UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x

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

 

For the quarterly period ended: March 31, 2014

or

¨

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

For the transition period from: 01/01/2014 to 03/31/14

 

 

KENERGY SCIENTIFIC, INC.

(Exact name of registrant as specified in its charter)

 

New Jersey	333-120507	20-1862816
(State or Other Jurisdiction	(Commission	(I.R.S. Employer
of Incorporation or Organization)	File Number)	Identification No.)

 

999 Wonderland Rd, Building Tingxiang, Suite 703, Nanchang, China, JX330009

(Address of Principal Executive Offices) (Zip Code)

 

866-520-2370

(Registrant’s telephone number, including area code)

 

 

N/A

(Former name or former address and former fiscal year, if changed since last report)

 

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

 

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

 

Indicate the number of shares outstanding of the issuer's common stock, as of the latest practical date: 62,270 shares outstanding of Preferred Stock, par value $1.00 per share; 5,432,475,719 shares outstanding of Class A Common Stock, no par value and 10,000 shares outstanding of Class B Common Stock, par value $.01 per share, as of June 11, 2014.

 

KENERGY SCIENTIFIC, INC.

TABLE OF CONTENTS

 

	Part I – Financial Information	Page
Item 1.	Condensed Financial Statements
	Condensed Balance Sheets – March 31, 2014 and December 31, 2013	1
	Condensed Statements of Operations – Three months Ended march 31, 2014 and 2013
		2
	Condensed Statements of Operations – Three months Ended March 31, 2014 and 2013
		3 - 4
	Notes to Condensed Financial Statements	5 - 21
Item 2.	Management’s Discussion and Analysis of Financial Position And Results of Operations	21
Item 4.	Controls and Procedures	24
	Part II – Other Information
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 6.	Exhibits	25

 

 

 

 

EXPLANATORY NOTE

 

These Financial Statements are part of the Quarterly Report on Form 10-Q for the three months ended March 31, 2014 and do not contain financial statements audited or reviewed by an independent registered public accounting firm for the three months ended March 31, 2014 and 2013 or the year ended December 31, 2013.

 

 

 

 

 

 

 

 

 

 

 

Part 1. Financial Statements

 

Item 1 - Financial Statements

 

KENERGY SCIENTIFIC, INC.

CONDENSED BALANCE SHEETS

 

			March 31,				December 31,
			2014				2013
ASSETS			(Unaudited)				(Unaudited)
Current assets:
Cash and cash equivalents		$	2,024			$	3,039
Accounts receivable, net of allowance for doubtful accounts of $3,479			72,493				74,903
Inventory			—				—
Prepaid and other current assets			—				—
Total current assets			74,517				77,942
Property and equipment, net			4,437				4,625
Intangible assets, net and security deposits			—				—
Total assets		$	78,954			$	82,567
LIABILITIES & STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued expenses			1,283,414			$	1,327,105
Due to related parties			120,719				107,731
Revolving Line of Credit from Mina Mar Group @5%			290,030				290,030
Notes Payable			186,600				186,600
Promissory note due to related parties			75,000				75,000
Convertible promissory note, net of unamortized debt discount			180,000				180,000
Convertible debentures, net of unamortized debt discount			1,279,598				1,279,598
Derivative liabilities			810,771				810,771
Total current liabilities			4,226,132				4,265,835
Stockholders' deficit:
Preferred stock, $1.00 par value; authorized 1,000,000 shares; 62,270
issued and outstanding, respectively			62,270				62,270
Common stock:
Class A – no par value; authorized 10,000,000,000 shares;
5,432,475,719 and 1,480,028,558 shares issued and outstanding, respectively (see note 11)			11,938,355				11,938,355
Class B - $.01 par value; authorized 50,000,000
Shares; 20,000 shares issued and outstanding			100				100
Class C - $.01 par value; authorized 20,000,000
Shares; no shares issued and outstanding			—
Additional paid-in capital			1,936,969				1,936,969
Accumulated deficit			-18,084,872				-18,111,962
Total stockholders' deficit			-4,147,178				-4,174,268
Total liabilities and stockholders' deficit		$	78,954			$	82,567
See accompanying notes to condensed financial statements

KENERGY SCIENTIFIC, INC.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

 

