Company Quick10K Filing
Zenergy Brands
Price0.00 EPS-0
Shares23,083 P/E-0
MCap0 P/FCF-0
Net Debt-0 EBIT-4
TEV-0 TEV/EBIT0
TTM 2019-03-31, in MM, except price, ratios
10-Q 2019-03-31 Filed 2019-05-20
10-K 2018-12-31 Filed 2019-04-15
10-Q 2018-09-30 Filed 2018-11-15
10-Q 2018-06-30 Filed 2018-08-14
10-Q 2018-03-31 Filed 2018-05-21
10-K 2017-12-31 Filed 2018-04-09
10-Q 2017-09-30 Filed 2017-11-14
10-Q 2017-06-30 Filed 2017-08-21
8-K 2019-10-24
8-K 2019-08-25
8-K 2019-07-22
8-K 2019-03-20
8-K 2019-01-02
8-K 2018-12-13
8-K 2018-07-10
8-K 2018-07-10
8-K 2018-06-15
8-K 2018-04-03
8-K 2018-02-17
8-K 2018-01-18

ZNGY 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Item 4. Controls and Procedures.
Part II. Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Default Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits
EX-31.1 ex31-1.htm
EX-32.1 ex32-1.htm

Zenergy Brands Earnings 2019-03-31

Balance SheetIncome StatementCash Flow
4.01.2-1.6-4.4-7.2-10.02017201820192020
Assets, Equity
0.90.4-0.1-0.6-1.1-1.62017201820192020
Rev, G Profit, Net Income
1.30.80.4-0.1-0.5-1.02017201820192020
Ops, Inv, Fin

10-Q 1 form10-q.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2019

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

Commission File Number: 000-55771

 

ZENERGY BRANDS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Nevada   20-8881686

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

5700 Granite Parkway, #200, Plano, TX 75024

(Address of Principal Executive Offices) (Zip Code)

 

Registrant’s telephone number including area code: 469-228-1400

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ]   Accelerated filer [  ]
Non-accelerated filer [  ] (Do not check if a smaller reporting company) Smaller reporting company [X]
      Emerging growth company [X]

 

If an emerging growth company, indicate by check mark if 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 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 5,513,577,153 of Class A Common shares outstanding, 10,000,000 of Class B Common Shares outstanding, and 600,000 Preferred Shares Series A outstanding as of May 15, 2019.

 

 

 

   

 

 

ZENERGY BRANDS, INC.

 

Index

 

    Page
Part I – FINANCIAL INFORMATION  
     
Item 1. Consolidated Financial Statements 3
     
  Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018 3
     
  Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018 (unaudited) 4
     
  Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018 (unaudited) 6
     
  Notes to Consolidated Financial Statements (unaudited) 7
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 25
     
Item 3. Quantitative and Qualitative Disclosure About Market Risk 31
     
Item 4. Controls and Procedures 31
     
Part II - OTHER INFORMATION  
     
Item 1. Legal Proceedings 32
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 32
     
Item 3. Defaults Upon Senior Securities 32
     
Item 4. Mine Safety Disclosures 32
     
Item 5. Other Information 32
     
Item 6. Exhibits 33
     
SIGNATURES 34

 

 2 

 

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

 

ZENERGY BRANDS, INC.

CONSOLIDATED BALANCE SHEETS

 

   March 31, 2019   December 31, 2018 
         
ASSETS          
Current Assets          
Cash and cash equivalents  $5,686   $1,190,090 
Accounts receivable, net   -    166,625 
Current portion of financing receivables, net   227,153    44,405 
Other assets   150    140,150 
Inventory   92,651    175,952 
Prepaid expenses   3,181    - 
Total current assets   328,821    1,717,222 
Long-term assets          
Financing receivables, net   1,789,076    1,705,488 
Goodwill   6,100    6,100 
Total long-term assets   1,795,176    1,711,588 
Fixed Assets          
Property, plant, equipment   51,806    51,806 
Less: Amortization   (51,806)   (51,806)
Total fixed assets   -    - 
Total assets  $2,123,997   $3,428,810 
           
LIABILITIES & SHAREHOLDERS’ DEFICIT          
Liabilities          
Current Liabilities          
Accounts payable  $634,892   $574,657 
Related party accounts payable   59,475    100,175 
Accrued liabilities   329,668    413,324 
Accrued interest   459,944    421,060 
Accrued payroll   9,136    9,136 
Deferred revenue   69,837    20,085 
Deferred tax liability   5,495    5,597 
Subscription liabilities   74,000    74,000 
Related party convertible promissory note, net   260,000    260,000 
Notes payable   1,805,465    3,403,263 
Convertible promissory notes, net   2,172,823    428,055 
Discounts   -    - 
Total current liabilities   5,880,735    5,709,352 
Long-term Liabilities          
Deferred revenue   846,933    1,521,454 
Convertible promissory note, net   1,345,882    1,317,647 
Total long-term liabilities   2,192,815    2,839,101 
Total Liabilities   8,073,550    8,548,453 
           
Mezzanine Equity          
Beneficial conversion feature   339,660    612,939 
Warrants   28,943    33,490 
Total Mezzanine equity   368,603    646,429 
           
Shareholders’ deficit          
Class A Common stock par value $.001, 6,800,000,000 shares authorized, 5,513,577,153 and 3,754,909,253 issued and outstanding, respectively   5,652,494    3,754,899 
Class B Common stock par value $.001, 10,000,000 shares authorized,10,000,000 issued and outstanding   10,000    10,000 

Preferred stock series A par value $.001, 2,000,000 shares authorized,

600,000 and 0, respectively issued and outstanding

   600    600 
Preferred stock par value $.001, 38,000.000 shares authorized, none issued   -    - 
Additional paid-in capital   651,828    2,167,524 
Accumulated deficit   (12,633,078)   (11,699,095)
Total shareholders’ deficit   (6,318,156)   (5,766,072)
Total liabilities & shareholders’ deficit  $2,123,997   $3,428,810 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 3 

 

 

ZENERGY BRANDS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

   For the Periods Ended 
   March 31, 2019   March 31, 2018 
         
Revenue  $891,908   $301,809 
           
Cost of goods sold   770,485    208,341 
           
Gross profit (loss)   121,423    93,468 
           
Operating expenses          
Selling, general and administrative expenses   690,042    750,862 
Amortization expense   -    5,725 
Total Operating Expense   690,042    756,587 
Operating loss   (568,619)   (663,119)
           
Other income (expense)          
Interest income   31,539    1,854 
Forgiveness of debt   -    313,500 
Loss on extinguishment of debt   -    (52,024)
Tax expense   102    - 
Interest expense   (397,005)   (507,197)
Total other expense   (365,364)   (243,867)
           
Net loss  $(933,983)  $(906,986)
           
Per share information:          
Net loss per share - basic  $(0.000)  $(0.001)
           
Weighted average shares outstanding - basic   21,536,038,467    666,831,273 
           
Weighted average shares outstanding - diluted   23,083,169,588    1,848,434,290 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 4 

 

 

ZENERGY BRANDS, INC.

CONSOLIDATED STATEMENTS OF CHANGE IN SHAREHOLDERS’ DEFICIT

 

  

Class A

Common Stock

  

Class B

Common Stock

   Series A Preferred Stock   Accumulated   Additional Paid-     
   Shares   Amount   Shares   Amount   Shares   Amount   Deficit  

in-Capital

   Total 
December 31, 2017   973,105,369   $973,105    10,000,000   $10,000    500,000   $500   $(5,632,011)  $1,926,569   $(2,721,837)
                                              
Net Loss   -    -    -    -    -    -    (6,732,879)   -    (6,732,879)
                                              
April 3, 2018 Acquisition   -    -    -    -    -    -    665,795    -    665,795 
                                              
Extinguishment of debt   -    -    -    -    -    -    -    52,024    52,024 
                                              
Conversion of warrants   35,344,129    35,344    -    -    -    -    -    7,286    42,630 
                                              
Conversion of notes payable   2,511,584,931    2,511,576    -    -    -    -    -    (1,731,717)   779,859 
                                              
Conversion of mezzanine equity   -    -    -    -    -    -    -    1,505,863    1,505,863 
                                              
Stock issued in subsidiary   -    -    -    -    -    -    -    200,000    200,000 
                                              
Class A common stock issued   166,284,501    166,284    -    -    -    -    -    (101,301)   64,983 
                                              
Series A preferred stock issued   -    -    -    -    100,000    100    -    99,900    100,000 
                                              
Common stock issued for service and fees   68,590,323    68,590    -    -    -    -    -    208,900    277,490 
                                              
December 31, 2018   3,754,909,253    3,754,899    10,000,000    10,000    600,000    600    (11,699,095)   2,167,524    (5,766,072.00)
                                              
Net Loss   -    -    -    -    -    -    (933,983)   -    (933,983.00)
                                              
Conversion of warrants   -    -    -    -    -    -    -    -    - 
                                              
Conversion of notes payable   -    -    -    -    -    -    -    -    - 
                                             
Conversion of mezzanine equity   -    -    -    -    -    -    -    277,826    277,826.00 
                                              
Stock issued in subsidiary   -    -    -    -    -    -    -    -    - 
                                              
Class A common stock issued   1,897,584,567    1,897,595    -    -    -    -    -    (1,793,522)   104,073.00 
                                              
Series A preferred stock issued   -    -    -    -    -    -    -    -    - 
                                              
Common stock issued for service and fees   -    -    -    -    -    -    -    -    - 
                                              
March 31, 2019 - unaudited   5,652,493,820   $5,652,494    10,000,000   $10,000    600,000   $600   $(12,633,078)  $651,828   $(6,318,156)

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 5 

 

 

ZENERGY BRANDS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

   March 31, 2019   March 31, 2018 
         
OPERATING ACTIVITIES          
Net Loss  $(933,983)  $(906,985)

