ITEM 1. Description of Business.
General
Zentric, Inc. (the "Company"), was incorporated on July 21, 2008, under the laws of the State of Nevada as Constant Environment, Inc. and changed its name to Zentric, Inc. on December 16, 2009. The company is an advanced battery technology company based on a new and revolutionary technology that incorporates high voltages dual electrolytes to produce higher voltages and power.
On December 16, 2009 the Board of Directors of Constant Environment, Inc. (the “Company”) filed a Certificate of Amendment to the Articles of Incorporation with the Secretary of State of Nevada changing the Company’s name to Zentric, Inc
On October 15, 2010, Zentric, Inc. entered into a joint venture agreement with Hengxin Group and Jet Glory Asia Group Limited to develop and operate a battery manufacturing plant in Jilin, China. As of December 31, 2011, no further development has progressed on this venture.
On, November 16, 2011, Zentric, Inc. established a wholly-owned subsidiary in Hong Kong, China. Zentric, Inc. has become actively involved in solar project development through this subsidiary. As of December 31, 2011, no activity has occurred except the transfer of $208 to this subsidiary.
Business Division
The business of “Constant Environment” remains as a division of Zentric. The division is a separate business that provides microclimate systems to specialty markets, who have a need to protect and preserve rare and/or valuable items.
Employees, Officers and Directors
Employees
We have no employees as of the date of this prospectus other than our sole executive officer and directors who devote only part of their time to our business.
Item 1A.
Item 1A. Risk Factors
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Item 1B.
Item 1B. Unresolved Staff Comments
Not Applicable
Item 2.
Item 2. Properties.
Our mailing address is Unit C2, 802 Southdown Road, Mississauga, Ontario, L5J 2Y4, for which we pay $2,664 per month. The lease was effective January 1, 2010, where we agreed to lease the approximately 1,420 square feet of space (“Leased Space”) for a 5 years term. The Leased Space to be suitable for, and utilized by us for our administration, management and development.
We do not intend to renovate, improve, or develop properties. We are not subject to competitive conditions for property and currently have no property in insure. We have no policy with respect to investments in real estate or interests in real estate and no policy with respect to investments in real estate mortgages. Further, we have no policy with respect to investments in securities of or interests in persons primarily engaged in real estate activities.
Item 3.
Item 3. Legal Proceedings.
There are no pending legal proceedings to which the Company is a party or in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of voting securities of the Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
During the period ending December 31, 2011, there has not been any matter which was submitted to a vote of the Company’s shareholders through the solicitation of proxies or otherwise.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
There is no trading market for our Common Stock at present and there has been no trading market to date. There is no assurance that a trading market will ever develop or, if such a market does develop, that it will continue.
The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (i) that a broker or dealer approve a person’s account for transactions in penny stocks and (ii) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person’s account for transactions in penny stocks, the broker or dealer must (i) obtain financial information and investment experience and objectives of the person; and (ii) make a reasonable determination that the transactions in penny stocks are suitable for that person and that person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by the Commission relating to the penny stock market, which, in highlight form, (i) sets forth the basis on which the broker or dealer made the suitability determination and (ii) that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading, and about commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
Holders
As of April 16, 2012 there were 110,775,827 shares of common stock issued and outstanding, 23,500,000 of which are controlled by Jeff Mak, the Company's officer and director.
As of April 16, 2012 there were 49 holders of record of shares of our common stock. Holders of common stock do not have cumulative voting rights.
Therefore, holders of a majority of the shares of common stock voting for the election of directors can elect all of the directors. Holders of our common stock representing a majority of the voting power of our capital stock issued and outstanding and entitled to vote, represented in person or by proxy, are necessary to constitute a quorum at any meeting of our stockholders. A vote by the holders of a majority of our outstanding shares is required to effectuate certain fundamental corporate changes such as liquidation, merger or an amendment to our Articles of Incorporation.
Although there are no provisions in our charter or by-laws that may delay, defer or prevent a change in control, we are authorized, without shareholder approval, to issue shares of preferred stock that may contain rights or restrictions that could have this effect.
Holders of common stock are entitled to share in all dividends that the board of directors, in its discretion, declares from legally available funds. In the event of liquidation, dissolution or winding up, each outstanding share entitles its holder to participate pro rata in all assets that remain after payment of liabilities and after providing for each class of stock, if any, having preference over the common stock. Holders of our common stock have no pre-emptive rights, no conversion rights and there are no redemption provisions applicable to our common stock.
The issued and outstanding shares of our Common Stock were issued in accordance with the exemptions from registration afforded by Section 4(2) of the Securities Act of 1933.
Dividends
Since inception we have not paid any dividends on our common stock. We currently do not anticipate paying any cash dividends in the foreseeable future on our common stock, when issued pursuant to this offering. Although we intend to retain our earnings, if any, to finance the exploration and growth of our business, our Board of Directors will have the discretion to declare and pay dividends in the future.
Payment of dividends in the future will depend upon our earnings, capital requirements, and other factors, which our Board of Directors may deem relevant.
Item 6.
Item 6. Selected Financial Data
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Safe Harbor Statement under The Private Securities Litigation Reform Act of 1995
Certain statements contained in this section and elsewhere in this Form 10-K constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve a number of known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, regulatory and economic factors, seasonality, competition, litigation, the nature of supplier or customer arrangements that become available to the Company in the future, adverse weather conditions, possible technological obsolescence of existing products and services, possible reduction in the carrying value of long-lived assets, estimates of the useful life of its assets, potential environmental liability, customer concentration, the ability to obtain financing, and other risks detailed in this report and in the Company's other periodic reports filed with the Securities and Exchange Commission ("SEC"). The words "believe", "expect", "anticipate", "may", "plan", "should" and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made.
Critical Accounting Policies
The Company's discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Several of the Company's accounting policies involve significant judgments, uncertainties and estimations. The Company bases its 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 assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. To the extent that actual results differ from management's judgments and estimates, there could be a material adverse effect on the Company. On a continuous basis, the Company evaluates its estimates, including, but not limited to, those estimates related to its allowance for doubtful accounts, inventory reserves, valuation allowance for the deferred tax assets relating to its net operating loss carry forwards ("NOL's") and commitments and contingencies. With respect to accounts receivable, the Company estimates the necessary allowance for doubtful accounts based on both historical and anticipated trends of payment history and the ability of the customer to fulfill its obligations. For inventory, the Company evaluates both current and anticipated sales prices of its products to determine if a write down of inventory to net realizable value is necessary. In determining the Company's valuation allowance for its deferred tax assets, the Company assesses its ability to generate taxable income in the future. The Company utilizes both internal and external sources to evaluate potential current and future liabilities for various commitments and contingencies. In the event that the assumptions or conditions change in the future, the estimates could differ from the original estimates.
