Item 1. BUSINESS
Business Development
September 2004, the Board of Directors of iVoice, Inc., the former parent of the Company, resolved to pursue the separation of iVoice software business into three publicly owned companies. SpeechSwitch, Inc. (“SpeechSwitch” or “Company”) was incorporated under the laws of New Jersey on November 10, 2004 as a wholly owned subsidiary of iVoice, Inc. ("iVoice"). The Company received by assignment all of the interests in and rights and title to, and assumed all of the obligations of, all of the agreements, contracts, understandings and other instruments of iVoice Technology 3, Inc., a Nevada corporation and affiliate of the
Company.
On August 4, 2005, the Company received notice from the SEC that the registration statement to effectuate the spin-off of the SpeechSwitch from iVoice was declared effective and the Company immediately embarked on the process to spin off theSpeechSwitch from iVoice.
On August 5, 2005, the spin-off transaction was accomplished, by the assignment, contribution and conveyance of certain intellectual property, representing the software codes of speech recognition, and certain accrued liabilities and related party debt into SpeechSwitch (the "Spin-off"). The Class A Common Stock shares of the Company were distributed to iVoice shareholders in the form of a taxable special dividend distribution.
In June 2009 Kenneth P. Glynn acquired debt owed by SpeechSwitch, Inc. to third party creditors and the company moved its headquarters from Matawan, NJ to Flemington, NJ.
On February 3, 2011, the Company changed its name to Kenergy Scientific, Inc (“Kenergy”).
In November 2011, Kenergy opened its first company-owned GreenSmart Store at the Flemington Marketplace in Flemington,
NJ.
On February 4, 2013, Kenergy announced that they would be closing their GreenSmart store and “ would seek a new business entity acquisition to change its direction and its financial status”. On March 1, 2013, the Company announced that they had closed the GreenSmart store and the goods and contents were sold out at a 60% discount to loyal customers and debtors for a reduction of some debts.
On June 26, 2013, Kenneth Glynn executed a non-binding Letter of Intent with Mina Mar Group Inc (“ MMG”) that sets forth the general terms and conditions of an agreement for MMG to purchase shares of stock in Kenergy Scientific, Inc. Through the purchase of stock MMG will acquire control of KNSC for the purpose of operating two separate subsidiaries.
Shortly after the change in control, Kenergy entered into negotiations to acquire two subsidiaries. The first subsidiary was a financial services company, Pan Tuffa Holdings, which operates Internet based businesses such as SPOTFX, Optionese.com, and Trustvault.com
The second subsidiary is a Canadian based advertising media company named Sparx Business Media Inc. The media company represents or acts as a sales agent with other advertising aggregators for approximately 140 nationwide radio stations in Canada and markets such as Toronto Ottawa and Vancouver.
On July 26, 2013, the Company terminated merger discussions with PanTuffa Group and accepted the resignation of Charles Zein as President-Elect of Kenergy.
On August 8, 2013, the Company secured a $1 million dollar revolving line of credit at 5% per annual interest rate with its preferred shareholder Mina Mar Group. The funds are used to fund daily operations, develop the Sparx Media business and settle creditor debts. The balance of the amount drawn as on 30 September 2013 was $229,727 and the interest accrued is $3,750.
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On August 14, 2013, the Company closed the merger with Sparx Business Media Inc through issuance of 3,387,500 shares of Kenergy.
On September 13, 2013, the Company terminated the employment contract with Manuel Canales and accepted the resignation of Andrea Zecevic and Hugo Rubio as Board Members. In addition Zoran Cvetojevic was appointed Interim CEO and Jelena Cvetojevic was appointed Board Member.
Businesses
Kenergy Scientific, Inc. (the “Company”) operates under a holding company structure and made significant strides in building this organization in 2013. In 2013 the company closed its retail store and ceased selling solar energy related products.
The Company acquired Sparx Media Group (“Sparx”) in 2013. Sparx is a social, advertising, and marketing media outlet that enhances the visibility of its client’s presence on the Internet.
Industry
Energy efficiency companies, sometimes referred to as energy services companies, or ESCOs, develop, install and arrange financing for projects designed to improve the energy efficiency of buildings and other facilities. Typical products and services offered by energy efficiency companies include boiler and chiller replacement, HVAC upgrades, lighting retrofits, equipment installations, on-site cogeneration, renewable energy plants, load management, energy procurement, rate analysis, risk management and billing administration. Energy efficiency companies often offer their products and services through energy savings performance contracts, or ESPCs. Under these contracts, energy efficiency companies assume certain responsibilities for the performance of the installed measures, under assumed conditions, for a portion of the project’s economic lifetime.
Marketing
Our sales and marketing approach is to offer customers customized and comprehensive public relation solutions tailored to meet their economic, operational and technical needs. By working with the client, we can gain a deeper understanding of the customers’ needs and the scope of the potential project, and then tailor our services to their fit their needs.
In preparation for a proposal, we typically conduct preliminary due diligence of the customer’s needs and the opportunity to increase its market awareness. We start by reading and analyzing the customer’s press releases, public information, and their average stock price. Through our extensive knowledge of the stock market and investor relations, we assess the company’s presence in the investment community and base our proposal on the individualized needs of each client.
Employees
We currently employ four management level employees. Kenergy may require additional employees in the future. Kenergy believes its relations with its employees are good.
Patents
Kenergy holds no patents.
Government Regulation
Various regulations affect the conduct of our business. Securities and Exchange Commission (“SEC”), federal and state regulations dictate the type of services and products we can offer our clients.
Our projects must conform to all applicable SEC and state regulations relating to corporations and public companies.
Item 1A.
Item 1A. RISK FACTORS
We are subject to various risks which may materially harm our business, financial condition and results of operations. Any investor should carefully consider the risks and uncertainties described below and the other information in this filing. If any of these risks or uncertainties actually occurs, our business, financial condition or operating results could be materially harmed. In that case, the price of our common stock could decline and investors could lose all or part of their investment.
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We are a relatively young company with no operating history
Since we are a young company, it is difficult to evaluate our business and prospects. Our future operating results will depend on many factors, including the ability to generate sustained and increased demand and acceptance of our products, the level of our competition, and our ability to attract and maintain key management and employees. While management believes their estimates of projected occurrences and events are within the timetable of their business plan, there can be no guarantees or assurances that the results anticipated will occur.
We expect to incur net losses in future quarters.
If we do not achieve profitability, our business may not grow or operate. We may not achieve sufficient revenues or profitability in any future period. We will need to generate revenues from the sales of our services or take steps to reduce operating costs to achieve and maintain profitability. Even if we are able to generate revenues, we cannot be certain that we can sustain or increase profitability on a quarterly or annual basis.
We will need to raise funds to operate in accordance with our business plan.
Kenergy has sold its inventory of solar related products and closed down our retail store. Currently Kenergy is evaluating its future course and the cash needs. The marketing strategy for the coming year has been revised and will determine the cash needs for the Company.
Our management has no experience in any particular business, and this may affect our ability to operate successfully.
Our management had no prior experience in selling solar related products. This lack of experience may have affected our ability to operate successfully. Therefore, we closed retail store and entered into the in which our CEO has both knowledge and experience.
Kenergy Common Stock is quoted on the over-the-counter Bulletin Board
We successfully filed a Form 15C-211 through a market maker with FINRA to establish a quotation for our common stock and the stock is quoted on the over-the-counter OTC Markets under the symbols KNSC.
We do not expect to pay dividends for the foreseeable future.
For the foreseeable future, it is anticipated that earnings, if any, that may be generated from our operations will be used to finance our operations and that cash dividends will not be paid to holders of our common stock. We expect to be subject to SEC regulations and changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and other trading market rules, are creating uncertainty for public companies.
We are committed to maintaining high standards of corporate governance and public disclosure. As a result, we intend to invest appropriate resources to comply with evolving standards, and this investment may result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.
The report of our independent accountants on our September 31, 2013 financial statements included an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern due to recurring losses and working capital shortages. Our ability to continue as a going concern will be determined by our ability to obtain funding and develop a profitable operation. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Our Common Stock May Be Affected By Limited Trading Volume and May Fluctuate Significantly.
Our common stock is likely to experience, in the future, significant price and volume fluctuations which could adversely affect the market price of our common stock without regard to our operating performance. In addition, we believe that factors such as quarterly fluctuations in our financial results and changes in the overall economy or the condition of the financial markets could cause the price of our common stock to fluctuate substantially. Substantial fluctuations in our stock price could significantly reduce the price of our stock.
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Our Board of Directors Has the Ability to Exercise Significant Influence Over Matters Submitted for Stockholder Approval and Their Interests May Differ From Other Stockholders
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Kenergy is required to carry out evaluations, under the supervision and with the participation of Kenergy’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of Kenergy’s disclosure controls and procedures every quarter.
In designing and evaluating Kenergy’s disclosure controls and procedures, Kenergy recognizes that there are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their desired control objectives. Additionally, in evaluating and implementing possible controls and procedures, Kenergy’s management is required to apply its reasonable judgment.
Item 2.
Item 2. PROPERTIES
Kenergy’s properties are limited at the present time to its offices in Nanchang, China. Kenergy considers its existing facilities to be adequate for its current needs.
Item 3.
Item 3. LEGAL PROCEEDINGS
We are not a party to any material pending legal proceedings and, to the best of our knowledge, no such action by or against Kenergy has been threatened.
PART II
Item 4.
Item 4. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Kenery's common stock is listed and quoted on the over-the-counter OTC Markets. Kenergy successfully filed a Form 15C-211 with FINRA for a quotation on the over-the-counter bulletin board and is quoted under the symbols KNSC on OTC Markets.
Holders
As of December 31, 2013, there were 5,432,475,719 shares of common stock issued and outstanding.
Dividends
Our board of directors has not declared a cash dividend on our common stock during the last two fiscal years.
Penny Stock Status
Kenergy’s common stock is a "penny stock," as the term is defined by Rule 3a51-1 of the Securities Exchange Act of 1934. This makes it subject to reporting, disclosure and other rules imposed on broker-dealers by the Securities and Exchange Commission requiring brokers and dealers to do the following in connection with transactions in penny stocks:
1. Prior to the transaction, to approve the person's account for transactions in penny stocks by obtaining information from the person regarding his or her financial situation, investment experience and objectives, to reasonably determine based on that information that transactions in penny stocks are suitable for the person, and that the person has sufficient knowledge and experience in financial matters that the person or his or her independent advisor reasonably may be expected to be capable of evaluating the risks of transactions in penny stocks. In addition, the broker or dealer must deliver to the person a written statement setting forth the basis for the determination and advising in highlighted format that it is unlawful for the broker or dealer to effect a transaction in a penny stock unless the broker or dealer has received, prior to the transaction, a written agreement from the person. Further, the broker or dealer must receive a manually signed and dated written agreement from the person in order to effectuate any transactions is a penny stock.