Adjustments to reconcile net loss to net

cash used in operating activities

          
Amortization expense   282,278    448,850 
Depreciation expense   -    5,725 
Compensation and fees paid in stock   -    150,000 
Loss on extinguishment of debt   -    52,024 
Changes in operating assets and liabilities          
Accounts receivable, net   166,625    - 
Prepaid expenses and other current assets   136,819    7,698 
Inventory   83,301    - 
Related party receivable   -    10,578 
Goodwill   -    - 
Other long-term assets   -    10,631 
Accounts payable and other current liabilities   60,133    6,487 
Accounts payable related party   (40,700)   (15,312)
Accrued liabilities   (83,656)   - 
Accrued interest   38,884    48,341 
Accrued payroll   -    (308,696)
Deferred revenue   (624,769)   76,649 
Net cash used in provided in operating activities   (915,068)   (414,010)
           
INVESTING ACTIVITIES          
Financing receivable extended   (266,336)   (332,806)
Net cash used in investing activities   (266,336)   (332,806)
           
FINANCING ACTIVITIES          
Proceeds from issuance of common stock   -    79,500 
Proceeds from notes payable   -    600,000 
Proceeds from convertible promissory notes   -    705,000 
Pay down of convertible promissory notes   (3,000)   (107,500)
Net cash provided by financing activities   (3,000)   1,277,000 
           
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD  $1,190,090   $27,849 
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD  $5,686   $558,033 
           

Supplemental disclosure of non cash transactions

Conversion of notes payable and interest to common stock

  $104,073   $52,824 
           
Cash paid for interest expense  $92,346   $900 

 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

 

 6 

 

 

ZENERGY BRANDS, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

THREE MONTHS ENDED MARCH 31, 2019

 

1. Organization – Nature of Operations

 

Zenergy Brands, Inc. (the “Company”, (“Zenergy”) or (“ZNGY”) was incorporated under the laws of the State of Nevada on July 28, 1999. As part of our rebranding and marketing efforts focused on our energy and smart controls business, our board of directors unanimously approved on October 18, 2017 the change of our corporate name to Zenergy Brands, Inc. from The Chron Organization, Inc. (“CHRO”)

 

Zenergy Brands, Inc. a business-to-business company, whose business platform is a combined offering of energy services and smart controls. Our business model is based upon the belief that these two aspects, combined with an ever-increasing commercial demand for more sustainable business practices will continue to be burgeoning trends. Historically, services such as electricity and natural gas have been provided by monopoly-based companies; these legacy entities are in the business of selling commodity and related services and naturally, selling as much of these (kilo-watt-hours of electricity and thermal units of natural gas) as possible. However, the growing demand from commercial and municipal entities for responsible energy, more control and transparency, and overall sustainability, have proven to be at odds with the mission of these legacy entities. Zenergy offers a unique value proposition to commercial, industrial, and municipal customers whereby we offer a means to reduce their utility expenses anywhere from 20% up to 60% through energy-efficient and smart control products and services.

 

On April 3, 2018, Zenergy Power & Gas, Inc. (“ZP&G”), a Texas corporation formerly known as Zen Energy Inc., and a wholly-owned subsidiary of Zenergy Brands, Inc., a Nevada corporation (the “Company”) consummated the purchase of 87.37% of the issued and outstanding equity interests (the “Purchased Interests”) of Enertrade Electric, LLC, a Texas limited liability company (“Enertrade”), from Luccirelli & Gomez, LLC (“L&G”) and TCN Holdings, LLC (“TCN” and together with L&G, collectively, the “Sellers”) , pursuant to the terms and conditions of that certain Equity Interest Purchase Agreement, dated January 20, 2017, by and among ZP&G, Enertrade, the Sellers, and Genaro Gomez Castanares and Donnie Goodwin (the “Principals”), the principals of the Sellers (as amended by that certain First Amendment to Equity Interest Purchase Agreement dated March 20, 2017 and as further amended by that certain Second Amendment to Equity Interest Purchase Agreement dated October 31, 2017, collectively, the “Purchase Agreement”). ZP&G, Enertrade, the Sellers and the Principals are referred to collectively as the “Parties”.

 

The aggregate consideration paid by ZP&G for the Purchased Interests was $1,650,000 as adjusted for Enertrade’s closing date working capital, indebtedness and unpaid transaction costs, and consisted of (i) cash consideration of $500,000 which was paid at the closing and (ii) the delivery at the closing of an interest free promissory note in favor of the Sellers (the “Note”) with an original principal amount of $1,150,000.

 

The Company filed an 8-K on December 14, 2018 with the SEC, soon after the purchase, the Company realized that the Sellers had made material misrepresentations in the respective disclosure schedule. The Company decided to attempt to address and repair these areas within Enertrade. In spite of the progress that had been made, the Company concluded that it was in its best interest to cease its REP operations. In doing so, the Company was able to avoid a mass customer transition event, which the public utility commission of Texas regards as a negative event. Had the Company’s winding down of the Enertrade operation consisted of a mass customer transition event to the provider of last resort, then such an event would have prevented Zenergy from ever acquiring a license as a retail energy provider in Texas, as well as other deregulated energy markets. This is further discussed within the footnotes to the financial statements.

 

2. Summary of Significant Accounting Policies

 

Principals of Consolidation – The accompanying consolidated financial statements include the accounts of the Company, and its subsidiaries Zen Technologies, Inc. and Zen Power & Gas, 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. See further information in Note 3. Going Concern.

 

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.

 

Allowance for Doubtful Accounts - The determination of collectability of the Company’s accounts receivable requires management to make judgments and estimates in order to determine the appropriate amount of allowance needed for doubtful accounts. The Company’s allowance for doubtful accounts is estimated to cover the risk of loss related to accounts receivable. This allowance is maintained at a level that management considers appropriate based on historical trends of write-offs, recoveries and credit losses, aging of accounts, and projected economic and market conditions. Different assumptions or changes in the economic circumstances could result in changes to the allowance. Accounts deemed uncollectible are applied against the allowance for doubtful accounts. At March 31, 2019 and December 31, 2018, the allowance for doubtful accounts were $0 and totals $26,000, respectively.

 

Revenue Recognition for Retail Electricity - The Company recognizes revenue when persuasive evidence of an arrangement exists, the product has been delivered or services have been performed, the selling price is fixed or determinable, and collection is reasonably assured and there are no further obligations to customers. The Company recognizes upon delivery of electricity to a customer. The Company’s revenue relies upon Electric Reliability Council of Texas (“ERCOT”) settlement statements to determine the revenue based upon services delivered.

 

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, financed receivables, prepaid and other current assets, and accounts payable and accrued expenses approximate the carrying amounts due to the relatively short maturity of these instruments. 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.

 

 7 

 

 

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 March 31, 2019 and December 31, 2018 are as follows:

 

   March 31, 2019   December 31, 2018 
         
Related party convertible promissory notes   83,333,333    83,333,333 
Related Party Warrants   32,166,667    32,166,667 
Convertible promissory notes   1,350,470,021    1,383,611,476 
Warrants   81,161,000    81,161,000 
Diluted shares outstanding   1,547,131,121    1,580,272,476 

 

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 March 31, 2019 and December 31, 2018, 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.

 

Sales-type Leasing and Related Revenue Recognition - The Company installs and leases energy equipment to its customer under a Managed Energy Services Agreement (“MESA”). The Company typically transfers ownership of the equipment to its customers at the end of the lease through a purchase option. The investment in these projects is recorded as an investment on sales-type leases in accordance with Financial Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 842, “Leases”, and its various amendments and interpretations. The Company finances energy efficiency projects. The sales and cost of sales are recognized upon completion of the installation of equipment. The investment in sales-type leases consists of the sum of the minimum lease payments receivable less unearned interest income and estimated executory cost. Minimum lease payments are part of the lease agreement between the Company (as the lessor) and the customer (as the lessee). The discount rate implicit in the lease is used to calculate the present value of minimum lease payments. The minimum lease payment consists of the gross lease payments net of executory costs, if any. While revenue is recognized at the project completion date, the cash flow from the sales-type lease occurs over the course of the lease, which results in interest income and reduction of receivables. Revenue is recognized net of sales tax.

 

Financing Receivables – Finance receivables are receivables that the Company has the intent and ability to hold for the foreseeable future or until maturity, or receivables associated with an on-balance sheet securitization classified as secured financing. The financing receivables are reported at the principal amount outstanding, net of deferred interest and offset to deferred revenue. The Company manages the economic risks exposures, including credit risk, by adjusting underwriting standards and risk limits, augmenting the servicing and collection activities. The deferred revenue is amortized over the contractual life of the related finance receivable in accordance with FASB ASC 842. Finance receivables are classified as either short-term or long-term assets.

 

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.

 

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Classification - The Company had classified the beneficial conversion feature of the convertible notes as mezzanine equity on the consolidated balance sheets as the stock was contingently redeemable. Upon the occurrence of certain change in control events that are outside the Company’s control, including liquidation, sale or transfer of the Company, holders of the convertible preferred stock could cause redemption for cash. 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.

 

New Pronouncements

 

Revenue from contracts with customers - In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”, which superseded previous revenue recognition guidance. ASU No. 2014-09 and its amendments were included in Accounting Standards Codification (“ASC”) 606 “Revenue from Contracts with Customers”. ASC 606 requires that a company recognize revenue at an amount that reflects the consideration to which the company expects to be entitled in exchange for transferring goods or services to a customer. The Company adopted ASC 606 effective January 1, 2018, using the modified retrospective approach, with no impact to the opening retained earnings. Results for periods beginning on or after January 1, 2018 are presented under ASC 606, while prior periods are not adjusted and continue to be reported in accordance with the prior accounting guidance under ASC 605 “Revenue Recognition”.

 

3. Going Concern

 

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). This update is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern within one year of the date of issuance of the entity’s financial statements and to provide related footnote disclosures in certain circumstances. This guidance is effective for fiscal years ending after December 15, 2016 and for interim periods thereafter. The Company adopted ASU 2014-15 as of the required effective date of December 31, 2016. The Company performed a working capital analysis as of March 31, 2019 and December 31, 2018 to determine whether or not this disclosure was appropriate and included the additional disclosure.