		Three months ended
		March 31, 2014				March 31, 2013
Net sales			165,655				5,145
Cost of sales			76,422				4,966
Gross margin (loss)			89,233				179
Operating expenses:
General and administrative expenses			48,969				142,746
Depreciation and amortization			188				8,967
Total operating expenses			49,156				151,713
Profit / (Loss) from operations			40,077				(151,534	)
Other income (expense):
Interest expense			(12,988	)			(230,696	)
Amortization of debt discount			—				(52,762	)
Gain (loss) on valuation of derivative			—				1,317,233
Total other income (expense)			(12,988	)			1,033,775
Income (loss) from operations before Income taxes			27,090				(882,241	)
							(1,835,338	)
Provision for income taxes			—				—
Net income (loss) attributable to common shares			27,090				(882,241	)
Basic income (loss) per common share							(0	)
Diluted income (loss) per common share			0.00				0.10
Weighted average shares outstanding -
Basic (see note 5)			1,566,332,705				1,949,070,779
Diluted (see note 5)			1,566,332,705				4,000,000,000
See accompanying notes to condensed financial statements

KENERGY SCIENTIFIC, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		Three months Ended
		March 31, 2014				March 31, 2013
Net income (loss)		$	27,090			$	(1,835,338	)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Amortization of intangibles and depreciation expense			188				7,666
(Gain) loss on valuation of derivative			—				1,611,049
Amortization of debt discount			—				36,694
Beneficial interest on conversion of debt			—				7,048
Imputed interest on related party debt			12,988				1,948
Changes in assets and liabilities:
Decrease in accounts receivable			2,410				39
Decrease (increase) in inventories			—				(249	)
Decrease (increase) in prepaid expenses			—				44
Increase in accounts payable and accrued Liabilities			(43,691	)			100,943
Increase in amounts due to related parties			—				32,500
Net cash (used in) operating activities			(1,015	)			(37,304	)
Cash flows from investing activities:
Purchase of intangible assets			—				2,470	)
Net cash (used in) investing activities			—				(2,470	)
Cash flows from financing activities:
Issuance of promissory notes			—				37,500
Net cash provided by financing activities			—				37,500
Net (decrease) in cash and cash equivalents			(1,015	)			(2,274	)
Cash and cash equivalents at beginning of period			3,039				6,960
Cash and cash equivalents at end of period		$	2,024			$	4,686
SUPPLEMENTAL CASH FLOW INFORMATION:
Taxes paid		$	—			$	—
Interest paid		$	—			$	—
See accompanying notes to condensed financial statements

 

 

KENERGY SCIENTIFIC, INC.

CONDENSED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)

 

Supplemental Schedule of Non-Cash Financing Activities:

 

For the three months ended March 31, 2014:

No material non-cash financing activities happened during the three months ended March 31, 2014.

 

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 three months ended March 31, 2013:

a)

The Company issued an aggregate of 383,852,814 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 $30,200 was charged to beneficial interest in the amount of $83,298.

b)

The Company issued an aggregate of 536,528,400 shares of Class A common stock for repayment of convertible debenture and accrued interest in lieu of cash, valued at $135,041. The difference in the market value and the reduction in debt of $29,474 was charged to beneficial interest in the amount of $105,567.

c)

The Company issued an aggregate of 68,156,800 shares of Class A common stock for repayment of convertible debenture and accrued interest in lieu of cash, valued at $13,631. The difference in the market value and the reduction in debt of $3,408 was charged to beneficial interest in the amount of $10,223.

d)

The Company has issued an aggregate of 43,142,857 shares of Class A common stock upon conversion of 6,040 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 consented to the assignment of $23,400 due to Charles Basner to Star City Capital, LLC and their affiliates. Some of the amounts paid to Charles Basner for these assignments were reinvested in the Company and the Company issued replacement notes for these amounts.

f)

The Company consented to the assignment of $25,000 due to Stuart W. DeJonge to Star City Capital, LLC and their affiliates. Some of the amounts paid to Stuart W. DeJonge for these assignments were reinvested in the Company and the Company issued replacement notes for these amounts.

g)

The Company consented to the assignment of $25,000 due to Opal Marketing Corp. to Star City Capital, LLC and their affiliates.

h)

The Company issued 10,000 shares of Preferred Class B stock to Zoran Cvetojevic for his service at CEO.

 

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed financial statements

 

KENERGY SCIENTIFIC, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

MARCH 31, 2014 and 2013

 

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 February 3, 2011, the Company changed its name to Kenergy Scientific, Inc.

 

In November 2011, the Company opened its first company-owned GreenSmart Store at the Flemington Marketplace in Flemington, NJ.

 

On February 4, 2013, 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 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.

 

On March 31, 2014, the Company appointed Rajesh Babaria and Rajesh Dholakiya as co-chairs in the position of CTO.

 

 

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. 