2. Prior to the transaction, the broker or dealer must disclose to the customer the inside bid quotation for the penny stock and, if there is no inside bid quotation or inside offer quotation, he or she must disclose the offer price for the security transacted for a customer on a principal basis unless exempt from doing so under the rules
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3. Prior to the transaction, the broker or dealer must disclose the aggregate amount of compensation received or to be received by the broker or dealer in connection with the transaction, and the aggregate amount of cash compensation received or to be received by any associated person of the broker dealer, other than a person whose function in solely clerical or ministerial.
4. The broker or dealer who has effected sales of penny stock to a customer, unless exempted by the rules, is required to send to the customer a written statement containing the identity and number of shares or units of each such security and the estimated market value of the security. The imposition of these reporting and disclosure requirements on a broker or dealer make it unlawful for the broker or dealer to effect transactions in penny stocks on behalf of customers. Brokers or dealers may be discouraged from dealing in penny stocks, due to the additional time, responsibility involved, and, as a result, this may have a deleterious effect on the market for Kenergy's stock.
Unregistered Sales of Securities
In the year ending December 31, 2013, the Company issued the following unregistered securities pursuant to various exemptions from registration under the Securities Act of 1933, as amended:
The Company issued an aggregate of 101,033,200 shares of Class A common stock for repayment of convertible debenture and accrued interest in lieu of cash, valued at $10,103.
The Company issued an aggregate of 221,571,800 shares of Class A common stock for repayment of convertible debenture and accrued interest in lieu of cash, valued at $22,157.
The Company issued an aggregate of 160,000,000 shares of Class A common stock for repayment of convertible debenture and accrued interest in lieu of cash, valued at $16,000.
The Company has issued an aggregate of 43,161,290 shares of Class A common stock upon conversion of 6,690 shares of Convertible Preferred Shares with Southridge Partners pursuant to the terms of the Equity Purchase Agreement finalized on July 16, 2012.
The Company issued 2,200,000,000 shares of Class A common stock to Mr. Glynn as repayment of $88,000 of deferred compensation and accrued interest that Mr. Glynn earned in 2009, 2010 and 2011.
Item 5.
Item 5. SELECTED FINANCIAL DATA
The registrant is a smaller reporting company, pursuant to Rule 229.10(f)(1), and is not required to report this information. The financial statements of the issuer are attached.
ITEM 6.
ITEM 6. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Overview and Outlook
A comparison of the liquidity, capital resources and results of operation between the year ended December 31, 2012 and December 31, 2013 is unlikely to enhance a reader’s understanding of Kenergy’s financial condition, changes in financial conditions and results of operations due to the following factors:
· Kenergy made a transition from its efforts to sell solar related products in its retail store in 2012 to efforts to establish a media marketing business in 2013.
· Kenergy’s new CEO, Zoran Cvetojevic, has not had sufficient time since his appointment in 2013 to make a meaningful impact on Kenergy’s results from operations and financial condition.
Net Profit / (Loss)
For the year ended December, 31, 2013, Kenergy had a net profit of $2,673,346 as compared to a net loss of $9,953,841 for the year ended December 31, 2012. Kenergy’s accumulated deficit as of December 31, 2013 was $18,111,962. These conditions raise substantial doubt about our ability to continue as a going concern over the next twelve months.
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Revenue
Revenue for the year ended December 31, 2013 was $541,536 compared to $47,800 for the year ended December 31, 2012.
Selling, general and administrative expenses
Selling, general and administrative expenses for the year ended December 31, 2013 were $540,429, compared to $641,947 for the year ended December 31, 2012.
Liquidity and Capital Resources
While we have raised capital to meet our working capital and financing needs in the past, additional financing is required in order to meet our current and projected cash flow deficits from operations and development of alternative revenue sources. Our poor financial condition raises substantial doubt about our ability to continue as a going concern and we have incurred losses since inception and may incur future losses.
Critical Accounting Estimates and Policies
Stock Based Compensation
Shares of Kenergy’s common stock may be issued for services. These issuances are valued at the fair market value of the services provided and the number of shares issued is determined based upon what the price of the common stock is on the date of each respective transaction.
Estimates
The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Fair Value of Financial Instruments
The carrying amounts for Kenergy’s cash, accounts payable, accrued liabilities and current portion of long term debt approximate fair value due to the short-term maturity of these instruments.
Income Taxes
In February 1992, the Financial Accounting Standards Board (“FASB”) issued ASC Topic 740, “Accounting for Income Taxes.” ASC Topic 740 required a change from the deferred method of accounting for income taxes of Accounting Principles Board (“APB”) Opinion No. 11 to the asset and liability method of accounting for income taxes. Under the asset and liability method of ASC Topic 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC Topic 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Earnings (Loss) Per Share
In February 1997, the FASB issued ASC Topic 260, “Earnings per Share.” ASC Topic 260 simplifies the standards for computing earnings per share (“EPS”) and was effective for financial statements issued for periods ending after December 15, 1997, with earlier application not permitted. Upon adoption, all prior EPS data was restated.
Basic EPS is determined using net income divided by the weighted average shares outstanding during the period. Diluted EPS is computed by dividing net income by the weighted average shares outstanding, assuming all dilutive potential common shares were issued.
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Item 6A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Kenergy’s business activities contain elements of risk. Kenergy considers a principal type of market risk to be a valuation risk. All assets are valued at fair value as determined in good faith by or under the direction of the Board of Directors.
Item 7.
Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of Kenergy are attached as Exhibits to Item 15 and are hereby incorporated by reference.
Item 8.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Since inception, there have been no disagreements with our independent accountants.
Item 8A(T). CONTROLS AND PROCEDURES
Management’s Evaluation of Disclosure Controls and Procedures
Our management has evaluated, under the supervision and with the participation of our chief executive officer and chief financial officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“the Exchange Act”). Based on that evaluation, our chief executive officer and chief financial officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are ineffective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, and summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (2) accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
Our Principal Executive does not expect that our disclosure controls or internal controls will prevent all error and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and our principal executive and financial officer have determined that our disclosure controls and procedures are not effective at doing so, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Kenergy have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Furthermore, smaller reporting companies face additional limitations. Smaller reporting companies employ fewer individuals and find it difficult to properly segregate duties. Often, one or two individuals control every aspect of Kenergy's operation and are in a position to override any system of internal control. Additionally, smaller reporting companies tend to utilize general accounting software packages that lack a rigorous set of software controls.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. Our internal control system was designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2013. Based on our assessment we believe that, as of December 31, 2013, our internal control over financial reporting was ineffective based on those criteria.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of Kenergy’s annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness; yet important enough to merit attention by those responsible for oversight of the registrant’s financial reporting. We have identified the following material weakness:
We do not have an independent body to oversee our internal controls over financial reporting and lack segregation of duties due to the limited nature and resources of Kenergy.
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In light of these material weaknesses, we performed additional analysis and procedures in order to conclude that our financial statements included in this Year End Report were fairly stated in accordance with accounting principles generally accepted in the United States. Accordingly, we believe that despite our material weaknesses, our financial statements included in this report are fairly stated, in all material respects, in accordance with United States generally accepted accounting principles.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
The members of the Board of Directors of Kenergy serve until the next annual meeting of stockholders, or until their successors have been elected. The officers serve at the pleasure of the Board of Directors.
The current executive officers, key employees and directors of Kenergy are as follows:
ZORAN CVETOJEVIC - Mr. Zoran Cvetojevic, graduated at University of Electronic Engineering, Skopje, Macedonia, Yugoslavia. Mr. Cvetojevic also holds a degree in Master of Science in Electronic design (MSE) from the Cranfield Institute of Technology, England in 1989.
Mr. Cvetojevic has extensive experience as a manager and director focusing on business administration and strategy. He has held positions of officer and director of various companies, including publicly traded companies.
As of October 2010, Mr Cvetojevic has consistently been employed with a Communications Group and holds the position Marketing director. Mr. Cvetojevic has great ability to design, implement and facilitate the required annual marketing plan. In addition to this, Mr. Cvetojevic possesses great ability to develop, execute research, analysis, and monitoring of financial, technological and demographic factors. Mr. Cvetojevic understands the importance of undertaking and evaluation of customer research, market conditions and competitor data.
Mr. Cvetojevic has experience with new software implementation and is not afraid to test and implement the latest technologies available to provide corporations with the competitive advantage required to succeed.
Jelena Cvetojevic - Ms. Jelena Cvetojevic Graduated at University of Medicine in 1976 and after graduation Mrs. Cvetojevic worked in a hospital as a chief nurse.
Ms. Cvetojevic managed the nursing staff and developed her management skills. During her long work experience as a main coordinator and chief nurse, Ms. Cvetojevic expanded her interests into business management field.
In October 2010 Mrs Cvetojevic began her employment with a communications group and works as a main business coordinator of both call center and marketing team.
Ms. Cvetojevic is a great team leader with the ability to schedule employee trainings and daily assignments as they arise.
Ms. Cvetojevic is a highly motivated and ambitious individual able to give timely and accurate advice, guidance, support and training to team members and individuals.
Ms. Cvetojevic brings her professional attitude and an ability to be flexible and handle change to the management team of Kenergy Scientific, Inc.
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Code of Ethics
Kenergy plans to adopt a Code of Ethics and file it with the Securities and Exchange Commission.
Item 11.
Item 11. EXECUTIVE COMPENSATION
The following table provides information as to cash compensation of all officers of Kenergy, for each of Kenergy’s last two fiscal years.
SUMMARY COMPENSATION TABLE
Kenergy has not entered into employment contracts with its executive officers. There are no outstanding equity awards or options to officers issued or outstanding
During the fiscal year ended December 31, 2013, Kenergy issued no restricted stock.
The following table provides information concerning the compensation of the directors of Kenergy for the past fiscal year:
DIRECTOR COMPENSATION
There are no outstanding equity awards or options to directors issued or outstanding.
Corporate Governance
The Board of Directors is committed to maintaining strong corporate governance principles and practices. The Board periodically reviews evolving legal, regulatory, and best practice developments to determine those that will best serve the interests of our shareholders.
Meetings and Attendance
Our Board of Directors is required by our bylaws to hold regularly scheduled annual meetings. In addition to the annual meetings, it has the authority to call regularly scheduled meetings and special meetings by resolution. Our Board met periodically during the past fiscal year.
All incumbent directors attended 100% of the Board meetings during the last fiscal year.
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Nominations of Directors
There are no material changes to the procedures by which security holders may recommend nominees to the registrant’s board of directors.
