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EX-23.1 - EXHIBIT 23.1 - IX ENERGY HOLDINGS, INC. | ex231.htm |
AS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 22, 2010
An
Exhibit List can be found beginning on page II-2
REGISTRATION
NO. 333-158995
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
S-1/A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
IX
Energy Holdings Inc.
(Exact
name of registrant as specified in its charter)
Delaware
|
4911
|
36-4620445
|
||
(State
or jurisdiction of
|
(Primary
Standard Industrial
|
(I.R.S.
Employer
|
||
incorporation
or organization)
|
Classification
Code Number)
|
Identification
No.)
|
711 Third
Avenue, 18 th
Floor
New York,
New York 10017
(212)
682-5068
(Address
and telephone number of principal executive offices)
Steven
Hoffman
711 Third
Avenue, 18 th
Floor
New York,
New York 10017
(212)
682-5068
(Name,
address and telephone number of agent for service)
Copies
to:
Gregory
Sichenzia, Esq.
Sichenzia
Ross Friedman Ference LLP
61
Broadway, 32 nd
Floor
New York,
New York 10006
(212)
930-9700
(212)
930-9725 (fax)
Approximate date of commencement of
proposed sale to the public: From time to time after the effective date
of this registration statement.
If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the
following box. x
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
(COVER
CONTINUES ON FOLLOWING PAGE)
i
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
o Large accelerated
filer
o Accelerated
filer
o Non-accelerated
filer
x Smaller reporting
company
ii
CALCULATION OF
REGISTRATION FEE
Title
of each class of securities
to
be registered
|
Amount
to be Registered (1)
|
Proposed
Maximum Offering Price Per Security (2)
|
Proposed
Maximum Aggregate Offering Price
|
Amount
of Registration Fee
|
||||||||||||
Common
Stock, $.0001 par value per share
|
8,958,299 | $ | 0.42 | $ | 3,762,485.58 | $ | 209.95 | |||||||||
Common
Stock, $.0001 par value per share, issuable upon exercise of
warrants
|
9,177,500 | $ | 0.42 | $ | 3,854,550 | $ | 215.08 | |||||||||
Total
|
18,135,799 | $ | 7,617,035.58 | $ | 425.03 | * |
* Previously
paid
(1)
Relates to common stock, of IX Energy Holdings, Inc. offered by the selling
stockholders. In the event of a stock split, stock dividend or similar
transaction involving our common stock, the number of shares registered shall
automatically be increased to cover the additional shares of common stock
issuable pursuant to Rule 416 under the Securities Act of 1933, as
amended.
(2)
Estimated solely for purposes of calculating the registration fee in accordance
with Rule 457(c) under the Securities Act of 1933, using the average of the high
and low prices as reported on the Over The Counter Bulletin Board on April 30,
2009, which was $0.42 per share.
The
registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
The
information in this prospectus is not complete and may be changed. We may not
sell these securities until the registration statement filed with the Securities
and Exchange Commission is effective. This prospectus is not an offer to sell
these securities and is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
iii
PRELIMINARY PROSPECTUS, SUBJECT TO
COMPLETION, DATED JANUARY 22,
2010
IX
Energy Holdings, Inc.
OTC
Bulletin Board trading symbol: IXEH.OB
18,135,799
Shares of Common Stock
This
prospectus relates to periodic offers and resales of up to 18,135,799 shares of
our common stock, including 9,177,500 shares of common stock issuable upon
exercise of outstanding warrants. The Selling stockholders may sell common stock
from time to time in the principal market on which the stock is traded at the
prevailing market price or in negotiated transactions. The selling stockholders
may be deemed underwriters of the shares of common stock which they are
offering. We will pay the expenses of registering these
shares.
Our
common stock is quoted on the OTC Bulletin Board and trades under the symbol
"IXEH.OB". The last reported sale price of our common stock on
the OTC Bulletin Board on January 20, 2010 was $.0115 per share.
Investing
in our common stock involves substantial risks.
See
“Risk Factors,” beginning on page 4.
We
may amend or supplement this prospectus from time to time by filing amendments
or supplements as required. You should read the entire prospectus and any
amendments or supplements carefully before you make your investment
decision.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal
offense.
The
date of this prospectus is_________, 2009.
iv
IX ENERGY HOLDINGS, INC. HAS NOT
REGISTERED THE SHARES FOR SALE BY THE SELLING SHAREHOLDERS UNDER THE SECURITIES
LAWS OF ANY STATE. BROKERS OR DEALERS EFFECTING
TRANSACTIONS IN THE SHARES SHOULD CONFIRM THAT THE SHARES HAVE BEEN REGISTERED
UNDER THE SECURITIES LAWS OF THE STATE OR STATES IN WHICH SALES OF THE SHARES
OCCUR AS OF THE TIME OF SUCH SALES, OR THAT THERE IS AN AVAILABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES LAWS OF SUCH
STATES.
THIS PROSPECTUS IS NOT AN OFFER TO
SELL ANY SECURITIES OTHER THAN THE SHARES. THIS PROSPECTUS IS NOT AN OFFER TO
SELL SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH AN OFFER IS
UNLAWFUL.
IX ENERGY HOLDINGS, INC. HAS NOT
AUTHORIZED ANYONE, INCLUDING ANY SALESPERSON OR BROKER, TO GIVE ORAL OR WRITTEN
INFORMATION ABOUT THIS OFFERING, IX ENERGY, INC., OR THE SHARES THAT IS
DIFFERENT FROM THE INFORMATION INCLUDED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS. YOU SHOULD NOT ASSUME THAT THE
INFORMATION IN THIS PROSPECTUS, OR ANY SUPPLEMENT TO THIS PROSPECTUS, IS
ACCURATE AT ANY DATE OTHER THAN THE DATE INDICATED ON THE COVER PAGE OF THIS
PROSPECTUS OR ANY SUPPLEMENT TO IT.
IN
THIS PROSPECTUS, REFERENCES TO "IX ENERGY," "THE COMPANY," "WE," "US," AND
"OUR," REFER TO IX ENERGY HOLDINGS, INC.
IX
ENERGY HOLDINGS, INC.
TABLE
OF CONTENTS
Page
|
|||
Prospectus
Summary
|
1
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||
Risk
Factors
|
3
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||
Forward-Looking
Statements
|
12
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||
Use
of Proceeds
|
12
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||
Selling
Stockholders
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13
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||
Plan
of Distribution
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16
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||
Market
for Common Equity and Related Stockholder Matters
|
19
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||
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
19
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Description
of Business
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27
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||
Description
of Property
|
33
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||
Legal
Proceedings
|
33
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||
Directors,
Executive Officers, Promoters and Control Persons
|
33
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Executive
Compensation
|
35
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Security
Ownership of Certain Beneficial Owners and Management
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36
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Certain
Relationships and Related Transactions
|
37
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Description
of Securities
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38
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Indemnification
for Securities Act Liabilities
|
39
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Changes
in Independent Registered Public Accountants
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39
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Legal
Matters
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40
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||
Experts
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40
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Available
Information
|
40
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Index
to Financial Statements
|
F-1
|
You may
only rely on the information contained in this prospectus or that we have
referred you to. We have not authorized anyone to provide you with different
information. This prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the common stock
offered by this prospectus. This prospectus does not constitute an offer to sell
or a solicitation of an offer to buy any common stock in any circumstances in
which such offer or solicitation is unlawful. Neither the delivery of this
prospectus nor any sale made in connection with this prospectus shall, under any
circumstances, create any implication that there has been no change in our
affairs since the date of this prospectus or that the information contained by
reference to this prospectus is correct as of any time after its
date.
v
PROSPECTUS
SUMMARY
IX
ENERGY HOLDINGS, INC.
On
December 30, 2008, we entered into an Agreement and Plan of Merger and
Reorganization (the “Merger Agreement”) with IX Energy, Inc., a Delaware
corporation (“IX Energy”), and IX Acquisition Corp., a Delaware corporation and
wholly-owned subsidiary of Yoo Inc. (the “Acquisition Sub”). Pursuant
to the Merger Agreement, the Acquisition Sub merged with and into IX Energy and
IX Energy became a wholly-owned subsidiary of Yoo Inc. On January 13,
2009, the Company’s name was changed to IX Energy Holdings, Inc. In
connection with this reverse merger, we discontinued our former business and
succeeded to the business of IX Energy as our sole line of
business. As a result, we are now engaged in the development and
financing of solar power and other renewable energy solutions
systems.
IX Energy
was incorporated in the State of Delaware on March 3, 2006 for the purpose of
designing, selling and installing high-performance solar electric power
technologies. Since our inception, our operations have principally involved the
integration and installation of solar power systems manufactured by third
parties. However, in an effort to become a vertically integrated solar products
and services company that manufactures, designs, markets and installs its own
solar power systems, in 2008 we entered into an agreement to manufacture
solar modules that will be marketed primarily to federal military and civilian
agencies. The Company began generating revenue from operations in 2007.
Currently, its principal customer is Federal Prison Industries, Inc.
("UNICOR").
As a
turnkey solutions provided in the renewable energy sector IX Energy is
developing integrated capabilities such as a solar integrated ground source
system to deliver a closed loop solar-geothermal application for government,
military and commercial customers.
Our
executive offices are located at711 Third Avenue, 12 th
Floor, New York, New York 10017. Our telephone number: ( 212)
682-5068.
The
shares included in this Registration Statement were acquired by the selling
shareholders in the following financing transactions:
Equity
Financing
In
December 2008 and February 2009, we sold an aggregate of 34.75 units ("Units")
or an aggregate of 8,687,5000 shares and warrants to purchase 8,687,5000 in a
private placement offering (the "Private Placement"), with each Unit consisting
of 250,000 shares of common stock of the Company (on a post-Forward Split basis)
and a three-year detachable warrant (the "Warrant") to purchase 250,000 shares
of common stock of the Company (on a post-Forward Split basis), at a purchase
price per Unit of $100,000. The Warrant has an exercise price of $0.50 per share
for a term of three years.
Bridge
Notes Financing
In July
2008, our wholly owned subsidiary, IX Energy, Inc. sold an aggregate of $500,000
principal amount of 5% promissory notes ("Bridge Notes") in a private placement
transaction. The purchasers of Bridge Notes paid an aggregate gross purchase
price of $500,000 for such Bridge Notes and an aggregate of 270,799 shares of
common stock of the Company's Common Stock (the "Bridge Common"). The Bridge
Notes are due and payable upon the earlier of July 13, 2009 and the date the
Company, consummate an offering or offerings raising gross proceeds of at least
$3.5 million (a "Permanent Financing"). The Bridge Notes also provide that, upon
the consummation of a Permanent Financing, the holders shall have the right to
exchange such Bridge Notes for an amount of securities that could be purchased
in such Permanent Financing for a purchase price equal to the outstanding
principal and accrued interest on such Bridge Notes. IX Energy utilized the
services of Westminster Securities Corporation, a registered broker dealer firm,
for the offer and sale of the Bridge Notes.
1
The
Offering
Common
Stock outstanding prior to the offering
|
65,893,143 (1)
|
|
Common
stock offered by the selling stockholders
|
18,135,799
(2)
|
|
Common
Stock to be outstanding after the offering
|
75,070,643 (3)
|
|
Use
of proceeds
|
We
will not receive any proceeds from the sale of the common stock hereunder.
We will receive the sale price of any common stock we sell to the selling
stockholders upon exercise of warrants. We expect to use the proceeds
received from the exercise of warrants, if any, for general working
capital purposes. However, the selling stockholders are entitled to
exercise the warrants on a cashless basis if, one year after their initial
issuance, there is no to the shares of common stock underlying the
warrants are not then registered pursuant to an effective registration
statement or there is no current prospectus available for the resale of
the shares of common stock underlying the warrants. In the event that the
selling stockholders exercise the warrants on a cashless basis, we will
not receive any proceeds.
|
|
OTCBB
Symbol
|
IXEH
|
(1)
|
Includes
8,958,299 shares issued to the Selling Shareholders.
|
|
(2)
|
Includes
shares underlying an aggregate of 9,177,500 three-year warrants with an
exercise price of $0.50 per share included in this registration
statement.
|
|
(3)
|
Assumes
the exercise of an aggregate of 9,177,500 three-year warrants with an
exercise price of $0.50 per share included in this registration
statement.
|
2
RISK
FACTORS
You
should carefully consider the risks described below as well as other information
provided to you in this document, including information in the section of this
document entitled “Forward Looking Statements.” If any of the following risks
actually occur, our business, financial condition or results of operations could
be materially adversely affected, the value of our common stock could decline,
and you may lose all or part of your investment.
Risks
Relating to Our Business
Since
we lack a meaningful operating history, it is difficult for potential investors
to evaluate our business.
Our
limited operating history makes it difficult for potential investors to evaluate
our business or prospective operations. Since our formation, we have generated
only limited revenues. As a startup, we are subject to all the risks inherent in
the initial organization, financing, expenditures, complications and delays
inherent in a new business. Investors should evaluate an investment in us in
light of the uncertainties encountered by start-up companies in a competitive
environment. Our business is dependent upon the implementation of our business
plan, as well as our ability to enter into agreements with suppliers, customers
or integral service providers on commercially favorable terms. There can be no
assurance that our efforts will be successful or that we will ultimately be able
to attain profitability.
We
will need additional financing to execute our business plan and fund operations,
which additional financing may not be available on reasonable terms or at
all.
Although
we recently raised an aggregate of $3.475 million in a private placement, our
ultimate success may depend upon our ability to raise additional capital. There
can be no assurance that additional funds will be available when needed from any
source or, if available, will be available on terms that are acceptable to
us.
We may be
required to pursue sources of additional capital through various means,
including joint venture projects and debt or equity financings. Future
financings through equity investments are likely to be dilutive to existing
stockholders. Also, the terms of securities we may issue in future capital
transactions may be more favorable for our new investors. Newly issued
securities may include preferences, superior voting rights, the issuance of
warrants or other derivative securities, and the issuances of incentive awards
under equity employee incentive plans, which may have additional dilutive
effects. Further, we may incur substantial costs in pursuing future capital
and/or financing, including investment banking fees, legal fees, accounting
fees, printing and distribution expenses and other costs. We may also be
required to recognize non-cash expenses in connection with certain securities we
may issue, such as convertible notes and warrants, which will adversely impact
our financial condition.
Our
ability to obtain needed financing may be impaired by such factors as the
capital markets, both generally and specifically in the renewable energy
industry, and the fact that we are not profitable, which could impact the
availability or cost of future financings. If the amount of capital we are able
to raise from financing activities, together with our revenues from operations,
is not sufficient to satisfy our capital needs, even to the extent that we
reduce our operations accordingly, we may be required to cease
operations.