The accounting policies of the company are in accordance with United States of America generally accepted accounting principles. Outlined below are those policies considered particularly significant:
Organization and Start Up Costs
Costs of start up activities, including organization costs are expensed as incurred.
Cash and Cash Equivalents
Cash and cash equivalents consist of commercial accounts and interest-bearing bank deposits and are carried at cost, which approximates current value. Items are considered to be cash equivalents if the original maturity is three months or less.
Income Taxes
Deferred tax assets and liabilities are recorded for differences between the financial statements and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is recorded for the amount of income tax payable or refundable for the period increased or decreased by the change in deferred tax assets and liabilities during the period. As of December 31, 2011, a deferred tax asset (which arises solely as a result of net operating losses), has been entirely offset by a valuation reserve due to the uncertainty that this asset will be realized in the future.
Fair Value of Financial Instruments
The carrying value of the Company's accounts payable approximates fair value because of the short-term maturity of these instruments.
Earnings or Loss Per Share
Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the year. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding plus common stock equivalents (if dilutive) related to stock options and warrants for each year.
There were no dilutive financial instruments for the years ended December 31, 2011 or 2010.
Deferred Offering Costs
The Company defers as other assets the direct incremental costs of raising capital until such time as the offering is completed. At the time of the completion of the offering, the costs are charged against the capital raised. Should the offering be terminated, deferred offering costs are charged to operations during the period in which the offering is terminated.
Revenue Recognition
Revenue is recognized when it is realized or realizable and earned. Zentric, Inc. considers revenue realized or realizable and earned when persuasive evidence of an arrangement exists, services have been provided, and collectability is reasonably assured. Revenue that is billed in advance such as recurring weekly or monthly services are initially deferred and recognized as revenue over the period the services are provided.
The Company currently has one revenue stream which is providing information technology consulting services. These revenues are recognized on completion of the services rendered. The customers are billed on completion and are due on receipt.
Recent Accounting Pronouncements
Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment. The guidance in ASU 2011-08 is intended to reduce complexity and costs by allowing an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it should calculate the fair value of a reporting unit. The amendments also improve previous guidance by expanding upon the examples of events and circumstances that an entity should consider between annual impairment tests in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Also, the amendments improve the examples of events and circumstances that an entity having a reporting unit with a zero or negative carrying amount should consider in determining whether to measure an impairment loss, if any, under the second step of the goodwill impairment test. The amendments in this ASU are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued. The adoption of this guidance is not expected to have a material impact on the Company’s financial position or results of operations.
In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income”, which is effective for annual reporting periods beginning after December 15, 2011. ASU 2011-05 will become effective for the Company on January 1, 2012. This guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. In addition, items of other comprehensive income that are reclassified to profit or loss are required to be presented separately on the face of the financial statements. This guidance is intended to increase the prominence of other comprehensive income in financial statements by requiring that such amounts be presented either in a single continuous statement of income and comprehensive income or separately in consecutive statements of income and comprehensive income. The adoption of ASU 2011-05 is not expected to have a material impact on our financial position or results of operations.
In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”, which is effective for annual reporting periods beginning after December 15, 2011. This guidance amends certain accounting and disclosure requirements related to fair value measurements. Additional disclosure requirements in the update include: (1) for Level 3 fair value measurements, quantitative information about unobservable inputs used, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs; (2) for an entity’s use of a nonfinancial asset that is different from the asset’s highest and best use, the reason for the difference; (3) for financial instruments not measured at fair value but for which disclosure of fair value is required, the fair value hierarchy level in which the fair value measurements were determined; and (4) the disclosure of all transfers between Level 1 and Level 2 of the fair value hierarchy. ASU 2011-04 will become effective for the Company on January 1, 2012. We are currently evaluating ASU 2011-04 and have not yet determined the impact that adoption will have on our financial statements.
In April 2011, the FASB issued ASU 2011-02, “Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring”. This amendment explains which modifications constitute troubled debt restructurings (“TDR”). Under the new guidance, the definition of a troubled debt restructuring remains essentially unchanged, and for a loan modification to be considered a TDR, certain basic criteria must still be met. For public companies, the new guidance is effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructuring occurring on or after the beginning of the fiscal year of adoption. The Company does not expect that the guidance effective in future periods will have a material impact on its financial statements.
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operation.
Overview
Zentric, Inc. (the "Company"), was incorporated on July 21, 2008, under the laws of the State of Nevada as Constant Environment, Inc. and changed it’s name to Zentric, Inc. on December 16, 2009. The company is an advanced battery technology company based on a new and revolutionary technology that incorporates high voltages dual electrolytes to produce higher voltages and power.
The address of our principal executive office is Unit C2, 802 Southdown Road, Mississauga, Ontario, L5J 2Y4. Our phone number at that location is 416-245-8000. Our website is www.zbatt.com.
License Agreement with Versitech Limited
Effective December 14, 2009, we entered into an exclusive license agreement with Versitech Limited to design, manufacture and market the battery technology under United State Patent Grant No. 7,344,801. Terms of the license are royalties of 3% on net sales on the licensed products by the licensee and affiliates of licensed products and 25% of all sublicense income received by the licensee or any of its affiliates. As of December 31, 2011, the terms of the agreement remain the same.
The invention is directed to electrochemical device such as batteries and fuel cells having two electrolytes between the anode and the cathode. The devices of this invention can have 50% higher operating voltage and power compared to devices with a single electrolyte. The electrochemical device according to the present invention is preferably arranged with an alkaline electrolyte in contact with the anode and an acidic electrolyte in contact with the cathode. The electrolytes are separated by a bipolar membrane that preferably also provides ionic conductivity between the two electrolytes and also generates a supply of protons and hydroxide anions.
On October 15, 2010, Zentric, Inc. entered into a joint venture agreement with Hengxin Group and Jet Glory Asia Group Limited to develop and operate a battery manufacturing plant in Jilin, China. As of December 31, 2011, no further development has progressed on this venture.