 

When evaluating the Company’s ability to meet its obligations, Management considered the current financial condition, including liquidity sources at the date that the financial statements were issued, the Company’s conditional and unconditional obligations due or anticipated within one year after the date that the financial statements were issued, funds necessary to maintain the Company’s operations considering its current financial condition, and other conditions and events, when considered in conjunction with the items pervious mentioned, that may adversely affect its ability to meet its obligations. The Company has concluded that there is substantial doubt about its ability to continue as a going concern for the three months ended March 31, 2019 and year ended December 31, 2018.

 

Based on an analysis by the Company under ASU 2014-15, the Company has concluded that there is substantial doubt about its ability to continue as a going concern within one year of the date of these financial statements. Consequently, the Company’s financial statements for the three months ended March 31, 2019 and 2018 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 ($933,983) and ($906,986) for the three months ended March 31, 2019 and 2018, respectively, and an accumulated deficit of ($12,633,078) at March 31, 2019. At March 31, 2019 and December 31, 2018, the Company had a working capital deficit of ($5,551,914) and ($3,992,130), respectively, and negative cash flow from continuing operating activity of ($915,068) and ($414,010), respectively, for the three months ended March 31, 2019 and 2018.

 

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 2019 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.

 

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.

 

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4. Finance Receivables

 

Finance receivables include sales-type leases arising from the Master Energy Sales Agreements (“MESA”) that the Company enters into with its customers. The receivables are collateralized by a security interest in the underlying assets. Finance receivables, net are related to the sales-type leases under ASC 842 (“Leases”), and are as follows at March 31, 2019:

 

Gross receivables sales  $3,941,418 
Deferred implied interest   (1,925,189)
Finance receivables, net   2,015,229 
Less current portion of finance receivables, net   (227,153)
Finance receivables due after one year  $1,789,076 

 

5. Notes Payable

 

On March 29, 2017, the Company entered into a promissory note agreement (the “March 2017 Promissory Note”) with a third-party in the amount of $40,000. The promissory note carries an interest rate of 10% per annum and had an original maturity date of May 15, 2017. The principal balance of the note at March 31, 2019 and December 31, 2018 was $40,000. The accrued interest at March 31, 2019 and December 31, 2018 was$7,352 and $6,366, respectively. As additional consideration for entering into the note, the Company issued to the third-party note holder a warrant for the purchase of 1,000,000 shares of common stock in the Company, exercisable at two cents ($0.02) per share for a period of one year from the date of issue. The note maturity was extended to May 15, 2018, and was in default as of March 31, 2019t. Terms of the warrant options are the same terms as the original warrant issued with the March 29, 2017 Note.

 

The Company determined the fair value of the warrants which resulted in a debt discount of $31,347 which was recorded as a reduction in carrying value of the March 2017 Promissory Note and offset in mezzanine equity. The balance of the debt discount for the warrants issued at March 31, 2019 was $9,538.

 

On March 26, 2018 the Company entered into a promissory note agreement (the “March 2018, Promissory Note”) with a third-party in the amount of $600,000. The promissory note carries an interest rate of 10% per annum. The principal balance at March 31, 2019 and December 31, 2018 was $600,000. The accrued interest of the note at March 31, 2019 and December 31, 2018 was $29,761, and $29,966, respectively. The maturity date of the promissory note was March 26, 2019 and was in default at March 31, 2019.

 

On November 9, 2018 the Company entered into a promissory note agreement (the “November 2018, Promissory Note”) with a third-party in the amount of $25,000. The promissory note carries a one-time financing fee of 10%. The principal balance and March 31, 2019 and December 31, 2018 was $25,000. The accrued interest of the note at March 31, 2019 and December 31, 2019 was $2,500. The maturity date of the promissory note was March 9, 2019 and was in default at March 31, 2019.

 

6. Related Party Convertible Promissory Note

 

As of March 31, 2019, and December 31, 2018, the Company had an outstanding related party convertible promissory note of $260,000, with a maximum availability of $260,000 (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 under the Related Party Convertible Promissory Note at March 31, 2019 and December 31, 2018 was $260,000, and accrued interest was $15,523 and $13,197, respectively, and is due on December 31, 2019 at which time all unpaid principal and interest is due. The effective interest rate at March 31, 2019 was 2%.

 

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 Related Party 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 $155,660 which was recorded as a reduction in carrying value of the Related Party Convertible Promissory Note and offset in mezzanine equity. At March 31, 2019 and December 31, 2018, the debt discount was $0.

 

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 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. At March 31, 2019 and December 31, 2018, the debt discount was $0.

 

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7. Convertible Promissory Notes and Warrants

 

Ziegler September 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 matured on September 5, 2018 and accrues interest at a rate of 10% per annum. The Note was in default at March 31, 2019. All unpaid principal and interest is due at maturity. As of March 31, 2019, and December 31, 2018, the outstanding principal was $300,000. The accrued interest balance at March 31, 2019 and December 31, 2018, was $67,328 and $59,930, respectively. The effective interest rate at March 31, 2019, was 10%.

 

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. A charge to debt discount in the amount of $0 and $52,896 was expensed through interest expense during the three months ended March 31, 2019 and year ended December 31, 2018, respectively. At March 31, 2019 the debt discount was $0.

 

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 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. The balance of the fair value of the warrants for three months ended March 31, 2019 and year ended December 31, 2018 was $0.

 

Steffan –Ziegler November 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 matured on November 24, 2018 and accrues interest at a rate of 10% per annum. The Notes were in default as of March 31, 2019. As of March 31, 2019, and December 31, 2018, the outstanding principal was $197,000 and $200,000, respectively. The accrued interest balance at March 31, 2019 and December 31, 2018 was $46,909 and $42,125, respectively. The effective interest rate at March 31, 2019 was 10%.

 

The holders 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 holders 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 beneficial conversion features 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 three months ended March 31, 2019 and the year ended December 31, 2018 a charge to debt discount in the amount of $0 and $55,561 was expensed through interest expense, respectively. At March 31, 2019 and December 31, 2018, the debt discount was $0.

 

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 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. The balance of the fair value of the warrants at March 31, 2019 and December 31, 2018 was $0.

 

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Collision Capital, LLC March 15, 2017 Convertible Promissory Note

 

On March 17, 2017, the Company issued a Convertible Promissory Notes totaling $50,000 to a third-party (the “March 15, 2017 Convertible Promissory Note”). The March 15, 2017 Convertible Promissory Note matured on March 15, 2018 and accrues interest at a rate of 12% per annum. The Note was in default as of March 31, 2019. As of March 31, 2019, and December 31, 2018, the outstanding principal was $50,000. The accrued interest balance at March 31, 2019 and December 31, 2018 was $13,583 and $12,104, respectively. The effective interest rate at March 31, 2019 was 12%.

 

Not less than three (3) days advance written notice (“Conversion Notice”), at any time or from time to time, six (6) months after the Closing, the Holder at its sole option, may convert the outstanding Principal Amount of this Note, or any portion of the Principal Amount hereof, and any accrued interest, in whole or in part, into shares of the common stock of the Company (the “Common Stock”). Any amount so converted will be converted into common stock of the Company at a price of 50% of the lowest closing price on the primary trading market on which the Company’s Common Stock is quoted for the five (5) trading days immediately prior to but not including the Conversion Date (“Conversion Price”).

 

Bellridge Capital, LP April 2017 Convertible Promissory Note

 

On April 25, 2017, the Company issued a Convertible Promissory Notes totaling $82,500 to a third-party (the “April 2017 Convertible Promissory Note”). The April 2017 Convertible Promissory Note matured on April 25, 2018 and accrues interest at a rate of 12% per annum. The Note was in default as of March 31, 2019. All unpaid principal and interest is due at maturity. As of March 31, 2019, and December 31, 2018, the outstanding principal was $82,500. The accrued interest balance at March 31, 2019 and December 31, 2018 was $19,172 and $16,731. In addition, the Company recorded an original issue discount (OID) in the amount of $7,500. During the three months ended March 31, 2019 and year ended December 31, 2018 a charge to the OID debt discount was recorded in the amount of $0 and $2,500, respectively through interest expense. The balance of the OID discount at March 31, 2019 and December 31, 2018 was $0. The effective interest rate at March 31, 2019 was 12.47%.

 

The holder of the April 2017 Convertible Promissory Note 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 April 2017 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 April 2017 Convertible Promissory Note 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 the lower of $0.03 or sixty percent (60%) of the lowest closing price over the 20-day trading period from the date of notice of conversion, but in no event shall the Conversion price be less than $0.001.

 

The April 2017 Convertible Promissory Note contained a beneficial conversion feature which resulted in a debt discount of $55,632 which was recorded as a reduction in carrying value of the April 2017 Convertible Promissory Note and offset in mezzanine equity. During the three months ended March 31, 2019 and years ended December 31, 2018 a charge to debt discount in the amount of $0 and $18,544 was recorded through interest expense. At March 31, 2019 and December 31, 2018, the debt discount was $0.

 

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In connection with the April 2017 Convertible Promissory Note, the holder was issued 500,000 warrants exercisable at $0.05 expiring in April 2020 (the “Warrants”). The Company determined the fair value of the warrants which resulted in a debt discount of $632 recorded as a reduction to the carrying value of the April 2017 Convertible Promissory Note and offset in mezzanine equity. The balance of the fair value of the warrants at March 31, 2019 and December 31, 2018 was $421 and 389, respectively.

 

Bellridge Capital, LP June 2017 Convertible Promissory Note

 

On June 20, 2017, the Company issued a Convertible Promissory Notes totaling $187,000 to a third-party for a purchase price of $170,000 (the “June 2017 Convertible Promissory Note”). The June 2017 Convertible Promissory Note matured on June 20, 2018 and accrues interest at a rate of 12% per annum. The Note was in default as of March 31, 2019. All unpaid principal and interest is due at maturity. As of March 31, 2019, and December 31, 2018 the outstanding principal was $187,000. The accrued interest balance at March 31, 2019 and December 31, 2018 $39,779 and $34,236, respectively. In addition, the Company recorded an original issue discount (OID) in the amount of $18,700. During the three months ended March 31, 2019 and year ended December 31, 2018 a charge to the OID debt discount was recorded in the amount of $0 and $9,350, respectively. The balance of the OID discount at March 31, 2019 and December 31, 2018 was $0. The effective interest rate at March 31, 2019 was 13.51%.

