The accompanying notes are an integral part of these consolidated financial statements
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2019 AND DECEMBER 31, 2018
NOTE 1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION
Znergy, Inc.is a Nevada corporation (the “Company” or “Znergy”), incorporated on January 23, 2013. The Company is a provider of energy-efficient lighting products, lighting controls and energy management solutions. The Company offers a full turn-key lighting solution which includes economic assessments, energy efficient analysis, installation and rebate support for the Company’s customers. The Company’s business primarily involves retrofitting existing lighting solutions from traditional high intensity metal halide and fluorescent lighting to energy efficient LED (Light Emitting Diode) technology.
The spread of a novel strain of coronavirus (COVID-19) around the world in the first half of 2020 has caused significant volatility in U.S. and international markets. There were significant business disruptions related to COVID-19 and it impacted the U.S. and international economies and, as such, the Company had a material impact to its operations.
The Company’s largest client, one of the world’s largest clothing retail stores, was forced to close its doors at the onset of the pandemic and re-opened some of its stores, thereby allowing the Company to continue to retrofit these limited stores with its LED lighting system. We were able to convert 27 stores starting November 26, 2019 through November 20, 2020, with the majority converted in the first quarter of 2020 before the full impact of the pandemic. Due to the long-term effects on the retail industry, the retailer is currently evaluating its footprint prior to continuing to retrofit additional stores. After the COVID-19 lockdown, we were never given any additional locations to convert through the filing date. The Company performed warranty work and small amounts of emergency light replacements only.
On September 22, 2021, the Company formed RluxRV, LLC. This LLC is joint owned by the Company and Royalux Lighting, LLP (RoyaLux), an Indian company. The purpose of this LLC is to supply lighting and technology parts to the recreational vehicle (“RV”) market. The parts manufacturing will be done exclusively by Royalux Lighting. All of the sales and distribution of the parts will the responsibility of RluxRV. This business is meant for a strategic change in Znergy’s business. All the Company’s employees with the exception of the Chief Executive Officer were terminated in December 2021 in order to conserve cash and evaluate RluxRV’s potential impact. A limited liability operating agreement was executed between the Company and RoyaLux on November 15, 2021. As of the date of filing, the Company has not rehired any of its terminated employees.
Basis of Presentation
The unaudited condensed consolidated financial statements of the Company for the three and nine months ended September 30, 2019 and 2018 have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission ("SEC"). Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the Company's financial position and the results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. The balance sheet information as of December 31, 2018 was derived from the audited consolidated financial statements included in the Company's Annual Report on Form 10-K filed with the SEC on September 4, 2020. These financial statements should be read in conjunction with that report.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts or revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s significant estimates, judgments, and assumptions used in these consolidated financial statements include those related to revenues, accounts receivable and related allowances, contingencies, and the fair values of stock-based compensation. These estimates, judgments, and assumptions are reviewed periodically and the effects of material revisions in estimates are reflected in the financial statements prospectively from the date of the change in estimate.
Revenue Recognition
Revenue is measured based on the amount of consideration specified in a contract with a customer. Revenue is recognized when and as performance obligations under the terms of the contract are satisfied which generally occurs with the transfer of control of the goods or services to the customer.
Contracts are considered to have a single performance obligation if the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts primarily because the Company provides a significant service of integrating a complex set of tasks and components into a single project or capability. The Company’s contracts generally have a single performance obligation.
The Company recognizes revenues for fixed price and modified fixed price contracts over time, as performance obligations are satisfied, for substantially all contracts due to the continuous transfer of control to the customer. For most of the Company’s contracts, the customer contracts with the Company to provide a significant service of integrating a complex set of tasks and components into a single project or capability and are, therefore, accounted for as single performance obligations.
The Company recognizes revenue using the cost-to-cost input method, based primarily on contract costs incurred to date compared to total estimated contract costs. This method is the most accurate measure of the Company’s contract performance because it directly measures the value of the goods and services transferred to the customer. Contract costs include all direct material, labor and subcontractors and indirect costs related to contract performance. Pre-contract costs are expensed as incurred unless they are expected to be recovered from the client.
The payment terms for the Company’s contracts from time to time require the customer to make advance payments as well as interim payments as work progresses. The advance payment generally is not considered a significant financing component as the Company expects to recognize those amounts in revenue within a year of receipt as work progresses on the related performance obligation.