Audit Committee
Kenergy does not have a standing audit committee, pursuant to section 3(a)(58)(A) of the Securities Exchange Act of 1934. The entire two member board of directors serves the function of the audit committee.
Item 12.
Item 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table sets forth information furnished to us with respect to the beneficial ownership of our common stock by (i) each executive officer, director and nominee, and by all directors and executive officers as a group, and (ii) each beneficial owner of more than five percent of our outstanding common stock, in each case as of December 31, 2012. Unless otherwise indicated, each of the persons listed has sole voting and dispositive power with respect to the shares shown as beneficially owned.
The following table presents certain information regarding beneficial ownership of Kenergy’s Common stock as of December 31, 2013, by (I) each person known by us to be the beneficial owner of more than 5% of the outstanding shares of Common stock, (ii) each director of Kenergy, (iii) each Named Executive Officer and (iv) all directors and executive officers as a group. Unless otherwise indicated, each person in the table has sole voting and investment power as to the shares shown.
Name Number of Shares Percentage Owned
Mina Mar Group, Inc.
Class A
3,200,000,000
61%
Mina Mar Group, Inc.
Class B
10,000
100%
The registrant is not aware of any person who owns of record, or is known to own beneficially, five percent or more of the outstanding securities of any class of the registrant, other than as set forth above.
Item 13.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
On June 19, 2013, the Company issued an aggregate of 2,200,000,000 shares of Class A common stock to Mr. Glynn as repayment of $88,000 of convertible debt and accrued interest. These shares contain a restrictive legend, which will limit Mr. Glynn’s ability to liquidate these into the open market.
On June 26, 2013, the Company issued a Promissory Note to Mr. Glynn for $180,000 representing earned and unpaid deferred compensation. This note matures on July 1, 2013 and upon default becomes convertible into Class A common stock at a conversion price of 50% of the lowest closing price of the last ten trading days prior to notice of conversion. As of September 30, 2013, the outstanding balance on the Promissory Note was $180,000 plus accrued interest of $0.
Item 14.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
In March 2011, Kenergy retained RBSM, LLP as our principal accountants to audit the financial statements for the fiscal year December 31, 2008 toDecember 31, 2012. However, RBSM, LLP completed 2008 Financials and the remaining audits were put on hold due to the inability to pay the auditors.
Audit Fees
The aggregate fees billed since inception and related services by the principal accountant that are reasonably related to the performance of the audit or review of the registrant’s financial statements. Fees for 2012 are $15,000.
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All Other Fees
No other fees were paid to the former accountant for any other services.
Item 15.
Item 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES
(a) The following documents are filed as part of this report:
Balance Sheet
Statement of Operations
Statement of Stockholders’ Equity
Statement of Cash Flows
Notes to Financial Statements
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KENERGY SCIENTIFIC, INC.
(FORMERLY KNOWN AS SPEECHSWITCH, INC.)
FINANCIAL STATEMENTS
DECEMBER 31, 2013 and 2012
KENERGY SCIENTIFIC INC.
FINANCIAL STATEMENTS
CONTENTS
Page
FINANCIAL STATEMENTS
Balance Sheets as of December 31, 2013 and 2012
Statements of Operations for the years ended December 31, 2013 and 2012
Statements of Changes in Stockholders' Deficit for the years ended
December 31, 2013 and 2012
Statements of Cash Flows for the years ended December 31, 2013 and 2012 to
Notes to Financial Statements to
EXPLANATORY NOTE
These Financial Statements are part of the Annual Report on Form 10-K for the fiscal year ended December 31, 2013 and do not contain audited financial statements audited by an independent registered public accounting firm for the fiscal years ended December 31, 2013 and 2012.
KENERGY SCIENTIFIC, INC.
Balance Sheets as of December 31
The accompanying notes are an integral part of these financial statements
KENERGY SCIENTIFIC, INC.
(Formerly known as SpeechSwitch, Inc.)
Statements of Operations
For the Years Ended December 31
The accompanying notes are an integral part of these financial statements.
KENERGY SCIENTIFIC, INC.
(Formerly known as SpeechSwitch, Inc.)
Statements of Changes in Stockholders’ Deficit
For the two years ended December 31, 2013
The accompanying notes are an integral part of these financial statements.
KENERGY SCIENTIFIC, INC.
(Formerly known as SpeechSwitch, Inc.)
Statements of Cash Flows
For the Years Ended December 31,
The accompanying notes are an integral part of these financial statements.
KENERGY SCIENTIFIC, INC.
(Formerly known as SpeechSwitch, Inc.)
Statements of Cash Flows
Supplemental Schedule of Non-Cash Financing Activities:
For the year ended December 31, 2013:
a) The Company issued an aggregate of 63,885,238 shares of Class A common stock for repayment of convertible debenture in lieu of cash, valued at $105,230. The difference in the market value and the reduction in debt of $25,600 was charged to beneficial interest in the amount of $79,630.
b) Concurrent with the issuance of the wrap around agreement to ATG, Inc. and the cancelation of the wrap around agreement with EPIC Worldwide, Inc., the Company reclassified $26,050 of accrued interest into convertible debt.
c) The Company issued an aggregate of 11,200,000 shares of Class A common stock for repayment of convertible debenture in lieu of cash, valued at $248,000. The difference in the market value and the reduction in debt of $5,600 was charged to beneficial interest in the amount of $242,400.
d) The Company issued an aggregate of 1,202,057,500 shares of Class A common stock to Mr. Glynn as repayment of $120,823 of deferred compensation that Mr. Glynn earned in 2009 and 2010. These shares contain a restrictive legend whichwill limit Mr. Glynn’s ability to liquidate these into the open market.
e) The Company issued an aggregate of 58,102,182 shares of Class A common stock for repayment of convertible debenture in lieu of cash, valued at $121,066. The difference in the market value and the reduction in debt of $45,000 was charged to beneficial interest in the amount of $76,066.
f) The Company issued 75,000 shares of Preferred Stock, $1.00 par value, to Southridge Partners II LP, pursuant to the terms of the Equity Purchase Agreement finalized on July 16, 2013.
g) The Company issued an aggregate of 132,365,250 shares of Class A common stock for repayment of convertible debenture in lieu of cash, valued at $254,464. The difference in the market value and the reduction in debt of $24,969 was charged to beneficial interest in the amount of $229,495.
h) The Company consented to the assignment of $76,600 due to Charles Basner to Southridge Partners II LP and Star City Capital, LLC and their affiliates. Amounts paid to Charles Basner for these assignments were reinvested in the Company and the Company issued replacement notes for the same amounts.
i) The Company consented to the assignment of one of the GlynnTech, Inc promissory notes from GlynnTech to Charles Basner in the amount of $50,000. All terms of the original note are unchanged.
Forensic accounting and records keeping indicates that all the above arrangements were primarily with friends and relatives of previous management. The debts were substantially paid off. When the new management took over and these “creditors” came forward none of them were able to substantiate or prove their claims either through cancelled cheques or wires. Moreover, most had conversion rights at 0000.1 below the Company par value of 0.0001 thus making the transaction void.
For the year ended December 31, 2012:
a) The Company issued 577,597 (462,077,400 pre-reverse split) shares of Class A common stock for repayment of convertible debenture in lieu of cash, valued at $143,244. The difference in the market value and the reduction in debt of $46,208 was charged to non-cash interest in the amount of $97,036.
b) The Company acquired equipment of $12,858 by installment purchase of which $4,424 are still unpaid and shown under accounts payable and accrued expenses.
The accompanying notes are an integral part of these financial statements.
KENERGY SCIENTIFIC, INC.
(Formerly known as SpeechSwitch, Inc.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2013 and 2012
NOTE 1 - BACKGROUND
In September 2004, the Board of Directors of iVoice, Inc., the former parent of the Company, resolved to pursue the separation of iVoice software business into three publicly owned companies. SpeechSwitch, Inc. (“SpeechSwitch” or “Company”) was incorporated under the laws of New Jersey on November 10, 2004 as a wholly owned subsidiary of iVoice, Inc. ("iVoice"). The Company received by assignment all of the interests in and rights and title to, and assumed all of the obligations of, all of the agreements, contracts, understandings and other instruments of iVoice Technology 3, Inc., a Nevada corporation and affiliate of the Company.
On August 4, 2005, the Company received notice from the SEC that the registration statement to effectuate the spin-off of the SpeechSwitch from iVoice was declared effective and the Company immediately embarked on the process to spin off the SpeechSwitch from iVoice.
On August 5, 2005, the spin-off transaction was accomplished, by the assignment, contribution and conveyance of certain intellectual property, representing the software codes of speech recognition, and certain accrued liabilities and related party debt into SpeechSwitch (the "Spin-off"). The Class A Common Stock shares of the Company were distributed to iVoice shareholders in the form of a taxable special dividend distribution.
In June 2009 Kenneth P. Glynn acquired debt owed by SpeechSwitch, Inc. to third party creditors and the company moved its headquarters from Matawan, NJ to Flemington, NJ.
On January 19, 2011, the Board of Directors and shareholders, through written consent representing a majority of the total voting Class A and Class B common stock, voted to change the name of the Company to Kenergy Scientific, Inc. (“Kenergy” or the “Company”). On February 3, 2011, the Company filed an Amendment to the Certificate of Incorporation with the State of New Jersey to officially change the name of the Company. On February 25, 2011, the Company’s new trading symbol was changed from SSWC to KNSC.
On May 5, 2011, the Company amended its Certificate of Incorporation to reflect the reverse stock split authorized by the Board of Directors and adopted by the shareholders on January 19, 2012. The effect of this amendment was to reduce the authorized shares from 20,000,000,000 to 25,000,000. All references in the financial statements and the notes to the financial statements and number of shares have been retroactively restated to reflect the 1:800 reverse stock split on Class A common shares.
On February 4, 2012, the Company announced that they would be closing their GreenSmart store and “would seek a new business entity acquisition to change its direction and its financial status”. On March 1, 2013, the Company announced that they had closed the GreenSmart store and the goods and contents were sold out at a 60% discount to loyal customers and debtors for a reduction of some debts.
On June 26, 2012, Kenneth Glynn executed a non-binding Letter of Intent with Mina Mar Group Inc (“MMG”) that sets forth the general terms and conditions of an agreement for MMG to purchase shares of stock in Kenergy Scientific, Inc. to acquire control of KNSC for the purpose of operating two separate subsidiaries. One subsidiary is an EU and (Seychelles in transition) based financial services type organization Pan Tuffa Holdings which operates and maintains a substantial size of operation of Internet based properties such as (SPOTFX) www.spotfx.com, (OPTIONS) www.optionese.com and (PRECIOUS METALS DEALER) www.trustvault.com. The second subsidiary is a Canadian based advertising media company named Sparx Business Media Inc. The media company represents or acts as a sales agent with other advertising aggregators for approximately 140 nationwide radio stations in Canada and markets such as Toronto Ottawa and Vancouver.