Business division
The business of “Constant Environment” remains as a division of Zentric. The division is a product and services company that provides microclimate systems to specialty markets, who have a need to protect and preserve rare and/or valuable items.
The division will earn revenue for services including; (i) the sale of microclimate solutions (ii) the installation of microclimate systems (iii) consulting services, including assessments and project management. The division will offer services in the microclimate industry; design, manage, install, repair, service and provide maintenance for our customers with the same processes, personnel and management.
In addition to the services the division will provide, the division plans to produce microclimate systems that are involved in our project installations. The division plans to assemble the products in house with the technical assistance of Micro Climate Technology for small quantity orders. For larger quantity orders, the division plans to outsource the manufacturing to OEM manufacturers.
A microclimate is the environment immediately surrounding an artifact. A microclimate can be created and controlled in a sealed showcase, storage cabinet or archive room.
On, November 16, 2011, Zentric, Inc. established a wholly-owned subsidiary incorporated in Hong Kong, China. The company will use this subsidiary to become more actively involved in solar project development. Since the company inception on November 16, 2011, the only activity that occurred is an inter-company cash transfer from the parent company in the amount of $208.
RESULTS OF OPERATIONS
The Company did not generate any revenues for the years ended December 31, 2011 and December 31, 2010.
Professional fees include legal and accounting fees and filing fees. Professional fees for the years ended December 31, 2011 and December 31, 2010 was $13,756 and $0 respectively.
Consulting and contracting expenses for the years ended December 31, 2011 and December 31, 2010 was $324,269 and $658,096.
Office and general expenses for the years ended December 31, 2011 and December 31, 2010 was $36,854 and $43,442.
Interest expenses for the years ended December 31, 2011 and December 31, 2010 was $20,951 and $22,632.
R&D expenses for the years ended December 31, 2011 and December 31, 2010 was $38,758 and $0.
Bank charge expenses for the years ended December 31, 2011 and December 31, 2010 was $675 and $350.
Loss on stock issued for the years ended December 31, 2011 and December 31, 2010 was $41,622 and $73,321.
Net loss for the years ended December 31, 2011 and December 31, 2010 was $479,362 and $801,073 respectively. The loss was primarily due to the consultant and subcontracting fees.
Loss per share was $0.01 and $0.01 for the years ended December 31, 2011 and December 31, 2010, respectively.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2011, we had a working capital deficiency of $258,828, which represented a working capital increase of $64,557 as compared to the working capital deficiency position of $194,271 as of December 31, 2010. The increase is mainly due to the increase of the mark to market value of our investment in shares available for sale. We did not raise any cash from issuance of common stock.
Cash flows used in operating activities for the year ended December 31, 2011 was ($94,054). Cash flows provided by financing activities for the year ended December 31, 2011 was $92,133, which was due to stockholder contributions and borrowings on debt.
On May 18, 2011 the Company received Conversion Notice from note holder to settle outstanding debt of $25,000 principal and $4,749 accrued interest by issuing 1,982,258 shares of common stock at a price of $0.015 per share. The total fair value of the shares was $41,627 based on the closing price per share, resulting in a loss of extinguishment of debt of $11,899.
On May 18, 2011 the Company received Conversion Notice from note holder to settle outstanding debt of $50,000 principal and $14,903 accrued interest by issuing 4,326,876 shares of common stock at a price of $0.015 per share. The total fair value of the shares was $90,864 based on the closing price per share, resulting in a loss of extinguishment of debt of $25,961.
On May 18, 2011 the Company received Conversion Notice from note holder to settle outstanding debt of $8,000 principal and $1,402 accrued interest by issuing 626,807 shares of common stock at a price of $0.015 per share. The total fair value of the shares was $13,163 based on the closing price per share, resulting in a loss of extinguishment of debt of $3,762.
On July 20, 2011, Zentric, Inc. (“Company”) completed its Share Exchange Agreement with Ontex Holdings Limited, a Hong Kong Company (“Ontex”), pursuant to which the Company agreed to issue to Ontex 10,000,000 shares of common stock. In exchange, Ontex will issue to the Company 2,000,000 shares of Alpha Lujo, Inc. held by Ontex. Alpha Lujo, Inc.’s common stock is publicly traded on the OTC-BB. The share exchange was valued at $140,000 as an investment by the Company. On the same day the Company also completed the Share Exchange Agreement with Alpha Lujo, Inc. (“Alpha Lujo”), pursuant to which the Company agreed to issue to Alpha Lujo 6,666,667 shares of its common stock in exchange for 800,000 shares of common stock of Alpha Lujo. Based on Alpha Lujo’s most recent filing of their period ended March 31, 2011, the company has a total of 200,000,000 shares authorized and 23,244,000 shares issued and outstanding. Based on the 2,800,000 shares the Company received, that equates to 1.4% of total authorized and 12% of total outstanding. In both instances, it is less than 20% of total equity of Alpha Lujo’s shares, therefore, does not warrant consolidation treatment of the two companies and should be accounted for as an investment and evaluated for impairment periodically.
The share exchange was valued at $93,333 as an investment by the Company. The share exchange does not change the control of the Company. The total value of $233,333 as of the July 20, 2011 was value as an investment assets and evaluated for impairment as of December 31, 2011. Based on evaluation, the company found it appropriate to impair the assets based on the following reason:
-
Company had negative cash flow; and
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Company only assets is Cash; and
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Low volume in share trading for the past 12 months; and
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Company has no revenue stream
On July 14, 2011, the Company completed and authorized the issuance of 15,000,000 common shares for services. The total fair value of the common stock was $232,500 based on the closing price of the Company’s stock on the date of grant.
On December 20, 2011, Zentric, Inc. entered into a subscription agreement to issue 11,000,000 common shares for $220,000 cash investment into the Company. As of December 31, 2011, the Company received $20,000 towards this agreement and recorded as a stock payable due to shares being authorized but have not been issued.
On December 31, 2011, the Company granted options to an officer/director of the company to acquire 1,000,000 common shares at $0.03. The options have a vesting period of three years or ninety days from termination of employment. The company valuated such options using the Black-Scholes Valuation Model. This options grant produced an options issued for services expense of $9,745.
We anticipate that our operational, general and administrative expenses for the next 12 months will total $500,920.00. The estimated breakdown is as follows:
We will not generate any revenues in the next twelve months and we will be required to raise additional capital by issuing equity or debt securities in exchange for cash in order to continue as a going concern. We can not assure you that any financing can be obtained or, if obtained, that it will be on reasonable terms. Without realization of additional capital, it would be unlikely for us to continue as a going concern.
