws of the State of Nevada on July 28, 1999. On March 24, 2016 FINRA (Financial
Industry Regulatory Authority, Inc.) approved the name and CUSIP change from USA Restaurant Funding, Inc. to The Chron Organization,
Inc. (OTC PINK: CHRO). The Company amended its Articles of Incorporation to change its name to “The Chron Organization, Inc.”,
to reflect the change in direction of the Company’s business to smart home technologies and the next generation in energy
utility services.
While the FINRA-registered name prior to March
24, 2016 and other registrations may imply and continue to imply an association with the restaurant industry, the Company has no
plans or intentions to develop any business within that industry. Further, the entirety of the management team formally associated
with the restaurant industry have resigned and new management has been brought in to transition the Company into a different industry
entirely.
During the twelve months ended December 31,
2016 the Company formed a wholly owned subsidiary, Zen Technologies, Inc. The Company intends to provide home automation and energy
conservation services to home owners through Zen Technologies, Inc. The services will include but are not limited to security,
monitoring, and automation control that will enable the customer base to run a safe and efficient home. In addition to these services
the Company will also provide electricity needs to its customer base through its retail electricity provider subsidiary.
2. Summary of Significant Accounting Policies
Principals of Consolidation –
The
accompanying consolidated financial statements include the accounts of The Chron Organization, Inc. and its wholly owned subsidiary
Zen Technologies, Inc. All significant intercompany transactions and balances have been eliminated.
Use of Estimates
– The preparation
of financial statements in conformity with generally accepted accounting principles in the United States of America requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the reporting periods.
Key estimates in the accompanying financial statements include, among others, revenue recognition, allowances for doubtful accounts,
valuation of long-lived assets, and deferred income tax asset valuation allowances.
The financial statements are presented on the
basis of the Company’s ability to continue as a going concern. Other than continued current involvement, some transactions
prior to December 31, 2015 have been reclassified as discontinued operations in these financial statements. See further information
in Note 7.
Discontinued Operations
.
Cash and Cash Equivalents
– The
Company considers all highly-liquid investments with a maturity of three months or less, when purchased, to be cash equivalents.
Prepaid Expenses
– As of December
31, 2016 prepaid expenses totaled $40,750. The balance of prepaid expenses as of December 31, 2016, consists of business insurance
and rent related expenses. There were no prepaid expenses at December 31, 2015.
Fair Value of Financial
Instruments -
The Company calculates the fair value of its assets and liabilities which qualify as financial instruments and
includes this information in the notes to consolidated financial statements when the fair value is different than the carrying
value of those financial instruments. The estimated fair value of accounts receivable, prepaid and other current assets, and accounts
payable and accrued expenses approximate the carrying amounts due to the relatively short maturity of these instruments. As stated
above, the Company has discontinued its restaurant activities and as such has determined that the restaurant related assets have
no future value and therefore have been written off at December 31, 2015. The carrying value of short- and long-term debt also
approximates fair value since these instruments bear market rates of interest. None of these instruments are held for trading purposes.
Basic and Diluted Net Loss per Common Stock
–
Basic net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding
during the period. Diluted net loss per common share is determined using the weighted-average number of common shares outstanding
during the period, adjusted for the dilutive effect of common stock equivalents. In periods when losses are reported, the weighted-average
number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive. The dilutive
shares outstanding at December 31, 2016 and 2015 are as follows:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
Convertible promissory notes
|
|
|
22,924,901
|
|
|
|
20,000,000
|
|
Related party convertible promissory notes
|
|
|
64,333,333
|
|
|
|
43,666,667
|
|
Related Party Warrants
|
|
|
32,166,667
|
|
|
|
21,833,333
|
|
Warrants
|
|
|
10,000,000
|
|
|
|
-
|
|
Diluted shares outstanding
|
|
|
129,424,901
|
|
|
|
85,500,000
|
|
Income Taxes –
The Company estimates its current tax position together with its future tax consequences attributable to temporary differences
resulting from differing treatment of items, such as depreciation and other reserves for tax and accounting purposes. These temporary
differences result in deferred tax assets and liabilities. Management must then assess the likelihood that its deferred tax assets
will be recovered from future taxable income, prior year carryback, or future reversals of existing taxable temporary differences.