Our
operations may be negatively impacted if the exercise price of the warrants
issued to the investors in the offering in December 2008 and February 2009 are
reduced from $.50 to $0.01because of our failure to reach certain revenue
targets.
The terms
of the warrants issued to the investors in the private placement offering by the
Company which closed in December 2008 and February 2009, provides that if we
fail to achieve at least $17.5 million of consolidated gross revenue within one
year of closing the private placement, the exercise price of the warrants will
be adjusted from $0.50 to $0.01. If we were to fail to achieve the targeted
revenue, the proceeds to us upon exercise of the warrants by the Selling
Shareholders will be $91,775 instead of $4,588,750. This significant drop in the
proceeds to the Company from the exercise of the warrants will impact the
Company’s working capital and will place increased pressures on the
Company to obtain sufficient funds for its operations. The failure to obtain
financing on acceptable terms to the Company and its management may cause the
Company to curtail its operations.
3
We
are dependent upon key personnel whose loss may adversely impact our
business.
We rely
heavily on the expertise, experience and continued services of our senior
management, especially Steven Hoffmann, our Chairman and Chief Executive
Officer. The loss of Mr. Hoffmann, or an inability to attract or retain other
key individuals, could materially adversely affect us. We seek to compensate and
motivate our executives, as well as other employees, through competitive
salaries and bonus plans, but there can be no assurance that these programs will
allow us to retain key employees or hire new key employees. As a result, if Mr.
Hoffmann left us, we could face substantial difficulty in hiring a qualified
successor and could experience a loss in productivity while any such successor
obtains
the
necessary training and experience. In connection with the Merger, we assumed an
employment agreement with Mr. Hoffmann. However, there can be no assurance that
the terms of this employment agreement will be sufficient to retain Mr.
Hoffmann.
We
may be unable to complete our development, manufacturing and commercialization
plans, and the failure to do so will significantly harm our business plans,
prospects, results of operations and financial condition.
Commercializing
our planned solar modules and processes depends on a number of factors,
including but not limited to:
•
|
further
product and manufacturing process development;
|
•
|
development
of certain critical tools;
|
•
|
completion,
refinement and management of our supply chain;
|
•
|
completion,
refinement, and management of our distribution
channels;
|
•
|
demonstration
of efficiencies that will make our products attractively priced;
and
|
•
|
developing
an adequate sales force and sales channels necessary to distribute our
products and achieve our desired revenue
goals.
|
We do not
have any experience in carrying out any of the foregoing tasks, and, as such, we
cannot assure investors that the strategies we intend to employ will enable us
to support the large-scale manufacturing of commercially desirable solar
modules.
We
may not be able to effectively control and manage our growth.
Our
strategy envisions a period of potentially rapid growth. We currently maintain
nominal administrative and personnel capacity due to the startup nature of our
business, and our expected growth may impose a significant burden on our future
planned administrative and operational resources. The growth of our business may
require significant investments of capital and increased demands on our
management, workforce and facilities. We will be required to substantially
expand our administrative and operational resources and attract, train, manage
and retain qualified management and other personnel. Failure to do so or satisfy
such increased demands would interrupt or would have a material adverse effect
on our business and results of operations.
Our
products have never been sold on a mass market commercial basis, and we do not
know whether they will be accepted by the market.
The solar
energy market is at a relatively early stage of development and the extent to
which solar modules will be widely adopted is uncertain. If our products are not
accepted by the market, our business plans, prospects, results of operations and
financial condition will suffer. Moreover, demand for solar modules in our
targeted markets may not develop or may develop to a lesser extent than we
anticipate. The development of a successful market for our proposed products and
our ability to sell our products at a lower price per watt may be affected by a
number of factors, many of which are beyond our control, including, but not
limited to:
•
|
failure
to produce solar power products that compete favorably against other solar
power products on the basis of cost, quality and
performance;
|
•
|
competition
from conventional energy sources and alternative distributed generation
technologies, such as wind energy;
|
•
|
failure
to develop and maintain successful relationships with suppliers,
distributors and strategic partners; and
|
•
|
customer
acceptance of our products.
|
If our
proposed products fail to gain sufficient market acceptance, our business plans,
prospects, results of operations and financial condition will
suffer.
We
could become involved in intellectual property disputes that create a drain on
our resources and could ultimately impair our assets.
We rely
on trade secrets and our industry expertise and know how. We do not knowingly
infringe on patents, copyrights or other intellectual property rights owned by
other parties; however, in the event of an infringement claim, we may be
required to spend a significant amount of money to defend a claim, develop a
non-infringing alternative or to obtain licenses. We may not be successful in
developing such an alternative or obtaining licenses on reasonable terms, if at
all. Any litigation, even if without merit, could result in substantial costs
and diversion of our resources and could materially and adversely affect our
business and operating results.
4
Upon
commencement of manufacturing with UNICOR, we will be dependent upon a limited
number of third party suppliers, some of whom will be located in foreign
countries, for key materials, and any disruption from such suppliers or
fluctuations in foreign currency and exchange rates could prevent us from
manufacturing and selling cost-effective products.
We
anticipate manufacturing our products with UNICOR using materials and components
procured from a limited number of third-party suppliers. If we fail to maintain
our relationships with these suppliers, or fail to secure additional supply
sources from other solar cell suppliers, UNICOR may be unable to manufacture our
products or our products may be available only at a higher cost or after a long
delay. Any of these factors could prevent us from delivering our products to our
customers within required timeframes, resulting in potential order cancellations
and lost revenue. Further, we intend to purchase solar cells for our solar
modules from suppliers located in foreign countries. We will therefore be
subject to risks associated with fluctuations in foreign currency and exchange
rates. As a result, we may not be able to manufacture our products with UNICOR
at competitive prices and may not achieve our expected margins or cover our
costs.
As
our business plan contemplates the federal government becoming a principal
customer of ours, any reduction in anticipated orders from the federal
government could significantly reduce our sales and operating
results.
Currently
we anticipate selling our solar modules and integration services principally to
agencies of the federal government, in addition to projects
that unicor product is able to be purchased and sold under unicor
guidelines . Should the federal government fail to materialize as a
substantial customer or should the federal government cut back orders following
commencement of sales, it could significantly reduce our revenues and harm our
operating results. Our customer relationships with the federal government are in
their infancy and we cannot guarantee investors that we will ultimately receive
significant revenues from this customer over the long term. Any loss of business
with the federal government will be particularly damaging unless we are able to
diversify our customer base and substantially expand sales to other
customers.
We
recognize revenue on system installations on a "percentage of completion" basis
and payments are due upon the achievement of contractual milestones and any
delay or cancellation of a project could adversely affect our
business.
We
recognize revenue on our system installations on a "percentage of completion"
basis and, as a result, our revenue from these installations is driven by the
performance of our contractual obligations, which is generally driven by
time-lines for the installation of our solar power systems at customer sites.
This could result in unpredictability of revenue and, in the near term, a
revenue decrease. As with any project-related business, there is the potential
for delays within any particular customer project. Variation of project
time-lines and estimates may impact our ability to recognize revenue in a
particular period. In addition, certain customer contracts may include payment
milestones due at specified points during a project. Because we must invest
substantial time and incur significant expense in advance of achieving
milestones and the receipt of payment, failure to achieve milestones could
adversely affect our business and results of operations.
We
are exposed to risks associated with product liability claims in the event that
the use or installation of our products results in injury or damage, and we have
limited insurance coverage to protect against such claims.
Since our
products are electricity-producing devices, it is possible that users could be
injured or killed by our products, whether by product malfunctions, defects,
improper installation or other causes. As a planned manufacturer, distributor,
and installer of products that will be used by consumers, we will face an
inherent risk of exposure to product liability claims or class action suits in
the event that the use of the solar power products we sell or install results in
injury or damage. We are unable to predict whether product liability claims will
be brought against us in the future or the effect of any resulting adverse
publicity on our business. Moreover, to the extent that a claim is brought
against us we may not have adequate resources in the event of a successful claim
against us. We rely on our general liability insurance to cover product
liability claims and have not obtained separate product liability insurance. The
successful assertion of product liability claims against us could result in
potentially significant monetary damages and, if our insurance protection is
inadequate, could require us to make significant payments, which could have a
materially adverse effect on our financial results.
We
sometimes act as the general contractor for our customers in connection with the
installation of solar power systems and are subject to risks associated with
construction, bonding, cost overruns, delays and other contingencies, which
could have a material adverse effect on our business and results of
operations
We
sometimes act as the general contractor for our customers in connection with the
installation of solar power systems. All essential costs are estimated at the
time of entering into the sales contract for a particular project, and these are
reflected in the overall price that we charge our customers for the project.
These cost estimates are preliminary and may or may not be covered by contracts
between us or the other project developers, subcontractors, suppliers and other
parties to the project. In addition, we require qualified, licensed
subcontractors to install most of our systems. Shortages of such skilled labor
could significantly delay a projector otherwise increase our costs. Should
miscalculations in planning a projector defective or late execution occur, we
might not achieve our expected margins or cover our
costs. Also, most systems customers require performance bonds issued by a
bonding agency. Due to the general performance risk inherent in construction
activities, it has become increasingly difficult recently to secure suitable
bonding agencies willing to provide performance bonding. In the event we are
unable to obtain bonding, we will be unable to bid on, or enter into, sales
contracts requiring such bonding.
5
Delays in
solar panel or other supply shipments, other construction delays, unexpected
performance problems in electricity generation or other events could cause us to
fail to meet these performance criteria, resulting in unanticipated and severe
revenue and earnings losses and financial penalties. Construction delays are
often caused by inclement weather, failure to timely receive necessary approvals
and permits, or delays in obtaining necessary solar panels, inverters or other
materials. The occurrence of any of these events could have a material adverse
effect on our business and results of operations.
Our
business requires us to place our employees and technicians in our customers’
properties, which could give rise to claims against us.
If we are
unsuccessful in our installation of products and provision of services to
customers, we could damage or cause a material adverse change to their premises
or property, which could give rise to claims against us. Any such claims could
be material in dollar amount and/or could significantly damage our reputation.
In addition, we are exposed to various risks and liabilities associated with
placing our employees and technicians in the homes and workplaces of others,
including possible claims of errors and omissions based on the alleged actions
of our personnel, including harassment, theft of client property, criminal
activity and other claims.
The execution of
our growth strategy is
dependent upon the
continued availability of third-party financing arrangements for our
customers.
For many
of our projects, our customers will have entered into agreements with third
parties to pay for solar energy over an extended period of time based on energy
savings generated by our solar power systems, rather than paying us to purchase
our solar power systems. For these types of projects, most of our customers will
choose to purchase solar electricity under a power purchase agreement with a
financing company that purchases the system from us. These structured finance
arrangements are complex and may not be feasible in many situations. In
addition, customers opting to finance a solar power system may forgo certain tax
advantages associated with an outright purchase on an accelerated basis which
may make this alternative less attractive for certain potential customers. If
financing companies are unwilling or unable to finance the cost of our products,
or if the parties that have historically provided this financing cease to do so,
or only do so on terms that are substantially less favorable for these
customers, or us our growth will be adversely
affected.
Environmental
obligations and liabilities could have a substantial negative impact on our
financial condition, cash flows and profitability.
We are
subject to a variety of federal, state, local and foreign laws and regulations
relating to the protection of the environment, including those governing the
use, handling, generation, processing, storage, transportation and disposal of,
or human exposure to, hazardous and toxic materials, the discharge of pollutants
into the air and water, and occupational health and safety. We are also subject
to environmental laws that allow regulatory authorities to compel, or seek
reimbursement for, cleanup of environmental contamination at sites now or
formerly owned or operated by us and at facilities where our waste is or has
been disposed. We may incur significant costs and capital expenditures in
complying with these laws and regulations. In addition, violations of, or
liabilities under, environmental laws or permits may result in restrictions
being imposed on our operating activities or in our being subjected to
substantial fines, penalties, criminal proceedings, third party property damage
or personal injury claims, cleanup costs or other costs. Also, future
developments such as more aggressive enforcement policies, the implementation of
new, more stringent laws and regulations, or the discovery of presently unknown
environmental conditions or non-compliance may require expenditures that could
have a material adverse effect on our business, results of operations and
financial condition. Further, greenhouse gas emissions have increasingly become
the subject of international, national, state and local attention. Although
fixture regulations could potentially lead to an increased use of alternative
energy, there can be no guarantee that such future regulations will encourage
solar technology. Given our limited history of operations, it is difficult to
predict future environmental expenses.
6
If
we do not achieve satisfactory yields or quality in manufacturing our solar
modules with UNICOR or if our suppliers furnish us with defective solar cells,
our sales could decrease and our relationships with our customers and our
reputation maybe harmed.
The
success of our business depends upon our ability to incorporate high quality and
yield solar cells into our products. We anticipate testing the quality and yield
of our solar products and the solar cells that we incorporate into our solar
products, and we intend to source our solar cells from manufacturers we believe
are reputable. Nonetheless, our solar modules may contain defects that are not
detected until after they are shipped or are installed because we cannot test
for all possible scenarios. These defects could cause us to incur significant
re-engineering costs, divert the attention of our engineering personnel from
product development efforts and significantly affect our customer relations and
business reputation. In addition, we may not be able to fulfill our purchase
orders if we purchase a large number of defective solar cells. The number of
solar cells that we purchase at any time is based upon expected demand for our
products and an assumed ratio of defective to non-defective solar cells. If this
ratio is greater than expected, we may not have an adequate number of
non-defective solar cells to allow us to fulfill our purchase orders on time. If
we do not fulfill orders for our products because we have a shortage of
non-defective solar cells or deliver modules with errors or defects, or if there
is a perception that these solar cells or solar modules contain errors or
defects, our credibility and the market acceptance and sales of our products
could be harmed.
We
face risks associated with our anticipated international business.
We expect
to establish, and to expand over time, international commercial operations and
activities. Such international business operations will be subject to a variety
of risks associated with conducting business internationally, including the
following:
•
|
Changes in or interpretations of foreign regulations
that may adversely affect our ability to sell our products, perform
services or repatriate profits to the United States;
|
•
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the
imposition of tariffs;
|
•
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economic
or political instability in foreign countries;
|
•
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imposition
of limitations on or increase of withholding and other taxes on
remittances and other payments by foreign subsidiaries or joint
ventures;
|
•
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conducting
business in places where business practices and customs are unfamiliar and
unknown;
|
•
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the
imposition of restrictive trade policies;
|
•
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the
existence of inconsistent laws or regulations;
|
•
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the
imposition or increase of investment requirements and other restrictions
or requirements by foreign governments;
|
•
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uncertainties
relating to foreign laws and legal proceedings;
|
•
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fluctuations
in foreign currency and exchange rates; and
|
•
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compliance
with a variety of federal laws, including the Foreign Corrupt Practices
Act.
|
We do not
know the impact that these regulatory, geopolitical and other factors may have
on our international business in the future.
