ZNERGY, INC. You should read the following discussion of our financial condition and results of operations together with the audited financial statements and the notes to the audited financial statements included in this Annual Report on Form 10-K. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those anticipated in these forward- looking statements.
Our management does not expect to incur research and development costs. We do not have any off-balance sheet arrangements.
Results of Operations
The following table sets forth our results of operations for the periods
indicated:
For the Years Ended
December 31, December 31,
2018 2017 Change
Revenue $ 1,452,153 $ 1,225,867 $ 226,286
Cost of revenue 1,455,011 980,996 474,015
Gross profit (2,858 ) 244,871 (247,729 )
Selling, general and administrative expenses 3,299,118 4,138,249 (839,131 )
Loss on sale of assets 88,628 - 88,628
Total operating expenses 3,387,746 4,138,249 (750,503 )
Loss from operations (3,390,604 ) (3,893,378 ) 502,774
Other income (expense)
Other income 5,868 - 5,868
Interest expense (319,022 ) (594,192 ) 275,170
Total other income (313,154 ) (594,192 ) 281,038
Provision for income taxes - - -
Net loss $ (3,703,758 ) $ (4,487,570 ) $ 783,812
Revenue
The Company had revenues of
Cost of revenue
The Company had costs of revenue of
Gross Profit
Gross profit decreased to (
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Selling, general and administrative expenses
The Company had selling, general and administrative expenses of
Loss on sale of assets
Loss on sale and write-off of assets of
Other income (expense)
The Company had interest expense of
Provision for income taxes
Income taxes were nil for the years 2018 and 2017 as the Company had negative taxable earnings.
Liquidity and Capital Resources
Cash Flows
The table below sets forth a summary of the Company's cash flows for the years
ended
For the Years Ended
December 31 , December 31,
2018 2017
Net cash used in operating activities
(12,450 ) (99,774 )
Net cash provided by financing activities 1,282,788 1,109,246
Increase (decrease) in cash $ (115,888 ) $ 75,974
Operating Activities
Net cash used in operating activities during the year ended
Investing Activities
Net cash used by investing activities during the year ended
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Table of Contents Financing Activities
Net cash provided by financing activities during the year ended
Going Concern
This Form 10-K has been prepared assuming that the Company will continue as a
going concern, which contemplates the realization of assets and the liquidation
of liabilities in the normal course of business. As of
The Company is dependent upon, among other things, obtaining the additional financing to continue operations and to execute its business plan. In response to these problems, management intends to raise additional funds through public or private placement offerings. No assurances can be made that management will be successful in pursuing any of these strategies.
As discussed above, our revenue for the year ended
As discussed in Note 3 to the financial statements, the Company has suffered
recurring losses from operations and has an accumulated deficit that raise
substantial doubt about its ability to continue as a going concern for the next
twelve months from the issuance of this annual report on Form 10-K. Management's
plans in regard to these matters are also described in Note 3. Accordingly, to
implement our business plan, we must raise cash from sources other than
operations. In 2018 and through the date of this report, the Company has raised
cash by incurring debt and through private offerings of our securities.
Additionally, we reached agreement in 2019 with one of the world's largest men's
clothing retail chains to retrofit their stores with our led lighting. This
resulted in a significant increase in our cash flow in the last half of 2019 and
early 2020. However, the Covid-19 coronavirus pandemic caused our customer to
close its locations throughout the world. In
We do not anticipate needing to significantly increase our administrative and sales staff to achieve our growth. We were on path to reach this target until the pandemic affected our customers' operations. This growth may necessitate additional investment in inventory and accounts receivable. We believe we may need to raise additional capital to allow us to implement our business plan and fund our growth. Additionally, we are targeting customers and industry verticals which are less vulnerable to the Covid-19 pandemic than retail is. We may need to raise this additional capital by issuing capital stock in exchange for cash. However, we cannot guarantee that we will generate such growth. If we do not generate sufficient cash flow to support our operations over the next 12 to 18 months, we may need to raise more capital and increase the breadth of our customer base more than planned to continue as a going concern. There are no formal or informal agreements to attain such financing other than the purchase order financing referenced above. We cannot give assurance that any financing can be obtained or, if obtained, that it will be on reasonable terms. Without realization of additional capital or our rollout of our plan to broaden our customer base, it would be unlikely for us to continue as a going concern, like many companies impacted by the pandemic. These matters raise substantial doubt about our ability to continue as a going concern for the next twelve months from the issuance of this annual report on Form 10-K.
Plan of Operation
The Company's anticipated plan of operation is to continue to (1) identify and train sales personnel in regions of the country that have advantageous utility company rebate programs, (2) identify and train lighting installation personnel where we have established sales personnel, seek out the best current and incipient solutions in the Energy Efficiency marketplace and become a reseller of those solutions, (4) develop our own solutions for the EE marketplace, and (5) seek to acquire other businesses in the market where such acquisitions make strategic sense and are accretive to earnings.
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The Company continues to expand its solutions portfolio for both indoor and outdoor applications in an effort to capitalize on the evolving and growing market for intelligent networked systems that collect and exchange data to increase efficiency as well as provide a host of other economic benefits resulting from data analytics to better enable smart buildings and smart cities. The transition to solid-state lighting provides the opportunity for lighting to be integrated with other building automation systems to create an optimal platform for enabling the "Internet of Things" (IoT), which will support the advancement of smart buildings, smart cities, and the smart grid.