On July 2 2013, the Company announced that it secured certain complex financing via the sale of preferred shares. The new majority preferred shareholder, and stakeholder Mina Mar Group Inc, a Canadian based M&A and IR firm has provided significant support in terms of both personnel and resources.
On July 26, 2013, the Company terminated merger discussions with PanTuffa Group and accepted the resignation of Charles Zein as President-Elect of Kenergy.
On August 8, 2013, the Company secured a $1 million dollar revolving line of credit at 5% per annual interest rate with its preferred shareholder Mina Mar Group. The funds are used to fund daily operations, develop the Sparx Media business and settle creditor debts. The balance of the amount drawn as on 30 September 2013 was $229,727 and the interest accrued is $3,750.
On August 14, 2013, the Company closed the merger with Sparx Business Media Inc through issuance of 3,387,500 shares of Kenergy.
On September 13, 2013, the Company terminated the employment contract with Manuel Canales and accepted the resignation of Andrea Zecevic and Hugo Rubio as Board Members. In addition Zoran Cvetojevic was appointed Interim CEO.
NOTE 2 - BUSINESS OPERATIONS
In June 2009, the Company entered into fields of development of various products relating to solar power generating systems; portable solar powered products, such as cell phone and PDA rechargers that are solar rechargeable; solar rechargeable lantern/flashlight devices; solar backpack rechargers; solar power audio devices, such as radios; wind power generating systems; and, creative products based on proprietary positions, especially in the area of healthcare.
From August 14, 2013, the Company commenced operations of a wholly owned media company under the brand name Sparx Business Media Inc. and earned licensing revenue from Sparx.
OUR STRATEGY FOR GROWTH MAY INCLUDE JOINT VENTURES, STRATEGIC ALLIANCES AND MERGERS AND ACQUISITIONS, WHICH COULD BE DIFFICULT TO MANAGE.
The successful execution of the growth strategy may depend on many factors, including identifying suitable companies, negotiating acceptable terms, successfully consummating the corporate relationships and obtaining the required financing on acceptable terms. The Company may be exposed to risks relating to incorrect assessment of new businesses and technologies. The Company could face difficulties and unexpected costs during and after the establishment of corporate relationships.
Acquisitions may be foreign acquisitions which would add additional risks including political, regulatory and economic risks related to specific countries as well as currency risks.
The documented difficulties with the transfer agent coupled with the hostile creditors are making daily on- going operations next to impossible for the new management. The Company was in talks with bankruptcy trustees and was considering seeking relief under Chapter 11. Subsequently, as of December 01, 2013, the Company has resolved its differences with the transfer agent and is back to normal functionality.
Products and Services
The following description of the Company’s business is intended to provide an understanding of the Company product and the direction of the Company’s initial marketing strategy. As the new product development is in its early development stages, any focus described in the following pages may change and different initiatives may be pursued, at the discretion of Management. The Company areas of development and recent activities include:
(a) On June 18, 2009, the Company acquired rights and ownership from GlynnTech, Inc. of technology and pending patent applications relating to cancer treatment drug delivery systems, and the technology transfer into the Company included a prototype, numerous variations on designs, CAD drawings, pending patent applications, risk analysis studies, development history and presentation documents. The sale was “at market value” of GlynnTech, Inc. in the amount of $425,000.00. The business objective was to transfer a potentially significant profit opportunity from GlynnTech, Inc. to Kenergy Scientific, Inc. Three presentations had previously been made to pharmaceutical industry candidates and feedback indicated a high level interest in potential purchase of this technology following FDA approval of this product.
(b) In solar power energy production systems, the Company is reviewing numerous models of solar photovoltaic panels and converters, as well as unique aftermarket opportunities. The Company intends to partner with installers and market home, office and commercial solar panels through various media.
(c) In the wind power energy production systems, ten companies will review various micro-turbine products to license and resell.
On purchase of controlling shares by Mina Mar Group, the Company changed its business focus as a marketing media company through its subsidiary Sparx Business Media Inc. The company manages social media networks and offers various customer service solutions for their corporate clients through a company owned call centre. The media group also acts as a sales agent for a Delaware USA real estate timeshare and fractional ownership company.
Product Development
The Company currently have significant long term plans to engage in future research and development, to create valuable intellectual property rights and/or to launch new products. The Company will acquire third party patent rights, develop their own patent rights and evolve both new product and intellectual property transfer (sale or license) opportunities.
Sales and Marketing
In November 2011, the Company opened its first company-owned GreenSmart retail store. On March 1, 2013, the Company announced that they had closed the GreenSmart store and the goods and contents were sold out at a 60% discount to loyal customers and debtors for a reduction of some debts. There are currently no plans to develop new retail stores in the future. The Company closed the store in June 2013 and disposed of the small inventory items.
Kenergy Scientific’s Management
On June 30, 2013, Kenneth Glynn resigned from his positions at Kenergy Scientific, Inc., including President and Chairman of the Board, Ken Moser has simultaneously resigned from the Board of Directors.
The following individuals were elected to the Board of Directors effective June 30, 2013
· Zoran Cvetojevic Chairman of the Board and CEO
· Jelena Cvetojevic
· Andrea Zecevic
· Hugo Rubio
Resignations:
Charles Zein President (Subsequently resigned on July 26, 2013)
Manuel Canales CEO / COO (Subsequently terminated on September 13, 2013)
Teresa Rubio Secretary and Treasurer (Subsequently resigned on July 4, 2013)
· Andrea Zecevic, Director (Subsequently resigned on July, 4 2013)
· Hugo Rubio, Director (Subsequently resigned on July 4, 2013)
NOTE 3 - GOING CONCERN
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. The Company has relied on GlynnTech, Inc. for administrative, management, research and other services.
As of December 31, 2013, the Company had a negative cash flow from operating activities, negative working capital and limited availability to raise new capital. These matters raise substantial doubt about the Company's ability to continue as a going concern. Therefore, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheets is dependent upon continued operations of the Company, which in turn, is dependent upon the Company's ability to raise capital and/or generate positive cash flow from operations.
The new management that acquired controlling shares of the Company recently, has provided financing to the Company through revolving line of credit from one of its group company and has also recorded sales showing some positive signs of generating cash flow from operations.
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Presentation
The accompanying unaudited financial statements included herein have been prepared, without audit, in conformity with accounting principles generally accepted in the United States of America for annual financial statements and with Form 10-K and article 8 of the Regulation S-X of the United States Securities and Exchange Commission ("SEC").
b) Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
c) Revenue Recognition
The Company used to derive its revenues from the sales of portable solar powered products, solar rechargeable lantern/flashlight devices, solar backpack rechargers and clothing made from recycled products. These products were sold directly to consumers through website or by direct sales. Payment was made for the products prior to delivery.
The Company has changed its business activity after purchase of controlling shares by Mina Mar Group. The Company changed its business focus as a marketing media company through its subsidiary Sparx Business Media Inc. The company manages social media networks and offers various customer service solutions for their corporate clients through a company owned call centre. The media group also acts as a sales agent for a Delaware USA real estate timeshare and fractional ownership company.
d) Product Warranties
The Company warranted its solar powered products from defects for 30 days from delivery to the customer. The Company estimated its warranty costs based on historical warranty claims experience in estimating potential warranty claims. Due to no sales during the quarter, management has not included an accrual for potential warranty claims and do not expect to incur any warranty costs in future. The Company is no longer in the business of power energy production systems or related products and therefore now has no product warranty and does not need to accrue for any warranty claim.
e) Research and development costs
Research and development costs are charged to expense as incurred.
f) Advertising Costs
Advertising costs are expensed as incurred and included in selling expenses. For the years ended December 31, 2013 and 2012, advertising expense amounted to $0 and $2,110, respectively.
g) Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. There were no cash equivalents at December 31, 2013 and 2012.
h) Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period enacted. A valuation allowance is provided when it is more likely than not that a portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income and the reversal of deferred tax liabilities during the period in which related temporary differences become deductible. The benefit of tax positions taken or expected to be taken in the Company’s income tax returns are recognized in the consolidated financial statements if such positions are more likely than not of being sustained.
In accordance with ASC 740-10, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting this standard, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.
i) Organization Costs
Organization costs consist primarily of professional and filing fees relating to the formation of the Company. These costs have been expensed.
j) Intangible Assets
Development, registration and maintenance costs associated with the filing and registration of patents are prepaid and amortized over the remaining life of the patent, not to exceed 20 years.
As defined in ASC 360-10-35, “Impairment or Disposal of Long-Lived Assets”, long-lived assets and certain identifiable intangibles to be held and used or disposed of by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company has adopted this statement and determined that as under the new management the Company is no longer in the business of power energy production systems or related products so the related intangible assets have been written off during the year.
k) Long lived assets
The Company follows Accounting Standards Codification subtopic 360-10, Property, Plant and Equipment (“ASC 360-10”). ASC 360-10 requires those long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows. On indication of impairment in value, the carrying value of intangible assets have been adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. ASC 360-10 also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell.
l) Income (loss) per Share
ASC 260-10, “Earnings Per Share” requires presentation of basic earnings per share (“basic EPS”) and diluted earnings per share (“diluted EPS”). The Company’s basic income (loss) per common share is based on net income or loss for the relevant period, divided by the weighted average number of common shares outstanding during the period. Diluted income or loss per common share is based on net income or loss, divided by the weighted average number of common shares outstanding during the year, including common share equivalents, such as outstanding stock options. The computation of diluted loss per share also does not assume conversion, exercise or contingent exercise of securities due to the beneficial conversion of related party accounts as these shares that would have an anti-dilutive effect.
The computation of income (loss) per share is as follows:
Forensic accounting and records keeping indicates that these convertible debentures were issued primarily to friends and relatives of previous management. The debts were substantially paid off. When the new management took over and these “creditors” came forward, none of them were able to substantiate or prove their claims either through cancelled cheques or wires. Moreover most had conversion rights at 0000.1 below the Company par value of 0.0001 thus making the transaction void.
m) Concentrations of Credit Risk, Significant Customers and Supplier Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of trade accounts receivable and cash. For the years ended December 31, 2013 and 2012 no customer accounted for more than 10% of the revenues or accounts receivable balance. It is the Company policy to collect an advance from the customer prior to delivery of the product or service.
The Company maintains cash and cash equivalent balances at a financial institution that is insured by the Federal Deposit Insurance Corporation up to $250,000. There were no uninsured cash balances at December 31, 2013 and 2012.