Risks
Relating to Our Industry
The reduction or
elimination of government subsidies and economic incentives for on-grid solar
electricity applications could reduce demand for our solar modules, lead to a
reduction in our net sales and harm our operating results .
The
reduction, elimination or expiration of government subsidies and economic
incentives for solar electricity could result in the diminished competitiveness
of solar energy relative to conventional and non-solar renewable sources of
energy, which would negatively affect the growth of the solar energy industry
overall and our net sales specifically. We believe that the near-term growth of
the market for on-grid applications, where solar energy is used to supplement
the electricity a consumer purchases from the utility network, depends
significantly on the availability and size of government and economic
incentives. Currently the cost of solar electricity substantially exceeds the
retail price of electricity in every significant market in the world. As a
result, federal, state and local governmental bodies in many countries have
provided subsidies in the form of tariffs, rebates, tax write-offs and other
incentives to end-users, distributors, systems integrators and manufacturers of
photovoltaic products. Many of these government incentives could expire,
phase-out over time, exhaust the allocated funding or require renewal by the
applicable authority. A reduction, elimination or expiration of government
subsidies and economic incentives for solar electricity could result in the
diminished competitiveness of solar energy, which would in turn hurt our sales
and financial condition.
7
Technological
changes in the solar power industry could render our solar power products
uncompetitive or obsolete, which could reduce our market share and cause our
revenues to decline.
The solar
power market is characterized by continually changing technology requiring
improved features, such as increased efficiency, higher power output and lower
price. Our failure to further refine our technology and develop and introduce
new solar power products could cause our products to become uncompetitive or
obsolete, which could reduce our market share and cause our revenues to decline.
The solar power industry is rapidly evolving and competitive. We will need to
invest significant financial resources in research and development to keep pace
with technological advances in the solar power industry and to effectively
compete in the future. A variety of competing solar power technologies are under
development by other companies that could result in lower manufacturing costs or
higher product performance than those expected for our solar power products. Our
development efforts may be rendered obsolete by the technological advances of
others, and other technologies may prove more advantageous for the
commercialization of solar power products.
The
solar power industry experiences industry-wide shortage of polysilicon. Shortage
and oversupply pose several risks to our business, including possible
constraints on revenue growth and possible decreases in our gross margins and
profitability.
There is
currently an industry-wide shortage of polysilicon, which has resulted in
significant price increases in solar cells. Polysilicon is an essential raw
material used in the production of solar cells. We expect that the average spot
price of polysilicon will continue to increase in the near-term. Increases in
polysilicon prices could increase the price we pay for solar cells, which could
impact our manufacturing costs and our net income. Even with these price
increases, demand for solar cells has increased, and many of our principal
competitors have announced plans to add additional manufacturing capacity. As
this manufacturing capacity becomes operational, it may increase the demand for
polysilicon in the near-term and further exacerbate the current shortage.
Polysilicon is also used in the semiconductor industry generally and any
increase in demand from that sector will compound the shortage. The production
of polysilicon is capital intensive and adding additional capacity requires
significant lead time. While we are aware that several new facilities for the
manufacture of polysilicon are under construction, we do not believe that the
supply imbalance will be remedied in the near-term, which could lead to higher
prices for, and reduced availability of, solar cells.
As
polysilicon supply increases, the corresponding increase in the global supply of
so/ar ce//s and panels may cause substantial downward pressure on the prices of
our products, resulting in lower revenues and earnings.
The
scarcity of polysilicon has resulted in the underutilization of solar panel
manufacturing capacity at many of our competitors and potential competitors,
particularly in China. As additional polysilicon becomes available, we expect
solar panel production globally to increase. Decreases in polysilicon pricing
and increases in solar panel production could each result in substantial
downward pressure on the price of solar cells and panels, including our
products. Such price reductions could have a negative impact on our revenue and
earnings, and materially adversely affect our business and financial
condition.
If
solar power technology is not suitable for widespread adoption or sufficient
demand for solar power products does not develop or takes longer to develop than
we anticipate, our revenues would not significantly increase and we would be
unable to achieve or sustain profitability.
The
market for solar power products is emerging and rapidly evolving, and its future
success is uncertain. If solar power technology proves unsuitable for widespread
commercial deployment or if demand for solar power products fails to develop
sufficiently, we would be unable to generate enough revenues to achieve and
sustain profitability. In addition, demand for solar power products in the
markets and geographic regions we target may not develop or may develop more
slowly than we anticipate. Many factors will influence the widespread adoption
of solar power technology and demand for solar power products,
including:
•
|
cost-effectiveness
of solar power technologies as compared with conventional and non-solar
alternative energy technologies;
|
•
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performance
and reliability of solar power products as compared with conventional and
non-solar alternative energy products;
|
•
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success
of alternative distributed generation technologies such as fuel cells,
wind power and micro turbines;
|
•
|
fluctuations
in economic and market conditions that impact the viability of
conventional and non-solar alternative energy sources, such as increases
or decreases in the prices of oil and other fossil
fuels;
|
•
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capital
expenditures by customers that tend to decrease when the United States or
global economy slows;
|
•
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continued
deregulation of the electric power industry and broader energy industry;
and
|
•
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availability
of government subsidies and
incentives.
|
8
We
face intense competition, and many of our competitors have substantially greater
resources than we do.
We
operate in a competitive environment that is characterized by price fluctuation
and technological change. We compete with major international and domestic
companies. Some of our current and potential competitors have greater market
recognition and customer bases, longer operating histories and substantially
greater financial, technical, marketing, distribution, purchasing,
manufacturing, personnel and other resources than we do. In addition, many of
our competitors are developing and are currently producing products based on new
solar power technologies that may ultimately have costs similar to, or lower
than, our projected costs. As a result, they may be able to respond more quickly
to changing customer demands or to devote greater resources to the development,
promotion and sales of solar and solar-related products than we
can.
Our
business plan relies on sales of our solar power products and our competitors
with more diversified product offerings may be better positioned to withstand a
decline in the demand for solar power products. Some of our competitors own,
partner with, have longer term or stronger relationships with solar cell
providers that could result in them being able to obtain solar cells on a more
favorable basis than us. It is possible that new competitors or alliances among
existing competitors could emerge and rapidly acquire significant market share,
which would harm our business. If we fail to compete successfully, our business
would suffer and we may lose or be unable to gain market share.
Because
our industry is highly competitive and has low barriers to entry, we may lose
market share to larger companies that are better equipped to weather a
deterioration in market conditions due to increased competition.
Our
industry is highly competitive and fragmented, subject to rapid change and has
low barriers to entry. We may in the future compete for potential customers with
solar and heating, ventilating, and air conditioning, or HVAC, systems
installers and servicers, electricians, utilities and other providers of solar
power equipment or electric power. Some of these competitors may have
significantly greater financial, technical and marketing resources and greater
name recognition than we have.
We
believe that our ability to compete depends in part on a number of factors
outside of our control, including:
•
|
the
ability of our competitors to hire, retain and motivate qualified
personnel;
|
•
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the
ownership by competitors of proprietary tools to customize systems to the
needs of a particular customer;
|
•
|
the
price at which others offer comparable services and
equipment;
|
•
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the
extent of our competitors’ responsiveness to customer needs;
and
|
•
|
installation
technology.
|
Competition
in the solar power services industry may increase in the future, partly due to
low barriers to entry, as well as from other alternative energy resources now in
existence or developed in the future. Increased competition could result in
price reductions, reduced margins or loss of market share and greater
competition for qualified personnel. There can be no assurance that we will be
able to compete successfully against current and future competitors. If we are
unable to compete effectively, or if competition results in a deterioration of
market conditions, our business and results of operations would be adversely
affected.
We
may be vulnerable to the efforts of electric utility companies lobbying to
protect their revenue streams am/from competition from solar power
systems.
Electric
utility companies could lobby for a change in the relevant legislation in their
markets to protect their current revenue streams. Any adverse changes to the
regulations and policies of the solar energy industry could deter end-user
purchases of solar power products and investment in the research and development
of solar power technology. In addition, electricity generated by solar power
systems mostly competes with expensive peak hour electricity, rather than the
less expensive average price of electricity. Modifications to the peak hour
pricing policies of utilities such as flat rate pricing, would require solar
power systems to achieve lower prices in order to compete with the price of
electricity. Any changes to government regulations or utility policies that
favor electric utility companies could reduce our competitiveness and cause a
significant reduction in demand for our products.
A
drop in the retail price of conventional energy or non-solar alternative energy
sources may negatively impact our profitability.
We
believe that a customer’s decision to purchase or install solar power
capabilities is primarily driven by the cost of electricity from other sources
and their anticipated return on investment resulting from solar power systems.
Fluctuations in economic and market conditions that impact the prices of
conventional and non-solar alternative energy sources, such as decreases in the
prices of oil and other fossil fuels, could cause the demand for solar power
systems to decline, which would have a negative impact on our profitability.
Changes in utility electric rates or net metering policies could also have a
negative effect on our business.
9
Existing
regulations and changes to such regulations concerning the electrical utility
industry may present
technical, regulatory and economic barriers to the purchase and use of solar
power products, which may significantly reduce demand for our
products.
The
market for electricity generation products is heavily influenced by foreign,
federal, state and local government regulations and policies concerning the
electric utility industry, as well as internal policies and regulations
promulgated by electric utilities. These regulations and policies often relate
to electricity pricing and technical interconnection of customer-owned
electricity generation. In the U.S. and in a number of other countries, these
regulations and policies are being modified and may continue to be modified.
Customer purchases of~ or further investment in the research and development of;
alternative energy sources, including solar power technology, could be deterred
by these regulations and policies, which could result in a significant reduction
in the potential demand for our solar power products. For example, utility
companies commonly charge fees to larger, industrial customers for disconnecting
from the electric gild or for having the capacity to use power from the electric
~id for back-up purposes. These fees could increase the cost to our customers of
using our solar power products and make them less desirable, thereby harming our
business, prospects, results of operations and financial condition.
We
anticipate that our solar power products and their installation will be subject
to oversight and regulation in accordance with national, state and local laws
and ordinances relating to building codes, safely, environmental protection,
utility interconnection and metering and related matters. There is also a burden
in having to track the requirements of individual states and design equipment to
comply with the varying standards. Any new government regulations or utility
policies pertaining to our solar power products may result in significant
additional expenses to us and our resellers and their customers and, as a
result, could cause a significant reduction in demand for our solar power
products.
Risks
Relating to Our Organization and Our Common Stock
As
of the Merger, we became subject to the reporting requirements of federal
securities laws, which can be expensive and may divert resources from other
projects, thus impairing our ability to grow.
As a
result of the Merger, we became subject to the information and reporting
requirements of the Exchange Act and other federal securities laws, including
compliance with the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). The
costs of preparing and filing annual and quarterly reports, proxy statements and
other information with the SEC (including reporting of the Merger)
and furnishing audited reports to stockholders will cause our expenses to be
higher than they would have been if we remained privately held and did not
consummate the Merger.
It may be
time consuming, difficult and costly for us to develop and implement the
internal controls and reporting procedures required by the Sarbanes-Oxley Act.
We may need to hire additional financial reporting, internal controls and other
finance personnel in order to develop and implement appropriate internal
controls and reporting procedures. If we are unable to comply with the internal
controls requirements of the Sarbanes-Oxley Act, then we may not be able to
obtain the independent accountant certifications required by such act, which may
preclude us from keeping our filings with the SEC current.
If
we fail to establish and maintain an effective system of internal control, we
may not be able to report our financial results accurately or to prevent fraud.
Any inability to report and file our financial results accurately and timely
could harm our reputation and adversely impact the trading price of our common
stock.
Effective
internal control is necessary for us to provide reliable financial reports and
prevent fraud. If we cannot provide reliable financial reports or prevent fraud,
we may not be able to manage our business as effectively as we would if an
effective control environment existed, and our business and reputation with
investors may be harmed. As a result, our small size and any current internal
control deficiencies may adversely affect our financial condition, results of
operation and access to capital. We have not performed an in-depth analysis to
determine if historical un-discovered failures of internal controls exist, and
may in the future discover areas of our internal control that need
improvement.
Public
company compliance may make it more difficult for us to attract and retain
officers and directors.
The
Sarbanes-Oxley Act and new rules subsequently implemented by the SEC have
required changes in corporate governance practices of public companies. As a
public company, we expect these new rules and regulations to increase our
compliance costs in 2008 and beyond and to make certain activities more time
consuming and costly. As a public company, we also expect that these new rules
and regulations may make it more difficult and expensive for us to obtain
director and officer liability insurance in the future and we may be required to
accept reduced policy limits and coverage or incur substantially higher costs to
obtain the same or similar coverage. As a result, it may be more difficult for
us to attract and retain qualified persons to serve on our board of directors or
as executive officers.
10
Because we became
public by means of a reverse merger, we may not be able to
attract the attention of major brokerage firms.
There may
be risks associated with us becoming public through a reverse merger.”
Securities analysts of major brokerage firms may not provide coverage of us
since there is no incentive to brokerage firms to recommend the purchase of our
common stock. No assurance can be given that brokerage firms will, in the
future, want to conduct any secondary offerings on behalf of our post-Merger
company.
Failure
to cause a registration statement to become effective in a timely manner could
materially adversely affect our company.
We have
agreed,- at our expense, to prepare a registration statement covering the shares
of our common stock sold in the Private Placement and to use our best efforts to
file that registration statement with the SEC within 90 days of the final
closing of the Private Placement or the date on which the Private Placement is
terminated, whichever occurs later, and to use commercially reasonable efforts
to obtain the effectiveness of such registration statement no later than 180
days after the final closing of the Private Placement or the date on which the
Private Placement is terminated, whichever occurs later. There are many reasons,
including those over which we have no control, which could delay the filing or
effectiveness of the registration statement, including delays resulting from the
SEC review process and comments raised by the SEC during that process. Our
efforts to file the registration statement and have it declared effective could
become extremely costly, and our failure to do so in a timely manner could
require us to pay liquidated damages to investors in the Private Placement,
either or both of which could materially adversely affect us.