To the extent management believes that recovery is unlikely, management establishes a valuation allowance against these deferred
tax assets. Significant judgment is required in determining the Company’s provision for income taxes, its deferred tax assets
and liabilities, and any valuation allowance recorded against its deferred tax assets. At December 31, 2016 and 2015, the Company
has recorded a full valuation allowance against its net deferred tax assets due to the uncertainty these assets will be used in
the future.
Revenue Recognition
- The Company recognizes sales, which include shipping fees where applicable, net of estimated returns, at the time the customer
takes possession of merchandise or receives services. When the Company collects payments from customers prior to the transfer of
ownership of merchandise or the performance of services, the amounts received are generally recorded as deferred sales, included
in other current liabilities on the consolidated balance sheets, until the sale or service is completed. The Company reserves for
estimated sales returns based on historical trends in merchandise returns, net of the estimated net realizable value of merchandise
inventories to be returned and any estimated disposition costs. Amounts collected from members, which under common trade practices
are referred to as sales taxes, are recorded on a net basis.
Software Development
Costs –
The Company capitalizes certain expenditures to the development of its software application. Capitalization begins
when technological feasibility is established. Capitalized costs are amortized using the straight-line method over the estimated
useful life of the developed product.
Beneficial Conversion Feature -
The
Company accounts for convertible notes payable in accordance with the guidelines established by the Financial Accounting Standards
Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 470-20, Debt with Conversion and
Other Options, Emerging Issues Task Force (“EITF”) 98-5, Accounting for Convertible Securities with Beneficial Conversion
Features or Contingently Adjustable Conversion Ratios, and EITF 00-27, Application of Issue No 98-5 To Certain Convertible Instruments.
The Beneficial Conversion Feature (“BCF”) of a convertible note is normally characterized as the convertible portion
or feature of certain notes payable that provide a rate of conversion that is below market value or in-the-money when issued. The
Company records a BCF related to the issuance of a convertible note when issued and records the estimated fair value of any warrants
issued with those convertible notes. Beneficial conversion features that are contingent upon the occurrence of a future event are
recorded when the contingency is resolved.
The BCF of a convertible note is measured by
allocating a portion of the note’s proceeds to the warrants, if applicable, and as a discount on the carrying amount of the
convertible note equal to the intrinsic value of the conversion feature, both of which are credited to mezzanine equity. The value
of the proceeds received from a convertible note is then allocated between the conversion features and warrants and the debt on
an allocated fair value basis. The allocated fair value is recorded in the financial statements as a debt discount (premium) from
the face amount of the note and such discount is amortized over the expected term of the convertible note (or to the conversion
date of the note, if sooner) and is charged to interest expense.
Classification
-
. Pursuant to
ASC 480-10-S99-3A, the SEC finds that a BCF should be separated from a convertible instrument and recorded in additional paid-in
capital. However, Company’s filing with the SEC should present BCF as mezzanine equity in order to distinguish them from
permanent equity. The balance sheet reflects the redeemable equity instruments as mezzanine equity separate from permanent equity.
3. Going Concern
The Company’s financial statements for
the twelve months ended December 31, 2016 and 2015 have been prepared on a going concern basis, which contemplates the realization
of assets and the settlement of liabilities and commitments in the normal course of business. The Company reported a net loss of
$1,771,738 and $315,856 for the twelve months ended December 31, 2016 and 2015, respectively, and an accumulated deficit of $2,328,890
and $557,152 for the twelve months ended December 31, 2016 and 2015, respectively. At December 31, 2016 and 2015, the Company had
a working capital deficit of $529,476 and $140,221 respectively, and negative cash flow from continuing operating activity of $1,205,814
and $62,546, respectively, for the twelve months ended December 31, 2016 and 2015.
The Company’s ability to continue as
a going concern may be dependent on the success of management’s plan. The financial statements do not include any adjustments
relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern.
During the 2016 fiscal year, the Company intends
to continue its efforts to raise funds to support its efforts through the sale of equity and/or debt securities. During the twelve
months ended December 31, 2016, the Company has raised $687,234 from sales of its common stock.