The Company's ability to grow its incipient operations is primarily dependent upon its ability to raise additional capital, most likely through the sale of additional shares of the Company's common stock or other securities. There can be no guarantee that the Company will be able raise additional capital on terms that are acceptable to the Company, or at all.
The realization of revenues in the next twelve months from the filing of this Form 10-K is important in the execution of the plan of operations. However, if the Company cannot raise additional capital by issuing capital stock in exchange for cash, or through obtaining commercial or bank financing, in order to continue as a going concern, the Company may have to curtail or cease its operations. As of the date of this Report, there were no formal or informal agreements to attain such financing. The Company cannot assure any investor that, if needed, sufficient financing can be obtained or, if obtained, that it will be on reasonable terms. Without realization of additional capital, it would be unlikely for operations to continue.
Critical Accounting Policies
Management's discussion and analysis of our results of operations and liquidity
and capital resources are based on our audited financial information. We
describe our significant accounting policies in Note 2 - Summary of Significant
Accounting Policies, of the Notes to Financial Statements included in this
report. Our audited financial statements have been prepared in accordance with
(a) Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in
(b) Revenue Recognition
Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with
Customers ("Topic 606"), became effective for the Company on
The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product to a customer. Revenue is measured based on the consideration the Company expects to receive in exchange for those products. In instances where final acceptance of the product is specified by the customer, revenue is deferred until all acceptance criteria have been met. Revenues are recognized under Topic 606 in a manner that reasonably reflects the delivery of the Company's products and services to customers in return for expected consideration and includes the following elements:
? executed contracts with the Company's customers that it believes are legally
enforceable;
? identification of performance obligations in the respective contract;
? determination of the transaction price for each performance obligation in the
respective contract;
? allocation the transaction price to each performance obligation; and
? recognition of revenue only when the Company satisfies each performance
obligation.
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Table of Contents Performance Obligations
The Company's revenue streams can be categorized into the following performance obligations and recognition patterns:
? Completion and delivery of installation contracts. The Company recognizes
revenue at a point in time when control transfers to the customer, usually
through a written customer acceptance form.
? Delivery of lighting products. The Company recognizes revenue at the point of
shipment to the customer.
Transaction prices for performance obligations are explicitly outlined in relevant agreements, therefore, the Company does not believe that significant judgments are required with respect to the determination of the transaction price.
When
Installation contract revenue is recognized when the contract is considered
complete by the customer, through a written customer acceptance form. Each
contract for installation of lighting and fixtures, consists of labor and
materials, and is given a unique number in the system. Each contract is
accounted for individually. The Company identifies the performance obligations,
which include labor and materials and are accounted for as one contract. The
transaction price is identified in advance with an agreed proposal between the
Company and the customer and the price can be adjusted if, during the
installation process, changes are made during the process. Under this method,
contract costs are accumulated as deferred assets and billings and/or cash
receipts are recorded to a deferred revenue liability account during the
contract period, but no revenues, costs, or profits are recognized in operations
until the completion of the contract. Costs include direct material, direct
labor, subcontract labor, and allocable indirect costs. All unallocated indirect
costs and corporate general and administrative costs are charged in the periods
as incurred. However, in the event a loss on a contract is foreseen, the Company
will recognize the loss when such loss is determined. A contract is considered
complete when accepted by the customer that the Company has satisfied its
performance obligations. There were no contracts which were not complete as of
(c) Going Concern
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern, which contemplates the
realization of assets and the liquidation of liabilities in the normal course of
business. As at
The Company is dependent upon, among other things, obtaining additional financing to continue operations and to execute its business plan. In response to these problems, management intends to raise additional funds through public or private placement offerings. No assurances can be made that management will be successful in pursuing any of these strategies.
These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern for the next twelve months from the issuance of this Annual Report on Form 10-K. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
(d) Stock-Based Compensation
Certain employees, officers, directors, and consultants of the Company participate in incentive plans that provide for granting stock options and performance-based awards. Time-based stock options generally vest in equal increments over a two-year period and expire on the third anniversary following the date of grant. Performance-based stock options vest once the applicable performance conditions are satisfied.
The Company recognizes stock-based compensation for equity awards granted to employees, officers, directors, and consultants as Selling, general and administrative expense in the consolidated statements of operations. The fair value of stock options is estimated using a Black-Scholes valuation model on the date of grant. Stock-based compensation is recognized over the requisite service period of the individual awards, which generally equals the vesting period. For performance-based stock options, compensation is recognized once the applicable performance condition is satisfied.
The fair value of restricted stock awards is equal to the closing price of the Company's stock on the date of grant multiplied by the number of shares awarded. Stock-based compensation is recognized over the requisite service period of the individual awards, which generally equals the vesting period.
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On
Our significant accounting policies, as described in our financial statements in the Summary of Significant Accounting Policies, should be read in conjunction with this Management's Discussion and Analysis of Financial Condition and Results of Operations.
Recently Issued Accounting Pronouncements
For more information on recently issued accounting standards, see Note 2 - Summary of Significant Accounting Policies to the Notes to Consolidated Financial Statements.
Off-Balance Sheet Arrangements
None.
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