Consolidation
The Company has no active subsidiaries as of September 30, 2019, therefore the condensed consolidated financial statements include the accounts of the Company. As of the filing date, the Company’s condensed consolidated financial statements will include the accounts of the Company and its wholly owned subsidiaries, RluxRV, LLC. All intercompany transactions will be eliminated in consolidation.
Inventory
Inventory consists of a variety of LED lamps, all of which are valued at the lower of cost or net realizable value. Inventory is accounted for using the FIFO basis.
Reclassification
Certain amounts reported in prior years in the financial statements have been reclassified to conform to the current year’s presentation. The 2018 statement of cash flows reclassified certain accounts within the operating cash flows of the Company and the income statement reclassified certain operating expenses.
Adoption of recent accounting standards
In February 2016, the FASB issued ASU No. 2016-02, Leases, which supersedes the current lease accounting requirements. This standard requires a lessee to record on the balance sheet the assets and liabilities for the rights and obligations created by leases with lease terms of more than 12 months. In addition, this standard requires lessees to disclose certain key information about lease transactions. Upon implementation, an entity’s lease payment obligations will be recognized at their estimated present value along with a corresponding right-of-use asset. Lease expense recognition will be generally consistent with current practice. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which simplifies adoption of the new lease accounting requirements by allowing an additional transition method that will not require restatement of prior periods and providing a new practical expedient for lessors to avoid separating lease and non-lease components within a contract if certain requirements are met. The provisions of this guidance must be elected upon adoption of the new lease accounting requirements, which will be effective for interim and annual periods beginning after December 15, 2018.
We adopted the standard as required on January 1, 2019. Consequently, we did not update previously reported financial information and the disclosures under the new standard will not be provided for dates and periods prior to January 1, 2019, and elected all of the practical expedients available under the transition guidance. The new standard also provides practical expedients for ongoing accounting. We elected the short-term lease recognition exemption for all leases that qualify and did not recognize right of use assets or lease liabilities for those leases. We also elected the practical expedient to not separate lease and non-lease components for all of our leases.
The adoption did not impact the business as no long-term, reportable leases existed as of September 30, 2019. We currently believe the most significant effects relate to the recognition of new right of use assets and lease liabilities on our balance sheet for our real estate and equipment operating leases, and the significant new required disclosures regarding our leasing activities.
Recent accounting standards
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes”. This ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The guidance is effective non-public entities for fiscal years beginning after December 15, 2020, with early adoption permitted. The adoption method is dependent on the specific amendment included in this update as certain amendments require retrospective adoption, modified retrospective adoption, an option of retrospective or modified retrospective, and prospective adoption. The adoption of this standards update is not expected to have a material impact on the Company’s financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity and improves and amends the related EPS guidance for both Subtopics. The ASU will be effective for annual reporting periods after December 15, 2021 and interim periods within those annual periods and early adoption is permitted in annual reporting periods ending after December 15, 2020. We are still assessing the impact of ASU 2020-06 on our condensed consolidated financial statements
The Company does not believe that there are any new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
NOTE 3 – GOING CONCERN
The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. As of September 30, 2019, the Company has a working capital deficit of $3,007,024, insufficient cash resources to meet its planned business objectives and recurring losses of ($2,720,042) and ($5,671,935) for the three and nine months ended September 30, 2019. The Company intends to fund operations through debt and equity financing arrangements, which may be insufficient to fund its capital expenditures, working capital and other cash requirements through June 2023, one year from the date the consolidated financial statements were issued.
The Company is dependent upon, among other things, obtaining additional financing to continue operations and to execute its business plan. In response to these problems, management intends to raise additional funds through public or private placement offerings. No assurances can be made that management will be successful in pursuing any of these strategies.
These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The following funding was received by the company subsequent September 30, 2019:
Since September 30, 2019, through the filing date of this report the Company has received $1,055,705 in additional advances and loans from the Chairman of the Board. This amount includes $367,205 for inventory purchases used by RluxRV. The $367,205 was repaid by the Company, $100,000 was repaid December 6, 2021 and $267,205 was repaid April 20, 2022, as well as an additional $348,579. On April 18, 2022, the Company agreed to consolidate the total loans, advances and accrued interest into a single Note in the amount of $1,126,955, the full amount of which is payable upon demand bearing an interest rate of 10%.