To the extent the Company’s operations
are not sufficient to fund the Company’s capital requirements, the Company may attempt to enter into a revolving loan agreement
with financial institutions or attempt to raise capital through the sale of additional capital stock or through the issuance of
debt. At the present time, the Company does not have a revolving loan agreement with any financial institution.
4. Notes Payable
Line of Credit
On November 13, 2014,
the Company entered into an unsecured line of credit (the “Line of Credit”) with a third-party for up to $68,000. The
Line of Credit carried an interest rate of 3% per annum. In the event of a default under the Line of Credit, the interest rate
on the Line of Credit would increase to the lower of 12% per annum or the maximum amount allowed by law. During the twelve months
ended December 31, 2016, the Company settled the note payable in the amount of $68,000 with the issuance of 7,588,888 shares of
the Company’s common stock, par value $0.001 per share. With the issuance of the shares, the Company was released of all
existing and potential claims.
5. Related Party
Convertible Promissory Note
As of December 31,
2016 and 2015, the Company had an outstanding related party convertible promissory note of $193,000 and $131,000, respectively,
with a maximum availability of $200,000 (the “Related Party Convertible Promissory Notes”). See Note 8.
Related
Party Transactions.
On November 20, 2015,
the Company issued a Convertible Promissory Note to a related party (the “Related Party Convertible Promissory Note”).
The Related Party Convertible Promissory Note accrues interest at a rate of 2% per annum. The principal balance and accrued interest
under the Related Party Convertible Promissory Note at December 31, 2016 and 2015 was $193,000 and $131,000, and $3,358 and $264,
respectively, and is due on April 30, 2017.
The Holder of the
Related Party Convertible Promissory Note has the right to convert all or any part of the outstanding principal and accrued interest
to shares of common stock of the Company. The Related Party Convertible Promissory Note can be converted by the Holder in part
from time to time after the issuance date by submitting notice of conversion. The November 2015 Convertible Promissory Note is
convertible at a $0.003 per share conversion price.
The Related Party
Convertible Promissory Note contained a beneficial conversion feature which resulted in a debt discount of $155,650 which was recorded
as a reduction in carrying value of the Related Party Convertible Promissory Note and offset in mezzanine equity during the twelve
months ended December 31, 2016 and 2015. During the twelve months ended December 31, 2016 and 2015 a charge to debt discount in
the amount of $143,011 and $10,423, respectively and was expensed as interest expense. At December 31, 2016 and 2015, the debt
discount was $1,986 and $95,186, respectively.
In connection with
the Related Party Convertible Promissory Note, the Holder was issued a total of 32,166,667 warrants exercisable at $0.05 expiring
in November 2020 (the “Warrants”). The Company determined the fair value of the warrants which resulted in a debt discount
of $37,366 which was recorded as a reduction in carrying value of the Related Party Convertible Promissory Note and offset in mezzanine
equity during the twelve months ended December 31, 2016 and 2015. During the twelve months ended December 31, 2016 a charge to
debt discount in the amount of 34,695 and was expensed through interest expense. The balance at December 31, 2016 and 2015 was
$2,671, and $25,391, respectively.
Related Party Convertible
Promissory Note Summary
The fair value of the embedded beneficial conversion
features and the fair value of the warrants underlying the Related Party Convertible Promissory Notes were calculated pursuant
to the Black-Scholes Model. The following table summarizes the carrying value of the Convertible Promissory Notes as of December
31, 2016 and December 31, 2015:
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
Related Party 2015 Convertible Promissory Note
|
|
$
|
193,000
|
|
|
$
|
131,000
|
|
Less: debt discount
|
|
|
(1,986
|
)
|
|
|
(95,186
|
)
|
Warrants
|
|
|
(2,672
|
)
|
|
|
(25,391
|
)
|
Total net carrying value
|
|
$
|
188,342
|
|
|
$
|
10,423
|
|
6. Convertible Promissory Notes
On January 8, 2015,
the prior management team of the Company issued a Convertible Promissory Note totaling $54,500 to a third-party (the “January
2015 Convertible Promissory Note”). The January 2015 Convertible Promissory Note matured on January 8, 2016, and accrued
interest at a rate of 8% per annum. As of December 31, 2016 and 2015, the outstanding balance was $0 and $54,500, respectively.