Our
stock price may be volatile
The
market price of our common stock is likely to be highly volatile and could
fluctuate widely in price in response to various factors, many of which are
beyond our control, including the following:
•
|
changes
in our industry;
|
•
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competitive
pricing pressures;
|
•
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our
ability to obtain working capital financing;
|
•
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additions
or departures of key personnel;
|
•
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limited
“public float” in the bands of a small number of persons whose sales or
lack of sales could result in positive or negative pricing pressure on the
market price for our common stock;
|
•
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sales
of our common stock (particularly following effectiveness of the resale
registration statement required to be filed in connection with the Private
Placement);
|
•
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our
ability to execute our business plan;
|
•
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operating
results that fall below expectations;
|
•
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loss
of any strategic relationship;
|
•
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regulatory
developments;
|
•
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economic
and other external factors; and
|
•
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period-to-period
fluctuations in our financial
results
|
In
addition, the securities markets have from time to time experienced significant
price and volume fluctuations that are unrelated to the operating performance of
particular companies. These market fluctuations may also materially and
adversely affect the market price of our common stock.
We
have not paid dividends in the past and do not expect to pay dividends in the
future. Any return on investment may be limited to the value of our common
stock.
We have
never paid cash dividends on our common stock and do not anticipate doing so in
the foreseeable future. The payment of dividends on our common stock will depend
on earnings, financial condition and other business and economic factors
affecting us at such time as our board of directors may consider relevant. If we
do not pay dividends, our common stock may be less valuable because a return on
your investment will only occur if our stock price appreciates.
There
is currently no liquid trading market for our common stock and we cannot ensure
that one will ever develop or be sustained.
To date
there has been no liquid trading market for our common stock. We cannot predict
how liquid the market for our common stock might become. Should trading of our
common stock be suspended from the OTC Bulletin Board, the trading price of our
common stock could suffer and the trading market for our common stock may be
less liquid and our common stock price may be subject to increased
volatility.
Furthermore,
for companies whose securities are quoted on the OTC Bulletin Board, it is more
difficult (1) to obtain accurate quotations, (2) to obtain coverage for
significant news events because major wire services generally do not publish
press releases about such companies, and (3) to obtain needed
capital.
11
Our
common stock may be deemed a “penny stock,” which would make it more difficult
for our investors to sell their shares.
Our
common stock may be subject to the “penny stock” rules adopted under Section
15(g) of the Exchange Act. The penny stock rules generally apply to companies
whose common stock is not listed on The Nasdaq Stock Market or other national
securities exchange and trades at less than $4.00 per share, other than
companies that have had average revenue of at least $6,000,000 for the last
three years or that have tangible net worth of at least $5,000,000 ($2,000,000
if the company has been operating for three or more years). These rules require,
among other things, that brokers who trade penny stock to persons other than
“established customers” complete certain documentation, make suitability
inquiries of investors and provide investors with certain information concerning
trading in the security, including a risk disclosure document and quote
information under certain circumstances. Many brokers have decided not to trade
penny stocks because of the requirements of the penny stock rules and, as a
result, the number of broker-dealers willing to act as market makers in such
securities is limited. If we remain subject to the penny stock rules for any
significant period, it could have an adverse effect on the market, if any, for
our securities. If our securities are subject to the penny stock rules,
investors will find it more difficult to dispose of our securities.
Offers or
availability for sale of a
substantial number of shares of our common stock may cause the price of our
common stock to decline.
If our
stockholders sell substantial amounts of our common stock in the public market,
including shares in the Private Placement upon the effectiveness of the
registration statement required to be filed, or upon the expiration of any
statutory holding period, under Rule 144, or upon expiration of lockup
periods applicable to outstanding shares, or issued upon the exercise of
outstanding options or warrants, it could create a circumstance commonly
referred to as an “overhang” and in anticipation of which the market price of
our common stock could fall. The existence of an overhang, whether or not sales
have occurred or are occurring, also could make more difficult our ability to
raise additional financing through the sale of equity or equity-related
securities in the future at a time and price that we deem reasonable or
appropriate. The shares of our common stock issued to the current and former
officers and directors of IX Energy in the Merger will be subject to a lock-up
agreement prohibiting sales of such shares for a period of 15 months following
the Merger. Following such date, all of those shares will become freely
tradable, subject to securities laws and SEC regulations regarding sales by
insiders. In addition, the shares of our common stock sold in the Private
Placement and the shares underlying the warrants issued to the placement agents
in connection with the Private Placement will be freely tradable upon the
earlier of: (i) effectiveness of a registration statement covering
such shares and (ii) the date on which such shares may be sold without
registration pursuant to Rule 144 (or other applicable exemption) under the
Securities Act. We note that recent revisions to Rule 144 may result in shares
of our common stock that we may issue in the future becoming eligible for resale
into the public market without registration in as little as six months after
their issuance.
We may apply the
proceeds of the Private Placement to uses that ultimately do not
improve our operating results or increase the price of our common
stock.
We intend
to use the net proceeds from the Private Placement for costs and expenses
incurred in connection with the Private Placement and organizational matters, as
well as for general working capital purposes and repayment of outstanding
indebtedness. However, we do not have more specific plans for the net proceeds
from the Private Placement and our management has broad discretion in how we use
these proceeds. These proceeds could be applied in ways that do not ultimately
improve our operating results or otherwise increase the value of our common
stock.
Because our
directors and executive officers are among our largest stockholders, they can
exert significant
control over our business and affairs and have actual or potential interests
that may depart from those of our other stockholders.
Our
directors and executive officers own or control a significant
percentage of our common stock. Immediately following the Merger and the Private
Placement, our directors and executive officers may be deemed beneficially to
own an aggregate of approximately ______ shares of our common stock,
representing 50.05% of the outstanding shares of our common stock. Additionally,
these figures do not reflect any increase in beneficial ownership that such
persons may experience in the future upon vesting or other maturation of
exercise rights under any of the options or warrants they may hold or in the
future be granted or if they otherwise acquire additional shares of our common
stock. The interests of such persons may differ from the interests of our other
stockholders. As a result, in addition to their board seats and offices, such
persons will have significant influence over and control all corporate actions
requiring stockholder approval, irrespective of how our other stockholders may
vote, including the following actions:
•
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to
elector defeat the election of our directors;
|
•
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to
amend or prevent amendment of our Certificate of Incorporation or
By-laws;
|
•
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to
effect or prevent a merger, sale of assets or other corporate transaction;
and
|
•
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to
control the outcome of any other matter submitted to our stockholders for
vote
|
Such
persons’ stock ownership may discourage a potential acquirer from making a
tender offer or otherwise attempting to obtain control of us, which in turn
could reduce our stock price or prevent our stockholders from realizing a
premium over our stock price.
FORWARD-LOOKING
STATEMENTS
Information
in this prospectus contains forward-looking statements. These forward-looking
statements can be identified by the use of words such as "believes,"
"estimates," "could," "possibly," "probably," "anticipates," "projects,"
"expects," "may," or "should" or other variations or similar words. No
assurances can be given that the future results anticipated by the
forward-looking statements will be achieved. The following matters constitute
cautionary statements identifying important factors with respect to those
forward-looking statements, including certain risks and uncertainties that could
cause actual results to vary materially from the future results anticipated by
those forward-looking statements. A description of key factors that have a
direct bearing on our results of operations is provided above under “Risk
Factors” beginning on page 4 of this Prospectus.
USE
OF PROCEEDS
This
prospectus relates to shares of our common stock that may be offered and sold
from time to time by the selling stockholders. We will not receive any proceeds
from the sale of shares of common stock in this offering. However, we will
receive the exercise price of any common stock we issue to the selling
stockholders upon exercise of the warrants. We expect to use the proceeds
received from the exercise of the warrants, if any, for general working capital
purposes. However, the selling stockholders are entitled to exercise the
warrants on a cashless basis if one year after the initial issuance, the shares
of common stock underlying the warrants are not then registered pursuant to an
effective registration statement. In the event that the selling stockholders
exercise the warrants on a cashless basis, then we will not receive any
proceeds.
12
SELLING
STOCKHOLDERS
The
selling shareholders named below are selling the securities. The table assumes
that all of the securities will be sold in this offering. However, any or all of
the securities listed below may be retained by any of the selling shareholders,
and therefore, no accurate forecast can be made as to the number of securities
that will be held by the selling shareholders upon termination of this offering.
We will not receive proceeds from the sale of shares from the selling
shareholders. These selling shareholders acquired their shares by purchase in
the Private Placement which took place in July 2008, December 2008 and February
2009 (as described in the Financings section below). We believe that the selling
shareholders listed in the table have sole voting and investment powers with
respect to the securities indicated, unless otherwise indicated. We will not
receive any proceeds from the sale of the securities by the selling
shareholders. No selling shareholders are broker-dealers or affiliates of
broker-dealers. Further, none of the selling stockholders have held any
position, office or other material relationship with the Company or any of the
Company’s predecessors or affiliates within the past three years, except that
Margaret Monahan is the wife of the Company’s former President.
Stockholder
|
Shares
of Common Stock
Included
in Prospectus
(iv)
|
Beneficial
Ownership
Before
Offering (i) (ii)
|
Percentage
of Common Stock Before Offering (i) (ii)
|
Beneficial
Ownership After the Offering (iii)
|
Percentage
of Common Stock Owned After Offering
(iii)
|
|||||||||||||||
Whalehaven
Capital Fund Limited (v)
|
750,000
|
2,780,988
|
4.44%
|
2,030,988
|
2.86%
|
|||||||||||||||
Helios
IX Capital LLC (vi)
|
625,000
|
625,000
|
1.00%
|
--
|
--
|
|||||||||||||||
Financial
Pacific , Inc. (vii)
|
5,000,000
|
5,165,000
|
8.03%
|
165,000
|
0.23%
|
|||||||||||||||
Semper
Gestion S.A (viii)
|
6,500,000
|
6,500,000
|
10.11%
|
--
|
--
|
|||||||||||||||
Michelle
Pappas (ix)
|
125,000
|
125,000
|
0.20%
|
--
|
--
|
|||||||||||||||
Tom
Hawkins (x)
|
375,000
|
375,000
|
0.60%
|
--
|
--
|
|||||||||||||||
Chris
Diamantis (xi)
|
1,000,000
|
1,000,000
|
1.60%
|
--
|
--
|
|||||||||||||||
Bart
Blatstein (xii)
|
500,000
|
500,000
|
0.80%
|
--
|
--
|
|||||||||||||||
Lois
E. Haber (xiii)
|
500,000
|
500,000
|
0.80%
|
--
|
--
|
|||||||||||||||
Cheney
Investments, Inc. (xiv)
|
500,000
|
500,000
|
0.80%
|
--
|
--
|
|||||||||||||||
Nemesis
(xv)
|
1,000,000
|
1,000,000
|
1.60%
|
--
|
--
|
|||||||||||||||
Leo
Cavigelli (xvi)
|
500,000
|
500,000
|
0.80%
|
--
|
--
|
|||||||||||||||
Jack
DiTeodoro
|
10,832
|
10,832
|
0.01%
|
--
|
--
|
|||||||||||||||
Jeffrey
McLaughin
|
13,541
|
13,541
|
0.02%
|
--
|
--
|
|||||||||||||||
Margaret
Monahan
|
81,241
|
81,241
|
0.13%
|
--
|
--
|
|||||||||||||||
Sal
and Joan Latorraca
|
16,247
|
16,247
|
0.02%
|
--
|
--
|
|||||||||||||||
Sandra
Gabriele
|
13,541
|
13,541
|
0.02%
|
--
|
--
|
|||||||||||||||
Anthony
DiBenedetto
|
27,079
|
27,079
|
0.04%
|
--
|
--
|
|||||||||||||||
John
P. O’Shea
|
54,159
|
54,159
|
0.08%
|
--
|
--
|
|||||||||||||||
Giovani
and Antonia Gabriele
|
54,159
|
54,159
|
0.08%
|
--
|
--
|
|||||||||||||||
RAMPartners
(xvii)
|
490,000
|
490,000
|
0.78%
|
--
|
--
|
|||||||||||||||
Total
|
18,135,799
|
16,206,787
|
2,195,988
|
3.09%
|
(i) These
columns represent the aggregate maximum number and percentage of shares that the
selling stockholders can own at one time (and therefore, offer for resale at any
one time).
(ii)
The number and percentage of shares beneficially owned is
determined in accordance with Rule 13d-3 of the Securities Exchange Act of 1934,
and the information is not necessarily indicative of beneficial ownership for
any other purpose. Under such rule, beneficial ownership includes any shares as
to which the selling stockholders has sole or shared voting power or investment
power and also any shares, which the selling stockholders has the right to
acquire within 60 days. The percentage of shares owned by each selling
stockholder is based on 65,893,143 shares issued and outstanding as of January
21, 2010, including options exercisable within 60 days of January 21,
2010.
(iii)
Assumes that all securities registered will be sold.
(iv)
Number of shares consists entirely of shares of common stock of the Company,
unless otherwise indicated in the footnotes below.
(v) The
amount being registered represents 375,000 shares and 375,000 shares issuable
upon exercise of common stock purchase warrants. The warrant has an exercise
price of $0.50 per share for a term of three years. Arthur Jones and Trevor
Williams have voting and dispositive power with respect to the shares owned by
Whalehaven Capital Fund Limited.
(vi) The
amount being registered represents 312,000 shares and 312,000 shares issuable
upon exercise of common stock purchase warrants. The warrant has an exercise
price of $0.50 per share for a term of three years. Ron Tilles has voting and
dispositive power with respect to the shares owned by Helios IX Capital
LLC.
13
(vii) The
amount being registered represents 2,500,000 shares and 12,500,000 shares
issuable upon exercise of common stock purchase warrants. The warrant has an
exercise price of $0.50 per share for a term of three years. Ivan R. Clarke has
voting and dispositive power with respect to the shares owned by Financial
Pacific, Inc.
(viii)
The amount being registered represents 3,250,000 shares and 3,250,000 shares
issuable upon exercise of common stock purchase warrants. The warrant has an
exercise price of $0.50 per share for a term of three years. Henri De Raemy, has
voting and dispositive power with respect to the shares owned by Semper Gestion
S.A.
(ix) The
amount being registered represents 62,500 shares and 62,500 shares issuable upon
exercise of common stock purchase warrants. The warrant has an exercise price of
$0.50 per share for a term of three years.
(x) The
amount being registered represents 187,500 shares and 187,500 shares issuable
upon exercise of common stock purchase warrants. The warrant has an exercise
price of $0.50 per share for a term of three years.
(xi) The
amount being registered represents 500,000 shares and 500,000 shares issuable
upon exercise of common stock purchase warrants. The warrant has an exercise
price of $0.50 per share for a term of three years.
(xii) The
amount being registered represents 250,000 shares and 250,000 shares issuable
upon exercise of common stock purchase warrants. The warrant has an exercise
price of $0.50 per share for a term of three years.
(xiii)
The amount being registered represents 250,000 shares and 250,000 shares
issuable upon exercise of common stock purchase warrants. The warrant has an
exercise price of $0.50 per share for a term of three years.