The Company believes it has no significant risk related to its concentration within its cash or accounts receivable accounts.
n) Derivative Liabilities
The Company accounts for its embedded conversion features in its convertible debentures in accordance ASC 815-10, "Derivatives and Hedging", which requires a periodic valuation of their fair value and a corresponding recognition of liabilities associated with such derivatives, and ASC 815-40, “Contracts in Entity’s Own Equity”. The recognition of derivative liabilities related to the issuance of convertible debt is applied first to the proceeds of such issuance as a debt discount, at the date of issuance, and the excess of derivative liabilities over the proceeds is recognized as “Loss on Valuation of Derivative” in other expense in the accompanying financial statements. Any subsequent increase or decrease in the fair value of the derivative liabilities is recognized as “Other expense” or “Other income”, respectively.
o) Fair Value of Financial Instruments
Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) requires disclosure of the fair value of certain financial instruments. The carrying value of cash and cash equivalents, accounts payable and accrued liabilities, and short-term borrowings, as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments. All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise only available information pertinent to fair value has been disclosed.
The company follows Accounting Standards Codification subtopic 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”) and Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”), which permits entities to choose to measure many financial instruments and certain other items at fair value.
p) Reclassification
Certain reclassifications have been made to confirm the prior period data to the current presentation. These reclassifications had no effect on reported net loss.
q) Recent Accounting Pronouncements
There were various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's financial position, results of operations or cash flows.
NOTE 5 - INTANGIBLE ASSETS
At December 31, 2013 and 2012, intangible assets consist of the following:
As defined in ASC 360-10-35, “Impairment or Disposal of Long-Lived Assets”, long-lived assets and certain identifiable intangibles to be held and used or disposed of by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company has adopted this statement and determined that as the new management has no intention to continue the business relating to power production systems and its related products, the intangible assets no longer has any value to the Company. The total book value of assets has been written off and charged to the statement of operations in the current year.
NOTE 6: ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued expenses at December 31, 2013 and 2012 consisted of the following:
NOTE 7 - RELATED PARTY TRANSACTIONS
On June 1, 2009 and June 2, 2009, the Company issued two (2) one-year promissory notes in the aggregate of $37,000 to GlynnTech, Inc, for GlynnTech to assume a like amount of current obligations that the Company was unable to pay from current operations. The debt was due on or before the 1 st anniversary and was interest free.
On June 18, 2009, the Company acquired the patent rights and technology relating to cancer drug delivery systems developed by GlynnTech, Inc. by the issuance of three (3) $100,000 one-year promissory notes. The promissory notes were due on or before the 1 st anniversary of the notes and were interest free.
On December 30, 2009, the Company completed the transfer of the patent rights and technology relating to cancer drug delivery systems developed by GlynnTech, Inc. by the issuance of three (3) one-year promissory notes for the aggregate amount of $125,000. The promissory notes are due on or before the 1 st anniversary of the notes and are interest free.
On June 8, 2010 and June 22, 2010, the Company executed two wrap-around agreements, in an aggregate of $337,000, to assign amounts due under these one-year promissory notes to EPIC Worldwide, Inc. The Company was in default on the original notes and this allowed the Company to extend the payment terms for an additional year while the Company attained alternate financing.
On July 1, 2012, the Company consented to the assignment of one of the GlynnTech, Inc promissory notes from GlynnTech to Charles Basner in the amount of $50,000. All terms of the original note are unchanged.
The aggregate value of the GlynnTech promissory notes are $75,000 at December 31, 2012. For the year ended December 31, 2012, the Company calculated $6,267 as a imputed interest at a rate of 6.25% which was charged to interest expenses and credited to Additional paid-in capital.
On June 17, 2009, Kenneth P. Glynn, President and CEO of the Company, acquired debt owed by the Company to third party creditors as follows:
(1) Promissory Note due to Jerome Mahoney dated August 5, 2005 having a balance on June 17, 2009 of $71,756 and accrued interest of $98,379;
(2) Deferred Compensation due to Jerome Mahoney as of June 17, 2009 equal to $319,910;
(3) Convertible promissory note to iVoice, Inc. dated March 5, 2008 having a balance on June 17, 2009, $79,936 and accrued interest of $4,344; and
(4) Loan from iVoice Technology, Inc. to the Company in the amount of $3,600.
The outstanding promissory note, referred to above, will bear interest at the rate of Prime plus 1.0% per annum on the unpaid balance until paid. Under the terms of the Promissory Note, at the option of the Promissory Note holder, principal and interest can be converted into either (i) one share of Class B Common Stock, par value $.01 per share, for each dollar owed, (ii) the number of shares of Class A Common Stock calculated by dividing (x) the sum of the principal and interest that the Note holder has requested to have prepaid by (y) eighty percent (80%) of the lowest issue price of Class A Common Stock since the first advance of funds under this Note, or (iii) payment of the principal of this Promissory Note, before any repayment of interest. The Board of Directors of the Company maintains control over the issuance of shares and may decline the request for conversion of the repayment into shares of the Company.
The amount of deferred compensation, referred to above, was added to the outstanding promissory note for calculations of accrued interest and is payable in the form of cash, debt, or shares of our Class B Common Stock.
On May 27, 2010, the Company issued an aggregate of 7,057,333 (5,645,862,500 pre-reverse stock split) shares of Class A common stock and 10,000 shares of Class B common stock to Mr. Glynn in settlement of $509,425 (items #1 and #2 above) of promissory notes and accrued interest due to Mr. Glynn. These shares contain a restrictive legend whichwill limit Mr. Glynn from liquidating these into the open market.
During the year ended December 31, 2012, the Company issued an aggregate of 1,202,057,500 shares of Class A common stock to Mr. Glynn as repayment of $120,823 of deferred compensation and accrued interest that Mr. Glynn earned in 2009 and 2010. These shares contain a restrictive legend which will limit Mr. Glynn’s ability to liquidate these into the open market.
On July 1, 2012, the Company extended the employment agreement with Mr. Glynn for an additional one (1) year period for Mr. Glynn to serve as President and CEO of the Company at an annual base salary of $144,000. During 2012, Mr. Glynn drew only a portion of his annual salary and the balance is being deferred. As of December 31, 2012, the total amount due to Mr. Glynn for unpaid compensation is $171,677.
During the three years ended December 31, 2012, GlynnTech, Inc and Mr. Glynn have paid some bills on behalf of the Company. As of December 31, 2012, the aggregate amount due for these payments is $28,797.
On July 1, 2012, the Company extended the Administrative Services Agreement with GlynnTech, Inc to provide back office administrative support to the Company. The administrative services agreement was for an initial term of one year and was extended for an additional one-year periods at the Company’s request. The amended fees are $7,500 per month but may be reduced in scope or eliminated at any time upon 90 days’ prior written notice by the Company to GlynnTech.
On June 26, 2013, the Company issued a Promissory Note to Mr. Glynn for $180,000 representing earned and unpaid deferred compensation.
On June 30, 2013, Mr. Glynn assigned the remaining balance of his notes and deferred compensation to Mina Mar Group pursuant to the terms of the LOI between himself and Mina Mar Group executed on May 31, 2013. The outstanding balance at December 31, 2013 was $0.
NOTE 8 - CONVERTIBLE PROMISSORY NOTE AND DERIVATIVE LIABILITY (RELATED PARTIES)
The Company had entered into a temporary administrative services agreement with iVoice in 2004. The administrative services agreement continued on a month-to-month basis until December 31, 2008 at which point the agreements were suspended by mutual consent of the parties.
In March 2008, the administrative services agreement was amended to provide that accrued and unpaid administrative services shall be segregated and converted into a Convertible Promissory Note. The principal and interest shall be due and payable as follows: (a) interest shall accrue monthly on the unpaid balance and shall be paid annually, and (b) principal shall be payable on demand.
On March 5, 2008, the Company converted its outstanding accounts payable to iVoice, Inc. for unpaid administrative services in the amount of $50,652 into a convertible promissory note at the rate of prime plus 1 percent per annum. Additional amounts of $42,209 were added to this note based on any unpaid administrative services, and will accrue interest at the above specified rate from date of advance until paid.
On June 17, 2009, Kenneth P. Glynn (a related party) acquired this debt from iVoice, Inc. The Note holder may elect payment of the principal and/or interest, at the its sole discretion, owed pursuant to this Note by requiring the Company to issue either: (i) one Class B common stock share of the Company par value $.01 per share, for each dollar owed, (ii) the number of Class A common stock shares of the Company calculated by dividing (x) the sum of the principal and interest that the Note holder has decided to have paid by (y) eighty percent (80%) of the lowest issue price of Class A common stock since the first advance of funds under this Note, or (iii), payment of the principal of this Note, before any repayment of interest.
On June 19, 2013, the Company issued an aggregate of 2,200,000,000 shares of Class A common stock to Mr. Glynn as repayment of $88,000 of convertible debt and accrued interest. These shares contain a restrictive legend which will limit Mr. Glynn’s ability to liquidate these into the open market.
On June 26, 2013, the Company issued a Promissory Note to Mr. Glynn for $180,000 representing earned and unpaid deferred compensation. This note matures on July 1, 2013 and upon default becomes convertible into Class A common stock at a conversion price of 50% of the lowest closing price of the last ten trading days prior to notice of conversion. As of September 30, 2013, the outstanding balance on the Promissory Note was $180,000 plus accrued interest of $0.
Forensic accounting and records keeping indicates that these were primarily friends and relatives of previous management. The debts were substantially paid off. When the new management took over and these “creditors” came forward none of them were able to substantiate or prove their claims either through cancelled cheques or wires. Moreover most had conversion rights at 0000.1 below the Company par value of 0.0001 thus making the transaction void.
NOTE 9 - CONVERTIBLE DEBENTURE AND DERIVATIVE LIABILITY
On March 30, 2007, the Company issued a Secured Convertible Debenture (the "Debenture") to YA Global Investments (f/k/a/ Cornell Capital Partners) (“YA Global”) for the sum of $1,000,000 in exchange for a previously issued notes payable for the same amount. The Debenture has a term of three years, and pays interest at the rate of 5% per annum. YA Global has the right to convert a portion or the entire outstanding principal into the Company's Class A Common Stock at a Conversion Price equal to eighty percent (80%) of the lowest closing Bid Price of the Common Stock during the five (5) trading days immediately preceding the Conversion Date. YA Global may not convert the Debenture into shares of Class A Common Stock if such conversion would result in YA Global beneficially owning in excess of 4.99% of the then issued and outstanding shares of Class A Common Stock. The Conversion Price and number of shares of Class A Common Stock issuable upon conversion of the Debenture are subject to certain exceptions and adjustment for stock splits and combinations and other dilutive events. Subject to the terms and conditions of the Debenture, the Company has the right to redeem ("Optional Redemption") a portion or all amounts outstanding under this Debenture prior to the Maturity Date at any time provided that as of the date of the Holder's receipt of a Redemption Notice (i) the Closing Bid Price of the of the Common Stock, as reported by Bloomberg, LP, is less than the Conversion Price and (ii) no Event of Default has occurred. The Company shall pay an amount equal to the principal amount being redeemed plus a redemption premium ("Redemption Premium") equal to twenty percent (20%) of the principal amount being redeemed, and accrued interest, (collectively referred to as the "Redemption Amount"). During the time that any portion of this Debenture is outstanding, if any Event of Default has occurred, the full principal amount of this Debenture, together with interest and other amounts owing in respect thereof, to the date of acceleration shall become at the Holder's election, immediately due and payable in cash, provided however, the Holder may request (but shall have no obligation to request) payment of such amounts in Common stock of the Company. Furthermore, on addition to any other remedies, the Holder shall have the right (but not the obligation) to convert this Debenture at any time after (x) an Event of Default or (y) the Maturity Date at the Conversion Price then in-effect. The debenture is secured by substantially all of the assets of the Company.