Going Concern Consideration
Our independent auditors included an explanatory paragraph in their report on the financial statements included herein regarding concerns about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 8.
Item 8. Financial Statements.
ZENTRIC, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2011 and 2010
AND THE PERIOD FROM JULY 21, 2008 (INCEPTION) THROUGH DECEMBER 31, 2011
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Zentric, Inc.
(A Development Stage Company)
We have audited the accompanying balance sheets of Zentric, Inc. (a development stage company) as of December 31, 2011 and 2010 and the related statements of operations, changes in stockholders' equity, and cash flows for the years then ended and for the period from July 21, 2008 (inception) through December 31, 2011. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Zentric, Inc. as of December 31, 2011 and 2010, and the results of its operations and cash flows for the periods described above in conformity with U.S. generally accepted principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company suffered a net loss from operations and has a net deficiency, which raises substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters also are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ M&K CPAS, PLLC
www.mkacpas.com
Houston, Texas
April 16, 2012
ZENTRIC, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part to these financial statements.
ZENTRIC, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
The accompanying notes are an integral part to these financial statements.
ZENTRIC, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part to these financial statements.
ZENTRIC, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Deficit)
FOR THE PERIOD FROM July 21, 2008 (INCEPTION) TO DECEMBER 31, 2011
The accompanying notes are an integral part to these financial statements.
ZENTRIC, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2011
1. ORGANIZATION AND BASIS OF PRESENTATION
Constant Environment, Inc. (the "Company"), was incorporated on July 21, 2008, under the laws of the State of Nevada as an early stage product and services company that provides microclimate systems to specialty markets, who have a need to protect and preserve rare and/or valuable items.
On December 16, 2009 the Board of Directors of Constant Environment, Inc. (the “Company”) filed a Certificate of Amendment to the Articles of Incorporation with the Secretary of State of Nevada changing the Company’s name to Zentric, Inc.
On, November 16, 2011, Zentric, Inc. established a wholly-owned subsidiary in Hong Kong, China. As of December 31, 2011, no activity has occurred except the transfer of $208 to this subsidiary.
2. GOING CONCERN
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America with the assumption that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. The Company suffered a net loss from operations and has a net deficiency, which raises substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.
The Company's ability to continue as a going concern is contingent upon its ability to complete public equity financing and generate profitable operations in the future. Management's plan in this regard is to secure additional funds through equity financing and through loans made by the Company's stockholders.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a)
Basis of Presentation and Principles of Consolidation
The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) and are expressed in U.S. dollars. The financial statements include the accounts of the Company and its subsidiary, Zentric HK Limited, a limited liability company in Hong Kong. All significant intercompany transactions have been eliminated as part of the consolidation. The Company’s fiscal year-end is December 31.
b)
Use of Estimates
The preparation of financial statements in conformity with US GAAP 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 revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the deferred income tax asset valuation allowances.
The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
c)
Cash and cash equivalents
The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents. As at December 31, 2011 and 2010, the Company had no cash equivalents.
d)
Basic and Diluted Net Loss per Share
The Company computes net loss per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti dilutive. As at December 31, 2011 and 2010, the Company had no potentially dilutive shares.
e)
Financial Instruments
Pursuant to ASC 820, Fair Value Measurements and Disclosures, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or Liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company’s financial instruments consist principally of cash, accounts payable, accrued liabilities, and amounts due to related parties. Pursuant to ASC 820, the fair value of our cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. We believe that the recorded values of all of our other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
f)
Income Taxes
Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted ASC 740 “Accounting for Income Taxes” as of its inception. Pursuant to ASC 740, the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in this financial statement because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.
g)
Recent Accounting Pronouncements
Intangibles - Goodwill and Other (Topic 350): Testing Goodwill for Impairment. The guidance in ASU 2011-08 is intended to reduce complexity and costs by allowing an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it should calculate the fair value of a reporting unit. The amendments also improve previous guidance by expanding upon the examples of events and circumstances that an entity should consider between annual impairment tests in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Also, the amendments improve the examples of events and circumstances that an entity having a reporting unit with a zero or negative carrying amount should consider in determining whether to measure an impairment loss, if any, under the second step of the goodwill impairment test. The amendments in this ASU are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued. The adoption of this guidance is not expected to have a material impact on the Company’s financial position or results of operations.
In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income”, which is effective for annual reporting periods beginning after December 15, 2011. ASU 2011-05 will become effective for the Company on January 1, 2012. This guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. In addition, items of other comprehensive income that are reclassified to profit or loss are required to be presented separately on the face of the financial statements. This guidance is intended to increase the prominence of other comprehensive income in financial statements by requiring that such amounts be presented either in a single continuous statement of income and comprehensive income or separately in consecutive statements of income and comprehensive income. The adoption of ASU 2011-05 is not expected to have a material impact on our financial position or results of operations.
In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”, which is effective for annual reporting periods beginning after December 15, 2011. This guidance amends certain accounting and disclosure requirements related to fair value measurements. Additional disclosure requirements in the update include: (1) for Level 3 fair value measurements, quantitative information about unobservable inputs used, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs; (2) for an entity’s use of a nonfinancial asset that is different from the asset’s highest and best use, the reason for the difference; (3) for financial instruments not measured at fair value but for which disclosure of fair value is required, the fair value hierarchy level in which the fair value measurements were determined; and (4) the disclosure of all transfers between Level 1 and Level 2 of the fair value hierarchy. ASU 2011-04 will become effective for the Company on January 1, 2012. We are currently evaluating ASU 2011-04 and have not yet determined the impact that adoption will have on our financial statements.
In April 2011, the FASB issued ASU 2011-02, “Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring”. This amendment explains which modifications constitute troubled debt restructurings (“TDR”). Under the new guidance, the definition of a troubled debt restructuring remains essentially unchanged, and for a loan modification to be considered a TDR, certain basic criteria must still be met. For public companies, the new guidance is effective for interim and annual periods beginning on or after June 15, 2011, and applies retrospectively to restructuring occurring on or after the beginning of the fiscal year of adoption. The Company does not expect that the guidance effective in future periods will have a material impact on its financial statements.