Since September 30, 2019 through the filing date of this report the Company received $145,000 from related parties, On November 19, 2019, Richard and Jerald Horowitz each loaned the Company $10,000. The notes were due December 21, 2019 (Maturity Date). They have an interest rate of 10% per annum and a penalty of 15% if not paid by the maturity date. On September 4, 2020, Richard and Jerald Horowitz each loaned the Company $12,500. The notes were due November 4, 2020 (Maturity Date). They have an interest rate of 5% per annum with an increase to 12% if not paid by the maturity date. On February 8, 2021, Richard and Jerald Horowitz each loaned the Company $25,000. The notes were due May 15, 2021 (Maturity Date). They have an interest rate of 5% per annum with an increase to 12% if not paid by the maturity date. On June 30, 2021, Richard and Jerald Horowitz each loaned the Company $25,000. Repayment terms are 3% of project revenue until the loans and unpaid interest are satisfied. The notes bear interest of 12% per annum and have not been satisfied as of the date of this report.
On November 26, 2019, the Company received a third-party factoring loan from the Korenstra Family Foundation (“Korenstra”) for $150,000. This loan is factored against several open accounts receivable of the Company. The interest rate shall be $5,000 per month with the loan not exceeding 90 days. If delinquent, after 90 days, the interest rate will increase to $10,000 per month. On December 1, 2021, the Company executed a $550,000 convertible promissory note which satisfied the $150,000 factoring loan and loaned the Company an additional $400,000. The outstanding principal and interest shall be paid on or before December 31, 2024 (the “Maturity Date”). In order to satisfy the $134,000 of unpaid interest on the $150,000 note, the Company transferred 4,466,667 shares to Korenstra. Additionally, on December 1, 2021 Korenstra was issued 5,500,000 warrants with an exercise price of $.10 per share. The interest on this loan shall be 18% per annum. If the loan is not satisfied by the maturity date, the default interest rate shall be 24% on all unpaid principal and interest. The monthly payment amount shall be equal to 3% of the net sales for the previous month of the Company’s RluxRV subsidiary. Monthly payments will continue until the maturity date even if the payback is greater than the borrowed amount plus interest. In addition, the Company shall pay one third of one percent of the net sales of RluxRV in perpetuity. On May 27, 2022, the Korenstra Family Foundation increased the loan by $100,000 under the same terms as the convertible promissory note.
On December 19, 2019, the Company issued 2,500,000 shares to an accredited non-related investor for $250,000. In addition, on December 19, 2019 the Company issued 7,000,000 warrants with an exercise price of $.10 per share.
On December 7, 2020, the Company issued a convertible promissory note to Tysadco Partners, LLC for the sum of $156,750. The Note bears interest of 12% per annum until the Note becomes due and payable on December 7, 2022 (Maturity Date). Any amount of principal or interest on this Note which is note repaid by the Maturity Date shall then bear interest at 20% per annum. At any time after 180 days from the Note’s inception until the Maturity Date or payment date, Tysadco may convert the balance or any portion of the balance to Common Stock at the lower of $.15 per share or 80% of the Market Price. Where the Market Price is defined as the ten day trading period prior to the conversion date.
On October 7, 2021, a $100,000 loan factoring agreement was issued to Nancy White. The loan repayment is required within 180 days and shall have interest of $10,000. The amount of $110,000 was paid on April 28, 2022 which fully satisfied the loan.
On November 23, 2021, the Company issued a 10% convertible note to Joseph Acebel for the sum of $40,000. The principal and any unpaid interest was due prior to April 1, 2022. Interest shall accrue on any unpaid principal at 10% per annum. The note, or any part of at least $10,000 shall be convertible into shares of the Company common stock at a conversion price of $.02 per share. Prior to the filing date, the note has been satisfied in full in cash.
On February 10, 2022, the Company issued a promissory note to Wayne Miller for $1,190,000. This note includes satisfying all previous notes of $585,000 plus unpaid interest and an additional loan of $500,000. This note is due on June 10, 2024. This note is to be paid with 3% of the gross sales of RluxRV with the first payment made on June 10, 2022.