During the twelve months ended December 31,
2016, the Company settled the January 2015 Convertible Promissory Note. The Holder of the January 2015 Convertible Promissory Note
was issued 20,000,000 shares of the Company’s common stock, par value $0.001 per share in full settlement of the company’s
obligations
On September 6, 2016,
the Company issued a Convertible Promissory Note totaling $300,000 to a third-party (the “September 2016 Convertible Promissory
Note”). The September 2016 Convertible Promissory Note matures on September 5, 2018, and accrues interest at a rate of 10%
per annum. As of December 31, 2016, the outstanding principal and accrued interest balance was $300,000 and $14,795, respectively.
The Holder of the
Convertible Promissory Note has the right to convert all or any part of the outstanding principal and accrued interest to shares
of common stock of the Company. The Convertible Promissory Note can be converted by the Holder in part from time to time after
the issuance date by submitting notice of conversion. The September 2016 Convertible Promissory Note is convertible at the option
of the Holder into that number of shares of the Company’s common stock determined by dividing such principal amount and accrued
interest by the Conversion Rate. The Conversion Rate is defined as seventy percent (70%) of the volume weighted average price over
the prior ten (10) day trading period from the date of notice of conversion, but in no event shall the Conversion price be less
than $0.02.
The September 2016
Convertible Promissory Note contained a beneficial conversion feature which resulted in a debt discount of $158,688 which was recorded
as a reduction in carrying value of the September 2016 Convertible Promissory Note and offset in mezzanine equity during the twelve
months ended December 31, 2016. A charge to debt discount in the amount of $25,621 was expensed through interest expense. At December
31, 2016, the debt discount was $133,067.
In connection with
the September 2016 Convertible Promissory Note, the Holder was issued 6,000,000 warrants exercisable at $0.05 expiring in September
2018 (the “Warrants”). The Company determined the fair value of the warrants which resulted in a debt discount of $30,117,
recorded as a reduction to the carrying value of the September 2016 Convertible Promissory Note and offset in mezzanine equity
and is being amortized over the life of the warrants. The balance of the fair value of the warrants at December 31, 2016 was $25,254.
On November 25, 2016,
the Company issued two Convertible Promissory Notes totaling $200,000 to third-parties (the “November 2016 Convertible Promissory
Notes”). The November 2016 Convertible Promissory Notes mature on November 24, 2017, and accrues interest at a rate of 10%
per annum. As of December 31, 2016, the outstanding principal and accrued interest balance was $200,000 and $1,644, respectively.
The Holder of the
November 2016 Convertible Promissory Notes have the right to convert all or any part of the outstanding principal and accrued interest
to shares of common stock of the Company. The November 2016 Convertible Promissory Notes can be converted by the Holder in part
from time to time after the issuance date by submitting notice of conversion. The November 2016 Convertible Promissory Notes are
convertible at the option of the Holder into that number of shares of the Company’s common stock determined by dividing such
principal amount and accrued interest by the Conversion Rate. The Conversion Rate is defined as seventy percent (70%) of the volume
weighted average price over the prior ten (10) day trading period from the date of notice of conversion, but in no event shall
the Conversion price be less than $0.02.
The November 2016
Convertible Promissory Notes contained a beneficial conversion feature which resulted in a debt discount of $99,123 which was recorded
as a reduction in carrying value of the November 2016 Convertible Promissory Notes and offset in additional mezzanine equity during
the twelve months ended December 31, 2016. A charge to debt discount in the amount of $4,130 was expensed through interest expense.
At December 31, 2016, the debt discount was $94,993.
In connection with
the November 2016 Convertible Promissory Notes, the Holders were issued 4,000,000 warrants exercisable at $0.05 expiring in November
2019 (the “Warrants”). The Company determined the fair value of the warrants which resulted in a debt discount of $13,409,
recorded as a reduction to the carrying value of the November 2016 Convertible Promissory Note and offset in mezzanine equity and
is being amortized over the life of the warrants. The balance of the fair value of the warrants at December 31, 2016 was $12,850.