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operation
4. STOCKHOLDERS’ EQUITY
Holders of common stock are entitled to one vote for each share held. There are no restrictions that limit the Company’s ability to pay dividends on its common stock. The Company has not declared any dividends since incorporation.
On July 23, 2008, we issued a total of 40,000,000 shares (adjusted retroactively for 4:1 split) worth $10,000 to Jeff Mak for services rendered as our founder with respect to the incorporation and set-up of Constant Environment. Such shares were issued in reliance on an exemption from registration under Section 4(2) of the Securities Act of 1933. Mr. Mak is deemed our founder and promoter.
On August 20, 2008, we issued 2,000,000 shares (adjusted retroactively for 4:1 split) to Ka Leung Mak for business development services in China. Such shares were issued in reliance on an exemption from registration under Section 4(2) of the Securities Act of 1933.
On August 25, 2008, we issued 2,000,000 shares (adjusted retroactively for 4:1 split) to Kwok Kwong Chan for services as a director/secretary. Such shares were issued in reliance on an exemption from registration under Section 4(2) of the Securities Act of 1933.
On August 25, 2008, we issued 2,000,000 shares (adjusted retroactively for 4:1 split) to Domenic Macchione for sales and marketing services. Such shares were issued in reliance on an exemption from registration under Section 4(2) of the Securities Act of 1933.
For the period ended December 31, 2008, we issued 2,718,000 shares (adjusted retroactively for 4:1 split) of common stock to 40 investors in a private placement. The consideration paid for such shares was $0.01 per share, amounting in the aggregate to $6,795.
A 4 for 1 forward split of our common stock was deemed effective on August 5, 2009. The Company had 12,179,500 shares outstanding prior to the split, and will have 48,878,000 shares outstanding following the split.
On July 27, 2009 the Company entered into a Loan Agreement with Lucilla Ho wherein she agreed to loan the Company $20,000 and she will receive 5,000 shares of the Company’s common stock. Such shares shall be restricted in accordance with Rule 144 of the Securities Act of 1933. The shares were value at the last sell price of common stock for cash at $0.01 and treated as a discount on the note.
On August 7, 2009 the Company entered into a Loan Agreement with 1456146 Ontario Limited of which Fred Lai is the principal. The 1456146 Ontario Limited agreed to loan the Company $50,000 and 1456146 Ontario Limited will receive 100,000 shares of the Company’s common stock. Such shares shall be restricted in accordance with Rule 144 of the Securities Act of 1933. The shares were value at the last sell price of common stock for cash at $0.01 and treated as a discount on the note.
On August 15, 2009 the Company entered into a Loan Agreement with Ricky Wu wherein he agreed to loan the Company $20,000 and he will receive 40,000 shares of the Company's common stock. Such shares shall be restricted in accordance with Rule 144 of the Securities Act of 1933. The shares were value at the last sell price of common stock for cash at $0.01 and treated as a discount on the note.
On March 25, 2010 we entered into a Loan Agreement with a shareholder wherein they agreed to loan us $25,000 and received 50,000 shares of our common stock as an incentive for providing the loan. The shares were value at the last sell price of common stock for cash at $0.01 and treated as a discount on the note.
On October 1, 2010, holders of the Company’s notes elected to convert loans into 2,365,219 shares of our common stock for $47,130 of principal and interest. Shares were valued based on fair market value of conversion and as a result the company recorded a loss of $73,321on conversion of debt.
On October 1, 2010, the Company issued 9,200,000 shares of our common stock for $460,000 consulting services. Shares were valued based on fair market value on the date of authorization.
On December 1, 2010, the Company’s board of directors declared to issue 230,000 shares of our common stock for $23,000 consulting services. Shares were valued based on fair market value on the date of authorization.
On May 18, 2011 the Company received Conversion Notice from note holder to settle outstanding debt of $25,000 principal and $4,749 accrued interest by issuing 1,982,258 shares of common stock at a price of $0.015 per share. The total fair value of the shares was $41,627 based on the closing price per share, resulting in a loss of extinguishment of debt of $11,899.
On May 18, 2011 the Company received Conversion Notice from note holder to settle outstanding debt of $50,000 principal and $14,903 accrued interest by issuing 4,326,876 shares of common stock at a price of $0.015 per share. The total fair value of the shares was $90,864 based on the closing price per share, resulting in a loss of extinguishment of debt of $25,961.
On May 18, 2011 the Company received Conversion Notice from note holder to settle outstanding debt of $8,000 principal and $1,402 accrued interest by issuing 626,807 shares of common stock at a price of $0.015 per share. The total fair value of the shares was $13,163 based on the closing price per share, resulting in a loss of extinguishment of debt of $3,761.
On July 20, 2011, Zentric, Inc. (“Company”) completed its Share Exchange Agreement with Ontex Holdings Limited, a Hong Kong Company (“Ontex”), pursuant to which the Company agreed to issue to Ontex 10,000,000 shares of common stock. In exchange, Ontex will issue to the Company 2,000,000 shares of Alpha Lujo, Inc. held by Ontex. Alpha Lujo, Inc.’s common stock is publicly traded on the OTC-BB. The share exchange was valued at $140,000 as an investment by the Company. On the same day the Company also completed the Share Exchange Agreement with Alpha Lujo, Inc. (“Alpha Lujo”), pursuant to which the Company agreed to issue to Alpha Lujo 6,666,667 shares of its common stock in exchange for 800,000 shares of common stock of Alpha Lujo. Based on Alpha Lujo’s most recent filing of their period ended March 31, 2011, the company has a total of 200,000,000 shares authorized and 23,244,000 shares issued and outstanding. Based on the 2,800,000 shares the Company received, that equates to 1.4% of total authorized and 12% of total outstanding. In both instances, it is less than 20% of total equity of Alpha Lujo’s shares, therefore, does not warrant consolidation treatment of the two companies and should be accounted for as an investment and evaluated for impairment periodically.
The share exchange was valued at $93,333 as an investment by the Company. The share exchange does not change the control of the Company. The total value of $233,333 as of the July 20, 2011 was value as an investment assets and evaluated for impairment as of December 31, 2011. Based on evaluation, the company found it appropriate to impair the assets based on the following reason:
-
Company had negative cash flow; and
-
Company only assets is Cash; and
-
Low volume in share trading for the past 12 months; and
-
Company has no revenue stream
On July 14, 2011, the Company completed and authorized the issuance of 15,000,000 common shares for services. The total fair value of the common stock was $232,500 based on the closing price of the Company’s stock on the date of grant.