 

The holder of the June 2017 Convertible Promissory Note 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 June 2017 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 June 2017 Convertible Promissory Note 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 the lower of $0.03 or sixty percent (60%) of the lowest closing price over the prior twenty 20-day trading period from the date of notice of conversion, but in no event shall the Conversion price be less than $0.001.

 

The June 2017 Convertible Promissory Note contained a beneficial conversion feature which resulted in a debt discount of $131,332 which was recorded as a reduction in carrying value of the April 2017 Convertible Promissory Note and offset in in mezzanine equity. During the three months ended March 31, 2019 and years ended December 31, 2018 a charge to debt discount in the amount of $0 and $65,666, respectively was recorded through interest expense. At March 31, 2019 and December 31, 2018, the debt discount was $0.

 

In connection with the June 2017 Convertible Promissory Note, the holder was issued 500,000 warrants exercisable at $0.03 expiring in June 2020. The Company determined the fair value of the warrants which resulted in a debt discount of $6,665 recorded as a reduction to the carrying value of the June 2017 Convertible Promissory Note and offset in mezzanine equity. The balance of the fair value of the warrants at March 31, 2019 and December 31, 2018 was $2778 and $3,333, respectively.

 

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Auctus Fund, LLC July 28, 2017 Convertible Promissory Note

 

On July 28, 2017, the Company issued a Convertible Promissory Note totaling $200,000 to a third-party for a purchase price of $195,000 (the “July 28, 2017 Convertible Promissory Note”). The July 28, 2017 Convertible Promissory Note matured on April 28, 2018 and accrues interest at a rate of 10% per annum. The Note was in default as of March 31, 2019. As of March 31, 2019, and December 31, 2018, the outstanding principal was $82,432. The accrued interest balance at March 31, 2019 and December 31, 2018 $15,221 and $10,343, respectively. In addition, the Company recorded an original issue discount (OID) in the amount of $5,000. During the three months ended March 31, 2019 and year ended December 31, 2018 a charge to the OID debt discount was recorded in the amount of $0 and $1,577 through interest expense. The balance of the OID discount at March 31, 2019 and December 31, 2018 was $0. The effective interest rate at March 31, 2019 was 26.08%.

 

The holder of the July 28, 2017 Convertible Promissory Note 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 July 28, 2017 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 July 28, 2017 Convertible Promissory Note 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 the lower of $0.04 or sixty percent (60%) of the lowest closing price over the prior twenty 20-day trading period from the date of notice of conversion, but in no event shall the Conversion price be less than $0.001.

 

The July 28, 2017 Convertible Promissory Note contained a beneficial conversion feature which resulted in a debt discount of $136,699 which was recorded as a reduction in carrying value of the July 28, 2017 Convertible Promissory Note and offset in additional paid in capital. During the three months ended March 31, 2019 and year ended December 31, 2018 a charge to debt discount in the amount of $0 and $51,764, respectively was recorded through interest expense. At March 31, 2019 and December 31, 2018, the debt discount was $0.

 

In connection with the July 28, 2017 Convertible Promissory Note, the holder was issued 666,000 warrants exercisable at $0.03 expiring in July 2022. The Company determined the fair value of the warrants which resulted in a debt discount of $3,366 recorded as a reduction to the carrying value of the June 2017 Convertible Promissory Note and offset in mezzanine equity. The balance of the fair value of the warrants at March 31, 2019 and December 31, 2018 was $1,678 and $1,846, respectively.

 

Morningview Financial, LLC July 31, 2017 Convertible Promissory Note

 

On July 31, 2017, the Company issued a Convertible Promissory Notes totaling $105,000 to a third-party for a purchase price of $100,000 (the “July 31, 2017 Convertible Promissory Note”). The July 31, 2017 Convertible Promissory Notes matured on July 31, 2018 and accrues interest at a rate of 10% per annum. The Note was in default as of March 31, 2019. All unpaid principal and interest is due at maturity. As of March 31, 2019, and December 31, 2018, the outstanding principal was $39,983. The accrued interest balance at March 31, 2019 and December 31, 2018 was $12,395 and $10,620, respectively. In addition, the Company recorded an original issue discount (OID) in the amount of $5,000. During the three months ended March 31, 2019 and year ended December 31, 2018 a charge to the OID debt discount was recorded in the amount of $0 and $2,158 through interest expense. The balance of the OID discount at March 31, 2019 and December 31, 2018 was $0. The effective interest rate at March 31, 2019 was 18%.

 

The holder of the July 31, 2017 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 July 31, 2017 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 July 31, 2017 Convertible Promissory Note 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 a price of the lower of $0.03 or sixty percent (60%) of the lowest closing price over the prior twenty 20-day trading period from the date of notice of conversion, but in no event shall the Conversion price be less than $0.001.

 

The July 31, 2017 Convertible Promissory Note contained a beneficial conversion feature which resulted in a debt discount of $70,000 which was recorded as a reduction in carrying value of the July 31, 2017 Convertible Promissory Notes and offset in mezzanine equity. During the three months ended March 31, 2019 and year ended December 31, 2018 a charge to debt discount in the amount of $0 and $35,933 was recorded through interest expense. At March 31, 2019 and December 31, 2018, the debt discount was $0.

 

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2 Plus 2, LLC. July 31, 2017 Convertible Promissory Note

 

On July 31, 2017, the Company issued a Convertible Promissory Notes totaling $25,000 to a third-party for a purchase price of $22,500 (the “July 31, 2017 2 Plus 2 Convertible Promissory Note”). The July 31, 2017 2 Plus 2 Convertible Promissory Note matured on July 31, 2018 and accrues interest at a rate of 8% per annum. The Note was in default at March 31, 2019. All unpaid principal and interest is due at maturity. As of March 31, 2019, and December 31, 2018 an, the outstanding principal was $12,233. The accrued interest balance at March 31, 2019 and December 31, 2018 was $2,045 and $1,804. In addition, the Company recorded an original issue discount (OID) in the amount of $2,500. During the three months ended March 31, 2019 and the year ended December 31, 2018 a charge to the OID debt discount was recorded in the amount of $0 and $525, respectively through interest expense. The balance of the OID discount at March 31, 2019 and December 31, 2018 was $0. The effective interest rate at March 31, 2019 was 14.37%.

 

The holder of the July 31, 2017 2 Plus 2 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 July 31, 2017 2 Plus 2 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 July 31, 2017 2 Plus 2 Convertible Promissory Note 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 a price of sixty percent (60%) of the lowest closing price over the prior twenty 20-day trading period from the date of notice of conversion, but in no event shall the Conversion price be less than $0.001.

 

The July 31, 2017 2 Plus 2 Convertible Promissory Note contained a beneficial conversion feature which resulted in a debt discount of $20,820 which was recorded as a reduction in carrying value of the July 31, 2017 Convertible Promissory Notes and offset in mezzanine equity. During the three months ended March 31, 2019 and year ended December 31, 2018 a charge to debt discount in the amount of $0 and $5,100, respectively was recorded through interest expense. At March 31, 2019 and December 31, 2018, the debt discount was $0

 

In connection with the July 31, 2017 2 Plus 2 Convertible Promissory Note, the holder was issued 250,000 warrants exercisable at $0.035 expiring in July 2020. The Company determined the fair value of the warrants which resulted in a debt discount of $4,180 recorded as a reduction to the carrying value of the July 31, 2017 Convertible Promissory Note and offset in mezzanine equity. The balance of the fair value of the warrants at March 31, 2019 and December 31, 2018 was $732 and $897, respectively.

 

 15 

 

 

Vista Capital Investments, LLC October 2, 2017 Convertible Promissory Note

 

On October 2, 2017, the Company issued a Convertible Promissory Notes totaling $220,000 to a third-party for a purchase price of $200,000 (the “October 2, 2017 Convertible Promissory Note”). The October 2, 2017 Convertible Promissory Note matures on October 2, 2019 and accrues interest at a one-time interest charge rate of 8%. In addition, the Company agreed to issue the holder of the October 2, 2017 Convertible Promissory Note 3,000,000 commitment shares to induce the holder to enter into the Purchase Agreement. As of March 31, 2019, and December 31, 2018, the outstanding principal was $70,240 and $96,520, respectively. The accrued interest balance at March 31, 2019 and December 31, 2018 was $30,132 and $28,746, respectively. In addition, the Company recorded an original issue discount (OID) in the amount of $20,000. During the three months ended March 31, 2019 and year ended December 31, 2018 a charge to the OID debt discount was recorded in the amount of $2,500 and $7,500, respectively through interest expense. The balance of the OID discount at March 31, 2019 and December 31, 2018 was $5,000 and $7,500, respectively. The effective interest rate at March 31, 2018 was 83.86%.

 

The holder of the October 2, 2017 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 October 2, 2017 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 October 2, 2017 Convertible Promissory Note 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 $0.015. During the three months ended March 31, 2019 the holder of the Note converted $26,280 of the outstanding principal balance into 194,000,000 shares of Class A Common Stock.

 

The October 2, 2017 Convertible Promissory Note contained a beneficial conversion feature which resulted in a debt discount of $101,200 which was recorded as a reduction in carrying value of the October 2, 2017 Convertible Promissory Notes and offset in mezzanine equity. During the three months ended March 31, 2019 and years ended December 31, 2018 a charge to debt discount in the amount of $12,650 and $50,600 was recorded through interest expense, respectively. At March 31, 2019 and December 31, 2018, the debt discount was $25,300 and $37,950, respectively.