 

For the three months ended March 31, 2014, the Company had a negative cash flow from operations, negative working capital and a loss from operations. 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 condensed unaudited interim financial statements included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). The condensed financial statements and notes are presented as permitted on Form 10-Q and do not contain information included in the Company's annual statements and notes. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed financial statements be read in conjunction with the December 31, 2013 unaudited financial statements and the accompanying notes thereto. The financial statements that were reported in the Company’s Form 10-K for the fiscal year ended December 31, 2013 do not contain audited financial statements audited by an independent registered public accounting firm. While management believes the procedures followed in preparing these condensed financial statements are reasonable, the accuracy of the amounts are in some respects dependent upon the facts that will exist, and procedures that will be accomplished by the Company later in the year. These results are not necessarily indicative of the results to be expected for the full year.

 

These condensed unaudited financial statements reflect all adjustments, including normal recurring adjustments, which, in the opinion of management, are necessary to present fairly the operations and cash flows for the periods presented.

 

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)

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 March 31, 2014 and December 31, 2013.

g)

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 no additional impairment loss should be recognized for applicable assets at this time.

 

h)

Income Taxes

 

The Company accounts for income taxes in accordance with ASC 740-10, “Income Taxes”, which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income taxes and liabilities are computed annually for differences between the financial statement and the tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

 

i)

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.

 

j)

Fair Value of Instruments

 

The carrying amount reported in the balance sheet for cash and cash equivalents, deposits, prepaid expenses, accounts payable, and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments. The carrying amount reported for notes payable approximates fair value because, in general, the interest on the underlying instruments fluctuates with market rates.

 

k)

Concentrations of Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of trade accounts receivable and cash. As of March 31, 2014 and December 31, 2013, the Company believes it has no significant risk related to its concentration within its accounts receivable.

 

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 March 31, 2014 and December 31, 2013.

 

 

NOTE 5 INCOME (LOSS) PER SHARE

 

ASC 260, “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.

 

		Three months Ended				Three months Ended
		March 31, 2014				March 31, 2013
Basic net income (loss) per share computation:
Net income (loss) attributable to common stockholders		$	27,090			$	882,241
Weighted-average common shares outstanding (see below)			1,566,332,705				1,949,070,779
Basic net income (loss) per share attributable to common stockholders (see below)		$	0.00			$	0.00
Diluted net income (loss) per share computation
Net income (loss) attributable to common stockholders		$	27,090			$	882,241
Weighted-average common shares outstanding (see below)			1,566,332,705				1,949,070,779
Incremental shares attributable to the assumed conversion of
Convertible debenture and convertible promissory note			—				2,050,929,221
Total adjusted weighted-average shares			1,566,332,705				4,000,000,000
Diluted net income (loss) per share attributable to common stockholders (see below)		$	0.00			$	0.00

 

At March 31, 2014, the Company had common stock equivalents of 1,566,332,705, and at March 31, 2013 the Company had common stock equivalents of 2,491,709,429.

 

 

NOTE 6 INCOME TAXES

 

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 March 31, 2013 and December 31, 2012 deferred tax assets consist of the following:
		2014				2013
Deferred tax assets		$	526,000			$	1,035,000
Less: valuation allowance			(526,000	)			(1,035,000	)
Net deferred tax asset		$	0			$	0

At March 31, 2014 and December 31, 2013, the Company had federal net operating loss carry forwards in the approximate amounts of $2,897,000 and $2,925,000, 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 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 28, 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 attains 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 March 31, 2013 and December 31, 2012. For the three months ended March 31, 2013, the Company calculated $1,156 as 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 SpeechSwitch, Inc. 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 SpeechSwitch Class B Common Stock, par value $.01 per share, for each dollar owed, (ii) the number of shares of SpeechSwitch 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 7,057,328 (5,645,862,500 pre-reverse 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 which will 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 and the three month ended March 31, 2013, Mr. Glynn drew only a portion of his annual salary and the balance is being deferred. As of March 31, 2013, the total amount due to Mr. Glynn for unpaid compensation is $207,677.

 

During the three years ended December 31, 2012, GlynnTech, Inc and Mr. Glynn have paid some bills on behalf of the Company. As of March 31, 2013, the aggregate amounts due for these payments is $26,658.

 

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 PARTY)

 

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 March 31, 2013, the outstanding balance on the E-Lionheart Convertible Debentures were $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.

 

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 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 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 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.

 

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 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.

 

On March 6, 2012, the Company consented to the cancelation 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 cancelation 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 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.

 

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 years; and volatility: 212.29%. 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 $65,000, and charged Other Expense - Loss on Valuation of Derivative for $24,294. For the three months ended March 31, 2013, the Company recorded a Gain on Valuation of Derivative in the amount of $110,602 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 $83,610 on the fluctuation in the current market prices.