NOTE 4 – ADVANCES FROM RELATED PARTIES
Advances from related parties were comprised of the following:
|
|
September 30
|
|
|
December 31
|
|
|
|
2019
|
|
|
2018
|
|
B2 Opportunity Fund
|
|
$ |
154,788 |
|
|
$ |
154,788 |
|
Cary Baskin
|
|
|
116,000 |
|
|
|
68,000 |
|
|
|
$ |
270,788 |
|
|
$ |
222,788 |
|
During the nine months ended September 30, 2019, the Company received an aggregate of $50,000 of short-term advances from Cary Baskin. The amounts are non-interest bearing and payable on demand.
Since September 30, 2019, through the filing date of this report the Company has received $0 in additional advances from related parties to fund operations.
NOTE 5 – LOANS FROM RELATED PARTIES
|
|
September 30
|
|
|
December 31
|
|
|
|
2019
|
|
|
2018
|
|
Rick Mikles
|
|
$ |
521,829 |
|
|
$ |
514,579 |
|
Wayne Miller
|
|
|
685,950 |
|
|
|
642,075 |
|
Paul Ladd
|
|
|
58,650 |
|
|
|
58,650 |
|
Cary Baskin
|
|
|
665,385 |
|
|
|
75,000 |
|
Randy Fluitt
|
|
|
275,000 |
|
|
|
- |
|
|
|
$ |
2,206,814 |
|
|
$ |
1,290,304 |
|
Rick Mikles
Since September 30, 2019, through the filing date of this report the Company has received $1,055,705 in additional advances and loans from the Chairman of the Board. This amount includes $367,205 for inventory purchases used by RluxRV. The $367,205 was repaid by the Company in cash as well as an additional $348,579. On April 18, 2022, the Company agreed to consolidate the total loans, advances and accrued interest into a single Note in the amount of $1,126,955, the full amount of which is payable upon demand.
Wayne Miller
During the nine months ended September 30, 2019, the Company executed no additional loans to Mr. Miller. The loan proceeds and accrued interest for the period were $0 and $43,875 respectively.
Cary Baskin
On April 4, 2019, the Company executed an unsecured promissory note in the amount of $100,000 payable to Mr. Cary Baskin, a shareholder of the Company. The note has interest at accruing at 10% per annum. The Note is payable on demand.
On September 13, 2019, the Company executed an unsecured promissory note in the amount of $500,000 payable to Mr. Cary Baskin, a shareholder of the Company. The note has interest at accruing at 10% per annum. The Note is payable on demand.
Randy Fluitt
On September 10, 2019, the Company executed an unsecured $275,000 promissory note payable to Randy Fluitt, a Company shareholder. The Note bears interest of 10% per annum. The Note is due and payable in the amount of $302,500 on or before the Maturity Date of February 1, 2020. The Company’s failure to pay the principal and interest within 15 days of the Maturity Date, will trigger a penalty of 10% of any amounts unpaid at the end of this period. The Company did not repay the loan by the Maturity Date and accrued the penalty as interest expense.
Since September 30, 2019, through the filing date of this report the Company has received $175,000 in additional loans from other related parties. The notes bear interest at 10%. All of the additional Notes are due on demand.
Total interest expense under the related party loans was $75,583 and $119,803 for the periods ended September 30, 2019 and December 31, 2018, respectively. Interest expense under related party loans for the three and nine months ended September 30, 2019 was $17,500 and $173,652 and $2,250 and $90,929 for the three and nine months ended September 30, 2018. Such interest was capitalized as part of the outstanding loan balance.
NOTE 6 – STOCKHOLDERS' EQUITY
Common Stock
During the Third Quarter of 2019, the Company issues 12,500,000 shares of Common Stock in payment for services. On September 3, 2019, Laura Knepper received 1,000,000 shares of Common Stock for bookkeeping services provided. On September 10, 2019, Arthur Filmore, a Director in the Company, was issued 10,000,000 shares for legal services provided. On September, 20, 2019, the Company issued 1,500,000 shares of Common Stock to Howard Nathan for CFO services. All shares were valued at fair on the date of issuance.
On July 3, 2019, the Company received cash of $203,500 in exchange for 3,700,000 share sold to an unrelated accredited investor.
On August 9, 2019, 11,200,000 shares were issued to the Company’s Chairman of the Board in exchange for the cancellation of 14,000,000 stock options. Expenses incurred in this transaction were $817,678 and included in selling, general and administrative expenses in the statement of operations.
Stock Based Compensation
The Company has issued and outstanding two types of options, time vesting and performance vesting.