Convertible Promissory
Note Summary
The fair value of the embedded beneficial conversion
features and the fair value of the warrants underlying the Convertible Promissory Notes were calculated pursuant to the Black-Scholes
Model. The following table summarizes the carrying value of the Convertible Promissory Note as of December 31, 2016:
|
|
December 31, 2016
|
|
|
|
|
|
Convertible Promissory Note
|
|
$
|
500,000
|
|
Less: debt discount
|
|
|
(228,059
|
)
|
Warrants
|
|
|
(38,105
|
)
|
Total net carrying value
|
|
$
|
233,836
|
|
7. Income Taxes
No provision for federal income taxes has been
recognized for the twelve months ended December 31, 2016 and 2015, as the Company has a net operating loss carry forward for income
tax purposes available in each period. Additionally, it is uncertain if the Company will have taxable income in the future so a
valuation allowance has been established for the full value of net tax assets. The deferred tax asset consists of net operating
loss carry forwards and the Company has no deferred tax liabilities.
At December 31, 2016 and 2015, the Company
has net operating loss carry forwards of $713,387 and $189,432, respectively for federal income tax purposes. This net operating
loss carry forwards may be carried forward in varying amounts until 2036 and may be limited in their use due to significant changes
in the Company’s ownership.
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
713,387
|
|
|
$
|
189,432
|
|
Less: valuation allowance
|
|
|
(713,387
|
)
|
|
|
(189,432
|
)
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company has valued its net deferred tax
asset at zero with a valuation allowance due to the substantial doubt taxable income will be generated in the future to utilize
the deferred tax asset.
8. Related Party Transactions
During
the twelve months ended December 31, 2016, the Company issued the Chairman of the Board a convertible promissory note, (the “Related
Party Convertible Promissory Note”) in an amount up to $200,000 along with 32,166,667 warrants. The note accrues interest
at 2% per annum. The issuance of the financial instruments was made in the ordinary course of business, and were given fair market
treatment. The Related Party Convertible Promissory Note matures on April 30, 2017. See Note 5.
Related Party Convertible
Promissory Note.
Additionally, the Company merged with a company
controlled by related parties. See Note 10.
Merger.
9. Discontinued Operations
The Company has accounted for discontinued
operations prior to January 1, 2016 under Accounting Standards Update No. 2014-08,
Reporting Discontinued Operations and Disclosures
of Disposals of Components of an Entity
. Under this guidance, a discontinued operation is defined as a strategic shift that
has (or will have) a major effect on an entity’s operations and financial results. As described in Note 1. the Company has
exited the restaurant industry and has shifted its strategy to home automation and energy conservation services. Management believes
this adequately qualifies as a strategic shift under Update No. 2014-08. As of December 31, 2015, the Company had not generated
any revenue from its new services. A reconciliation of amounts included in the statements of operations for the years ended December
31, 2015 as follows:
Revenue
|
|
$
|
20,100
|
|
Selling general and administrative expenses
|
|
|
(201,161
|
)
|
Other Expenses
|
|
|
(3,531
|
)
|
Loss from continued operations
|
|
$
|
(184,592
|
)
|
10. Merger
On July 1, 2016, the Company exchanged 165,000,000
shares of the Company’s unregistered shares of common stock for 100% of the outstanding common stock of Chron Energy, Inc.
(“CEI”), a Nevada corporation to related parties (consisting of the company’s Chief Compliance Officer and an
LLC managed by the Company’s President). CEI possessed intellectual property and strategic relationships (the “Assets”)
that are integral to the Company’s entrance into the home automation and retail electric provider markets. Generally, the
total acquisition consideration price would be allocated to the assets acquired and liabilities assumed based on their estimated
fair values. The excess of the purchase price over the total of estimated fair values assigned to tangible and identifiable intangible
assets acquired and liabilities assumed would then be recognized as goodwill. CEI had no liabilities and the Assets had no carrying
value on the books. Since the acquisition was with related parties, no increase in the carrying value of the Assets or goodwill
can be realized on the books of the Company.
There was no change of control of the Company
as a result of the Merger. See Note 8
. Related Party Transitions
.