(xiv) The
amount being registered represents 250,000 shares and 250,000 shares issuable
upon exercise of common stock purchase warrants. The warrant has an exercise
price of $0.50 per share for a term of three years. Ronald Leguizamon has the
voting and dispositive power with respect to the shares owned by Cheney
Investments, Inc.
(xv) The
amount being registered represents 500,000 shares and 500,000 shares issuable
upon exercise of common stock purchase warrants. The warrant has an exercise
price of $0.50 per share for a term of three years. Manuel Acevedo has sole
voting and dispositive power with respect to the shares owned by
Nemesis.
(xvi) The
amount being registered represents 250,000 shares and 250,000 shares issuable
upon exercise of common stock purchase warrants. The warrant has an exercise
price of $0.50 per share for a term of three years.
(xvii)
The amount being registered represents 490,000 shares issuable upon exercise of
common stock purchase warrants. The warrant has an exercise price of $0.50 per
share for a term of three years. Pierre Alloys has the sole voting power with
respect to the shares owned by RAMPartners.
The
shares included in this Registration Statement were acquired by the selling
shareholders in the following financing transactions:
Equity
Financing
In
December 2008, and February 2009, we sold an aggregate of 34.75 units ("Units")
or an aggregate of 8,687,5000 shares and warrants to purchase 8,687,5000 in a
private placement offering (the "Private Placement"), with each Unit consisting
of 250,000 shares of common stock of the Company (on a post-Forward Split basis)
and a three-year detachable warrant (the "Warrant") to purchase 250,000 shares
of common stock of the Company (on a post-Forward Split basis), at a purchase
price per Unit of $100,000. The Warrant has an exercise price of $0.50 per share
for a term of three years.
Potential
Required Future Issuances of Common Stock to Investors in the Private
Placement
Pursuant
to the terms of the subscription agreements entered into between us and the
investors in the Private Placement, for twenty four (24) months following the
initial closing (the “Initial Closing Date”) of the Private Placement, if we
issue or grant any shares of our common stock or any warrants or other
convertible securities pursuant to which shares of our common stock may be
acquired at a per share price (a “Lower Price”) less than $0.50 (subject to
certain customary exceptions, including where shares are issued in connection
with employment arrangements or business combinations in which a portion of the
consideration may be payable in shares or convertible securities with a business
in substantially the same line of business as the Company), then we shall
promptly issue additional shares of our common stock (“Ratchet Shares”) to the
investors in the Private Placement in an amount sufficient that the subscription
price paid by such investors in the Private Placement, when divided by the total
number of shares of our common stock issued to such subscriber (shares included
in the purchased Unit plus any Ratchet Shares issuable, or previously issued,
under this provision), will result in an effective price paid by the purchaser
per share of our common stock equal to such Lower Price. For example, if an
investor purchases one Unit in the Private Placement (250,000 shares of our
common stock and a three-year warrant to purchase 250,000 shares of common
stock) for a purchase price of $100,000 (equals $0.40 per share) and then we
issue additional shares of our common stock at $0.20 per share during such
twelve-month period, we must issue an additional 250,000 shares of our common
stock to such investor [$ l00,000/500,000 shares $0.20 per share]. Such
adjustments shall be made successively whenever such an issuance is made during
the Adjustment Period.
14
The
Ratchet Shares are not being registered for resale in this
prospectus.
Most
Favored Nation Protection
Pursuant
to the terms of the subscription agreements entered into between us and the
investors in the Private Placement, for the twenty four (24) months
following the Initial Closing Date, if we issue or grant any shares
of our common stock or any warrants or other convertible securities pursuant to
another offering in which shares of our common stock may be acquired at a price
less than $0.50 per share, each investor in the Private Placement shall be given
the right to elect to substitute any term or terms of any such other offering
for any term or terms of the Offering in connection with the Units owned by such
investor as of the date of the other offering.
Registration
Rights
We have
agreed to file a “resale” registration statement with the SEC covering all
shares of common stock included within the Units sold in the Offering and
underlying any Warrants, on or before the date which is 90 days after the
termination of the Private Placement (the “Filing Deadline”). We will maintain
the effectiveness of the “resale” registration statement for eighteen (18)
months, unless all securities registered under the registration statement have
been sold or are otherwise able to be sold pursuant to Rule 144. We have agreed
to use our best efforts to have such ‘resale” registration statement declared
effective by the SEC as soon as possible and, in any event, within 180 days
after the termination of the Private Placement (the “Effectiveness
Deadline”).
The
Company is obligated to pay to investors in the Private Placement a fee of 1%
per month of the investors’ investment, payable in cash, up to a maximum of 10%,
for each month: (i) in excess of the Filing Deadline that the registration
statement has not been filed; and (ii) in excess of the Effectiveness Deadline
that the registration statement has not been declared effective; provided,
however, that we shall not be obligated to pay any such liquidated damages if we
are unable to fulfill our registration obligations as a result of rules,
regulations, positions or releases issued or actions taken by the SEC pursuant
to its authority with respect to “Rule 415”, provided we register at such time
the maximum number of shares of common stock permissible upon consultation with
the staff of the SEC; provided, further, that we shall not be obligated to pay
any liquidated damages for our failure to file a registration statement
following the Filin g Deadline at any time after the one year anniversary of the
final closing of the Private Placement.
Warrants
In
connection with the Private Placement, we issued Warrants to purchase an
aggregate of 8,687,500 shares of common stock to investors. In addition, we
issued Warrants to purchase 490,000 shares of common stock to the placement
agents. Each Warrant entitles the holder thereof to purchase shares
of common stock at an exercise price of $0.50 per share, expiring three years
from the date of issuance. We are prohibited from effecting the exercise of
these Warrants to the extent that as a result of such exercise the holder of the
exercised Warrants would beneficially own more than 4.99% (or, if such
limitation is waived by the holder upon no less than 61 days prior notice to us,
9.99%) in the aggregate of the issued and outstanding shares of common stock
calculated immediately after giving effect to the issuance of shares of common
stock upon the exercise of the Warrants. Prior to exercise, the Warrants will
not confer upon holders any voting or any other rights as a stockholder. The
Warrants contain provisions that protect the holders against dilution by
adjustment of the purchase price and number of shares of our common stock
issuable on exercise of the Warrants in certain events such as stock dividends,
stock splits and other similar events.
Furthermore,
if during the two year anniversary of the issuance date, we issue or grant any
shares of common stock or any warrants or other convertible securities pursuant
to which shares of common stock may be acquired at a per share price (a “Lower
Price”) less than $0.50 (subject to certain customary exceptions, including
where shares are issued in connection with employment arrangements or business
combinations in which a portion of the consideration may be payable in shares or
convertible securities with a business in substantially the same line of
business as the Company), then the exercise price of the Warrants shall be
reduced to the Lower Price. Finally, should we fail to achieve at least $17.5
million of consolidated gross revenue within one year of the final closing of
the Private Placement, the exercise price shall be reduced to $0.01 per
share. If at anytime following the one year anniversary of the Merger
there is no effective registration statement registering the resale of the
shares of common stock underlying the Warrants, the holders of the Warrants have
the right to exercise the Warrants by means of a cashless exercise.
15
Price
Protection
For a
period of twenty four (24) months following the Initial Closing Date
(the “Adjustment Period”), if the Company issues or grants any shares of Common
Stock or any warrants or other convertible securities pursuant to which shares
of Common Stock may be acquired at a per share price (a “Lower Price”) less than
$0.50 (subject to certain customary exceptions, including where shares are
issued in connection with employment arrangements or business combinations in
which a portion of the consideration may be payable in shares or convertible
securities with a business in substantially the same line of business as the
Company), then the Company shall promptly issue additional shares of Common
Stock (“Ratchet Shares”) to the purchasers in the Offering in an amount
sufficient that the subscription price paid by such purchasers in the Offering,
when divided by the total number of shares of Common Stock issued to such
subscriber (shares included in the purchased Unit plus any Ratchet Shares
issuable, or previously issued, under this provision), will result in an
effective price paid by the purchaser per share of Common Stock equal to such
Lower Price (this is intended to be a “full ratchet” adjustment). For example,
if an investor purchases one Unit in the Offering (200,000 shares of Common
Stock) for a purchase price of $100,000 (equals $0.50 per share) and then the
Company issues additional shares of Common Stock at $0.25 per share during the
Adjustment Period, the Company will issue an additional 200,000 shares of Common
Stock to such investor [$100,000/400,000 shares = $0.25 per share]. Such
adjustments shall be made successively whenever such an issuance is made during
the Adjustment Period. In addition, the exercise price of all unexercised
Warrants shall be reduced to equal 200% of the Lower Price.
Bridge
Notes Financing
In July
2008, our wholly owned subsidiary, IX Energy, Inc. sold an aggregate of $500,000
principal amount of 5% promissory notes ("Bridge Notes") in a private placement
transaction. The purchasers of Bridge Notes paid an aggregate gross purchase
price of $500,000 for such Bridge Notes and an aggregate of 270,799 shares of
common stock of the Company's Common Stock (the "Bridge Common"). The Bridge
Notes are due and payable upon the earlier of July 13, 2009 and the date the
Company, consummate an offering or offerings raising gross proceeds of at least
$3.5 million (a "Permanent Financing"). The Bridge Notes also provide that, upon
the consummation of a Permanent Financing, the holders shall have the right to
exchange such Bridge Notes for an amount of securities that could be purchased
in such Permanent Financing for a purchase price equal to the outstanding
principal and accrued interest on such Bridge Notes. IX Energy utilized the
services of Westminster Securities Corporation, a registered broker dealer firm,
for the offer and sale of the Bridge Notes.
The
securities for which the Bridge Notes may be exchanged in the event of a
Permanent Financing are not being registered for resale in this
prospectus.
PLAN
OF DISTRIBUTION
We are
registering the shares of common stock previously issued and the shares of
common stock issuable upon exercise of the warrants to permit the resale of
these shares of common stock by the holders of the common stock and warrants
from time to time after the date of this prospectus. We will not receive any of
the proceeds from the sale by the selling stockholders of the shares of common
stock. We will bear all fees and expenses incident to our obligation to register
the shares of common stock.
The
Selling Stockholders and any of their pledgees, donees, transferees, assignees
and successors-in-interest may, from time to time, sell any or all of their
shares of Common Stock on any stock exchange, market or trading facility on
which the shares are traded or in private transactions. These sales may be at
fixed or negotiated prices. The Selling Stockholders may use any one or more of
the following methods when selling shares:
•
|
on
any national securities exchange or quotation service on which the
securities may be listed or quoted at the time of sale;
|
•
|
in
the over-the-counter market;
|
•
|
in
transactions otherwise than on these exchanges or systems or in the
over-the-counter market;
|
•
|
block
trades in which the broker-dealer will attempt to sell the shares as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
•
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;
|
•
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
•
|
privately
negotiated transactions;
|
16
•
|
Short
sales;
|
•
|
broker-dealers
may agree with the selling stockholders to sell a specified number of such
shares at a stipulated price per share;
|
•
|
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or otherwise;
|
•
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
•
|
privately
negotiated transactions;
|
•
|
broker-dealers
may agree with the selling security holders to sell a specified number of
such shares at a stipulated price per share;
|
•
|
a
combination of any such methods of sale; and
|
•
|
any
other method permitted pursuant to applicable
law.
|
If the
selling stockholders effect such transactions by selling shares of common stock
to or through underwriters, broker-dealers or agents, such underwriters,
broker-dealers or agents may receive commissions in the form of discounts,
concessions or commissions from the selling stockholders or commissions from
purchasers of the shares of common stock for whom they may act as agent or to
whom they may sell as principal (which discounts, concessions or commissions as
to particular underwriters, broker-dealers or agents may be in excess of those
customary in the types of transactions involved). In connection with sales of
the shares of common stock or otherwise, the selling stockholders may enter into
hedging transactions with broker-dealers, which may in turn engage in short
sales of the shares of common stock in the course of hedging in positions they
assume. The selling stockholders may also sell shares of common stock short and
deliver shares of common stock covered by th is prospectus to close out short
positions and to return borrowed shares in connection with such short
sales.
The
Selling Stockholders may also sell shares under Rule 144 under the Securities
Act, if available, rather than under this prospectus.
Broker-dealers
engaged by the Selling Stockholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the Selling Stockholders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated. The
Selling Stockholders do not expect these commissions and discounts to exceed
what is customary in the types of transactions involved.
The
Selling Stockholders may from time to time pledge or grant a security interest
in some or all of the Shares owned by them. The pledges, secured parties or any
successor in interest to the Selling Stockholders may offer and sell shares of
Common Stock from time to time under this prospectus, or under an amendment or
supplement to this prospectus under Rule 424(b)(3) or other applicable provision
of the Securities Act of 1933 amending the list of selling stockholders to
include the pledgee, transferee or other successors in interest as selling
stockholders under this prospectus.
Upon the
Company being notified in writing by a Selling Stockholder that any material
agreement has been entered into with a broker-dealer for the sale of Common
Stock through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer, a supplement to this
prospectus will be filed, if required, and disclosing (i) the name of each such
Selling Stockholder and of the participating broker-dealer(s), (ii) the number
of shares involved, (iii) the price at which such shares of Common Stock were
sold, (iv) the commissions paid or discounts or concessions allowed to such
broker-dealers, where applicable, (v) if applicable, that such broker-dealer(s)
did not conduct any investigation to verify the information set out or
incorporated by reference in this prospectus, and (vi) other facts material to
the transaction. In addition, upon the Company being notified in writing by a
Selling Stockholder that a donee or pledgee intends to sell more than 500 shares
of Common Stock, a supplement to this prospectus will be filed if then required
in accordance with applicable securities laws. In addition, if a Selling
Stockholder shall enter into an agreement after effectiveness of this
Registration Statement, to sell his/her shares to a broker-dealer as principal
and the broker-dealer is acting as an underwriter, the Company will file a
post-effective amendment to this registration statement, which will attach a
copy of such agreement as an exhibit.
17
The
Selling Stockholders also may transfer the shares of Common Stock in other
circumstances, in which case the transferees, pledgees or other successors in
interest will be the selling beneficial owners for purposes of this
prospectus.
The
Selling Stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this Prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
Prospectus (as supplemented or amended to reflect such
transaction).
The
Selling Stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Discounts, concessions, commissions and
similar selling expenses, if any, attributable to the sale of shares will be
borne by the Selling Stockholder. Each Selling Stockholder has represented and
warranted to the Company that it acquired the securities subject to this
registration statement in the ordinary course of such Selling Stockholder’s
business and, at the time of its purchase of such securities such Selling
Stockholder had no agreements or understandings, directly or indirectly, with
any person to distribute any such securities.