Options - Time Vesting
The following table shows the stock option activity during the period ended September 30, 2019:
|
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Average
|
|
|
|
Options
|
|
|
Exercise Price
|
|
Options outstanding at beginning of period
|
|
|
13,904,166 |
|
|
$ |
0.10 |
|
Changes during the period:
|
|
|
|
|
|
|
|
|
Granted - at market price
|
|
|
- |
|
|
|
- |
|
Cancelled
|
|
|
(4,000,000 |
) |
|
|
- |
|
Forfeited
|
|
|
- |
|
|
|
- |
|
Options outstanding at end of period
|
|
|
9,904,166 |
|
|
|
0.10 |
|
Options exercisable at end of period
|
|
|
9,904,166 |
|
|
|
0.10 |
|
Weighted average fair value of options granted during the period
|
|
$ |
- |
|
|
$ |
- |
|
Costs incurred in respect of stock based compensation for employees, advisors and consultants for the three and nine month periods ended September 30, 2019 were $8,375 and $75,167, respectively. Costs incurred in respect of stock-based compensation for employees, advisors and consultants for the three and nine month periods ended September 30, 2018 were $133,129 and $382,246, respectively. The expense is included in selling, general and administrative expenses in the statement of operations.
On August 9, 2019, 11,200,000 shares were issued to the Company’s Chairman of the Board in exchange for the cancellation of 14,000,000 stock options, 4,000,000 of which were time vesting options and 10,000,000 were performance vesting options. The Company expensed $817,678 during the third quarter, 2019 for the value differential between the restricted stock and the cancelled options
Unrecognized compensation costs related to time vesting options as of September 30, 2019 was $-0-.
Options - Performance Vesting
The options vest based on Company performance with one option vesting for every two dollars of revenue, vesting quarterly. The following table shows the stock option activity during the period ended September 30, 2019:
|
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Average
|
|
|
|
Options
|
|
|
Exercise Price
|
|
Options outstanding at beginning of period
|
|
|
26,081,808 |
|
|
$ |
0.10 |
|
Changes during the period:
|
|
|
|
|
|
|
|
|
Granted - at market price
|
|
|
|
|
|
|
- |
|
Cancelled
|
|
|
(10,000,000 |
) |
|
|
- |
|
Expired/forfeited
|
|
|
(41,258 |
) |
|
|
0.10 |
|
Adjustments
|
|
|
|
|
|
|
- |
|
Options outstanding at end of period
|
|
|
16,040,550 |
|
|
|
0.10 |
|
Options exercisable at end of period
|
|
|
9,169,905 |
|
|
|
0.10 |
|
Weighted average fair value of options granted during the period
|
|
|
- |
|
|
$ |
- |
|
These options were issued to individuals for their business development efforts. The costs incurred in respect of stock-based compensation for employees, advisors and consultants for the three and nine month periods ended September 30, 2019 were $114,360 and $241,433 respectively. Costs incurred in respect of stock-based compensation for employees, advisors and consultants for the three and nine month periods ended September 30, 2018 were $96,466 and $215,113, respectively. The expense is included in selling, general and administrative expenses in the statement of operations
Unrecognized compensation costs related to options as of September 30, 2019 was $556,790 which is expected to be recognized ratably over a weighted average period of approximately 8 months based on estimated future revenues.
Warrants
The following table shows the warrant activity during the period ended September 30, 2019:
|
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Average
|
|
|
|
Warrants
|
|
|
Exercise Price
|
|
Warrants outstanding at beginning of period
|
|
|
2,000,000 |
|
|
$ |
0.10 |
|
Changes during the period:
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
- |
|
Exercised
|
|
|
- |
|
|
|
- |
|
Expired/forfeited
|
|
|
(2,000,000 |
) |
|
|
0.10 |
|
Warrants outstanding at end of period
|
|
|
- |
|
|
|
- |
|
Warrants exercisable at end of period
|
|
|
- |
|
|
$ |
- |
|
There were no Warrants granted for the three and nine months ended September 30, 2019.
Costs incurred for warrants issued to related parties for the conversion of debt were recorded as interest expense for the three and nine months ended September 30, 2018 were $-0- and $50,741, respectively.