11. Shareholder Equity
On February 11, 2016, the Company amended and
restated its Articles of Incorporation. The Company was authorized to issue two classes of stock to be designated, respectively
“Common Stock” and “Preferred Stock.” The total number of shares which the Company is authorized to issue
is one billion five hundred ten million (1,510,000,000) shares each with a par value of $0.001 per share. One billion (1,000,000,000)
shares shall be Class A Common Stock, ten million (10,000,000) shares shall be Class B Common Stock, and five hundred million (500,000,000)
shares shall be Preferred Stock. As of December 31, 2016, there are 853,262,525 Class A Common Stock shares issued, ten million
(10,000,000) Class B Common Stock shares issued, and there has been no issuance of Preferred Stock. Each share of Class A Common
Stock shall have one vote and each share of Class B Stock shall have 200 votes. The votes of Class A and Class B Common Stock shall
vote together as a single class.
Issuances of Class A Common Stock, par value
$0.001:
During the twelve months ended December 31,
2016, the Company issued 2,368,300 shares to providers of professional services to the Company, in lieu of the payment of cash
for such services. The value of the transactions total approximately $42,500.
During the twelve months ended December 31,
2016, the Company has issued 282,753,210 shares for cash considerations totaling $687,234.
Issuances of Class B Common Stock, par value
$0.001:
During the twelve months ended December 31,
2016, the Company issued 10,000,000 shares to related parties for cash considerations totaling $30,000.
12. Contingencies
In the ordinary course of conducting its business,
the Company may be subject to loss contingencies including possible disputes and lawsuits. Management believes that any outcome
of such contingences will not have a material impact on the Company’s financial position or results of future operations.
13. Subsequent Events
Amended and Restated Articles of Incorporation
Effective March 2, 2017, the Company amended
Articles Five and Seven of the corporation’s Amended and Restated Articles of Incorporation.
Article Five was amended to set the aggregate
number of shares which the Corporation shall have the authority to issue at 1,500,000,000 shares, of which 1,450,000,000 shares
shall be Class A Common Stock, par value $.001 per share (the “Class A Common Stock”), 10,000,000 shares shall be Class
B Common Stock, par value $.001 per share (the “Class B Common Stock”) and 40,000,000 shares shall be Preferred Stock,
par value $.001 per share (the “Preferred Stock”) of which, 2,000,000 shares are designated as “Series A Preferred
Stock”. The rights, preferences and restrictions for the Series A Preferred Stock are set forth in the new Article Five,
Section C which includes the following:
|
1.
|
DESIGNATION OF SERIES. (a) There shall be a series of the Preferred Stock of the Corporation which shall be designated as the “Series A Preferred Stock,” $0.001 par value, and the number of shares constituting such series shall be Two million (2,000,000). Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, however, that no decrease shall reduce the number of shares of Series A Preferred Stock to a number less than that of the shares then outstanding. The Series A Preferred Stock shall have the rights, preferences, restrictions and other terms relating to such series of preferred stock as set forth in the Certificate of Designation of Preferences, Rights and Limitations of Series A Preferred Stock attached hereto as Exhibit A and incorporated herein by reference.
|
|
|
|
|
|
|
2.
|
DIVIDENDS. The holders of Series A Preferred Stock shall not be entitled to receive dividends paid on the Common Stock.
|
|
|
3.
|
LIQUIDATION PREFERENCE. The holders of Series A Preferred Stock shall not be entitled to any liquidation preference.
|
|
|
|
|
|
|
4.
|
VOTING. Except as otherwise expressly set forth herein or as required by law, the holders of the Series A Preferred Stock shall not entitle the holders thereof to vote on any matter submitted for shareholder action, and the consent of the holders thereof shall not be required for the taking of any corporate action.
|
|
|
|
|
|
|
5.
|
CONVERSION RIGHTS. The holders of the shares of Series A Preferred Stock shall have the right to convert the Series A Preferred Stock into Class A Common Stock at the rate of ten (10) common shares for each preferred share (10-1 conversion rate) (the “Conversion Right”). The holder of the Series A Preferred Stock shall be entitled to exercise the Conversion Right one year from purchase date of the Series A Preferred Stock.
|
|
|
|
|
|
|
6.
|
REDEMPTION RIGHTS; REDEMPTION. To the extent not prohibited by law, all or a portion of the then-outstanding shares of Series A Preferred Stock may be redeemed by the Corporation for a period of one year from the date of issuance at an amount equal to one hundred thirty percent (130%) of the original issue price.
|
|
Article Seven was amended by deleting the existing
Article Seven and adding a new Article 7 as follows:
Rights of Holders of Common Stock.