The
Company has advised each Selling Stockholder that it may not use shares
registered on this Registration Statement to cover short sales of Common Stock
made prior to the date on which this Registration Statement shall have been
declared effective by the Commission. If the Selling Stockholders use this
prospectus for any sale of the Common Stock, they will be subject to the
prospectus delivery requirements of the Securities Act unless an exemption
therefrom is available. The Selling Stockholders will be responsible to comply
with the applicable provisions of the Securities Act and Exchange Act, and the
rules and regulations thereunder promulgated, including, without limitation, to
the extent applicable, Regulation M, as applicable to such Selling Stockholders
in connection with resales of their respective shares under this Registration
Statement.
In
connection with sales of the shares of Common Stock or otherwise, the Selling
Stockholders may enter into hedging transactions with broker-dealers, which may
in turn engage in short sales of the shares of Common Stock in the course of
hedging in positions they assume. The Selling Stockholders may also sell shares
of Common Stock short and deliver shares of Common Stock covered by this
prospectus to close out short positions and to return borrowed shares in
connection with such short sales. The Selling Stockholders may also loan or
pledge shares of Common Stock to broker-dealers that in turn may sell such
shares.
The
Company is required to pay all fees and expenses incident to the registration of
the shares, but we will not receive any proceeds from the sale of the Common
Stock. The Company has agreed to indemnify the Selling Stockholders against
certain losses, claims, damages and liabilities, including liabilities under the
Securities Act and state securities laws, relating to the registration of the
shares offered by this Prospectus.
The
selling stockholders and any broker-dealer participating in the distribution of
the shares of common stock may be deemed to be "underwriters" within the meaning
of the Securities Act, and any commission paid, or any discounts or concessions
allowed to, any such broker-dealer may be deemed to be underwriting commissions
or discounts under the Securities Act. At the time a particular offering of the
shares of common stock is made, a prospectus supplement, if required, will be
distributed which will set forth the aggregate amount of shares of common stock
being offered and the terms of the offering, including the name or names of any
broker-dealers or agents, any discounts, commissions and other terms
constituting compensation from the selling stockholders and any discounts,
commissions or concessions allowed or reallowed or paid to
broker-dealers.
18
Under the
securities laws of some states, the shares of common stock may be sold in such
states only through registered or licensed brokers or dealers. In addition, in
some states the shares of common stock may not be sold unless such shares have
been registered or qualified for sale in such state or an exemption from
registration or qualification is available and is complied with.
There can
be no assurance that any selling stockholder will sell any or all of the shares
of common stock registered pursuant to the shelf registration statement, of
which this prospectus forms a part.
The
selling stockholders and any other person participating in such distribution
will be subject to applicable provisions of the Securities Exchange Act of 1934,
as amended, and the rules and regulations thereunder, including, without
limitation, Regulation M of the Exchange Act, which may limit the timing of
purchases and sales of any of the shares of common stock by the selling
stockholders and any other participating person. Regulation M may also restrict
the ability of any person engaged in the distribution of the shares of common
stock to engage in market-making activities with respect to the shares of common
stock. All of the foregoing may affect the marketability of the shares of common
stock and the ability of any person or entity to engage in market-making
activities with respect to the shares of common stock.
We will
pay all expenses of the registration of the shares of common stock hereunder,
including, without limitation, Securities and Exchange Commission filing fees
and expenses of compliance with state securities or "blue sky" laws; provided,
however, that a selling stockholder will pay all underwriting discounts and
selling commissions, if any. We will indemnify the selling stockholders against
liabilities, including some liabilities under the Securities Act, in accordance
with the registration rights agreements, or the selling stockholders will be
entitled to contribution. We may be indemnified by the selling stockholders
against civil liabilities, including liabilities under the Securities Act, that
may arise from any written information furnished to us by the selling
stockholder specifically for use in this prospectus, in accordance with the
related registration rights agreements, or we may be entitled to
contribution.
Once sold
under this registration statement, of which this prospectus forms a part, the
shares of common stock will be freely tradable in the hands of persons other
than our affiliates.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our
common stock is currently quoted on the OTC Bulletin Board under the symbol
“IXEH.” For the periods indicated, the following table sets forth the high and
low bid prices per share of common stock. These prices represent inter-dealer
quotations without retail markup, markdown, or commission and may not
necessarily represent actual transactions.
Fiscal
2009
|
Fiscal
2008
|
Fiscal
2007
|
||||||||||||||||||||||
Quarter
Ended
|
High
|
Low
|
High
|
Low
|
High
|
Low
|
||||||||||||||||||
March
31
|
$ | 1.70 | $ | 0.05 | $ | 0.27 | $ | 0.051 | $ | 4.49 | $ | 2.42 | ||||||||||||
June
30
|
$ | 1.01 | $ | 0.25 | $ | 0.49 | $ | 0.13 | $ | 3.19 | $ | 1.84 | ||||||||||||
September
30
|
$ | 0. 26 | $ | 0. 09 | $ | - | $ | - | $ | 2.18 | $ | 0.55 | ||||||||||||
December
31
|
$ | 0.10 | $ | 0.03 | $ | - | $ | - | $ | 1.18 | $ | 0.14 |
As of
January 21, 2010 , our shares of common stock were
held by approximately 40 stockholders of record. The number of record holders
was determined from the records of our transfer agent and does not include
beneficial owners common stock whose shares are held in the names of various
securities brokers, dealers and registered clearing agencies.
The
transfer agent of our common stock is Island Stock Transfer, 100 Second Avenue,
Suite 104N, St. Petersburg, Florida, 33701.
DIVIDENDS
We have
not declared any dividends to date. We have no present intention of paying any
cash dividends on our common stock in the foreseeable future, as we intend to
use earnings, if any, to generate growth. The payment by us of dividends, if
any, in the future, rests within the discretion of our Board of Directors and
will depend, among other things, upon our earnings, our capital requirements and
our financial condition, as well as other relevant factors. There are no
restrictions in our articles of incorporation or bylaws that restrict us from
declaring dividends.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Since its
inception, IX Energy’s operations have principally involved the integration and
installation of solar power systems manufactured by third parties. However, in
an effort to become a vertically integrated solar and renewable energy solutions
company that markets, designs, engineers, installs and finances
solar systems today, IX Energy, entered into an agreement with
Federal Prison Industries, Inc. ("UNICOR") to manufacture solar modules that
will be marketed primarily to federal military and civilian agencies. We
are currently in negotiations with various manufacturing partners to set up a
solar panel manufacturing joint venture where we will provide the equipment and
sales and marketing and our joint venture partner will provide operating capital
for a the joint venture. As of March 31, 2009, we have purchased
$1,550,000 of solar panel equipment. The solar panel equipment is a 12MW
fully automated manufacturing line. We are currently looking for suitable
manufacturing warehouse space to install the equipment to manufacture our own
solar panels.
19
Restatement
The
Company previously issued common stock at a valuation per share that was not
reflective of the fair value of these issuances. The Company has
retroactively considered various factors, including the timeline of events
within the Company’s evolution, status as a private company at the date of these
issuances, valuation of stock issued to third parties for services rendered, and
the raising of cash proceeds in a private placement during 2008. The initial
valuation of the shares being restated were originally valued at $0.03/share,
the result of the restatement required these share issuances to be fair valued
at $0.37/share.
The
affected accounts have been restated to correctly reflect the appropriate fair
value adjustments. Accordingly, the financial statements have been
restated as follows:
|
As
originally
reported
|
|
Restatement
adjustment
|
|
As
restated
|
|||||||
Balance Sheet as of December 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
issue costs, net of accumulated amortization of $48,379 and $0 in 2008 and
2007
|
|
$
|
4,170
|
|
|
$
|
47,646
|
|
|
$
|
51,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
6,168,163
|
|
|
$
|
47,646
|
|
|
$
|
6,215,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
paid in capital
|
|
$
|
2,962,960
|
|
|
$
|
1,510,826
|
|
|
$
|
4,473,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
deficit
|
|
$
|
(1,471,765
|
)
|
|
$
|
(1,463,180
|
)
|
|
$
|
(2,934,945
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Stockholders Equity
|
|
$
|
1,497,048
|
|
|
$
|
47,646
|
|
|
$
|
1,544,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders’ Equity
|
|
$
|
6,168,163
|
|
|
$
|
47,646
|
|
|
$
|
6,215,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Operations for the Year ended
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
$
|
1,567,352
|
|
|
$
|
36,693
|
|
|
$
|
1,604,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
$
|
1,567,352
|
|
|
$
|
36,693
|
|
|
$
|
1,604,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
$
|
(1,135,276
|
)
|
|
$
|
(36,693
|
)
|
|
$
|
(1,171,969
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
$
|
(107,743
|
)
|
|
$
|
(44,486
|
)
|
|
$
|
(152,229
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Letter
of credit fee—stockholders
|
|
$
|
(120,946
|
)
|
|
$
|
(1,382,001
|
)
|
|
$
|
(1,502,947
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other expense—net
|
|
$
|
(222,216
|
)
|
|
$
|
(1,426,487
|
)
|
|
$
|
(1,648,703
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,357,492
|
)
|
|
$
|
(1,463,180
|
)
|
|
$
|
(2,820,672
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss per Share—Basic and Diluted
|
|
$
|
(0.03
|
)
|
|
$
|
(0.03
|
)
|
|
|
(0.06
|
)
|
20
|
As
originally
reported
|
|
Restatement
adjustment
|
|
As
restated
|
|||||||
Statement of Cash Flows for the Year
ended
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,357,492
|
)
|
|
$
|
(1,463,180
|
)
|
|
$
|
(2,820,672
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for loan fee—stockholders
|
|
$
|
120,946
|
|
|
$
|
1,382,001
|
|
|
$
|
1,502,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for consulting services—related parties
|
|
$
|
24,979
|
|
|
$
|
28,331
|
|
|
$
|
53,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for officer’s compensation
|
|
$
|
6,667
|
|
|
$
|
8,362
|
|
|
$
|
15,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of debt issue costs
|
|
$
|
3,893
|
|
|
$
|
44,486
|
|
|
$
|
48,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due
from affiliate
|
|
$
|
—
|
|
|
$
|
(44,325
|
)
|
|
$
|
(44,325
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided by (Used in) Operating Activities
|
|
$
|
2,115,793
|
|
|
$
|
(44,325
|
)
|
|
$
|
2,071,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due
from affiliate
|
|
$
|
(44,325
|
)
|
|
$
|
44,325
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Provided by (Used in) Investing Activities
|
|
$
|
(1,370,858
|
)
|
|
$
|
44,325
|
|
|
$
|
(1,326,533
|
)
|
|
As
originally
reported
|
|
Restatement
adjustment
|
|
As
restated
|
|||||||
Balance Sheet as of June 30,
2009
|
|
|
|
|
|
|
|
|
|
|
||
Debt
issue costs, net of accumulated amortization of $98,065 and $48,379 in
2009 and 2008:
|
|
$
|
171
|
|
|
$
|
1,958
|
|
|
$
|
2,129
|
|
Total
Assets
|
|
$
|
3,224,159
|
|
|
$
|
1,958
|
|
|
$
|
3,226,117
|
|
Additional
paid in capital
|
|
$
|
8,466,469
|
|
|
$
|
1,510,826
|
|
|
$
|
9,977,295
|
|
Accumulated
deficit
|
|
$
|
(8,444,076
|
)
|
|
$
|
(1,508,868
|
)
|
|
$
|
(9,952,944
|
)
|
Total
Stockholders Equity
|
|
$
|
28,842
|
|
|
$
|
1,958
|
|
|
$
|
30,800
|
|
Total
Liabilities and Stockholders’ Equity
|
|
$
|
3,224,159
|
|
|
$
|
1,958
|
|
|
$
|
3,226,117
|
|
Statement of Operations for
the
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
2009:
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
$
|
(61,004
|
)
|
|
$
|
(45,688
|
)
|
|
$
|
(106,692
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other income (expense)
|
|
$
|
367,685
|
|
|
$
|
(45,688
|
)
|
|
$
|
321,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(5,651,316
|
)
|
|
$
|
(45,688
|
)
|
|
$
|
(5,697,004
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Operations for
the
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
2009:
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
$
|
(28,081
|
)
|
|
$
|
(22,970
|
)
|
|
$
|
(51,051
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other income (expense)
|
|
$
|
1,514,222
|
|
|
$
|
(22,970
|
)
|
|
$
|
1,491,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
339,406
|
|
|
$
|
(22,970
|
)
|
|
$
|
316,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss per Share — Basic and Diluted
|
|
$
|
(0.01
|
)
|
|
$
|
0.01
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Cash Flows for
the
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
2009:
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(5,651,316
|
)
|
|
$
|
(45,688
|
)
|
|
$
|
(5,697,004
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of debt issue costs
|
|
$
|
3,999
|
|
|
$
|
45,688
|
|
|
$
|
49,687
|
|
21
|
As
originally
reported
|
|
Restatement
adjustment
|
|
As
restated
|
|||||||
Statement of Operations for
the
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
2008:
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
$
|
347,843
|
|
|
$
|
36,693
|
|
|
$
|
384,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
$
|
(237,851
|
)
|
|
$
|
(36,693
|
)
|
|
$
|
(274,544
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Letter
of credit fee loan fee
|
|
$
|
(90,710
|
)
|
|
$
|
(1,382,001
|
)
|
|
$
|
(1,472,711
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other income (expense)
|
|
$
|
(100,595
|
)
|
|
$
|
(1,382,001
|
)
|
|
$
|
(1,482,596
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(338,446
|
)
|
|
$
|
(1,418,694
|
)
|
|
$
|
(1,757,140
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss per Share — Basic and Diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.03
|
)
|
|
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Operations for
the
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30,
2008:
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
$
|
262,611
|
|
|
$
|
36,693
|
|
|
$
|
299,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
$
|
(143,659
|
)
|
|
$
|
(36,693
|
)
|
|
$
|
(180,352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Letter
of credit fee loan fee
|
|
$
|
(90,710
|
)
|
|
$
|
(1,382,001
|
)
|
|
$
|
(1,472,711
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other income (expense)
|
|
$
|
(93,924
|
)
|
|
$
|
(1,382,001
|
)
|
|
$
|
(1,475,925
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(237,583
|
)
|
|
$
|
(1,418,694
|
)
|
|
$
|
(1,656,277
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss per Share — Basic and Diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.03
|
)
|
|
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Cash Flows for
the
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30,
2008:
|
|
|
|
|
|
|
|
|
|
|
||
Net
loss
|
|
$
|
(338,446
|
)
|
|
$
|
(1,418,694
|
)
|
|
$
|
(1,757,140
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
issued for loan fee
|
|
$
|
120,946
|
|
|
$
|
1,382,001
|
|
|
$
|
1,502,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
issued for consulting services — related party
|
|
$
|
2,479
|
|
|
$
|
36,693
|
|
|
$
|
39,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due
from affiliate
|
|
$
|
—
|
|
|
$
|
(42,823
|
)
|
|
$
|
(42,823
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due
from related party
|
|
$
|
(42,823
|
)
|
|
$
|
42,823
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Billings
in excess of estimated costs and earnings
|
|
$
|
6,800,000
|
|
|
$
|
(6,800,000
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
revenue
|
|
$
|
—
|
|
|
$
|
6,800,000
|
|
|
$
|
6,800,000
|
|
Year
Ended December 31, 2008 Compared to the year ended December 31,
2007.
