Zenergy Brands Inc (fka ZNGYQ)

[Pro-Life]

Shareholder Newsletter: 2018 Year in Review

Greetings

Dearest Shareholders, Family, and Friends of Zenergy:

Let me start by wishing you all a Happy New Year! 2018 was undoubtedly a challenging one filled with its fair share of both highs and lows, but more than anything, I am so excited to be leaving it behind and transitioning into 2019. I know that we have been notoriously silent over the past five to six months, but we had reasons for our silence, many of which were due to legal and regulatory provisions for the same – chief among these was keeping our head down until we had something definitive. In that spirit, we were working on several mission-critical, high stakes transactions we weren’t at liberty to publicly comment on until the transactions had been executed (more on that below) or there were definitive documents in place. The purpose of this newsletter is to provide you with a precise Year-in-Review of 2018 and set the stage for our vision for the New Year.

Year 3 of 3 to 5-Year Plan

Many of you invested in the company back in our embryonic stages, and we are incredibly thankful for that. As you all know, we have recently completed our third year in business, and one of the things that both Byron and I had been adamant about is that we are operating under a 3 to 5-year plan and that our shareholders should also have that same mentality or outlook. We’ve now entered into that phase – 2018 marked our first year in the revenue-generating phase in our lifecycle. In the midst of the turbulence that we faced in the last half of 2018, I think we did reasonably well. Moreover, the adversity served us well in fine-tuning our focus and dedication of resources by separating the mediocre and the good from the great – to borrow a page from Henry Cloud’s “Necessary Endings.” I believe that you will sense this newfound focus and empowerment from us moving forward.

I am pleased with our management team and their execution of our strategy, in spite of the myriad of challenges we faced as an emerging growth company. I covered the following topic at length in a previous blog last year, parts of which I will reference in giving you updates on this subject. For emerging growth companies, growth and stability can be difficult to achieve as there are many moving parts, shifting priorities, tweaks to the strategy, adjustments in the business model, limited access to quality sources of capital—the list goes on, and Zenergy was no exception to the rule having experienced all of these growing pains and then some in 2018. As alluded to above in my comments on our newfound focus, I do believe that much of these growing pains are behind us, the exception, in my opinion, being capital and access to capital – both of which I will expound upon a bit further below.

Cessation of Retail Electric Provider (REP)

As many of you already know and as we announced to the market a few weeks ago, we made the tough decision to cease our REP operation. Apart from relaying to you that this was no easy decision, there isn’t much more to report on that update that is not in the Formal 8K we filed on December 14th. I also addressed the matter from a business standpoint in a blog that I posted on January 7th, which you may access by clicking here. As we continue down this path, we will provide the required updates.

We do want to reassure all customers, aggregators, brokers, and consultants not to worry about any mishaps during this transition process – we have the utmost confidence in Infuse Energy and enjoy an excellent working relationship with them. Should any of you have any questions, comments or concerns, please do not hesitate to email us at [e-mail].

Convertible Debt Notes & Share Price

I have stated this before, and while I certainly do not mean to sound like a broken record, I never envisioned that our team would’ve had to execute our business plan amidst a tremendous amount of downward pressure on our stock, but alas, that was the bane of our existence in 2018. Unfortunately, time and again in 2018, we had to substantially increase our authorized shares to satisfy the “reserve” dynamic associated with our convertible debt notes, as referenced in my blog post on this topic. As per our S1 registration, some of our financiers had shares that were registered and, had the ability to become sellers while other notes were still waiting to mature. We believed that we were showing improvement and could attract better and friendlier sources of capital while simultaneously building our revenue base. If you all recall, this was evidenced by the fact that we had paid down $107,000 to one lender and $25,800 to another – in both of these instances, we paid down convertible debt before it converted.

As previously stated, our original plan was that we would have gotten rid of all or at least the majority of these notes before they converted no later than May 1st of 2018 and then just weeks before these timelines, the industry underwent several changes from many of the brokerage and clearing houses. As a result, almost overnight, it became tedious, if not impossible for any of these investors to deposit our stock. Just before this, we had no less than three prospective suitors, two of whom we even had even negotiated term sheets with – but then the issue mentioned above in the marketplace scared them all away. It’s proved to be a difficult task ever since; however, we’ve still pressed forward in executing our business plan, while at the same time attempting to attract new money and restructure our debt.

While we were and and still do remain very displeased at every turn about having to increase our number of authorized shares, the only silver lining is that they are converting out of their positions. We hold steadfast to our plan to clean up the balance sheet this year as fast as possible, which we hope will have a positive effect on our price per share. I am hopeful that with the TCA Debenture Facility behind us, we should be able to attract some new equity-based investors or perhaps at the least, longer-term, friendlier debt so that we can restructure our debt stack and obligations. I believe that smart investors should recognize this event as the beginning of an inflection point for us.