 

As of March 31, 2013, the outstanding balance on these Convertible Promissory Notes were $60,000.

 

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 three months ended March 31, 2013, the Company recorded a Loss on Valuation of Derivative in the amount of $2,909 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.

 

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.

 

As of March 31, 2013, the outstanding balance on these agreements were $70,450.

 

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 three months ended March 31, 2013, the Company recorded a Gain on Valuation of Derivative in the amount of $33,430 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.

 

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.

 

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.

 

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.

 

As of March 31, 2013, the outstanding balance on the Southridge Debt was $10,000.

 

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 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. 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.

 

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 three months ended March 31, 2013, the Company issued an aggregate of 536,528,400 shares of Class A common stock for repayment of $29,474 of convertible debt and interest to Star City in lieu of cash pursuant to the terms of the various Securities Transfer Agreements.

 

As of December 31, 2012, the outstanding balance on the Star City Allonges was $36,170.

 

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: 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 $103,496, recorded a debt discount of $54,520, and charged Other Expense - Loss on Valuation of Derivative for

$48,976. 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.

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.

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. On February 27, 2013, the Company issued replacement promissory notes, in the aggregate of $20,000. As of March 31, 2013, the outstanding balance on the new DeJonge notes was $20,000 and accrued interest of $159.

 

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 March 31, 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 three months ended March 31, 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 three months ended March 31, 2013, the Company issued replacement promissory notes, in the aggregate of $91,600. 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. As of March 31, 2013, the aggregate balances balance on the Basner notes was $141,600 and accrued interest of $11,788.

 

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 March 31, 2013, the outstanding balance on the Fred Erxleben note was $25,000 and accrued interest of $1,726.

 

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 March 31, 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 March 31, 2013 and December 31, 2012, there are 4,000,000,000 shares of Class A Common Stock authorized, no par value, and 2,491,709,429 and 1,480,028,558 shares were issued and outstanding, respectively.

 

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 three months ended March 31, 2014, the Company had no transactions in its Class A common stock.

 

 

 

 

 

 

 

 

 

 

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 March 31, 2014, there are 50,000,000 shares of Class B Common Stock authorized, par value $.01 per share and 20,000 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 March 31, 2014, 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 March 31, 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 March 31, 2014 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 $58,608 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

 

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 Plans, 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 has not issued any stock options as of March 31, 2014.

 

NOTE 14 NEW 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 15 COMMITMENTS AND CONTINGENCIES

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.

 

Forensic accounting and records keeping indicates that most of the debentures and promissiory notes 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. The Company is currently showing these liabilities in the books but contesting against it.

 

NOTE 16 SUBSEQUENT EVENTS

 

There is no significant subsequent event that is to be recorded up to the date of filing of this report.

 

 

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

A number of the statements made by the Company in this report may be regarded as “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements include, among others, statements concerning the Company’s outlook, pricing trends and forces within the industry, the completion dates of capital projects, expected sales growth, cost reduction strategies and their results, long-term goals of the Company and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts.

All predictions as to future results contain a measure of uncertainty and accordingly, actual results could differ materially. Among the factors that could cause a difference are: changes in the general economy; changes in demand for the Company’s products or in the cost and availability of its raw materials; the actions of its competitors; the success of our customers; technological change; changes in employee relations; government regulations; litigation, including its inherent uncertainty; difficulties in plant operations and materials; transportation, environmental matters; and other unforeseen circumstances. For a discussion of material risks and uncertainties that the Company faces, see the discussion in the Form 10−K for the fiscal year ended December 31, 2013 entitled “Risk Factors”.

Overview and Plan of Operation

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. On February 4, 2013, 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”. Following the change of management on July 1, 2013 the Company commenced development of a wholly owned media company under the brand name Sparx Business Media. The Company earned licensing revenue from Sparx during the period.

 

Results of Operations

The Company changed the its business activity from selling of solar powered products to a business marketing and media Company from July 2013. During the three months ending March 31, 2014, the Company sold $165,655 of media products and services as compared to $5,145 for the three months ending March 31, 2013

 

Total operating expenses decreased to $40,077 for the three months ended March 31, 2014, as compared to 151,713 for the same period in the prior year.

Total income (expense) for the three months ended March 31, 2014 was $27,090 as compared to the loss of $1,835,355 for the three months ended March 31, 2013.

Net income for the three months ended March 31, 2014 was $27,090 as compared to a net loss of $1,835,355 for the three months ended March 31, 2013.