 

 16 

 

 

EMA Financial, LLC December 13, 2017 Convertible Promissory Note

 

On December 13, 2017, the Company issued a Convertible Promissory Notes totaling $137,500 to a third-party for a purchase price of $125,000 (the “December 13, 2017 Convertible Promissory Note”). The December 13, 2017 Convertible Promissory Note matured on December 13, 2018 and accrues interest at a rate of 12% per annum. The Note was in default as of March 31, 2019. As of March 31, 2019, and December 31, 2018, the outstanding principal was $$51,752 and $78,401, respectively. The accrued interest balance at March 31, 2019 and December 31, 2018 was $16,082 and $14,551, respectively. In addition, the Company recorded an original issue discount (OID) in the amount of $12,500. During the three months ended March 31, 2019 and year ended December 31, 2018 a charge to the OID debt discount was recorded in the amount of $0 and $4,000, respectively through interest expense. The balance of the OID discount at March 31, 2019 and December 31, 2018 was $0. The effective interest rate at March 31, 2019 was 12%.

 

The holder of the December 13, 2017 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 conversion price shall equal the lower of: (i) the closing sale price of the Common Stock on the Principal Market on the Trading Day immediately preceding the Closing Date, and (ii) 60% of either the lowest sale price for the Common Stock on the Principal Market during the twenty (20) consecutive Trading Days including and immediately preceding the Conversion Date, or the closing bid price, whichever is lower, provided, however, if the Company’s share price at any time loses the, then the Conversion Price may, in the holder’s sole and absolute discretion, be reduced to a fixed conversion price of 0.00001. The Company may prepay the EMA note subject to a prepayment factor. The prepayment factor shall equal one hundred and fifty percent (150%), provided that such Prepayment factor shall equal one hundred and thirty five percent (135%) if the optional prepayment date occurs on or before the date which is ninety (90) days following the issue date. During the three months ended March 31, 2019 and year ended December 31, 2018 the holder of the Note converted $26,650 of the outstanding principal balance into 652,167,900 shares of Class A Common Stock.

 

The December 13, 2017 Convertible Promissory Note contained a beneficial conversion feature which resulted in a debt discount of $91,667 which was recorded as a reduction in carrying value of the December 13, 2017 Convertible Promissory Notes and offset in mezzanine equity. During the three months ended March 31, 2019 and year ended December 31, 2018 a charge to debt discount in the amount of $0 and $84,029, respectively was recorded through interest expense. At March 31, 2019 and December 31, 2018, the debt discount was $0.

 

RB Capital Partners, Inc. 2017 Convertible Promissory Notes

 

As of March 31, 2019, and December 31, 2018, the Company had $1,092,500 of unsecured convertible commercial promissory notes (the RB Capital Partners, Inc. 2017 Convertible Promissory Notes) outstanding. The notes have a maturity of one year from the time of issuance and accrue interest at the rate of 12%. The accrued interest on the RB Capital Partners, Inc. Convertible Promissory Notes at March 31, 2019 and December 31, 2018 was $155,755 and $123,429, respectively.

 

On November 17, 2017 the Company issued a Convertible Promissory Note in the Amount of $25,000. The Convertible Promissory Note (the “Note”) bears twelve percent (12%) interest per annum. The Note shall be payable upon demand. Commencing on the Demand Date, all principal shall be payable by the Company upon demand made by the holder. The Note is for a period of (12) months and cannot be converted until six (6) months from the issuance date. The holder shall have the right, exercisable in whole or in part, to convert the outstanding principal into a number of fully paid and non-assessable whole shares of the Company’s $0.001 par value common stock. The November 17, 2017 Convertible Promissory Note contained a beneficial conversion feature which resulted in a debt discount of $25,000 which was recorded as a reduction in carrying value of the November 17, 2017 Convertible Promissory Note and offset in in mezzanine equity. During the three months ended March 31, 2019 and year ended December 31, 2018 a charge to debt discount in the amount of $0 and $22,417 was recorded through interest expense. The debt discount at March 31, 2019 and December 31, 2018 was $0. The effective interest Rate at March 31, 2019 was 12%.

 

 17 

 

 

On December 1, 2017, the Company issued a Convertible Promissory Note in the Amount of $25,000. The note bears twelve percent (12%) interest per annum and is payable upon demand. Commencing on the Demand Date, all principal shall be payable by the Company upon demand made by the holder. The Note is for a period of (12) months and cannot be converted until six (6) months from the issuance date. The holder shall have the right, exercisable in whole or in part, to convert the outstanding principal into a number of fully paid and non-assessable whole shares of the Company’s $0.001 par value common stock. The December 1, 2017 Convertible Promissory Note contained a beneficial conversion feature which resulted in a debt discount of $25,000 which was recorded as a reduction in carrying value of the December 1, 2017 Convertible Promissory Note and offset in in mezzanine equity. During the three months ended March 31, 2019 and year ended December 31, 2018 a charge to debt discount in the amount of $0 and $22,417 was recorded through interest expense. The debt discount at March 31, 2019 and December 31, 2018 was $0. The effective interest Rate at March 31, 2019 was 12%.

 

On December 15, 2017, the Company issued a Convertible Promissory Note in the Amount of $25,000. The note bears twelve percent (12%) interest per annum and is payable upon demand. Commencing on the Demand Date, all principal shall be payable by the Company upon demand made by the holder. The note is for a period of (12) months and cannot be converted until six (6) months from the issuance date. The holder shall have the right, exercisable in whole or in part, to convert the outstanding principal into a number of fully paid and non-assessable whole shares of the Company’s $0.001 par value common stock. The note contained a beneficial conversion feature which resulted in a debt discount of $25,000 which was recorded as a reduction in carrying value of the note and offset in in mezzanine equity. During the three months ended March 31, 2019 and year ended December 31, 2018 a charge to debt discount in the amount of $22,417 was recorded through interest expense. The debt discount at March 31, 2019 and December 31, 2018 was $0. The effective interest Rate at March 31, 2019 was 12%.

 

On January 2, 2018, the Company issued a Convertible Promissory Note in the Amount of $25,000. The note bears twelve percent (12%) interest per annum and is payable upon demand. Commencing on the Demand Date, all principal shall be payable by the Company upon demand made by the holder. The Note is for a period of (12) months and cannot be converted until six (6) months from the issuance date. The holder shall have the right, exercisable in whole or in part, to convert the outstanding principal into a number of fully paid and non-assessable whole shares of the Company’s $0.001 par value common stock. The note contained a beneficial conversion feature which resulted in a debt discount of $25,000 which was recorded as a reduction in carrying value of the note and offset in in mezzanine equity. During the three months ended March 31, 2019 and twelve months ended December 31, 2018 a charge to debt discount in the amount of $0 and $18,250 was recorded through interest expense. The debt discount at March 31, 2019 and December 31, 2018 was $0. The effective interest Rate at March 31, 2019 was 12%.

 

On January 8, 2018, the Company issued a Convertible Promissory Note in the Amount of $150,000. The note bears twelve percent (12%) interest per annum and is payable upon demand. Commencing on the Demand Date, all principal shall be payable by the Company upon demand made by the holder. The note is for a period of (12) months and cannot be converted until six (6) months from the issuance date. The holder shall have the right, exercisable in whole or in part, to convert the outstanding principal into a number of fully paid and non-assessable whole shares of the Company’s $0.001 par value common stock. The note contained a beneficial conversion feature which resulted in a debt discount of $150,000 which was recorded as a reduction in carrying value of the January 8, 2018 Convertible Promissory Note and offset in in mezzanine equity. During the three months March 31, 2019 and year ended December 31, 2018 a charge to debt discount in the amount of $20,833 and $116,667, respectively was recorded through interest expense. The debt discount at March 31, 2019 and December 31, 2018 was $0 and $20,833, respectively. The effective interest Rate at March 31, 2019 was 12%.

 

On January 12, 2018, the Company issued a Convertible Promissory Note in the Amount of $150,000. The note bears twelve percent (12%) interest per annum and is payable upon demand. Commencing on the Demand Date, all principal shall be payable by the Company upon demand made by the holder. The note is for a period of (12) months and cannot be converted until six (6) months from the issuance date. The holder shall have the right, exercisable in whole or in part, to convert the outstanding principal into a number of fully paid and non-assessable whole shares of the Company’s $0.001 par value common stock. The note contained a beneficial conversion feature which resulted in a debt discount of $150,000 which was recorded as a reduction in carrying value of the note and offset in in mezzanine equity During the three months March 31, 2019 and year ended December 31, 2018 a charge to debt discount in the amount of $20,833 and $116,667, respectively was recorded through interest expense. The debt discount at March 31, 2019 and December 31, 2018 was $0 and $20,833, respectively. The effective interest Rate at March 31, 2019 was 12%.

 

 18 

 

 

On January 29, 2018, the Company issued a Convertible Promissory Note in the Amount of $30,000. The note bears twelve percent (12%) interest per annum. The note shall be payable upon demand. Commencing on the Demand Date, all principal shall be payable by the Company upon demand made by the holder. The note is for a period of (12) months and cannot be converted until six (6) months from the issuance date. The holder shall have the right, exercisable in whole or in part, to convert the outstanding principal into a number of fully paid and non-assessable whole shares of the Company’s $0.001 par value common stock. The note contained a beneficial conversion feature which resulted in a debt discount of $30,000 which was recorded as a reduction in carrying value of the note and offset in in mezzanine equity. During the three months ended March 31, 2019 and year ended December 31, 2018 a charge to debt discount in the amount of $3,750 and $23,750, respectively was recorded through interest expense. The debt discount at March 31, 2019 and December 31, 2018 was $0 and $3,750, respectively. The effective interest Rate at March 31, 2019 was 12%.

 

On February 6, 2018, the Company issued a Convertible Promissory Note in the Amount of $100,000. The note bears twelve percent (12%) interest per annum. The note shall be payable upon demand. Commencing on the Demand Date, all principal shall be payable by the Company upon demand made by the holder. The note is for a period of (12) months and cannot be converted until six (6) months from the issuance date. The holder shall have the right, exercisable in whole or in part, to convert the outstanding principal into a number of fully paid and non-assessable whole shares of the Company’s $0.001 par value common stock. The February 6, 2018 Convertible Promissory Note contained a beneficial conversion feature which resulted in a debt discount of $100,000 which was recorded as a reduction in carrying value of the On February 6, 2018 Convertible Promissory Note and offset in in mezzanine equity. During the three months ended March 31, 2019 and year ended December 31, 2018 a charge to debt discount in the amount of $20,833 and $70,833, respectively was recorded through interest expense. The debt discount at March 31, 2019 and December 31, 2018 was $0 and $20,833, respectively. The effective interest Rate at March 31, 2019 was 12%.