On December 20, 2011, Zentric, Inc. entered into a subscription agreement to issue 11,000,000 common shares for $220,000 cash investment into the Company. As of December 31, 2011, the Company received $20,000 towards this agreement. Due to the shares being authorized and unissued, the balance is recorded as a stock payable as of December 31, 2011.
5. DILUTIVE INSTRUMENTS
The Company is required to recognize expense of options or similar equity instruments issued to employees using the fair-value-based method of accounting for stock-based payments in compliance with the financial accounting standard pertaining to share-based payments. This standard covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. Application of this pronouncement requires significant judgment regarding the assumptions used in the selected option pricing model, including stock price volatility and employee exercise behavior. Most of these inputs are either highly dependent on the current economic environment at the date of grant or forward looking over the expected term of the award.
On December 31, 2011, the Company granted options to an officer/director of the company to acquire 3,000,000 common shares, 1,000,000 vested December 31, 2011 at $0.03 per share; the remaining 2,000,000 will vest on December 31 2012 and 2013 at price of $0.10, and $0.25 per share, respectively. The options have a vesting period of three years or ninety days from termination of employment. The company valuated such options using the Black-Scholes Valuation Model. The options have an expected volatility rate of 282.71% calculated using the Company stock price for a two-year period beginning December 31, 2011. A risk free interest rate of 0.19% was used to value the options. The total value of these options was $25,841, out of the total value the company expensed $9,745 as of December 31, 2011 which is representative of the value of the 1,000,000 shares vested at fiscal year end. The remaining $16,096 remain unvested as of December 31, 2011.
Holders of common stock are entitled to one vote for each share held. There are no restrictions that limit the Company's ability to pay dividends on its common stock. The Company has not declared any dividends since incorporation.
6. RELATED PARTY TRANSACTIONS
Related party transactions are in the normal course of operations and are recorded at amounts established and agreed between the related parties. Related party transactions not disclosed elsewhere in these consolidated financial statements are as follows:
The Company has received cash advances of $72,133 and $58,433 for the years ended December 31, 2011 and December 31, 2010, respectively from directors and shareholders.
The Company has accrued salaries for the officers/directors of $78,800 and $0 for the years ended December 31, 2011 and December 31, 2010, respectively.
Interest has been imputed at 15% resulting in interest expense of $14,027 and $22,632 for the years ended December 31, 2011 and December 31, 2010, respectively.
The Company have received accumulated cash advanced of $162,131 as of the year ended December 31, 2011 from a directors and shareholders.
7. NOTES PAYABLE
On May 18, 2011 the Company received Conversion Notice from note holder to settle outstanding debt of $25,000 principal and $4,749 accrued interest by issuing 1,982,258 shares of common stock at a price of $0.015 per share. The total fair value of the shares was $41,627 based on the closing price per share, resulting in a loss of extinguishment of debt of $11,899.
On May 18, 2011 the Company received Conversion Notice from note holder to settle outstanding debt of $50,000 principal and $14,903 accrued interest by issuing 4,326,876 shares of common stock at a price of $0.015 per share. The total fair value of the shares was $90,864 based on the closing price per share, resulting in a loss of extinguishment of debt of $25,961.
On May 18, 2011 the Company received Conversion Notice from note holder to settle outstanding debt of $8,000 principal and $1,402 accrued interest by issuing 626,807 shares of common stock at a price of $0.015 per share. The total fair value of the shares was $13,163 based on the closing price per share, resulting in a loss of extinguishment of debt of $3,761.
Interest accrual for all loans outstanding as of December 31, 2011 and December 31, 2010 are $752 and $14,981 respectively.
8. INCOME TAXES
The Company accounts for income taxes under FASB ASC 740-10, which requires use of the liability method. FASB ASC 740-10-25 provides that deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, referred to as temporary differences.
As of December 31, 2011, there were no differences between financial reporting and tax bases of assets and liabilities. The Company will have tax losses available to be applied against future years’ income as result of the losses incurred. However, due to the losses incurred in the period and expected future operating results, management determined that it is more likely than not that the deferred tax asset resulting from the tax losses available for carryforward will not be realized through the reduction of future income tax payments. Accordingly a 100% valuation allowance has been recorded for deferred income tax assets. The net loss carry-forward was $626,379 and $381,879 for the years ended December 31, 2011 and December 31, 2010 respectively.
The deferred tax asset for December 31, 2011 and December 31, 2010 is as follows:
Based on the available objective evidence, including the Company’s history of its loss, management believes it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, the Company provided for a full valuation allowance against its net deferred tax assets at December 31, 2011 and 2010, respectively.
A reconciliation between the amounts of income tax benefit determined by applying the applicable U.S. and State statutory income tax rate to pre-tax loss is as follows:
In accordance with FASB ASC 740, the Company has evaluated its tax positions and determined there are no uncertain tax positions.
9. CONTINGINCIES
No legal proceedings are currently pending or, to our knowledge, threatened against us that, in the opinion our management, could reasonably be expected to have a material adverse effect on our business or financial conditions or results of operations.
10. IMPAIRMENT AVAILABLE-FOR-SALE SECURITIES
On July 20, 2011, Zentric, Inc. (“Company”) completed its Share Exchange Agreement with Ontex Holdings Limited, a Hong Kong Company (“Ontex”), pursuant to which the Company agreed to issue to Ontex 10,000,000 shares of common stock. In exchange, Ontex will issue to the Company 2,000,000 shares of Alpha Lujo, Inc. held by Ontex. Alpha Lujo, Inc.’s common stock is publicly traded on the OTC-BB. The share exchange was valued at $140,000 as an investment by the Company. On the same day the Company also completed the Share Exchange Agreement with Alpha Lujo, Inc. (“Alpha Lujo”), pursuant to which the Company agreed to issue to Alpha Lujo 6,666,667 shares of its common stock in exchange for 800,000 shares of common stock of Alpha Lujo. Based on Alpha Lujo’s most recent filing of their period ended March 31, 2011, the company has a total of 200,000,000 shares authorized and 23,244,000 shares issued and outstanding. Based on the 2,800,000 shares the Company received, that equates to 1.4% of total authorized and 12% of total outstanding. In both instances, it is less than 20% of total equity of Alpha Lujo’s shares, therefore, does not warrant consolidation treatment of the two companies and should be accounted for as an investment and evaluated for impairment periodically. The total value of $233,333 as of the July 20, 2011 was value as an investment assets and evaluated for impairment as of December 31, 2011. Based on evaluation, the company found it appropriate to impair the assets based on the following reason:
-
Company had negative cash flow; and
-
Company only assets is Cash; and
-
Low volume in share trading for the past 12 months; and
-
Company has no revenue stream
As of December 31, 2011, due to the above factors, the company has recorded a loss on impairment of securities available-for-sale in the amount of $233,333 under other expense in the statement of operations.