NOTE 7 – BASIC AND DILUTED LOSS PER SHARE
Basic net loss per share is calculated by dividing the loss by the weighted-average number of shares outstanding for the period. Diluted net loss per share is computed by dividing the net attributable to common stockholders by the sum of the weighted average number of shares of common stock outstanding and the dilutive common stock equivalent shares outstanding during the period. The Company's dilutive common stock equivalent shares, which include incremental common shares issuable upon i) the exercise of outstanding stock options and warrants and (ii) vesting of restricted stock units and restricted stock awards, are only included in the calculation of diluted net loss per share when their effect is dilutive. Since the Company had net losses for all periods presented, all potentially dilutive securities are anti-dilutive. Accordingly, basic and dilutive net loss per share are equal.
The following potential common stock equivalents were not included in the calculation of diluted net loss per common share because the inclusion thereof would be anti-dilutive.
|
|
For the Period Ended
|
|
|
|
September 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
|
25,944,716 |
|
|
|
42,841,094 |
|
Warrants
|
|
|
- |
|
|
|
3,050,000 |
|
Total
|
|
|
25,944,716 |
|
|
|
45,891,094 |
|
NOTE 8 – COMMITMENTS AND CONTINGENCIES
16(b) Litigation
On September 26, 2016, Registrant filed in the United States District Court for the Middle District of Florida a Complaint against defendants The Mazzal Trust, Nissim S. Trabelsi and Shawn Telsi (collectively the “Defendants”), seeking the disgorgement of profits obtained by Defendants and certain of their shareholder affiliates defined under Rule 16a-1(a)(1) under the Exchange Act defined below (collectively, the “Group”) through “short swing profits” in violation of Section 16(b) of the Securities Exchange Act of 1934 (the “Exchange Act”). Specifically, Registrant alleged that the Group acted under the guidance and control of the Defendants, whose individual defendants had filed forms 3 and 4 with the Securities and Exchange Commission (the “SEC”, declaring themselves to be “insiders” for the purpose of Section 16(b). The Group owned 100% of the shares of Registrant at the time that members of the group were engaged in the sale and purchase of such shares. The sales and purchases referenced all occurred with six months of other sales and purchases, subjecting Defendants to disgorge to Registrant all profits made by the Group in such sales and purchases. As detailed in paragraphs 16-22 of the Complaint, the total profits received by the Group is $1,695,689. Accordingly, Registrant has demanded the return of all such profits to Registrant plus the statutory payment of attorneys’ fees.
On August 24, 2017, the Plaintiff received a Clerk’s Entry of Default against Nissim Trabelsi. The Plaintiff filed a Motion for Default Judgment for damages against Trabelsi on September 13, 2017, which to date has not been addressed by the Court. On March 5, 2018, Nissim Trabelsi filed a notice of bankruptcy. The Plaintiff is still pursuing its options in the Case and the Court has yet to address the service issues with the Mazzal Trust.
NOTE 9 – CONCENTRATIONS
For the three months ended September 30, 2019, five customers represented 73% of net revenue. For the three months ended September 30, 2018 two customers represented 89% of net revenue.
For the nine months ended September 30, 2019, two customers represented 27% of net revenue. For the nine months ended September 30, 2018, five customers represented 54% of net revenue.
At September 30, 2019, three customers represented 67% of accounts receivable.
The Company purchases substantially all of its inventory from one supplier. The Company does not have any commitments with this supplier for minimum purchases.
NOTE 10 – SUBSEQUENT EVENTS
In April 2020, the Company received an unsecured loan (the “SBA Loan”) under the Small Business Administration (“SBA”) Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Security Act CARES Act through Chase Bank (“Lender”). The SBA Loan has a two-year term expiring on April 2022. The SBA Loan has a principal amount of $237,458 with an interest rate of 1.0%. The Company expects that the full principal amount of the loan will be forgiven. Interest accrues during the period between funding date and the date the loan is forgiven. The Company applied for loan forgiveness on July 30, 2021 and was granted on August 12, 2021
In May 2020, the Company received an unsecured loan under the Small Business Administration (“SBA”), Economic Injury Disaster Loan (“EIDL”) program to assist business businesses effected by the COVID-19 pandemic. The EIDL Loan has a thirty-year term and has a principal amount of $149,900 with an interest rate of 3.75%.