Revenues . During the year
ended December 31, 2008, we recorded revenues of approximately $10,832,000 as
compared to revenue of approximately $186,000 for the year ended December 31,
2007. Approximately $10,612,000 of the increase in revenues was primarily due to
the fulfillment of our UNICOR Government Agreement and sales to one commercial
customer to supply solar panels. In 2007 we did not have any sales of
solar panels. The remaining increase of approximately $34,000 is related to our
construction in progress contracts as we completed more projects in 2008
compared to 2007.
Cost of Sales . During the
year ended December 31, 2008, we recorded cost of sales of approximately
$10,399,000 as compared to cost of sales of approximately $261,000 for the year
ended December 31, 2007. Approximately $10,235,000 of this increase was related
to the sale of solar panels. The remaining decrease of approximately $97,000 of
cost of sales is related to our completion and ongoing construction in progress
contracts.
22
Our
margin on the resale of solar panels was approximately 4% for 2008. We expect
our margins to increase significantly going forward as we now have a more stable
arrangement with our suppliers.
Our
margin on our construction in progress contracts for 2008 was approximately 25%
as compared to a negative margin in 2007. We believe that our margin in 2008 is
representative of our contracts going forward.
Operating Expenses . During
the year ended December 31, 2008, we recorded operating expenses of
approximately $1,6 04,0 00, as compared to operating expenses of approximately
$26,000 for the year ended December 31, 2007, representing an increase of
approximately $1, 578 ,000. This increase in operating expenses was primarily
made up of approximately $495,000 for increased hiring in 2008 for our
management and administrative team and approximately $ 691 ,000 related to
legal, consulting and accounting expenses primarily related to the reverse
merger of our company into a public shell.
Loss from Operations . During
the year ended December 31, 2008, we recorded an operating loss of approximately
$1, 172 ,000, as compared to an operating loss of approximately $101,000 for the
year ended December 31, 2007, representing an increase of approximately $1, 071
,000. This increase in loss from operations was primarily due to increased
operation expenses by approximately $1, 578 ,000 that was partially offset by
our gross profit.
Provision for Income Taxes .
We did not recognize any provisions for income taxes during the year ended
December 31, 2008 and the year ended December 31, 2007 due to our net losses
during these periods and the valuation allowances on the resulting deferred tax
assets.
Revenues.
During the three months ended September 30, 2009, we recorded revenues of
$114,541 as compared to $1,039,857 for the three months ended September 30,
2008, respectively. This decrease of $925,316 was related to lower
resale transactions for solar panels in the three months ended September 30,
2009 that did not occur during the three months ended September 30, 2008,
respectively.. Business activity and revenues were significantly impacted
by the recession and the lack of credit and bank lending to fund solar
projects.
Cost of Sales. During the
three months ended September 30, 2009, we recorded cost of sales of
$95,385 as compared to $1,056,242 for the three months ended September 30,
2008. This decrease of $960,857 was related to the purchasing of solar
panels for resale in 2008 that did not occur in 2009.
Our
margin on the resale of solar panels was approximately 17% for the three months
ended September 30, 2009 as compared to less than 1% for the three months ended
September 30, 2008, respectively. Additionally, our margin on our
construction in progress contracts for the three months ended September 30, 2009
was approximately (82%) as compared to 18% for the three months ended September
30, 2008, respectively.
Operating Expenses. During
the three months ended September 30, 2009, we recorded operating expenses of
$1,221,482, as compared to $618,595 for the three months ended September 30,
2008, respectively, representing an increase of $602,887. This increase in
operating expenses was primarily made up of approximately $163,000 for increased
hiring in 2009 for our management and administrative staff, approximately
$276,000 related to legal, consulting and accounting services, approximately
$181,000 related to stock-based compensation, $108,000 related to a loss on sale
of a fixed asset, and approximately $70,000 related to common stock issued for
services.
Loss from Operations. During
the three months ended September 30, 2009, we recorded an operating loss of
$1,202,326, as compared to loss of $634,980 for the three months ended September
30, 2008, respectively, representing an increase of $567,346. This increase in
loss from operations was primarily due to increased operational expenses by
$602,887 that was partially offset by our gross profit in
2009.
Provision for Income Taxes.
We did not recognize any provision for income taxes during the three months
ended September 30, 2009 and 2008 due to our net losses during these periods and
the valuation allowances on the resulting deferred tax
assets.
23
Nine
Months Ended September 30, 2009 Compared to Nine Months Ended September 30,
2008
Revenues. During the nine
months ended September 30, 2009, we recorded revenues of $2,073,075 as compared
to $5,707,284 revenue for the nine months ended September 30, 2008,
respectively. This decrease of $3,634,209 was related to lower resale
transactions for solar panels in the first nine months of 2009 that did not
occur in the first nine months of 2008 due to the slowdown in the economy and
general lack of availability of credit for solar projects.
Cost of Sales. During the
nine months ended September 30, 2009, we recorded cost of sales of $1,685,170 as
compared to $5,613,677 for the nine months ended September 30, 2008,
respectively.
Our
margin on the resale of solar panels was approximately 19% for the nine months
ended September 30, 2009 as compared to 2% for the nine months ended September
30, 2008, respectively. We expect our margins to sequentially increase going
forward as we now have a more favorable arrangement with our suppliers and
vendors.
Our
margin on our construction in progress contracts for the nine months ended
September 30, 2009 was approximately 1% as compared to (1%) for the nine months
ended September 30, 2008, respectively. We believe that our margin for the nine
months ended September 30, 2009 is representative of our contracts going
forward.
Operating Expenses. During
the nine months ended September 30, 2009, we recorded operating expenses of
$7,609,232, as compared to $1,003,131 for the nine months ended September 30,
2008, representing an increase of $6,606,101, respectively. This increase in
operating expenses was primarily comprised up approximately $344,000 for
increased hiring in 2009 for our management and administrative staff,
approximately $560,000 related to legal, consulting and accounting services,
approximately $465,000 related to stock-based compensation , approximately
$3,765,000 related to common stock issued for employee compensation, and
approximately $610,000 related to common stock issued for services and $108,000
related to a loss on the sale of a fixed asset.
Loss from Operations. During
the nine months ended September 30, 2009, we recorded an operating loss of
$7,221,327, as compared to a loss of $909,524 for the nine months ended
September 30, 2008, representing an increase of $6,311,803, respectively. This
increase in loss from operations was primarily due to increased operational
expenses by $6,606,101 that was partially offset by our gross profit in
2009.
Provision for Income Taxes.
We did not recognize any provision for income taxes during the nine months ended
September 30, 2009 or 2008 due to our net losses during these periods and the
valuation allowances on the resulting deferred tax assets.
Liquidity
and Capital Resources
We have
historically met our liquidity requirements from a variety of sources, including
the sale of equity and debt securities to related parties and institutional
investors. Based on our strategy and the anticipated growth in our business, we
believe that our liquidity needs will increase. The amount of such increase will
depend on many factors, including building out our management team, the costs
associated with the fulfillment of our projects, whether we upgrade our
technology, and the amount of inventory required for our expanding business.
Although
we recently raised an aggregate of $3.475 million in a private placement, our
ultimate success depends upon our ability to raise additional capital. There can
be no assurance that additional funds will be available when needed from any
source or, if available, will be available on terms that are
favorable to us.
We will
need to raise a minimum of $3.0 million for us to execute our business plan in
the short term. If we do not raise this additional capital our business will be
substantially impaired.
We may be
required to pursue sources of additional capital through various means,
including joint venture projects and debt or equity financings. Future
financings through equity investments are likely to be dilutive to existing
stockholders.
Our
ability to obtain needed financing may be impaired by such factors as the
capital markets, both generally and specifically in the renewable energy
industry, and the fact that we are not profitable, which could impact the
availability or cost of future financings. If the amount of capital we are able
to raise from financing activities, together with our revenues from operations,
is not sufficient to satisfy our capital needs, even to the extent that we
reduce our operations accordingly, we may be required to cease
operations.
Cash and Cash
Equivalents.
As of
September 30, 2009, we had cash and cash equivalents of $722,952, as compared to
cash and cash equivalents of $4,736,812 as of December 31, 2008,
respectively.
24
Net Cash Provided By
Operating Activities.
Net cash
used in operating activities totaled $3,791,180 for the nine months ended
September 30, 2009, as compared to cash provided by of $1,816,197 for the nine
months ended September 30, 2008. This increase was primarily due to a net loss
of $6,117,381, decreases in deferred revenue of $1,796,238 (deferred revenue
decreased as we received payment in the prior period and shipped to the customer
in the quarter ended March 31, 2009), a decrease in accounts payable and accrued
expenses of $169,411 (as the company sought ways to cut expenses and pay off old
unpaid balances), a change in fair value of derivative liability based upon
revaluation at September 30, 2009 of $2,635,268, an increase in accounts
receivable of $96,281 and an increase in prepaid expenses of $88,309,
respectively. This was partially offset by derivative expense related to
warrants issued on the private placement of $1,422,917, issuance of common stock
for consulting services of $864,837, common stock issued to employees for
services rendered of $3,675,303, and employee stock-based compensation related
to stock options of $603,846.
Net Cash Used in Investing
Activities
Net cash
used in investing activities totaled $272,905 during the nine months ended
September 30, 2009, as compared to net cash used in investing activities of
$71,525 during the nine months ended September 30, 2008, respectively. Cash used
in investing activities during the nine months ended September 30, 2009 was
comprised of purchases of property and equipment for $268,667 and an investment
in a joint venture of $17,238.
Net Cash Provided By
Financing Activities
Net cash
provided by financing activities totaled $50,225 during the nine months ended
September 30, 2009, as compared to net cash provided by financing activities of
$1,438,252 during the nine months ended September 30, 2008, respectively. The
proceeds for the nine months ended September 30, 2009 were derived from common
stock for cash in a private placement totaling $725,000. This was
partially offset by repayment of notes payable of $473,000 to a related party
and cash paid as direct offering costs of $201,775 related to the proceeds
raised in the private placement.
Going
Concern
As
reflected in our September 30, 2009 financial statements, the Company had a net
loss of $6,117,381 and net cash used in operations of $3,791,180 for the nine
months ended September 30, 2009; and had a working capital deficit of
$1,635,554, and an accumulated deficit of $10,373,321 at September 30, 2009,
respectively.
The
ability of the Company to continue its operations is dependent on management’s
plans, which include the raising of $3.0 million capital through debt and/or
equity markets with some additional funding from other traditional financing
sources, including term notes, until such time that funds provided by operations
are sufficient to fund working capital requirements.
Critical
Accounting Policies and Estimates
We have
identified the policies below as critical to our business operations and the
understanding of our results of operations. The impact and any associated risks
related to these policies on our business operations are disclosed throughout
this section where such policies affect our reported and expected financial
results. Our preparation of our financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of our
financial statements, and the reported amounts of revenues and expenses during
the reporting period. There can be no assurance that actual results will not
differ from those estimates.
Management’s
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. We review the accounting policies used by us in reporting our financial
results on a regular basis. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses and related disclosure of contingent
assets and liabilities. On an ongoing basis, we evaluate our estimates. We base
our estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Results may differ from these
estimates due to actual outcomes being different from those on which we based
our assumptions. These estimates and judgments are reviewed by management on an
ongoing basis and at the end of each quarter prior to the public release of our
financial results. Please refer to “Management’s Discussion and
Analysis of Financial Condition and Results of Operations-Critical Accounting
Policies and Estimates” included in our Annual Report on Form 10-K for the year
ended December 31, 2009 for further information regarding our critical
accounting policies and estimates.
25
Accounts
Receivable. Accounts receivable represents trade obligations from
customers that are subject to normal trade collection terms, without discounts.
However, in certain cases we are entitled to rebates upon the completion of
certain jobs post installation. For percentage of completion installation
projects, the amounts are rebates and they are factored into the total estimated
contract price when doing percentage of completion to recognize revenue on each
project. At the completion of a solar installation project we record a
receivable from the electric company. The Company periodically evaluates the
collectability of its accounts receivable and considers the need to adjust an
allowance for doubtful accounts based upon historical collection experience and
specific customer information. Actual amounts could vary from the recorded
estimates. We have determined that as of September 30, 2009 and December 31,
2008 no allowance was required .
At
September 30, 2009 and December 31, 2008, the Company had a concentration of
accounts receivable from three customers totaling 100%. For the
nine months ended September 30, 2009, the Company had a concentration of sales
with four customers totaling 100%. For the year ended December 31, 2008, the
Company had a concentration of sales with four customers totaling
100%.
Revenue Recognition. We
follow the guidance of the Securities and Exchange Commission's Staff Accounting
Bulletin ("SAB") No. 104, "Revenue Recognition" ("SAB 104") for revenue
recognition and we record revenue when all of the following have occurred: (1)
persuasive evidence of an arrangement exists, (2) the product is delivered and
installed, (3) the sales price to the customer is fixed or determinable and (4)
collectability of the related customer receivable is reasonably assured. We have
two methods of revenue recognition. For our construction contracts, we record
revenues based upon the use of the percentage of completion method. For certain
energy products that we resell to third parties, we record revenue based upon
the shipment date. The Company has two methods of revenue
recognition:
(1)
Energy product reseller
The
Company purchases product from suppliers and resells them to third parties.
The Company records the revenue from the buyer and related cost paid to
the suppliers on these types of arrangements.
Periodically, the Company enters into similar arrangements
wherein the Company had no installation responsibility and no further obligation
after delivery was made to the customers. Payments from the customers are
received in advance of delivery of solar panels and are treated as deferred
revenue. Payments are then made to the suppliers and cost of materials is
recorded. A pro-rata portion of the deferred revenue from the customers is
recognized as shipments are made .