 

On February 20, 2018, the Company issued a Convertible Promissory Note in the Amount of $115,000. The note bears twelve percent (12%) interest per annum. The note shall be payable upon demand. Commencing on the Demand Date, all principal shall be payable by the Company upon demand made by the holder. The note is for a period of (12) months and cannot be converted until six (6) months from the issuance date. The holder shall have the right, exercisable in whole or in part, to convert the outstanding principal into a number of fully paid and non-assessable whole shares of the Company’s $0.001 par value common stock. The note contained a beneficial conversion feature which resulted in a debt discount of $115,000 which was recorded as a reduction in carrying value of the note and offset in in mezzanine equity. During the three months ended March 31, 2019 and year ended December 31, 2018 a charge to debt discount in the amount of $28,750 and $71,250, respectively was recorded through interest expense. The debt discount at March 31, 2019 and December 31, 2018 was $5,417 and $34,167, respectively. The effective interest Rate at March 31, 2019 was 16.94%.

 

On March 5, 2018, the Company issued a Convertible Promissory Note in the Amount of $75,000. The note bears twelve percent (12%) interest per annum. The note shall be payable upon demand. Commencing on the Demand Date, all principal shall be payable by the Company upon demand made by the holder. The note is for a period of (12) months and cannot be converted until six (6) months from the issuance date. The holder shall have the right, exercisable in whole or in part, to convert the outstanding principal into a number of fully paid and non-assessable whole shares of the Company’s $0.001 par value common stock. The Note contained a beneficial conversion feature which resulted in a debt discount of $75,000 which was recorded as a reduction in carrying value of the On March 5, 2018 Convertible Promissory Note and offset in in mezzanine equity. During the three months ended March 31, 2019 and year ended December 31, 21018 a charge to debt discount in the amount of $18,750 and $47,917, respectively was recorded through interest expense. The debt discount at March 31, 2019 and December 31, 2018 was $2,083 and $20,833, respectively. The effective interest Rate at March 31, 2019 was 14.86%.

 

On March 15, 2018, the Company issued a Convertible Promissory Note in the Amount of $60,000. The note bears twelve percent (12%) interest per annum. The note shall be payable upon demand. Commencing on the Demand Date, all principal shall be payable by the Company upon demand made by the holder. The note is for a period of (12) months and cannot be converted until six (6) months from the issuance date. The holder shall have the right, exercisable in whole or in part, to convert the outstanding principal into a number of fully paid and non-assessable whole shares of the Company’s $0.001 par value common stock. The note contained a beneficial conversion feature which resulted in a debt discount of $60,000 which was recorded as a reduction in carrying value of the On March 15, 2018 Convertible Promissory Note and offset in in mezzanine equity. During the three months ended March 31, 2019 and year ended December 31, 2018 a charge to debt discount in the amount of $15,000 and $39,167, respectively was recorded through interest expense. The debt discount at March 31, 2019 and December 31, 2018 was $833 and $15,833, respectively. The effective interest Rate at March 31, 2019 was 13.41%.

 

On April 2, 2018, the Company issued a Convertible Promissory Note in the Amount of $75,000. The note bears twelve percent (12%) interest per annum. The note shall be payable upon demand. Commencing on the Demand Date, all principal shall be payable by the Company upon demand made by the holder. The note is for a period of (12) months and cannot be converted until six (6) months from the issuance date. The holder shall have the right, exercisable in whole or in part, to convert the outstanding principal into a number of fully paid and non-assessable whole shares of the Company’s $0.001 par value common stock. The note contained a beneficial conversion feature which resulted in a debt discount of $75,000 which was recorded as a reduction in carrying value of the On April 2, 2018 Convertible Promissory Note and offset in in mezzanine equity. During the three months ended March 31, 2019 and year ended December 2018 a charge to debt discount in the amount of $18,750 and $56,250 was recorded through interest expense. The debt discount at March 31. 2019 and December 31, 2018 was $0 and $18,750, respectively. The effective interest Rate at March 31, 2019 was 12%.

 

 19 

 

 

On April 11, 2018, the Company issued a Convertible Promissory Note in the Amount of $50,000. The note bears twelve percent (12%) interest per annum. The note shall be payable upon demand. Commencing on the Demand Date, all principal shall be payable by the Company upon demand made by the holder. The note is for a period of (12) months and cannot be converted until six (6) months from the issuance date. The holder shall have the right, exercisable in whole or in part, to convert the outstanding principal into a number of fully paid and non-assessable whole shares of the Company’s $0.001 par value common stock. The note contained a beneficial conversion feature which resulted in a debt discount of $75,000 which was recorded as a reduction in carrying value of the On April 11, 2018 Convertible Promissory Note and offset in in mezzanine equity. During the three months ended March 31, 2019 and year ended December 31, 2018 a charge to debt discount in the amount of $12,500 and $37,500, respectively was recorded through interest expense. The debt discount at March 31, 2019 and December 31, 2018 was $0 and $12,500, respectively. The effective interest Rate at March 31, 2019 was 12%.

 

On May 3, 2018, the Company issued a Convertible Promissory Note in the Amount of $75,000. The note bears twelve percent (12%) interest per annum. The note shall be payable upon demand. Commencing on the Demand Date, all principal shall be payable by the Company upon demand made by the holder. The note is for a period of (12) months and cannot be converted until six (6) months from the issuance date. The holder shall have the right, exercisable in whole or in part, to convert the outstanding principal into a number of fully paid and non-assessable whole shares of the Company’s $0.001 par value common stock. The note contained a beneficial conversion feature which resulted in a debt discount of $75,000 which was recorded as a reduction in carrying value of the On May 3, 2018 Convertible Promissory Note and offset in in mezzanine equity. During the three months ended March 31, 2019 and year ended December 31, 2018 a charge to debt discount in the amount of $18,750 and $50,000, respectively was recorded through interest expense. The debt discount at March 31, 2019 and December 31, 2018 was $6,250 and $25,000, respectively.

 

On May 14, 2018, the Company issued a Convertible Promissory Note in the Amount of $75,000. The note bears twelve percent (12%) interest per annum. The note shall be payable upon demand. Commencing on the Demand Date, all principal shall be payable by the Company upon demand made by the holder. The note is for a period of (12) months and cannot be converted until six (6) months from the issuance date. The holder shall have the right, exercisable in whole or in part, to convert the outstanding principal into a number of fully paid and non-assessable whole shares of the Company’s $0.001 par value common stock. The note contained a beneficial conversion feature which resulted in a debt discount of $75,000 which was recorded as a reduction in carrying value of the On May 14, 2018 Convertible Promissory Note and offset in in mezzanine equity. During the three months ended March 31, 2019 and year ended December 31, 2018 a charge to debt discount in the amount of $18,750 and $50,000, respectively was recorded through interest expense. The debt discount at March 31, 2019 and December 31, 2018 was $6,250 and $25,000, respectively. The effective interest Rate at March 31, 2019 was 21.09%.

 

On May 30, 2018, the Company issued a Convertible Promissory Note in the Amount of $50,000. The note bears twelve percent (12%) interest per annum. The note shall be payable upon demand. Commencing on the Demand Date, all principal shall be payable by the Company upon demand made by the holder. The note is for a period of (12) months and cannot be converted until six (6) months from the issuance date. The holder shall have the right, exercisable in whole or in part, to convert the outstanding principal into a number of fully paid and non-assessable whole shares of the Company’s $0.001 par value common stock. The note contained a beneficial conversion feature which resulted in a debt discount of $50,000 which was recorded as a reduction in carrying value of the On May 14, 2018 Convertible Promissory Note and offset in in mezzanine equity. During the three months ended March 31, 2019 and year ended December 31, 2018 a charge to debt discount in the amount of $12,500 and $29,167, respectively was recorded through interest expense. The debt discount at March 31, 2019 and December 31, 2018 was $8,333 and $20,833, respectively. The effective interest Rate at March 31, 2019 was 21.09%.

 

 20 

 

 

Power Up Lending Group, Ltd. May 22, 2018 Convertible Promissory Note

 

On May 22, 2018, the Company issued a Convertible Promissory Notes totaling $45,000 to a third-party (the “May 2018 Convertible Promissory Note”). The May 2018 Convertible Promissory Note matured on March 1, 2019 and accrues interest at a rate of 12% per annum. The note was in default as of March 31, 2019. The outstanding principal as of March 31, 2019 and December 31, 2018 was $24,880 and $73,325, respectively. The accrued interest balance at March 31, 2019 and December 31, 2018 was $5,184 and $4,447. The effective interest Rate at March 31, 2019 was 12%.

 

The holder shall have the right from time to time, and at any time during the period beginning on the date which is one hundred eighty (180) days following the date of this note and ending on the later of: (i) the Maturity Date and (ii) the date of payment of the Default , each in respect of the remaining outstanding principal amount of this note to convert all or any part of the outstanding and unpaid principal amount of this note into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price (the “Conversion Price”) determined as provided herein (a “Conversion”); provided, however, that in no event shall the holder be entitled to convert any portion of this note in excess of that portion of this note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the notes or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this provision is being made, would result in beneficial ownership by the holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock.

 

The Conversion Price shall be equal to: (A) if the Market Price is greater than or equal to $0.011, the greater of: (i) the Variable Conversion Price (as defined herein) and (ii) the Fixed Conversion Price (as defined herein); and (B) if the Market Price is less than $0.011 the lesser of: (i) the Variable Conversion Price (as defined herein) and (ii) the Fixed Conversion Price (as defined herein); (subject, in each case, to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The “Variable Conversion Price” shall mean 61% multiplied by the Market Price (as defined herein) (representing a discount rate of 39%). “Market Price” means the average of the lowest two (2) Trading Prices (as defined below) for the Common Stock during the fifteen (15) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. During the three months ended March 31, 2019 the holder of the Note converted $48,445 of the outstanding principal balance into 807,416,667 shares of Class A Common Stock.