11. SUBSEQUENT EVENTS
On December 20, 2011, Zentric, Inc. entered into a subscription agreement to issue 11,000,000 common shares for $220,000 cash investment into the Company. On January 13, 2012, the transaction was completed and the shares were issued to bring the total outstanding shares to 110,575,827.
On January 9, 2012 the Board of Directors of Zentric, Inc. (the “Company”) filed a Certificate of Amendment to the Articles of Incorporation with the Secretary of State of Nevada increasing the authorized number of common shares to 500,000,000.
On March 20, 2012, Zentric (HK) Limited, a wholly owned subsidiary of Zentric, Inc. entered into an EPC agreement with Matinee Energy, Inc. for construction by Zentric, Inc. of the solar power plants for 20MWdcp (U$72M) in Benson, Arizona, as part of the aggregated 120 MWdcp of plants. This agreement has since been cancelled.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2011. Based on the evaluation of these disclosure controls and procedures, and in light of the material weaknesses found in our internal controls over financial reporting, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2011 using the criteria established in “Internal Control - Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. In its assessment of the effectiveness of internal control over financial reporting as of December 31, 2011, the Company determined that there were control deficiencies that constituted material weaknesses, as described below.
1)
We do not have an Audit Committee - While not being legally obligated to have an audit committee, it is the management’s view that such a committee, including a financial expert member, is an utmost important entity level control over the Company’s financial statement. Currently the Board of Directors acts in the capacity of the Audit Committee, and does not include a member that is considered to be independent of management to provide the necessary oversight over management’s activities.
2)
We did not maintain appropriate cash controls - As of December 31, 2011, the Company has not maintained sufficient internal controls over financial reporting for the cash process, including failure to segregate cash handling and accounting functions, and did not require dual signature on the Company’s bank accounts. Alternatively, the effects of poor cash controls were mitigated by the fact that the Company had limited transactions in their bank accounts.
3)
We did not implement appropriate information technology controls - As at December 31, 2011, the Company retains copies of all financial data and material agreements; however there is no formal procedure or evidence of normal backup of the Company’s data or off-site storage of the data in the event of theft, misplacement, or loss due to unmitigated factors.
Management is evaluating plans on a cost benefit basis to remedy the above weaknesses and we continue the process to complete a thorough review of our internal controls as part of our preparation for compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. Section 404 requires our management to report on, and our external auditors to attest to, the effectiveness of our internal control structure and procedures for financial reporting. As a non-accelerated filer under Rule 12b-2 of the Exchange Act, our first report under Section 404 as a smaller reporting company will be contained in our Form 10-K for the year ended December 31, 2011.
This annual report does not include an attestation report of the company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting identified in connection with our evaluation we conducted of the effectiveness of our internal control over financial reporting as of December 31, 2011, that occurred during our fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Managements report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this annual report.
Item 9B.
Item 9B. Other Information
None.
PART II
OTHER INFORMATION
Item 10.
Item 10. Directors, Executive Officers, Promoters and Control Persons
Directors and Executive Officers
Set forth below are the names, ages and present principal occupations or employment, and material occupations, positions, offices or employments for the past five years of our current directors and executive officers.
BUSINESS EXPERIENCE
Set forth below is the name of our director and officer, all positions and offices held with us, the period during which he has served as such, and the business experience during at least the last five years:
JEFF MAK was appointed as our Chief Executive Officer, Chief Financial officer and a member of the Board of Directors as of July 23, 2008. Mr. Mak brings several years of experience in the design and technology industry. He was a founder and director of Logicsys Technologies, Inc a once publicly traded company on the TSX. He was also, president and founder of Eastgate Innovations, Inc. a product design and research and development company which owns several original patents and has licensed to several other companies. Mr. Mak was previously co-founder and director of Peceptek Inc. for 6 years since January 2002 to February 2008.
WILLIAM TIEN was appointed as our President and a member of the Board of Directors on July 18, 2011. He is an entrepreneur and business consultant serving in officer capacities for various private and public (Australian) entities. Since August 2004, he has been a director of C8R Asia Limited, a Hong Kong based investment firm, which specializing in advising new technology driven businesses on formation, business structures, and business operations. Mr. Tien is the Chairman, President and Principal Financial Officer of Alpha Lujo, Inc., a reporting company under the federal securities laws (OTCBB:ALEV).
Neither our sole executive officer nor any of our directors is a director in any other U.S. reporting companies. Our director/officer has not been affiliated with any company that has filed for bankruptcy within the last five years. The Company is not aware of any proceedings to which the Company’s officer/directors, or any associate of any such officer/directors, is a party adverse to the Company or any of the Company’s subsidiaries or has a material interest adverse to it.
Each director of the Company serves for a term of one year or until the successor is elected at the Company's annual shareholders' meeting and is qualified, subject to removal by the Company's shareholders. Each officer serves, at the pleasure of the board of directors, for a term of one year and until the successor is elected at the annual meeting of the board of directors and is qualified.
Audit Committee and Expert
We do not have an audit committee or an audit committee financial expert. Our corporate financial affairs are simple at this stage of development and each financial transaction can be viewed by any officer or director at will. The policy of having no committee will change if the constitution of one such becomes necessary as a result of growth of the company or as mandated by public policy.
Auditors; Code of Ethics; Financial Expert
We do not currently have a Code of Ethics applicable to our principal executive, financial and accounting officers. We do not have a “financial expert” on the board or an audit committee or nominating committee.
Potential Conflicts of Interest
Since we do not have an audit or compensation committee comprised of independent directors, the functions that would have been performed by such committees are performed by our directors. Thus, there is a potential conflict of interest in that our directors and officers have the authority to determine issues concerning management compensation and audit issues that may affect management decisions. We are not aware of any other conflicts of interest with any of our executives or directors.
