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Parent Of Retail Supplier Reports Quarterly Results

August 16, 2018

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Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

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Zenergy Brands, Inc., which as previously reported recently acquired retail electric provider Enertrade Electric and also offers various energy efficiency and services, reported a loss from operations of $1.0 million, and a net loss of $1.5 million, for the three months ended June 30, 2018, versus a loss from operations of $681,000 and a net loss of $786,000 in the year-ago quarter

"The increase is primarily attributable to an increase in operating expenses, other expenses cost of goods sold, partially offset by an increase in revenues," the company said in a 10-Q. The increase in net losses is attributed to approximately $540,000 in interest expense for the three months ended June 30, 2018 when compared to 2017.

Gross profit (loss) for the three months ended June 30, 2018 was $109,315 compared to ($9,335) for the three months ended June 30, 2017. The increase is the result of increases in sales from both the company's Managed Energy Services (zero cost projects) and the electric business. The gross profit for the three months ended June 30, 2018 for the zero cost projects was approximately $48,447, and the electricity business had a gross profit of approximately $38,000.

Total revenue was $464,404 for the three months ended June 30, 2018 compared to $5,294 for the three months ended June 30, 2017. The increase is primarily a result of the company’s launch of its Managed Energy Services (zero cost projects). The zero cost projects made up approximately $113,250 of revenue in the three months ended June 30, 2018, and the remainder was primarily from the retail electricity provider acquisition, which were approximately $318,000 in revenues.

Zenergy said in a news release that, "For the three months ended June 30, 2018, Zenergy reported total revenue of $464,404, which marks a 54% increase when compared to the total revenue of $301,809 from the previous [sequential] quarter. The revenue growth is primarily due to the Company’s retail electricity services, and energy conservation and efficiency contracts. Zenergy also finished the quarter with $3,959,862 in total assets and reported a gross profit for the second consecutive [sequential] quarter. The Company believes these are positive trends that will continue now that it is fully operating in the marketplace in its three operating areas --retail energy, energy conservation, and smart home and building automation. The Company’s gross profit for Q2 was $109,315, a 17% increase from the previous [sequential] quarter. Zenergy’s trademarked Zero Cost Program, wherein each customer agreement represents a long-term contracted revenue stream for the Company, has been the primary driver in its asset growth."

A representative from the company stated in a news release that, "As most fast-growing companies understand, growth consumes cash, so we are always facing the tough decision of how to best apply the limited resources we do have. Overall, we believe we are heading in the right direction and will continue striving to increase our enterprise value for our shareholders."

Zenergy said in a news release that, "The Company also posted a shareholders’ deficit of negative $2.6 million (approx.), of which an estimated $1M is referred to as 'toxic notes' by management. Zenergy Chairman, Mr. Byron Young, addressed this in the following remarks, 'There are two methods to remedy this negative position—one is to bring in new and friendlier capital sources, and the other is to continue growing our revenue and assets. We remain steadfast in our commitment to executing both of these strategies simultaneously.'"

As it has disclosed in several recent quarterly and annual reports with the SEC, Zenergy Brands, Inc. stated in its 10-Q for the period ending June 30, 2018 that, "Based on an analysis by the Company under ASU 2014-15, the Company has concluded that there is substantial doubt about its ability to continue as a going concern within one year of the date of these financial statements."

In such "going concern" note, Zenergy Brands, Inc. stated, "The Company reported a net loss of ($2,488,867) and ($1,331,952) for the six months ended June 30, 2018 and 2017, respectively, and an accumulated deficit of ($7,455,083) at June 30, 2018. At June 30, 2018 and 2017 the Company had a working capital deficit of ($3,913,931) and ($2,154,380), respectively, and negative cash flow from continuing operating activity of ($2,092,905) and ($917,824), respectively, for the six months ended June 30, 2018, and 2017."

In such "going concern" note, Zenergy Brands, Inc. stated, "The Company’s ability to continue as a going concern may be dependent on the success of management’s plan."

In such "going concern" note, Zenergy Brands, Inc. stated, "During the 2018 fiscal year, the Company intends to continue its efforts to raise funds to support its efforts through the sale of equity and/or debt securities."

In such "going concern" note, Zenergy Brands, Inc. stated, "To the extent the Company’s operations are not sufficient to fund the Company’s capital requirements, the Company may attempt to enter into a revolving loan agreement with financial institutions or attempt to raise capital through the sale of additional capital stock or through the issuance of debt. At the present time, the Company does not have a revolving loan agreement with any financial institution."

Discussing its operations, Zenergy stated in a 10-Q that, "Toward making our claim in the marketplace, we have built a service offering that we have deemed 'Energy as a Service' and/or 'Sustainability as a Service'. We also have plans to complement this offering by launching a "Retail Energy Platform" that, when combined, are expected to position us to become a provider of a unique suite of energy usage and management products and services to commercial, industrial, and municipal end-use customers which we refer to as 'target customers'. Currently, we (i) provide energy brokerage and procurement services, (ii) sell commercial energy conservation equipment, load factor improvement technologies, HVAC & Refrigeration based technologies, LED lighting and lighting controls, and (iii) plan to sell commercial energy utility services following the completion of our planned acquisition of Enertrade Electric, LLC ('Enertrade'), a Texas based Retail Electric Provider[.]"

Discussing its operations, Zenergy stated in a 10-Q that, "The foundation of our unique selling proposition is based on our Zero Cost Program. This is a turnkey solution that enables our target customers to upgrade their older, inefficient customer premise equipment and assets, allowing for installation of energy-efficient retrofits such as HVAC and refrigeration motor controllers, load factor improvement technologies, building-envelope-based technologies, weatherization-based technologies, smart controls, and LED lighting, all at no up-front cost to them. The Zero Cost Program will be facilitated through an industry standard agreement referred to as a Managed Energy Services Agreement ('MESA'). Under the MESA, Zenergy will be obligated to develop, arrange financing for, install and maintain all energy efficiency measures and equipment installed by Zenergy. Zenergy will retain ownership of all installed equipment. The minimum term of the MESA is expected to be five years with an expected average of seven years. Under the terms of the MESA, our customers will be obligated to pay us a portion of their savings in utility costs following the installation of our equipment; these are referred to as 'Service Payments'. Service Payments are expected to be fixed payments made on a monthly basis over the term of the agreement from the customer to Zenergy and these payments are expected to scale down over the term of the MESA, allowing the customer to reap more and more of the dollar savings from the respective utility company each year."

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

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

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