On July 26, 2010, the convertible debenture with YA Global Investments, LP was amended and restated in order to replace the existing debenture with five (5) debentures of $208,707.74 each. The term of the debentures were amended to extend the due date until July 29, 2011. The amendments had the effect of reclassifying $156,199 of non-interest bearing accrued interest into the secured convertible debentures.
During the year ended December 31, 2010, YA Global Investments, LP assigned the debentures that it held to E-Lionheart Associates, LLC (“E-Lionheart”) with an aggregate value of $1,043,539. This was done in conjunction with the execution of a Securities Purchase Agreement with E-Lionheart whereby E-Lionheart will purchase from the Company up to $500,000 of convertible debentures which will provide new financing for the Company. The new convertible debentures are due on August 9, 2011 and have conversion rights essentially the same as YA Global.
During the year ended December 31, 2011, the Company issued an additional 577,597 (462,077,400 pre-reverse split) shares of Class A common stock to E-Lionheart for repayment valued at $143,244. The difference in the market value and the reduction in debt of $46,208 was charged to beneficial interest in the amount of $97,036.
On July 29, 2011 and August 9, 2011, the Company had defaulted on the terms of the E-Lionheart Convertible Debentures and as such, the full principal amount of these Debentures, together with interest and other amounts owing in respect thereof, shall become at the Holder's election, immediately due and payable in cash, provided however, the Holder may request (but shall have no obligation to request) payment of such amounts in Common stock of the Company.
As of September 30, 2013, the outstanding balance on the E-Lionheart Convertible Debentures was $626,123. During the calendar year 2011, the Company notified E-Lionheart that the Company was disputing the balances due upon this debenture due to miscalculations of the effective conversion rates used by E-Lionheart and as of the date of this filing, the dispute has not been settled.
In accordance with ASC 815, "Derivatives and Hedging", the Company determined that the conversion feature of the Debenture met the criteria of an embedded derivative, and therefore the conversion feature of this Debenture needed to be bifurcated and accounted for as a derivative. The fair value of the embedded conversion was estimated at the date of issuance using the Black-Scholes model with the following assumptions: risk free interest rate: 5.6%; expected dividend yield: 0%: expected life: 3 years; and volatility: 165.62%. The accounting guidance instructs that the conversion options are a derivative liability. As such, in March 2007 the Company recorded the conversion options as a liability, recorded a debt discount of $1,000,000, and charged Other Expense - Loss on Valuation of Derivative for $124,479, resulting primarily from calculation of the conversion price. For the six months ended June 30, 2013, the Company recorded a Gain on Valuation of Derivative in the amount of $1,154,814. For the year ended December 31, 2012, the Company recorded a Loss on Valuation of Derivative in the amount of $613,148. The Company has not done valuation of derivative in 2013 as these transactions have become void, see below.
On August 9, 2010, the Company entered into a securities purchase agreement with E-Lionheart to purchase up to $500,000 of convertible debentures from the Company. Amounts due under this debenture are due on or before August 9, 2011 and pays interest at the rate of 5% per annum. E-Lionheart has the right to convert a portion or the entire outstanding principal into the Company's Class A Common Stock at a Conversion Price equal to eighty percent (90%) of the lowest closing Bid Price of the Common Stock during the five (5) trading days immediately preceding the Conversion Date. E-Lionheart may not convert the Debenture into shares of Class A Common Stock if such conversion would result in YA Global beneficially owning in excess of 4.99% of the then issued and outstanding shares of Class A Common Stock.
On August 9, 2011, the Company had defaulted on the terms of this Debenture and as such, the full principal amount of this Debentures, together with interest and other amounts owing in respect thereof, shall become at the Holder's election, immediately due and payable in cash, provided however, the Holder may request (but shall have no obligation to request) payment of such amounts in Common stock of the Company.
In accordance with ASC 815, "Derivatives and Hedging", the Company determined that the conversion feature of the Debenture met the criteria of an embedded derivative, and therefore the conversion feature of this Debenture needed to be bifurcated and accounted for as a derivative. The fair value of the embedded conversion was estimated at the date of issuance using the Black-Scholes model with the following assumptions: risk free interest rate: 2.25%; expected dividend yield: 0%: expected life: 1 years; and volatility: 301.66% to 308.06%. The accounting guidance instructs that the conversion options are a derivative liability. As such, on the issue dates, the Company recorded the conversion options as a liability and recorded a debt discount of $143,408. For the six months ended June 30, 2013, the Company recorded a Gain on Valuation of Derivative in the amount of $816,899 on the fluctuation in the current market prices. For the year ended December 31, 2012, the Company recorded a Loss on Valuation of Derivative in the amount of $450,598 on the fluctuation in the current market prices. The Company has not done valuation of derivative in 2013 as these transactions have become void, see below.
On August 26, 2011 and November 22, 2011, the Company issued two convertible promissory notes, in an aggregate of $65,000, to Asher Enterprises, Inc. (“Asher”). Amounts due under these notes are due on or before May 30, 2012 and August 28, 2012, respectively, and pays interest at the rate of 8% per annum. Asher has the right to convert a portion or the entire outstanding principal into the Company's Class A Common Stock at a Conversion Price equal to fifty five percent (55%) of the Average of the lowest three (3) Trading Prices of the Common Stock during the ten (10) Trading Day period immediately preceding the Conversion Date. Asher may not convert the note into shares of Class A Common Stock if such conversion would result in Asher beneficially owning in excess of 4.99% of the then issued and outstanding shares of Class A Common Stock.
On March 13, 2012, the Company amended the terms of the August 26, 2011 note to change the Variable Conversion Price to equal thirty five (35%) multiplied by the average of the lowest two Trading Prices of the Common Stock during the thirty (30) Trading Day period immediately preceding the Conversion Date.
During the year ended December 31, 2012 the Company issued an aggregate of 63,885,238 shares of Class A common stock to Asher for repayment of debt valued at $105,230. The difference in the market value and the reduction in debt of $25,600 was charged to beneficial interest in the amount of $79,630. During the year ended December 31, 2013 the Company issued an additional 363,852,814 shares of Class A common stock to Asher for repayment of debt valued at $113,498. The difference in the market value and the reduction in debt and accrued interest of $30,200 was charged to beneficial interest in the amount of $83,298. However, these transactions have become void due to which these liabilities have been written off in current financial statements.
On June 8, 2010 and June 22, 2010, the Company executed two wrap-around agreements, in an aggregate of $337,000, to assign amounts due under various Promissory Notes due to GlynnTech, Inc to EPIC Worldwide, Inc. (the “Investor”). The wrap-around agreements also modified the original terms to extend the due dates by one year, to include provisions to allow the Investor to convert the amounts due into common stock at a 50% discount of the average three deep bid on the day of conversion and to increase the interest rate to 15% after a 60 day interest free period.
On June 22, 2011, the Company had defaulted on the terms of the 2nd wrap-around agreements and as such, the default interest rate was increased retroactively to 24.99% on the remaining balance of the debt.
On March 6, 2012, the Company consented to the cancellation of the wrap around agreement with EPIC Worldwide and the reassignment of a new wrap around agreement with ATG, Inc. for $50,000 plus accrued interest of $26,050. Concurrent with the cancellation of the wrap around agreement, the Company also recorded a Gain on Valuation of Derivative in the amount of $154,201 on the retirement of the derivative liability.
On March 6, 2012, the Company consented to the reassignment of the outstanding balance of the EPIC Worldwide wrap around agreements to ATG, Inc. (“ATG”). The outstanding balance of principal and accrued interest was $76,050. ATG subsequently entered into an Assignment and Assumption Agreement with UAIM Corporation (“UAIM”) to assign $10,000 of these funds from ATG to UAIM. Amounts due under these agreements are due on or before March 6, 2013 and pays interest at the rate of 15% per annum. ATG and UAIM have the right to convert a portion or the entire outstanding principal into the Company's Class A Common Stock at a Conversion Price equal to $0.0005 per share. ATG and UAIM may not convert these agreements into shares of Class A Common Stock if such conversion would result in ATG or UAIM beneficially owning in excess of 4.99% of the then issued and outstanding shares of Class A Common Stock.
During the year ended December 31, 2012, the Company issued an aggregate of 11,200,000 shares of Class A common stock for repayment of $5,600 of convertible debenture in lieu of cash pursuant to the terms of the wrap around agreement.
In accordance with ASC 815, "Derivatives and Hedging", the Company determined that the conversion feature of the Debenture met the criteria of an embedded derivative, and therefore the conversion feature of this Debenture needed to be bifurcated and accounted for as a derivative. The fair value of the embedded conversion was estimated at the date of issuance using the Black-Scholes model with the following assumptions: risk free interest rate: 2.25%; expected dividend yield: 0%: expected life: 1.00 years; and volatility: 295.14. The accounting guidance instructs that the conversion options are a derivative liability. As such, on the issue dates, the Company recorded the conversion options as a liability, recorded a debt discount of $76,050, and charged Other Expense - Loss on Valuation of Derivative for $2,925,649. For the six months ended June 30, 2013, the Company recorded a Gain on Valuation of Derivative in the amount of $43,396 on the fluctuation in the current market prices. For the year ended December 31, 2012, the Company recorded a Gain on Valuation of Derivative in the amount of $2,954,881 on the fluctuation in the current market prices.