I know that I have addressed this before, but it should be repeated – neither myself nor Byron, nor any of the management team at Zenergy, benefit in any manner from issuing more shares or allowing these note holders to continue converting. I assure you all that we would love nothing more than to be in a position to repay these as soon as possible. We remain committed to making this happen as quickly as we can. Having said all of that, I do not want to mislead anyone either; the cold hard truth is that while this quagmire that is the downward pressure on our stock persists, no amount of investor relations or public relations strategies will make a dent in that aspect of our business. We must continue striving to do everything in our power to clean up our balance sheet by eliminating 100% of the convertible debt notes, whether via securing friendlier sources of capital, closing an equity investment or generating sufficient profits to apply toward that effort, all of which we are committed to doing in 2019; not that we had not been attempting the same in 2018.

Lastly, I do not wish to cast a negative light on any of these convertible note holders – most of them have been very positive towards us and have demonstrated a willingness to negotiate pay-off amounts and structures that I would categorize as mutually beneficial. I am happy that I can say our lines of communication have remained open and positive all along.

Closing of $10 Million Debenture Facility with TCA

After several months of lengthy due diligence and negotiations up until the final hours, I am happy to share with you all that we closed on what is referred to as a debenture facility, however, secured by our revenues, our intellectual property and, most importantly, all our assets – otherwise known as Zero Cost Program™ contracts. You may find details of the funding deal in the 8K we filed with the SEC by clicking here; moreover, you should take the time to see and share the press release that we distributed, which you may access by clicking here.

This was a very trying time for us – for starters, unlike the host of convertible debt lenders, whose level of due diligence is merely a review of a company’s stock and trading volume, in an asset-based-loan, the amount of due diligence conducted is about the same as it would be for any bonafide merger or acquisition. There were no stones left unturned. In addition to the strenuous exercise of conducting the due diligence, we also endured several weeks of setbacks. Towards giving you an appreciation for the delays that we had to contend with, it’s worth noting that we initially were informed that we could close as soon as 10/15/2019, but no later than 10/27/2019 – then we targeted 11/9/2019, 11/16/2019, 11/30/2019 – I’m sure you’re starting to get the picture (we ended up closing on Christmas Eve). These setbacks included but were not limited to the various stakeholders and events surrounding the REP business, the cessation of the REP business, the last-minute change-up in their request for a Personal Guarantee from myself and my spouse, and changes we needed to make within our organization.

We, of course, were under an inordinate amount of pressure to get this closed, we had Zero Cost contracts on standby, the promise of new deals, audits to complete, new customers in waiting upon closing, and a host of others growing weary in waiting on us. Keeping all of these parties, including our various vendors and partners on standby and believing that this deal would happen proved to be an incredibly difficult task as October and then November elapsed. Then, of course, I was also very concerned that “deal fatigue” would set in, especially as we got closer to the holidays – I feared that TCA would just fold their hands say “we’re out.” Thankfully, I am satisfied in reporting that instead, TCA showed their support and understanding of our business and our assets by working diligently up until the last minute to get our deal across the finish line.

One of the most challenging items that we had to contend with was the constant renegotiation of our first tranche amount. The original amount that we had been working from was $3.6M, which was an amount that would've been enough to fulfill all of our immediate and long-term needs, and would've also allowed us to get rid of all of the aforementioned convertible notes. As a result of the setbacks, we ended up taking several haircuts along the way, and with the cessation of the REP, we simply couldn’t justify the original plan anymore.

In spite of the nuances of this transaction and the changes to our first tranche amount, I do believe that we are an excellent fit for TCA. Furthermore, in addition to providing funding, their advisory services and investment banking services should provide some extraordinary opportunities for us to evolve and grow past this initial amount. Their executive team is incredibly sophisticated, and so far, I have found their insights to be beneficial for us as a company from a strategy and planning perspective. While future tranches are subject to TCA’s sole discretion, they have expressed to me the possibility of taking out the convertible notes in a second tranche event. In the grand scheme of things, this is a large deal and, while it didn’t close on schedule with the timelines that we at Zenergy wish it could have, the reality is that TCA did a phenomenal job in carrying this across the goal line and did it faster or as fast as any other group could have. So I am thankful for them.

By the way, I must now disclaim that under no circumstances am I representing that my commentary on TCA or the TCA funding transaction in any part of this newsletter is an endorsement by TCA of Zenergy's assets, including but not limited to, our business plan, our stock, and our Zero Cost Program. It is imperative that shareholders do not misconstrue my sentiments of enthusiasm toward TCA or my excitement about our future relationship in the wake of the above-mentioned debenture facility to constitute an endorsement of Zenergy by TCA in any sense of the word. My statements herein also don't represent recommendations or advice by TCA for shareholders or any investor to make an investment decision with regard to our stock, and should not be misinterpreted as such.