 

The May 2018 Convertible Promissory Note contained a beneficial conversion feature which resulted in a debt discount of $30,000 which was recorded as a reduction in carrying value of the May 2018 Convertible Promissory Note and offset in in mezzanine equity. During the three months ended March 31, 2019 and year ended December 31, 2018 a charge to debt discount in the amount of $3,750 and $26,250, respectively was recorded through interest expense. At March 31, 2019 and December 31, 2018, the debt discount was $0 and $3,750, respectively.

 

 21 

 

 

2 Plus 2, LLC. September 4, 2018 Convertible Promissory Note

 

On September 4, 2018 the Company issued a Convertible Promissory Notes totaling $25,000 to a third-party for a purchase price of $22,500 (the “July 31, 2017 2 Plus 2 Convertible Promissory Note”). The September 4, 2018 2 Plus 2 Convertible Promissory Note matures on September 4, 2019 and accrues interest at a rate of 8% per annum. All unpaid principal and interest is due at maturity. As of March 31, 2019, and December 31, 2018, the outstanding principal was $25,000. The accrued interest balance at March 31, 2019 and December 31, 2018 was $1,107 and $614, respectively. In addition, the Company recorded an original issue discount (OID) in the amount of $2,500. During the three months ended March 31, 2019 and year end December 31, 2018 a charge to the OID debt discount was recorded in the amount of $625 and $2,500, respectively through interest expense. The balance of the OID discount at March 31, 2019 and December 31, 2018 as $1,667 and 1,042, respectively. The effective interest rate at March 31, 2019, was 154.95%.

 

The holder of the September 4, 2018 2 Plus 2 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 September 4, 2018 2 Plus 2 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 4, 2018 2 Plus 2 Convertible Promissory Note 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 a price of sixty percent (60%) of the lowest closing price over the prior twenty 20-day trading period from the date of notice of conversion, but in no event shall the Conversion price be less than $0.001.

 

The September 4, 2018 2 Plus 2 Convertible Promissory Note contained a beneficial conversion feature which resulted in a debt discount of $16,211 which was recorded as a reduction in carrying value of the September 4, 2018 Convertible Promissory Notes and offset in mezzanine equity. During the three months ended March 31, 2019 and year ended December 31, 2019 a charge to debt discount in the amount of $4,053 and $5,404, respectively was recorded through interest expense. At March 31, 2019 and December 31, 2018, the debt discount was $10,807 and 6,754, respectively.

 

In connection with the July 31, 2017 2 Plus 2 Convertible Promissory Note, the holder was issued 12,500,000 warrants exercisable at $0.035 expiring in July 2020. The Company determined the fair value of the warrants which resulted in a debt discount of $8,789 recorded as a reduction to the carrying value of the September 4, 2018 Convertible Promissory Note and offset in mezzanine equity. The balance of the fair value of the warrants at March 31, 2019 and December 31, 2018 was $7,081 and $7813, respectively.

 

Greentree Financial Group, Inc. September 27, 2018 Convertible Promissory Note

 

On September 27, 2018, the Company issued a Convertible Promissory Notes totaling $75,000 to a third-party for a purchase price of $67,500 (the “September 27, 2018 Convertible Promissory Note”). The September 27, 2018 Convertible Promissory Note matures on September 27, 2019 and accrues interest at a rate of 8% per annum. All unpaid principal and interest is due at maturity. As of March 31, 2019, and December 31, 2018, the outstanding principal was $75,000. The accrued interest balance at March 31, 2019 and December 31, 2018 and was $$4,385 and $2,906, respectively. In addition, the Company recorded an original issue discount (OID) in the amount of $7,500. During the three months ended March 31, 2019 and year ended December 31, 2018 a charge to the OID debt discount was recorded in the amount of $1,625 and $2,167, respectively through interest expense. The balance of the OID discount at March 31, 2019 and December 31, 2018 was $3,708 and $5,333, respectively. The effective interest rate at March 31, 2019, was 94.45%.

 

The holder of the September 27, 2018 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 September 27, 2018 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 27, 2018 Convertible Promissory Note 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 a price of sixty percent (60%) of the lowest closing price over the prior twenty 20-day trading period from the date of notice of conversion, but in no event shall the Conversion price be less than $0.001.

 

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The September 27, 2018 Convertible Promissory Note contained a beneficial conversion feature which resulted in a debt discount of $58,369 which was recorded as a reduction in carrying value of the September 27, 2018 Convertible Promissory Notes and offset in mezzanine equity. During the three months ended March 31, 2019 and year ended December 31, 2018 a charge to debt discount in the amount of $14,592 and $19,456, respectively was recorded through interest expense. At March 31, 2019 and December 31, 2018, the debt discount was $24,321 and $38,913, respectively.

 

In connection with the September 27, 2018 Convertible Promissory Note, the holder was issued 37,500,000 warrants exercisable at $0.035 expiring in July 2020. The Company determined the fair value of the warrants which resulted in a debt discount of $8,369 recorded as a reduction to the carrying value of the September 27, 2018 Convertible Promissory Note and offset in mezzanine equity. The balance of the fair value of the warrants at March 31, 2019 and December 31, 2018 was $6,745 and $7,441, respectively.

 

TCA Global Credit Master Fund, LP

 

On December 24, 2018 the Company entered into a promissory note agreement (the “December 2018, Convertible Promissory Note”) with a third-party in the amount of $1,600,000. The promissory note carries an interest rate of 12% per annum. The principal balance of the note at March 31, 2019 and December 31, 2018 was $1,600,000. The accrued interest on the Note at March 31, 2019 and December 31, 2018 was $0 and $3,200, respectively. The maturity date of the promissory note is June 24, 2021.The Company at its option shall have the right to redeem this Note in full for cash, at any time prior to the maturity date with three days written notice to the Holder. The effective interest Rate at March 31, 2019 was 30.88%.

 

The holder of the December 24, 2018 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 upon the occurrence of an event of default. The December 24, 2018 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 December 24, 2018 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 a price of sixty percent (85%) of the lowest closing price over the prior twenty 5-day trading period from the date of notice of conversion, but in no event shall the Conversion price be less than $0.001

 

The December 24, 2018 Convertible Promissory Note contained a beneficial conversion feature which resulted in a debt discount of $282,353 which was recorded as a reduction in carrying value of the December 31, 2018 Convertible Promissory Notes and offset in mezzanine equity. At March 31, 2019 and December 31, 2018, the debt discount was $254,118 and $282,353.

 

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 March 31, 2019 and December 31, 2018:

 

   March 31, 2019   December 31, 2018 
         
Convertible Promissory Note  $3,887,519   $3,994,894 
Less: debt discount   (339,660)   (612,940)
Less: warrants   (19,404)   (21,752)
Less: OID   (9,750)   (14,500)
Total net carrying value  $3,518,705   $3,345,702 

 

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8. Income Taxes

 

No provision for federal income taxes has been recognized for the three months ended March 31, 2019 and year ended December 31, 2018, 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 deferred tax assets. The deferred tax asset consists of net operating loss carry forwards and a cumulative deferral of tax deductions under the Cash Basis of Accounting, which the Company utilizes for tax purposes. The Company has a deferred tax liability related to Intangible assets amortizable for GAAP purposes which there is no tax basis for.

 

9. Shareholder Deficit

 

On March 19, 2019 the Chairman of the Board of Directors gave notice to resign and forgo Board of Directors responsibilities. Upon resignation the Chairman of the Board transferred 5,000,000 of Class B Preferred Common Shares to the Chief Executive Officer of the Company. The Preferred Class B Common Stock authorized and issued remain at 10,000,000 shares outstanding, with the Chief Executive Officer owning 100% of the Class B Preferred Common Stock.

 

During the three months ended March 31, 2019, various convertible note holders converted a total of $101,375 of outstanding principal amount into 1,897,584 shares of Class A Common Stock.

 

The board of directors unanimously approved to increase the authorized Class A Common Stock from 5,200,000,000 shares to 6,800,000,000 shares, which shares will be issuable on such terms and conditions as the board of directors may determine from time to time. The amendments were filed with the Nevada Secretary of State during the year ended December 31, 2018. The board of directors and stockholders holding a majority of the voting power took action by written consent to approve. The Company intends to file a Form 14c pursuant to Rule 14c-2 promulgated under the Exchange Act.

 

10. 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.

 

11. Subsequent Events

 

On April 1, 2019 the Company issued a Convertible Promissory Note totaling $347,463 to a third-party (the “March 2019 Convertible Promissory Note”). The April 2019 Convertible Promissory Note matures on June 24, 2021 and accrues interest at a rate of 12% per annum.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation

 

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, the outcome of contingencies, such as legal proceedings, 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.

 

The following discussion should be read in conjunction with our consolidated financial statements and the related notes that appear elsewhere in this quarterly report on Form 10-Q.

 

Introduction

 

The following discussion and analysis was prepared to supplement information contained in the accompanying financial statements and is intended to provide certain details regarding the Company’s financial condition as of March 31, 2019 and the results of operations for the three months ended March 31, 2019. It should be read in conjunction with the unaudited financial statements and notes thereto contained in this report as well as the audited financial statements included in the Company’s Annual Report for the fiscal year ended December 31, 2018 included in the Company’s Form 10, filed with the SEC.

 

Business Overview

 

The following is a summary of some of the information contained in this document. Unless the context requires otherwise, references in this document to “our Company,” “us,” “we,” “our,” “Zenergy,” or the “Company” are to Zenergy Brands, Inc.

 

We are a business-to-business company, whose business platform is a combined offering of energy services and smart controls. Our business model is based upon the belief that these two aspects, combined with an ever-increasing commercial demand for more sustainable business practices will continue to be burgeoning trends. Historically, services such as electricity and natural gas have been provided by monopoly-based companies; these legacy entities are in the business of selling commodity and related services and naturally, selling as much of these (kilo-watt-hours of electricity and thermal units of natural gas) as possible. In some cases, it has been this way for nearly a century. However, the growing demand from commercial and municipal entities for responsible energy, more control and transparency, and overall sustainability, have proven to be at odds with the mission of these legacy entities. Zenergy offers a unique value proposition to commercial, industrial, and municipal customers whereby we offer a means to reduce their utility expenses anywhere from 20% up to 60% through energy-efficient and smart control products and services.