On February 16, 2012, March 14, 2012 and November 27, 2012, the Company issued an additional three (3) convertible promissory notes, in an aggregate of $60,000, to Asher Enterprises, Inc. (“Asher”). Amounts due under these notes are due on or before November 21, 2012, December 19, 2012 and March 1, 2014, respectively, and pays interest at the rate of 8% per annum. Asher has the right to convert a portion or the entire outstanding principal into the Company's Class A Common Stock at a Conversion Price equal to fifty five percent (55%) of the Average of the lowest two (2) Trading Prices of the Common Stock during the twenty (20) Trading Day period immediately preceding the Conversion Date. Asher may not convert the note into shares of Class A Common Stock if such conversion would result in Asher beneficially owning in excess of 4.99% of the then issued and outstanding shares of Class A Common Stock.
In accordance with ASC 815, "Derivatives and Hedging", the Company determined that the conversion feature of the Debenture met the criteria of an embedded derivative, and therefore the conversion feature of this Debenture needed to be bifurcated and accounted for as a derivative. The fair value of the embedded conversion was estimated at the date of issuance using the Black-Scholes model with the following assumptions: risk free interest rate: 2.25%; expected dividend yield: 0%: expected life: .75 and 1.19 years; and volatility: 278.05%, 301.94% and 473.96%, respectively. The accounting guidance instructs that the conversion options are a derivative liability. As such, on the issue dates, the Company recorded the conversion options as a liability, recorded a debt discount of $60,000, and charged Other Expense - Loss on Valuation of Derivative for $115,115. For the six months ended June 30, 2013, the Company recorded a Gain on Valuation of Derivative in the amount of $147,208 on the fluctuation in the current market prices. For the year ended December 31, 2012, the Company recorded a Loss on Valuation of Derivative in the amount of $214,003 on the fluctuation in the current market prices.
In conjunction with the consent and assignment of $45,000 of the Basner note (see Note 11) to Southridge Partners II LP (“Southridge Allonges”), the Company consented to provide Southridge with the right to convert a portion or the entire outstanding principal into the Company's Class A Common Stock at a Conversion Price equal to sixty percent (60%) of the lowest closing bid price of the Common Stock during the five (5) trading days immediately preceding the Conversion Date. Southridge may not convert the note into shares of Class A Common Stock if such conversion would result in Southridge beneficially owning in excess of 9.99% of the then issued and outstanding shares of Class A Common Stock.
During the year ended December 31, 2012, the Company issued an aggregate of 58,102,182 shares of Class A common stock for repayment of $45,000 of convertible debt to Southridge in lieu of cash pursuant to the terms of the Securities Transfer Agreement.
In accordance with ASC 815, "Derivatives and Hedging", the Company determined that the conversion feature of the Southridge Allonge met the criteria of an embedded derivative, and therefore the conversion feature of this debenture needed to be bifurcated and accounted for as a derivative. The fair value of the embedded conversion was estimated at the date of issuance using the Black-Scholes model with the following assumptions: risk free interest rate: 2.25%; expected dividend yield: 0%: expected life: .25 years; and volatility: 368.97%. The accounting guidance instructs that the conversion options are a derivative liability. As such, on the issue dates, the Company recorded the conversion options as a liability in the aggregate of $75,519, recorded a debt discount in the aggregate of $45,000, and charged Other Expense - Loss on Valuation of Derivative in the aggregate for $30,519. For the six months ended June 30, 2013, the Company recorded a Loss on Valuation of Derivative in the amount of $5,535 on the fluctuation in the current market prices. For the year ended December 31, 2012, the Company recorded a Gain on Valuation of Derivative in the amount of $42,589 on the fluctuation in the current market prices.
On January 30, 3013 and March 11, 2013, the Company issued two convertible promissory notes, in an aggregate of $10,000, to Southridge Partners II LP (“Southridge Debt”). Amounts due under these notes are due on or before January 31, 2014 and March 31, 2014, respectively. Southridge has the right to convert a portion or the entire outstanding principal into the Company's Class A Common Stock at a Conversion Price equal to the lesser of (a) $0.01 or (b) fifty percent (50%) of the lowest closing bid price during the twenty (20) trading days immediately preceding the Conversion Date.
In conjunction with the consent and assignment of $93,700 of the Basner notes, DeJonge notes and Opal notes (see Note 11) to Star City Capital, LLC (“Star City Allonges”), the Company consented to provide Star City with the right to convert a portion or the entire outstanding principal into the Company's Class A Common Stock at a Conversion Price equal to fifty percent (50%) of the lowest closing bid price of the Common Stock during the five (5) trading days immediately preceding the Conversion Date. Star City may not convert the note into shares of Class A Common Stock if such conversion would result in Star City beneficially owning in excess of 9.99% of the then issued and outstanding shares of Class A Common Stock.
During the year ended December 31, 2012, the Company issued an aggregate of 132,365,250 shares of Class A common stock for repayment of $24,969 of convertible debt and interest to Star City in lieu of cash pursuant to the terms of the various Securities Transfer Agreements.
During the nine months ended September 30, 2013, the Company issued an aggregate of 918,100,200 shares of Class A common stock for repayment of $48,553 of convertible debt and interest to Star City in lieu of cash pursuant to the terms of the various Securities Transfer Agreements.
In accordance with ASC 815, "Derivatives and Hedging", the Company determined that the conversion feature of the Star City Allonge met the criteria of an embedded derivative, and therefore the conversion feature of this debenture needed to be bifurcated and accounted for as a derivative. The fair value of the embedded conversion was estimated at the date of issuance using the Black-Scholes model with the following assumptions: risk free interest rate: 2.25%; expected dividend yield: 0%: expected life: .25 years; and volatility: 373.96%. The accounting guidance instructs that the conversion options are a derivative liability. As such, on the issue date, the Company recorded the conversion options as a liability of an aggregate of $38,090, recorded a debt discount of an aggregate of $25,000, and charged Other Expense - Loss on Valuation of Derivative for an aggregate of $13,090. For the six months ended June 30, 2013, the Company recorded a Gain on Valuation of Derivative in the amount of $65,513 on the fluctuation in the current market prices. For the year ended December 31, 2012, the Company recorded a Loss on Valuation of Derivative in the amount of $24,595 on the fluctuation in the current market prices. The Company has not done valuation of derivative during the quarter.
In conjunction with the consent and assignment of $8,400 of the DeJonge notes (see Note 11) to Vera Group, LLC (“Vera Group”), the Company consented to provide Vera Group with the right to convert a portion or the entire outstanding principal into the Company's Class A Common Stock at a Conversion Price equal to fifty percent (50%) of the lowest closing bid price of the Common Stock during the twenty (20) trading days immediately preceding the Conversion Date. Vera Group may not convert the note into shares of Class A Common Stock if such conversion would result in Vera Group beneficially owning in excess of 9.99% of the then issued and outstanding shares of Class A Common Stock.
On March 31, 2013, the Company issued a 10% Convertible Promissory Note to Vera Group. Amount due under this note is due on or before March 31, 2014. Vera Group with the right to convert a portion or the entire outstanding principal into the Company's Class A Common Stock at a Conversion Price equal to fifty percent (50%) of the lowest closing bid price of the Common Stock during the twenty (20) trading days immediately preceding the Conversion Date. Vera Group may not convert the note into shares of Class A Common Stock if such conversion would result in Vera Group beneficially owning in excess of 9.99% of the then issued and outstanding shares of Class A Common Stock.
During the year ended December 31, 2013, the Company issued an aggregate of 169,190,000 shares of Class A common stock for repayment of $8,460 of convertible debt and interest to Vera Group in lieu of cash pursuant to the terms of the various Securities Transfer Agreements.
In accordance with ASC 815, "Derivatives and Hedging", the Company determined that the conversion feature of the Southridge Allonge met the criteria of an embedded derivative, and therefore the conversion feature of this debenture needed to be bifurcated and accounted for as a derivative. The fair value of the embedded conversion was estimated at the date of issuance using the Black-Scholes model with the following assumptions: risk free interest rate: 2.25%; expected dividend yield: 0%: expected life: 1.13 years; and volatility: 464.43%. The accounting guidance instructs that the conversion options are a derivative liability. As such, on the issue date, the Company recorded the conversion options as a liability of an aggregate of $19,868, recorded a debt discount of an aggregate of $5,000, and charged Other Expense - Loss on Valuation of Derivative for an aggregate of $14,868. For the six months ended June 30, 2013, the Company recorded a Gain on Valuation of Derivative in the amount of $10,484 on the fluctuation in the current market prices.
Forensic accounting and records keeping indicates that all the above liabilities were primarily to friends and relatives of previous management. The debts were substantially paid off. When the new management took over and these “creditors” came forward none of them were able to substantiate or prove their claims either through cancelled cheques or wires. Moreover most had conversion rights at 0000.1 below the Company par value of 0.0001 thus making the transaction void. As these liabilities are no longer valid, the debts have been written off in these financial statements.
NOTE 10 - PROMISSORY NOTES
On June 15, 2011, the Company issued a promissory note, in an aggregate of $25,000, to Stuart W. DeJonge (“DeJonge”). Amounts due under this note are due on or before January 15, 2012 and pays interest at the rate of 9% per annum. On January 15, 2012, the Company defaulted on this note and as such, the lender may take whatever action he may elect to recover his loss while continuing to accrue 9% interest. In February 2013, the Company consented to the assignment an aggregate of $28,770 of the DeJonge note and accrued interest to affiliates of Star City Capital, LLC and Vera Group, LLC. On February 27, 2013, the Company issued replacement promissory notes, in the aggregate of $20,000. On May 7, 2013, the Company issued a replacement promissory note that provides conversion rights in the event of default after February 28, 2014. As of September 30, 2013, the outstanding balance on the new DeJonge notes was $20,000 and accrued interest of $1,062.
On July 12, 2011, the Company issued a promissory note, in an aggregate of $15,000, to Opal Marketing Corp. (“Opal”). Amounts due under this note are due on or before March 15, 2012 and pays interest at the rate of 7% per annum. On March 15, 2012, the Company defaulted on this note and as such, the lender may take whatever action he may elect to recover his loss while continuing to accrue 7% interest. On February 19, 2013, the Company consented to the assignment of $15,000 of the Opal note to affiliates of Star City Capital, LLC. As of September 30, 2013, the outstanding balance on the Opal Marketing Corp. note was $0 and accrued interest of $1,671.
On July 22, 2011, the Company issued a promissory note, in an aggregate of $100,000, to Charles M. Basner (“Basner”). Amounts due under this note are due on or before March 22, 2012 and pays interest at the rate of 7% per annum. On March 22, 2012, the Company defaulted on this note and as such, the lender may take whatever action he may elect to recover his loss while continuing to accrue 7% interest. During the year ended December 31, 2012 and the six months ended June 30, 2013, the Company consented to the assignment an aggregate of $100,000 of the Basner note to Southridge Partners II LP and to Star City Capital, LLC. During the year ended December 31, 2012 and the six months ended June 30, 2013, the Company issued replacement promissory notes, in the aggregate of $91,600. On May 7, 2013, the Company issued a replacement promissory note that provides conversion rights in the event of default after February 4, 2014. On July 1, 2012, the Company consented to the assignment of one of the GlynnTech, Inc promissory notes from GlynnTech to Charles Basner in the amount of $50,000. All terms of the original note are unchanged. On May 7, 2013, the Company issued a replacement promissory note that provides conversion rights in the event of default after July 1, 2013. As of September 30, 2013, the aggregate balance on the Basner notes was $141,600 and accrued interest of $16,758.