Director Independence
We are not subject to listing requirements of any national securities exchange or national securities association and, as a result, we are not at this time required to have our board comprised of a majority of “independent directors.” We do not believe that any of our directors currently meet the definition of “independent” as promulgated by the rules and regulations of the American Stock Exchange.
Item 11.
Item 11. Executive Compensation
Summary Compensation
On July 1, 2011, the Company approved an employment agreement with Jeff Mak, Chief Executive Officer, Chief Financial officer and a member of the Board of Directors offering a salary of 9,800 per month for his services. Due to the lack on cash on hand, this salary has been accrued for the year ended December 31, 2011. On October 1, 2010, Jeff Mak received 5,000,000 common shares valued at $240,000 for his services.
On November 1, 2011, the Company approved an employment agreement with William Tien was appointed as our President and a member of the Board of Directors offering a salary of $10,000 per month for his services. Due to the lack on cash on hand, this salary has been accrued for the year ended December 31, 2011. The agreement offers options as follows: option to acquire 1,000,000 common shares at $0.03 from December 31, 2011; option to acquire 1,000,000 common shares at $0.10 from December 31, 2012; option to acquire 1,000,000 common shares at $0.25 from December 31, 2013; and option to acquire 1,000,000 common shares at $0.50 from December 31, 2014. All options have a vesting period of three years or ninety days from termination of employment.
Since our incorporation on July 21, 2008, we have not paid any other compensation to our directors or officers in consideration for their services rendered to our Company in their capacity as such, other than the issuance of 500,000 shares of the Company’s common stock to Kwok Kwong Chan on August 6, 2008. We have no employment agreements with any of our directors or executive officers. We have no pension, health, annuity, bonus, insurance, stock options, profit sharing or similar benefit plans.
Outstanding Equity Awards
Our directors and officers do not have unexercised options, stock that has not vested, or equity incentive plan awards.
Compensation of Directors
Since our incorporation on July 21, 2003, we have issued 500,000 shares of common stock to Kwok Kwong Chan in consideration for his services rendered in his capacity as director, valued in the amount of $5,000.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table lists, as of April 16, 2011, the number of shares of common stock of our Company that are beneficially owned by (i) each person or entity known to our Company to be the beneficial owner of more than 5% of the outstanding common stock; (ii) each officer and director of our Company; and (iii) all officers and directors as a group. Information relating to beneficial ownership of common stock by our principal shareholders and management is based upon information furnished by each person using “beneficial ownership” concepts under the rules of the Securities and Exchange Commission. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to vote or direct the voting of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under the Securities and Exchange Commission rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary beneficial interest. Except as noted below, each person has sole voting and investment power.
The percentages below are calculated based on 110,775,827 shares of our common stock issued and outstanding as of April 16, 2011. We do not have any outstanding options, warrants or other securities exercisable for or convertible into shares of our common stock. Unless otherwise indicated, the address of each person listed is c/o Zentric, Inc., Unit C2, 802 Southdown Road, Mississauga, Ontario, L5J Canada.
Changes in Control
There are no arrangements which may result in a change in control of the Company.
Item 13.
Item 13. Certain Relationships and Related Transactions
Other than the transactions discussed below, we have not entered into any transaction nor are there any proposed transactions in which our Director, executive officer, stockholder or any member of the immediate family of the foregoing had or is to have a direct or indirect material interest.
Since Mr. Jeff Mak became our sole officer and a director, he has advanced funds for professional fees and general expenses in the amount of $10,632 and $23,453 as of December 31, 2011 and 2010, respectively.
Item 14.
Item 14. Principal Accounting Fees and Services.
Audit Fees
The aggregate fees billed for professional services rendered by the Company’s principal accountant for the audit of the Company’s annual financial statements for the fiscal years ended December 31, 2011 and 2010 were $7,800 and $7,500 respectively.
Audit-Related Fees
The Company incurred no fees during the last two fiscal years for assurance and related services by the Company’s principal accountant that were reasonably related to the performance of the audit or review of the registrant’s financial statements and are not reported under Item 9(e)(1) of Schedule A.
Tax Fees
The Company incurred no fees during the last two fiscal years for professional services rendered by the Company’s principal accountant for tax compliance, tax advice and tax planning.
All Other Fees
The Company incurred fees during the last two fiscal years ended December 31, 2011 and 2010 were $7,500 and $0 for services rendered by the Company’s principal accountants relating to the review of quarterly financial statements for inclusion in the Company's quarterly reports on Form 10-Q.
PART IV
Item 15.
Item 15. Exhibits, Financial Statement Schedules
a) Exhibits
** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
(1) Incorporated by reference to previous filing
(2)These items have been previously filed
b) Reports on Form 8-K
Form 8-K Filed on October 15, 2010, reporting a joint venture agreement with Hengxin Group and Jet Glory Asia Group Limited to develop and operate a battery manufacturing plant in Jilin, China.
Form 8-K Filed on May 21, 2011 reporting a share exchange agreement with Ontex Holdings Limited, a Hong Kong company (“Ontex”).
Form 8-K Filed on November 18, 2011, reporting that Zentric (HK) Limited, a wholly owned subsidiary of Zentric, Inc. entered into a strategic partnership with Lightway Australia Pty Ltd. to form Zentric Solar, Inc. Zentric, Inc. will hold a 35% equity interest in the new partnership while Lightway Australia Pty Ltd retains a 60% equity interest with the balance of 5% owned by Commerce King Limited.
Form 8-K Filed on January 18, 2012 reporting that on January 9, 2012 the Board of Directors of Zentric, Inc. filed a Certificate of Amendment to the Articles of Incorporation with the Secretary of State of Nevada increasing the authorized number of common shares to 500,000,000.
Form 8-K Filed on March 20,2012, Zentric (HK) Limited, a wholly owned subsidiary of Zentric, Inc. entered into an EPC agreement with Matinee Energy, Inc. for construction by Zentric, Inc. of the solar power plants for 20MWdcp (U$72M) in Benson, Arizona, as part of the aggregated 120 MWdcp of plants using a part of the larger site (1200 acres).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this annual report on Form 10-K to be signed on its behalf by the undersigned thereunto duly authorized.
ZENTRIC, INC.
Date: April 16, 2012
By:
/s/ Jeff Mak
Name: Jeff Mak
Title: Chief Executive Officer, Chief Financial Officer
(Principal Executive Financial and Accounting Officer)