Liquidity and Capital Resources

 

Kenergy Scientific has incurred substantial cash losses in previous years due to which it required financing for working capital to meet its operating obligations.

The Company needs working capital funds to implement business plan and continue the operating activities. Through change in business operations from dealing in solar powered products to business dealing in Shell Sales and IR, the funding requirements have changed significantly. For the three months ended months March 31, 2014, the Company had a net decrease in cash of $1,015 with the principal sources / uses of funds were as follows:

Cash used by operating activities. The Company used $1,015 in net cash for operating activities for the three months ended March 31, 2014 and used $37,304 in net cash for operating activities for the three months ended March 31, 2014.

 

Cash used by investing activities. The Company did not do any investing activity during the three months period ended 31 March 2014. The Company used $2,470 in cash for investing activities for the three months ended March 31, 2014. These amounts were for the prosecution and filings related to the Company’s patent portfolio.

 

Cash provided by financing activities. For the three months ended March 31, 2014, the Company provided $0 in financing activities. For the three months ended March 31, 2013, the Company provided $37,500 in financing activities through the revolving line of credit of $1.0 million from Mina Mar Group to meet the working capital requirements.

 

There was no significant impact on the Company’s operations as a result of inflation for the three months ended March 31,2014.

 

Financing Commitments

On August 8, 2013 the Company secured a $1 million dollar revolving line of credit at 5% 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.

 

On July 16, 2012, the Company finalized an equity facility with Southridge Partners II, LP, a Delaware limited partnership (“Southridge”), whereby the parties entered into (i) an equity purchase agreement and (ii) a registration rights agreement. Pursuant to the terms of the Equity Agreement, for a period of twenty-four (24) months commencing on the effective date of the initial Registration Statement covering the Registrable Securities, Southridge shall commit to purchase up to $17,500,000 of the Company’s Class A common stock, no par value per share (the “Put Shares”). The purchase price of the Put Shares under the Equity Agreement is equal to ninety-one percent (91%) of the lowest closing price of the stock following the five (5) trading days after which a put notice is deemed delivered to Southridge in the manner provided by the Equity Agreement. The Company also entered into the Registration Rights Agreement with Southridge. Pursuant to the terms of the Registration Rights Agreement, the Company is obligated to file a registration statement with the U.S. Securities and Exchange Commission to cover the Registrable Securities within 90 days of closing and thereafter the Company shall use its commercially reasonable efforts to cause the Registration Statement to be declared effective by the SEC within five (5) business days after notice from the SEC that the Registration Statement may be declared effective.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate these estimates, including those related to bad debts, inventory obsolescence, intangible assets, payroll tax obligations, and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of certain assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

 

OFF BALANCE SHEET ARRANGEMENTS

 

During the three months ended March 31, 2014, we did not engage in any material off-balance sheet activities nor have any relationships or arrangements with unconsolidated entities established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities nor do we have any commitment or intent to provide additional funding to any such entities.

 

 

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Management of the Company has evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer of the Company, the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the quarter covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer of the Company have concluded, as of the end of the quarter covered by this Quarterly Report on Form 10-Q, that our disclosure controls and procedures have not been effective for the following reason:

 

A deficiency was identified as the Company's limited segregation of duties amongst the Company's employees with respect to the Company's control activities. This deficiency is the result of the Company's limited number of employees. This deficiency may affect management's ability to determine if errors or inappropriate actions have taken place. Management is required to apply its judgment in evaluating the cost-benefit relationship of possible changes in our disclosure controls and procedures.

 

Changes in internal control over financial reporting.

 

Management of the Company has also evaluated, with the participation of the Chief Executive Officer of the Company, any change in the Company’s internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q and determined that there was no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Part II. Other Information

 

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

 

(a)	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.
(b)	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.
(c)	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.
(d)	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.
(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.

 

Item 3. Defaults Upon Senior Securities.

 

On March 6, 2013, the Company defaulted on the ATG, Inc note and as such, the default interest will increase to 24.99% retroactive to the inception of the agreement.

 

Item 6. Exhibits

 

31.1	Rule 13a-14(a)/15d-14(a) Certifications.
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

 

 

 

 

 

 

SIGNATURES

 

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

Kenergy Scientific, Inc.			June 13, 2014
By:	/s/ Zoran Cvetojevic
		Zoran Cvetojevic
		Chief Executive Officer

 

 

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

 

 

			June 13, 2014
By:	/s/ Zoran Cvetojevic
		Zoran Cvetojevic
		Chief Executive Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INDEX OF EXHIBITS

 

31.1	Rule 13a-14(a)/15d-14(a) Certifications.
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.