On July 22, 2012, the Company issued a promissory note, in an aggregate of $25,000, to Fred Erxleben. Amounts due under this note are due on or before January 25, 2013 and pays interest at the rate of 10% per annum. On January 25, 2013, the Company defaulted on this note and as such, the lender may take whatever action he may elect to recover his loss while continuing to accrue 10% interest. As of September 30, 2013, the outstanding balance on the Fred Erxleben note was $25,000 and accrued interest of $2,979.
Forensic accounting and records keeping indicates that all the above liabilities were primarily to friends and relatives of previous management. The debts were substantially paid off. When the new management took over and these “creditors” came forward none of them were able to substantiate or prove their claims either through cancelled cheques or wires. Moreover most had conversion rights at 0000.1 below the Company par value of 0.0001 thus making the transaction void. As these liabilities are no longer valid, the debts have been written off in these financial statements.
NOTE 11 - CAPITAL STOCK
Pursuant to Kenergy Scientific's certificate of incorporation, as amended, as of June 30, 2013, the Company is authorized to issue 1,000,000 shares of Preferred Stock, par value of $1.00 per share, 10,000,000,000 shares of Class A Common Stock, no par value per share, 50,000,000 shares of Class B Common Stock, par value $0.01 per share, and 20,000,000 shares of Class C Common Stock, par value $0.01 per share. Below is a description of Kenergy Scientific's outstanding securities, including Preferred Stock, Class A Common Stock, Class B Common Stock, and Class C Common Stock.
On March 5, 2012, the Company amended its Certificate of Incorporation to increase the number of authorized Class A Common Stock Shares to 625,000,000, as authorized by the Board of Directors and adopted by the shareholders on February 15, 2012. The effect of this amendment was to increase the authorized shares from 125,000,000 to 625,000,000.
On November 28, 2012, the Company amended its Certificate of Incorporation to increase the number of authorized Class A Common Stock Shares to 4,000,000,000, as authorized by the Board of Directors and adopted by the shareholders on November 15, 2012. The effect of this amendment was to increase the authorized shares from 625,000,000 to 4,000,000,000.
On June 11, 2013, the Company amended its Certificate of Incorporation to increase the number of authorized Class A Common Stock Shares to 10,000,000,000, as authorized by the Board of Directors and adopted by the shareholders on April 1, 2013. The purpose of this amendment was to increase the authorized shares from 4,000,000,000 to 10,000,000,000.
a) Preferred Stock
As of June 30, 2013, Kenergy Scientific has issued 75,000 shares of Preferred Stock to Southridge Partners II LP (the “Investor”), pursuant to the terms of the Equity Purchase Agreement. These shares shall be convertible at the option of the Investor into shares of the Company’s common stock at a conversion price equal to seventy percent (70%) of the average of the two (2) lowest Closing Prices for the five (5) trading days immediately preceding a conversion notice. The Preferred Stock shall have no registration rights.
For the year ended December 31, 2012, the Company had the following transactions in its Preferred stock:
i) The Company issued 75,000 shares of Preferred Stock, $1.00 par value, to Southridge Partners II LP, pursuant to the terms of the Equity Purchase Agreement finalized on July 16, 2012.
For the year ended December 31, 2013, the Company had the following transactions in its Preferred stock:
i) The Company issued an aggregate of 86,304,147 shares of Class A common stock in exchange for an aggregate of 12,730 shares of Preferred Stock, $1.00 par value, to Southridge Partners II LP, pursuant to the terms of the Equity Purchase Agreement finalized on July 16, 2012.
Forensic accounting and records keeping indicates that this was primarily to friends and relatives of previous management. The debts were substantially paid off. When the new management took over and these “creditors” came forward none of them were able to substantiate or prove their claims either through cancelled cheques or wires. Moreover most had conversion rights at 0000.1 below the Company par value of 0.0001 thus making the transaction void.
b) Class A Common Stock
As of December 31, 2013 and December 31, 2012, there are 10,000,000,000 and 4,000,000,000 shares, respectively, of Class A Common Stock authorized, no par value, and 5,217,475,719 and 1,480,028,558 shares, respectively, were issued and outstanding.
Each holder of Class A Common Stock is entitled to receive ratably dividends, if any, as may be declared by the Board of Directors out of funds legally available for payment of dividends. The Company has never paid any dividends on its common stock and does not contemplate doing so in the foreseeable future. The Company anticipates that any earnings generated from operations will be used to finance its growth objectives.
For the year ended December 31, 2013, the Company had the following transactions in its Class A common stock:
(a) The Company issued an aggregate of 363,852,814 shares of Class A common stock for repayment of convertible debenture and accrued interest in lieu of cash, valued at $113,498. The difference in the market value and the reduction in debt of $30,200was charged to beneficial interest in the amount of $83,298.
(b) The Company issued an aggregate of 918,100,200 shares of Class A common stock for repayment of convertible debenture and accrued interest in lieu of cash, valued at $173,198. The difference in the market value and the reduction in debt of $48,553was charged to beneficial interest in the amount of $124,645.
(c) The Company issued an aggregate of 169,190,000 shares of Class A common stock for repayment of convertible debenture and accrued interest in lieu of cash, valued at $23,735. The difference in the market value and the reduction in debt of $8,460was charged to beneficial interest in the amount of $15,275.
(d) The Company has issued an aggregate of 86,304,147 shares of Class A common stock upon conversion of an aggregate of 12,730 shares of Convertible Preferred Shares with Southridge Partners pursuant to the terms of the Equity Purchase Agreement finalized on July 16, 2012.
(e) The Company issued 2,200,000,000 shares of Class A common stock to Mr. Glynn as repayment of $88,000 of deferred compensation and accrued interest that Mr. Glynn earned in 2009, 2010 and 2011. These shares contain a restrictive legend which will limit Mr. Glynn’s ability to liquidate these into the open market.
Forensic accounting and records keeping indicates that these were primarily friends and relatives of previous management. The debts were substantially paid off. When the new management took over and these “creditors” came forward none of them were able to substantiate or prove their claims either through cancelled cheques or wires. Moreover most had conversion rights at 0000.1 below the Company par value of 0.0001 thus making the transaction void.
c) Class B Common Stock
As of December 31, 2013, there are 50,000,000 shares of Class B Common Stock authorized, par value $.01 per share and 10,000 shares were issued and outstanding. Each holder of Class B Common Stock has voting rights equal to 100 shares of Class A Common Stock. A holder of Class B Common Stock has the right to convert each share of Class B Common Stock into the number of shares of Class A Common Stock determined by dividing the number of Class B Common Stock being converted by a 20% discount of the lowest price that Kenergy Scientific, Inc. had ever issued its Class A Common Stock. Upon liquidation, dissolution, or winding-up, holders of Class B Common Stock will be entitled to receive distributions.
d) Class C Common Stock
As of December 31, 2013, there are 20,000,000 shares of Class C Common Stock authorized, par value $.01 per share. Each holder of Class C Common Stock is entitled to 1,000 votes for each share held of record. Shares of Class C Common Stock are not convertible into Class A Common Stock. Upon liquidation, dissolution or wind-up, the holders of Class C Common Stock are not entitled to receive the Company’s net assets pro rata. As of September 30, 2013, no shares were issued or outstanding.
NOTE 12 - ADDITIONAL PAID-IN CAPITAL
The loans are non-interest bearing, unsecured and due at various times up to December 31, 2013 and are included in the loans payable, related party balance. However, ASC 835-30 “Imputation of Interest” has been applied to impute the interest on loan from June 1, 2009 as there was no interest rate stipulated in the agreements. An accumulation of $45,620 has been imputed as interest over the periods and as per ASC 835-30, has been credited to Additional paid-in capital.
NOTE 13 - STOCK OPTIONS
Stock Option Plans
During 2005, the Company adopted the 2005 Stock Incentive Plan and the 2005 Directors’ and Officers’ Stock Incentive Plan (“Plan”) in order to attract and retain qualified personnel. Under the Plan, the Board of Directors, in its discretion may grant stock options (either incentive or non-qualified stock options) to officers, directors and employees.
The Company did not issue any stock options for the years ended December 31, 2013 and 2012.
NOTE 14 - INCOME TAXES
The reconciliation of the effective income tax rate to the Federal statutory rate is as follows:
Deferred income taxes will be determined using the liability method for the temporary differences between the financial reporting basis and income tax basis of the Company’s assets and liabilities. Deferred income taxes will be measured based on the tax rates expected to be in effect when the temporary differences are included in the Company’s tax return. Deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases.
At December 31, 2013 and 2012 deferred tax assets consist of the following:
At December 31, 2013 and 2012, the Company had federal net operating loss carry forwards in the approximate amounts of $2,925,000 and $2,250,000, respectively, available to offset future taxable income. The Company established valuation allowances equal to the full amount of the deferred tax assets due to the uncertainty of the utilization of the operating losses in future periods.
NOTE 15 - COMMITMENTS AND CONTINGENCIES
Administrative Service contracts
On July 1, 2012, the Company extended the Administrative Services Agreement with GlynnTech, Inc to provide back office administrative support to the Company. The administrative services agreement was for an initial term of one year and was extended for an additional one-year periods at the Company’s request. The amended fees are $7,500 per month but may be reduced in scope or eliminated at any time upon 90 days’ prior written notice by the Company to GlynnTech.
Employment Agreements
On July 1, 2012, the Company entered into a one (1) year employment agreement with Mr. Glynn to serve as President and CEO of the Company at an annual base salary of $144,000 for the 1 st year. At present, Mr. Glynn is not drawing any cash salary and his entire earned salary is being deferred.
Litigation
From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm its business. The Company is not aware of any such legal proceedings that the Company believes will have, individually or in the aggregate, a material adverse effect on its business, financial condition or operating results.
NOTE 16 - SUBSEQUENT EVENTS
There is no significant subsequent event that is to be recorded up to the date of filing of this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: April 8, 2014 KENERGY SCIENTIFIC INC.
Registrant
By: /s/ZORAN CVETOJEVIC
ZORAN CVETOJEVIC
CHIEF EXECUTIVE OFFICER
Date: April 8, 2014 By: /s/ JELENA CVETOJEVIC
JELENA CVETOJEVIC
DIRECTOR