In March 2021, the Company received an unsecured loan (the “SBA Loan”) under the Small Business Administration (“SBA”) Paycheck Protection Program of the Coronavirus Aid, Relief and Economic Security Act CARES Act through Chase Bank (“Lender”). The SBA Loan has a two-year term expiring on March 2023. The SBA Loan has a principal amount of $216,127 with an interest rate of 1.0%. The Company expects that a partial principal amount of the loan will be forgiven. Interest accrues during the period between funding date and the date the loan is forgiven. The Company applied for loan forgiveness on May 25, 2022, and has not yet received a determination on forgiveness.
On October 27, 2020 Jerald Horowitz, a Company Director, received 10,000,000 shares of restricted stock, which vested immediately for his service to the Company.
On March 11, 2021, the Company closed a purchase agreement between the Company and Quantum Energy and the Company and Quantum’s owner, Jim Collins. Customer lists and name recognition were acquired from Quantum for $1. Further, the Company shall pay a 10% commission for any sales derived from Quantum’s pre-existing sales or audits that generate revenue for the Company. Quantum’s owner, Jim Collins agreed to a consulting agreement with the Company for a three year period. This consulting agreement states that Mr. Collins shall act as a sales manager, primarily in the Washington State area and he shall receive an 8% commission on any new sale generated. During this three year period, Mr. Collins shall receive 2,000,000 shares of the Company, vesting one third each year. The Company executed a consulting agreement with Justin Collins to be the Company’s National Project Manager. Under this agreement, Mr. Justin Collins, shall receive a commission of 6% on new sales and an additional bonus of 20% on the differential between budgeted and actual expense, should budgeted expense exceed actual. After a 90 day period, the Company has agreed to negotiations, at its sole discretion, for Mr. Justin Collins to become the Company’s Chief Operating Officer. The stated salary for this position is $80,000 per annum.
On March 25, 2021, the Company executed an employment agreement with Justin Collins to become the Company’s National Project Manager. The term of the employment agreement is three (3) years commencing on March 29, 2021. This position reports to the Company’s CEO and will encompass the head of Company operations and management of the Company’s Washington location. The salary for this position shall be $80,000 per annum. Under this agreement, Mr. Justin Collins, shall receive a commission of 6% on new sales and an additional bonus of 20% on the differential between budgeted and actual expense, should budgeted expense exceed actual. Mr. Justin Collins also receives 1,000,000 options with a strike price of $.10 per share with annual vesting over a three year time period and expiring three years from the grant date.
On August 10, 2021, we announced the appointment of Mr. Bruce R. Albertson to our Board of Directors. Mr. Albertson replaces Jennifer Peek, whose business demands, and travel schedule prevent her from continuing to fulfill her role. Mr. Albertson will also serve as Chair of Znergy’s Audit Committee, a position formerly held by Ms. Peek. Mr. Albertson was issued 2,000,000 shares of Znergy stock in compensation for actively serving on the Board of Directors.
On March 21, 2022, the company issued restricted stock which was immediately vested. 25,000,000 shares were issued to Rick Mikles, Chairman of the Board. 10,000,000 shares were issued to Dave Baker, CEO. Both share grants were approved by the Board of Directors on September 10, 2020 due to market volatility.
On March 21, 2022, 2,000,000 restricted common stock shares were issued to both Brett Swift and Steven Paulik for accounting services performed. The restricted stock immediately vested.
On June 1, 2022, the Company moved its headquarters, warehouse and distribution center to 1120 N. Main St., Elkhart, Indiana 46514.
CAUTIONARY STATEMENT FOR FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). We have based these forward-looking statements on our current expectations and projections about future events, and they are applicable on as of the dates of such statement. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "could," "would," "forecast," "expect," "plan," anticipate," believe," estimate," continue," or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those listed under the heading "Risk Factors" and those listed in our other SEC filings. You should not put undue reliance on any forward-looking statements. These statements speak only as of the date of this Quarterly Report on Form 10-Q, even if subsequently made available on our website or otherwise, and we undertake no obligation to update or revise these statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q. The following discussion should be read in conjunction with our Financial Statements and related Notes thereto included elsewhere in this report. Throughout this Quarterly Report on Form 10-Q we will refer to Znergy, Inc., together with its subsidiaries, as the "Company," "we," "us," and "our"
The following discussion and analysis of our financial condition should be read together with our unaudited Consolidated Financial Statements and related notes included in this Form 10-Q as well as our audited Financial Statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 filed with the SEC on September 4, 2020.