So, in summation and per the transaction, TCA has funded the initial tranche and will fund additional tranches up to $10 Million as we execute new revenue-generating contracts—Zero Cost and other related services. We expect to acquire several new deals throughout 2019 and intend to use the Debenture facility to fulfill our obligations under these Managed Energy Services Agreements. In addition to this debenture facility, we are also putting in place an additional facility through another lending group for large Zero Cost contracts – this would be any Zero Cost contract larger than $3M in total contract value. There is nothing definitive yet; however, we do expect to have this facility in place by the end of February, and I look forward to updating you more on this soon. The best thing that we can do as a company now is to bring on as many commercial customers as possible and continue to block and tackle effectively; so, for those shareholders not yet active as a Zenergy Associate, now is the most significant time for you to get involved.

On a Personal Note:

I am an entrepreneur, and therefore, it is customary for me to take calculated risks from time to time—investing dollars, time and resources into some endeavor or venture. As an example, in the case of the TCA transaction, my wife and I executed a Personal Guarantee in support of the transaction and on behalf of Zenergy; I am indeed “all-in” as they say – but that’s what entrepreneurship is about, in my humble opinion.

I have been an entrepreneur for over 20 years now, and while I have experienced dismal failures, I have also had the privilege of experiencing unparalleled, history-making success – clearly, I prefer the latter, but that’s another story. While undertaking one of my previous ventures, I achieved overwhelming success—it can only be described as capturing lightning in a bottle. It was a combination of smarts, mixed with timing, combined with luck and, of course, tons of hard work. I was about 30 to 31 years old and about a year into that business and we were approaching several hundred million dollars of revenue in our second year when one of my co-founders and and the company’s chief/lead investor told me that I would be “forever ruined” regarding any future business activities I would ever embark upon.

He meant this from the perspective that these types of opportunities and, more specifically, this type of success doesn’t come along more than once in a lifetime; in other words, I had "peaked" at thirty years old. Of course, being young I foolishly thought that I knew it all; therefore, I didn’t subscribe to this line of thinking and was immediately dismissive of it. Funny enough, somehow, I never forgot those words, never forgot this perspective. Over the ten years that followed his peculiar remark, I would actually come to respect just how true his words were and, more importantly, I would learn that lightning indeed doesn’t strike twice. As I began to grip the implications of this truth, I realized how somber it was – by year 12, 13 and 14, that truth had settled into my soul in sort of a dark cloud fashion.

Allow me to depart from this story and share with you about my entry into the deregulated energy industry in 2001, which occurred years before the experience above. I was coming out of the dot.com world wherein I was a day late and a dollar short, and I came across the opportunity to get into deregulation of the Texas electricity market. I "made my bones" so to speak in the world of deregulated telecommunications, so I understood what was happening to the market landscape and I definitely understood the customer sentiment better than most of the people in the energy industry back then. I’ll never forget being on my very first sales appointment—a cold call—and I was presenting a three-year fixed rate, while at the same time explaining how the newly deregulated electricity market would work (which I had probably learned days before). In this case, we were saving this customer about $260,000 in annual savings – the entire thing lasted about an hour, and I walked out with a signed contract in hand.

It wasn’t until days later that I realized that this first contract would render a residual commission check of about $4,000 a month over the next 36 months; I was forever ruined for ordinary income from that day forward. For me, this industry hit so many buttons for what I viewed as a great opportunity for me to be in as an employee or as an investor: "Does everyone need it?" Check! "Is there a repeat-order factor?" Check! "Is it recession resistant?" Check! "Are there barriers to entry?" Check! This one event convinced me that I was doing the right thing; so much so that I went out and convinced about ten others to get in the industry with me as my agents – and we hit the pavement hard. It is because of these two experiences that I have long thought that the deregulated energy industry is one of the greatest—if not the greatest—opportunities on the face of the planet.

In any event, my point is that I am sharing these two different experiences with you because I want to relay two things: First, I believe that the opportunity presented by our Zero Cost Program has the potential to dwarf that of the deregulated energy industry entirely. Secondly, I am convinced that Zenergy can indeed represent lightning striking twice.

Note that the above two statements on my personal experiences are not promises or guarantees of success – they are merely my observations about our potential. The reality is that we are still an emerging growth company and still faced with many challenges, and our biggest obstacle is better immediate capitalization and ongoing scalable capitalization in support of the growth associated with the Zero Cost Program. That said, should we succeed in figuring out these elements, I’m convinced that more people will share my view as we will begin to manifest that potential in earnest.

In conclusion, thank you all and cheers to a phenomenal 2019! I look forward to visiting with you at the next Annual Shareholder Meeting. Godspeed.

Respectfully yours,

Alex Rodriguez