 

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The foundation of our unique selling proposition is based on our Zero Cost Program. This is a turnkey solution that enables our target customers to upgrade their older, inefficient customer premise equipment and assets, allowing for installation of energy-efficient retrofits such as HVAC and refrigeration motor controllers, load factor improvement technologies, building-envelope-based technologies, weatherization-based technologies, smart controls, and LED lighting, all at no up-front cost to them. The Zero Cost Program will be facilitated through an industry standard agreement referred to as a Managed Energy Services Agreement (“MESA”). Under the MESA, Zenergy will be obligated to develop, arrange financing for, install and maintain all energy efficiency measures and equipment installed by Zenergy. Zenergy will retain ownership of all installed equipment. The minimum term of the MESA is expected to be five years with an expected average of seven years. Under the terms of the MESA, our customers will be obligated to pay us a portion of their savings in utility costs following the installation of our equipment; these are referred to as “Service Payments”. Service Payments are expected to be fixed payments made on a monthly basis over the term of the agreement from the customer to Zenergy and these payments are expected to scale down over the term of the MESA, allowing the customer to reap more and more of the dollar savings from the respective utility company each year.

 

Effectuating a successful MESA will require us to implement credit review and standard underwriting procedures. This process includes, but is not limited to, the following: standard credit screening provided by credit reporting agencies (i.e. Experian), business profile reports from Dun & Bradstreet, review of trade credit and references, confirmation that client has been in operation for greater than 10 years, and our proprietary review and assessment of historical accounting records and industry landscape. In order for Zenergy to effectively market, sell, and implement MESAs, Zenergy must utilize third-party financing entities to provide project and strategic financing toward fulfilling its working capital requirements to acquire and install the equipment required under the MESA. For this reason, we engaged in discussions with advisors and investment banks for the purpose of procuring a long-term and scalable financing solution for this aspect of our business.

 

Additionally, with our Zero Cost Program, we have the ability to upgrade our 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.

 

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Three Months Ended March 31, 2019 Compared to Three Months Ended March 31, 2018

 

The following comparative analysis on results of operations was based primarily on the comparative financial statements, footnotes and related information for the periods identified below and should be read in conjunction with the consolidated financial statements and the notes to those financial statements that are included elsewhere in this Form 10-Q. For comparative purposes, we are comparing the three months ended March 31, 2019, to the three months ended March 31, 2018

 

Revenue. Total revenue was $891,908 for the three months ended March 31, 2019 compared to $301,809 for the three months ended March 31, 2018. The increase is primarily a result of the Company’s increase in its Managed Energy Services (zero cost projects).

 

Cost of goods sold and Gross Profit. Our cost of goods sold for the three months ended March 31, 2019 was $770,485 compared to $208,341 for the three months ended March 31, 2018. The increase is a result of increases in our sales from zero cost projects. Our gross profit for the three months ended March 31, 2019 was $121,423 compared to $93,468 for the three months ended March 31, 2018. The increases are a result of increases in our sales from the zero cost projects and the electric business.

 

Selling, general and administrative expenses. Total selling, general and administrative expenses were $690,042 and $756,587 for the three months ended March 31, 2019 and 2018, respectively. The decrease in expenses were primarily attributed to a decrease in salaries of approximately 26,400, professional fees of approximately $8,700, rent expense of approximately $49,400, and travel expenses of $10,400.

 

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Loss from operations and net loss. Loss from operations and net loss were $568,619 and $663,119, and $933,983 and $906,986 for the three months ended March 31, 2019 and 2018, respectively. The increase in net loss is primarily attributable to an increase in other expenses. The increase in net losses is attributed to approximately other expenses of $365,360 for the three months ended March 31, 2019 when compared to other expenses of $243,867 for the three months ended March 31, 2018. Other expenses consist of interest income, interest expense, tax expense, forgiveness of debt, and loss on extinguishment of debt.

 

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 $5,551,914 as of March 31, 2019 compared to a working capital deficit of $3,992,130 as of March 31, 2018 primarily as a result of an increase in borrowings, subscription liabilities, accounts payables and accrued payroll. Working capital consisted of total current assets of $328,821 offset by current liabilities of $5,880,735 as of March 31, 2019 and total current assets of $1,717,222 offset by current liabilities of $5.709.352 as of December 31, 2018.

 

Net cash flow used in operating activities was 915,068 for the three months ended March 31, 2019 as compared to net cash flows used in operating activities of 414,010 for the three months ended March 31, 2018. Net cash flow used in investing activities was $266,336 for the three months ended March 31, 2019 as compared to $332,806 for the three months ended March 31, 2018.

 

Our primary source of liquidity has been proceeds from the issuance of debt securities and equity securities. Net cash used by financing activities was $3,000 for the three months ended March 31, 2019 as compared to financing activities provided by financing activities of $1,277,000 for the three months ended March 31, 2018.During the three months ended March 31, 2019 the company paid $3,000 of convertible promissory notes.

 

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 unaudited financial statements for the three months ended March 31, 2019 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 reports a net loss of $933,983 for the three months ended March 31, 2019, and an accumulated deficit of $12,633,078 as of March 31, 2019.

 

The Company had a working capital deficit of $5,551,914 and negative cash flow from continuing operating activity of $414,010 at March 31, 2019. 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 twelve 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.

 

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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.

 

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 March 31, 2019 and December 31, 2018 was $5,686 and $1,190,090, respectively.

 

Sales-type Leasing and Related Revenue Recognition - The Company installs and leases energy equipment to its customer under a Managed Energy Services Agreement “(MESA”). The Company typically transfers ownership of the equipment to its customers at the end of the lease. The investment in these projects is recorded as an investment on sales-type leases in accordance with Financial Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 842, “Leases”, and its various amendments and interpretations. The Company finances energy efficiency projects. The sales and cost of sales are recognized upon completion of the installation of equipment. The investment in sales-type leases consists of the sum of the minimum lease payments receivable less unearned interest income ad estimated executory cost. Minimum lease payments are part of the lease agreement between the Company (as the lessor) and the customer (as the lessee). The discount rate implicit in the lease is used to calculate the present value of minimum lease payments. The minimum lease payment consists of the gross lease payments net of executory costs, if any. Unearned interest income is amortized to income over the lease term to produce a constant periodic rate of return on net investment in the lease. While revenue is recognized at the project completion date, the cash flow from the sales-type lease occurs over the course of the lease, which results in interest income and reduction of receivables. Revenue is recognized net of sales tax.

 

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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 operation

 

Off-Balance Sheet Arrangements

 

As of March 31, 2019, 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.

 

Plan of Operation and Funding

 

During the next twelve months, we anticipate that our principal sources of liquidity will consist of any, or all, of the following: 1) proceeds from potential equity financing, 2) revenue generated from our operations, and 3) additional debt borrowings. While we are presently generating revenue and we anticipate our revenue will continue to increase.

 

On a long-term basis, our ability to ultimately achieve and maintain profitability and positive cash flow is dependent upon our ability to successfully continue to develop our products and our ability to generate revenues.

 

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Item 3. Quantitative and Qualitative Disclosure About Market Risk

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Act of 1934 and are not required to provide the information under this item.

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

The Company’s management conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and Rule 15d-15(e) under the 1934 Act) pursuant to Rule 13a-15 under the 1934 Act as of March 31, 2019. The Company’s disclosure controls and procedures are designed to provide reasonable, not absolute assurance that information required to be disclosed in the reports it files or submits under the 1934 Act is recorded, processed, summarized and reported on a timely basis and that such information is communicated to management and the Company’s board of directors to allow timely decisions regarding required disclosure.

 

Based on this evaluation, it has been concluded that the design and operation of our disclosure controls and procedures are not effective as of March 31, 2019 since the following material weaknesses exist:

 

  Since inception our chief executive officer also functions as our chief financial officer. As a result, our officers may not be able to identify errors and irregularities in the financial statements and reports.
     
  We were unable to maintain full segregation of duties within our financial operations due to our reliance on limited personnel in the finance function. While this control deficiency did not result in any material adjustments to our financial statements, it could have resulted in a material misstatement that might have been prevented or detected by a segregation of duties.
     
  Documentation of all proper accounting procedures is not yet complete.

 

To the extent reasonably possible given our limited resources, as financial resources become available, we intend to take measures to cure the aforementioned weaknesses, including, but not limited to, the following:

 

  Increasing the capacity of our qualified financial personnel to ensure that accounting policies and procedures are consistent across the organization and that we have adequate control over financial statement disclosures.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during the three months ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suite, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect. We anticipate that we (including current and any future subsidiaries) will from time to time become subject to claims and legal proceedings arising in the ordinary course of business. It is not feasible to predict the outcome of any such proceedings and we cannot assure that their ultimate disposition will not have a materially adverse effect on our business, financial condition, cash flows or results of operations.

 

Item 1A. Risk Factors.

 

We are not required to provide this information as we are a Smaller Reporting Company.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.

 

Item 3. Default Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable to our Company.

 

Item 5. Other Information.

 

None.

 

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Item 6. Exhibits

 

Exhibit No.   Description
     
31.1   Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Alex Rodriguez.
     
32.1   Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Alex Rodriguez.
     
101.INS*   XBRL Instance Document
     
101.SCH*   XBRL Taxonomy Extension Schema Document
     
101.CAL*   XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF*   XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB*   XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE*   XBRL Taxonomy Extension Presentation Linkbase Document

 

* Filed herewith.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  ZENERGY BRANDS, INC.
     
Date: May 20, 2019 By: /s/ Alex Rodriguez
    Alex Rodriguez, Chief Executive Officer and Chief Financial Officer, (Principal Executive Officer and Principal Financial and Accounting Officer)

 

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