The following rights, powers, privileges and restrictions, qualifications, and limitations apply to the Common Stock.
(a)
General
.
The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights, powers
and privileges of the holders of the Series A Preferred Stock.
(b)
Voting
.
The holders of the Class A Common Stock are entitled to one vote for each share of Class A Common Stock held at all meetings of
stockholders (and written actions in lieu of meetings) and the holders of the Class B Common Stock are entitled to 200 votes for
each share of Class B Common Stock held at all meetings of stockholders (and written actions in lieu of meetings). Unless required
by law, there shall be no cumulative voting. The number of authorized shares of Common Stock may be increased or decreased (but
not below the number of shares thereof then outstanding) by (in addition to any vote of the holders of one or more series of Series
A Preferred Stock that may be authorized by the Board) the affirmative vote of the holders of shares of capital stock of the Corporation
representing a majority of the votes represented by all outstanding shares of capital stock of the Corporation entitled to vote.
Further, holders of the Common Stock shall have no right to vote on the designations, preferences, limitations and relative or
other rights of the Series A Preferred Stock or any series thereof (collectively, the “Preferences”), or on any amendment,
alteration or repeal of the Preferences or the Series A Preferred Stock, at any time, whether before or after the issuance thereof.
Retail Electric Provider Acquisition
The Company entered into an agreement on January
20, 2017 to acquire eighty percent (80%) of Enertrade Electric, LLC, a Texas licensed Retail Energy Provider (“REP”)
engaged in the business of providing retail electricity and electric services to residential and commercial consumers within the
State of Texas. The purchase price totals $1,500,000 with the initial payment of $500,000 at closing (subject to certain adjustments
that may increase or decrease the initial amount) and a $1,000,000 promissory note without interest (subject to adjusted downward
for any increase in the initial payment) and payable in two equal installments, the first of which is due ninety (90) days from
the closing date and the second due one hundred and eighty (180) days from the closing date. Conditions precedent to closing the
transaction include, but not limited to, (i) the Sellers obtaining all material consents, approvals, permits, authorization from,
notifications to and filings with any Governmental Entities including, without limitations, the Texas Public Utilities Commission
and (ii) all approvals, consents and waivers shall have been obtained from the REP’s primary supplier. On March 27, 2017,
the Company received the approval of the Texas Public Utilities Commission.
Securities Purchase Agreement
On March 17, 2017, the Company entered into
a Securities Purchase Agreement containing convertible promissory notes (the “Notes”) and “Warrants.”
The aggregate principal amount of the Notes
is $165,000 to be taken down in two $82,500 tranches. The Notes are due one year from issuance, have an original issue discount
of 10%, an annual interest rate of 12%, a prepayment penalty of 20% if paid prior to the maturity date and are convertible into
shares of common stock of the Company with a “Conversion Price” equal to the lower of $.03 per share or 60% of the
lowest closing price for the Company’s Common Stock on the Trading Market for the 20 Trading Days prior to the conversion,
provided however the Conversion Price shall not be lower than $.001 per share.
The aggregate number of shares of common stock
of the Company issuable upon the exercise of the Warrants is 1,000,000 shares. The Warrants are to be issued in two 500,000 tranches
in connection with the Notes, are exercisable at any time on or after the six-month anniversary of the issue date and on or prior
to the anniversary of the issue date and have an “Exercise Price” of $0.03 for the first 500,000 tranche shares and
$0.05 for the second 500,000 tranche. The Warrants are exercisable for (i) cash or (ii) cashless by exchange of all or some of
the Warrant for shares of Common Stock equal to the value of the amount of the Warrant being exchanged on the date of exchange.
Sale of Common Stock
Subsequent to the year ended December 31,2016,
the Company sold a total of 4,333,334 shares of its restricted Class A Common Stock for $65,000 in private placements subject to
Rule 144.