Revenues
from these arrangements are recognized upon shipment from the supplier to these
third parties. In addition, the Company has reviewed the relevance of
gross versus net reporting. Upon the Company’s review of this guidance, as well
as SAB No. 104, the Company has determined that it is subject to gross reporting
as it bears the risk of physical loss of inventory in each of these
arrangements, takes title to the inventory, is the primary obligor in the
arrangements, establishes the pricing with customers, has discretion in the
selection of suppliers, determines product specifications with customers and
suppliers and it has credit risk on all sales.
(2)
Percentage of completion
Revenue
from construction contracts are reported under the percentage-of-completion
method for financial statement purposes. The estimated revenue for each contract
reflected in the financial statements represent that percentage of estimated
total revenue that costs incurred to date bear to estimated total costs, based
on the Company’s current estimates. With respect to contracts that extend over
one or more accounting periods, revisions in costs and revenue estimates during
the course of the work are reflected in the period the revisions become known.
When current estimates of total contract costs indicate a loss, provision is
made for the entire estimated loss.
The
asset, “Costs and estimated
earnings in excess of billings on uncompleted contracts,” represents
revenues recognized in excess of amounts billed. The liability, “Estimated earnings on uncompleted
contracts,” represents billings in excess of revenues recognized. Billing
practices for these projects are governed by the contract terms of each project
based upon actual costs incurred, achievement of milestones, or pre-agreed
schedules. Billings do not necessarily correlate with revenue recognized under
the percentage-of-completion method of accounting. With the exception of claims
and change orders that are in the process of being negotiated with customers,
unbilled work is usually billed during normal billing processes following
achievement of the contractual requirements.
Share
based payment arrangements
Generally, all forms of share-based payments, including stock
option grants, restricted stock grants and stock appreciation rights, are
measured at their fair value on the awards’ grant date, and based on the
estimated number of awards that are ultimately expected to vest. Share-based
compensation awards issued to non-employees for services rendered are recorded
at either the fair value of the services rendered or the fair value of the
share-based payment, whichever is more readily determinable. The expense
resulting from share-based payments are recorded in general and administrative
expense .
26
DESCRIPTION
OF BUSINESS
BACKGROUND
IX Energy
Holdings, Inc. (the “Company”) was incorporated pursuant to the laws of the
State of Delaware under the name Yoo Inc. on October 31, 2007. Our
initial business plan was to market and sell a natural energy drink derived from
coconut water to distributors of soft drinks in Israel. However, we never
implemented our initial business plan.
On
December 30, 2008, we entered into an Agreement and Plan of Merger and
Reorganization (the “Merger Agreement”) with IX Energy, Inc., a Delaware
corporation (“IX Energy”), and IX Acquisition Corp., a Delaware corporation and
wholly-owned subsidiary of Yoo Inc. (the “Acquisition Sub”). Pursuant
to the Merger Agreement, the Acquisition Sub merged with and into IX Energy and
IX Energy became a wholly-owned subsidiary of Yoo Inc. On January 13,
2009, the Company’s name was changed to IX Energy Holdings, Inc. In
connection with this reverse merger, we discontinued our former business and
succeeded to the business of IX Energy as our sole line of
business. As a result, we are now engaged in the development and
financing of solar power and other renewable energy solutions
systems.
OVERVIEW
OF OUR BUSINESS
Since its
inception, IX Energy’s operations have principally involved the integration and
installation of solar power systems manufactured by third parties. However, in
an effort to become a vertically integrated solar and renewable energy solutions
company that markets, designs, engineers, installs and finances
solar systems today, IX Energy, entered into an agreement with
Federal Prison Industries, Inc. ("UNICOR") to manufacture solar modules, using
components supplied by us that will be marketed primarily to federal military
and civilian agencies.
SOLAR SOLUTIONS
A solar
power system generally includes companies specializing in the
following:
•
|
Silicon
Refiners — companies that produce refined silicon, a material that has
historically been used as the primary ingredient for solar panels. In
light of the current shortage of silicon, it is possible that other
materials may be used as the primary ingredient in the
future.
|
•
|
Wafer
and Cell Manufacturers — companies that manufacture the electricity
generating solar cells.
|
•
|
Panel
Manufacturers — companies that assemble solar cells into solar panels,
generally laminating the cells between glass and plastic film, and
attaching the wires and panel frame.
|
•
|
Distributors
— companies that purchase from manufacturers and resell to designers/
integrators and other equipment resellers.
|
•
|
Designer/Installers
— companies that sell products to end user
customers.
|
IX Energy
delivers solar power systems taking into account the customer's location, site
conditions and energy needs. During the preliminary design phase, we conduct a
site audit and building assessment for onsite generation feasibility and
identify energy efficiency savings opportunities. We model a proposed system
design based on variables including local weather patterns, utility rates and
other relevant factors at the customer's location. We also identify necessary
permits and design our systems to comply with applicable building codes and
other regulations.
We offer
general contracting services and employ project managers to oversee all aspects
of system installation, including securing necessary permits and approvals.
Subcontractors, typically electricians and roofers, usually provide the
construction labor, tools and heavy equipment for solar system installation. We
have also served as a subcontractor for Johnson Controls, Inc. ("Johnson
Controls"), a heating, ventilating and air conditioning company, in connection
with the installation of a roof mounted solar power system for one of its
customers.
Our
U.S. Government and Military Focus:
IX Energy
is distinguished from other solar developers in that we have the experience and
background to solve the complex aspects of technology evaluation, economic
impact, systems engineering, system integration, project execution, financing
and more. We understand federal customers and can provide them with the systems
and solutions they need to meet renewable energy requirements while reducing
cost and their environmental impact.
27
STRATEGY
Our
strategy is to leverage our foundation as a turnkey solar solutions provider to
the U.S. government agencies, the U.S. military and commercial customers and
deliver comprehensive energy conservation and renewable energy solutions through
strategic partners, teaming agreements and direct integration of technologies
into IX Energy. The partnership between ix energy and Unicor intends to position
the company to be able to offer a vertically integrated solar
solutions company. Unicor manufacture partner offers solar panels , while IX
energy can leverage our design and engineering expertise to market and install
solar power systems. Once Unicor solar panel achieves completed UL
listing (underwriters laboratory) we anticipate positioning ourselves
to assist customers to achieve their federally mandated renewable energy
standards by integrating turnkey solutions or unicor product
sales.
It will
be necessary for Unicor to achieve the UL listing for the solar panel product.
Until such time IX Energy will not be able to sell or solicite the product in
the market place. Until the certification is received the product will not be
applicable for government grant funding, state rebate programs, or
interconnected to the grid under typical utility guidelines.
UNICOR
Sales and Marketing Agreement
In 2008
we entered into a five year sales and marketing agreement with UNICOR pursuant
to which IX Energy provides sales and marketing for the UNICOR
assembled solar panels at its facility in Otisville, New York and other UNICOR
facilities that it may be deemed appropriate. The agreement grants us the right
to market and sell to U.S. governmental customers any solar panels and related
products assembled and manufactured under this agreement.
The
UNICOR agreement provides for two different sales and marketing programs. Under
the first program, UNICOR will assemble and produce solar panels and we will
actively market to and solicit customers, prepare customer proposals and assist
customers in obtaining project financing. The customers will pay us directly and
we will pay UNICOR an amount equal to the cost of the solar cells plus a
below-market fee for panel fabrication. We will notify UNICOR of all
opportunities for pursuing contracts with federal government agencies. If UNICOR
decides not to pursue or contract for a federal job, we may notify another
manufacturer of the proposed project and pursue the federal job with that
manufacturer.
Under the
second program, we act as a sales agent for UNICOR. UNICOR will identify
potential customers to us and we will work with UNICOR to prepare customer
proposals and aid customers in obtaining project financing. UNICOR will sell the
products directly to the customers and pay us a service fee equal to 25% of the
net earnings per project for projects that are under 5 megawatts. We will
negotiate the service fees for projects that are over 5 megawatts on a
project-by-project basis.
Installation
We
utilize experienced general and electrical subcontractors to install solar panel
projects. The subcontractors are responsible for obtaining licenses, carrying
appropriate insurance and adhering to the local labor and payroll
requirements.
CUSTOMERS
We expect
to target federal civilian and military agencies and institutional commercial
customers including large corporations, non-governmental organizations,
universities and solar powered electric generating stations. We anticipate that
the federal government will be a key customer as a result of government mandates
that require federal agencies to improve their energy efficiency. Historically,
however, we have principally designed and installed solar power systems for
commercial and residential customers and public schools, both directly and as a
subcontractor.
Federal
Mandates
Federal
agencies must meet energy management and renewable energy guidelines set forth
in the Energy Policy Act of 2005 ("EPACT"), Executive Order 13423 "Strengthening
Federal Environmental, Energy and Transportation Management" ("EO 13423") and
related regulations. In particular, EPACT directs that the following percentages
of an agency's energy consumption come from renewable energy
sources:
28
•
|
3%
or more in fiscal years 2007 through 2009
|
•
|
5%
or more in fiscal years 2010 through 2012, and
|
•
|
7.5%
or more by 2013.
|
EO 13423,
on the other hand, orders federal agencies to improve energy efficiency and
reduce greenhouse gas emissions by 3% annually through fiscal year 2015 or by
30% by fiscal year 2015, relative to their energy use and emissions in fiscal
year 2003. EO 13423 also mandates that federal agencies use sustainable
practices when purchasing products and services. Implementing instructions
issued by the Department of Energy require that agencies give preference in
their procurement and acquisition programs to energy produced from renewable
sources. At least half of the renewable energy consumed by an agency must come
from renewable power sources placed into service after January 1,
1999.
Industry
Electric
power is used to operate businesses and industries, provides the power needed
for homes and offices, and provides the power for our communications,
entertainment, transportation and medical needs. As our energy supply and
distribution mix changes, electricity is likely to be used more for local
transportation (electric vehicles) and space/water heating needs. According to
the Edison Electric Institute, the electric power industry in the U.S. is over
$218 billion in size, and will continue to grow with our economy.
According
to the U.S. Department of Energy, electricity is generated from the following:
coal -51%, nuclear -21%, gas - 16%, hydro - 6%, and oil - 3%, with renewable
energy contributing 3%. "Renewable Energy" typically refers to non-traditional
energy sources, including solar energy. Due to continuously increasing energy
demands, we believe the electric power industry faces the following
challenges:
•
|
Limited Energy Supplies
. The primary fuels that have supplied this industry, fossil fuels in the
form of oil, coal and natural gas, are limited. Worldwide demand is
increasing at a time that industry experts have concluded that supply is
limited. Therefore, the increased demand will probably result in increased
prices, making it more likely that long-term average costs for electricity
will continue to increase.
|
•
|
Generation, Transmission and
Distribution Infrastructure Costs . Historically, electricity has
been generated in centralized power plants transmitted over high voltage
lines, and distributed locally through lower voltage transmission lines
and transformer equipment. As electricity needs increase, these systems
will need to be expanded. Without further investments in this
infrastructure, the likelihood of power shortages ("brownouts" and
"blackouts") may increase.
|
•
|
Stability of Suppliers
. Since many of the major countries who supply fossil fuel are located in
unstable regions of the world, purchasing oil and natural gas from these
countries may increase the risk of supply shortages and cost
increases.
|
•
|
Environmental Concerns and
Climate Change . Concerns about global warming and greenhouse gas
emissions have resulted in the Kyoto Protocol, various states enacting
stricter emissions control laws and utilities in several states being
required to comply with renewable portfolio standards, which require the
purchase of a certain amount of power from renewable
sources.
|
Solar
energy is the underlying energy source for renewable fuel sources, including
biomass fuels and hydroelectric energy. By extracting energy directly from the
sun and converting it into an immediately usable form, either as heat or
electricity, intermediate steps are eliminated. We believe, in this sense, solar
energy is one of the most direct and unlimited energy sources.
Solar
energy can be converted into usable forms of energy either through the
photovoltaic effect (generating electricity from photons) or by generating heat
(solar thermal energy). Solar thermal systems include traditional domestic hot
water collectors (DHW), swimming pool collectors, and high temperature thermal
collectors (used to generate electricity in central generating systems). DHW
thermal systems are typically distributed on rooftops so that they generate heat
for the building on which they are situated. High temperature thermal collectors
typically use concentrating mirror systems and are typically located in remote
sites.
ANATOMY
OF A SOLAR POWER SYSTEM
Solar
power systems convert the energy in sunlight directly into electrical energy
within solar cells based on the photovoltaic effect. Multiple solar cells, which
produce direct current, or DC, power, are electrically interconnected into solar
panels. A typical 180 watt solar panel may have 72 individual solar cells.
Multiple solar panels are electrically wired together. The number of solar
panels installed on a building are generally
selected to meet that building's annual electrical usage, or selected to fill
available unshaded roof or ground space. Solar panels are electrically wired to
an inverter, which converts the power from DC to alternate current, or AC, and
interconnects with the utility grid.
29
Solar Electric Cells . Solar
electric cells convert light energy into electricity at the atomic level. The
conversion efficiency of a solar electric cell is defined as the ratio of the
sunlight energy that hits the cell divided by the electrical energy that is
produced by the cell. By improving this efficiency, we believe solar electric
energy becomes competitive with fossil fuel sources. The earliest solar electric
devices converted about 1%-2% of sunlight energy into electric energy. Current
solar electric devices convert 5%25% of light energy into electric energy (the
overall efficiency for solar panels is lower than solar cells because of the
panel frame and gaps between solar cells), and current mass produced panel
systems are substantially less expensive than earlier systems. Effort in the
industry is currently being directed towards the development of new solar cell
technology to reduce per watt costs and increase area efficiencies.
Solar Panels . Solar electric
panels are composed of multiple solar cells, along with the necessary internal
wiring, aluminum and glass framework, and external electrical connections.
Although panels are usually installed on top of a roof or on an external
structure, certain designs include the solar electric cells as part of
traditional building materials, such as shingles and rolled out roofing. Solar
electric cells integrated with traditional shingles is usually most compatible
with masonry roofs and, while it may offset costs for other building materials
and be aesthetically appealing, it is generally more expensive than traditional
panels.
Inverters . Inverters convert
the DC power from solar panels to the AC power used in buildings. Grid-tie
inverters synchronize to utility voltage and frequency and only operate when
utility power is stable (in the case of a power failure these grid-tie inverters
shut down to safeguard utility personnel from possible harm during
repairs). Inverters also operate to maximize the power extracted from the solar
panels, regulating the voltage and current output of the solar array based on
sun intensity.
Monitoring . There are two
basic approaches to access information on the performance of a solar power
system. One approach is to collect the solar power performance data locally from
the inverter with a hard-wired connection and then transmit that data via the
Internet to a centralized database. Data on the performance of a system can then
be accessed from any device with a web browser, including personal computers and
cell phones. As an alternative to web-based remote monitoring, most commercial
inverters have a digital display on the inverter itself that shows performance
data and can also display this data on a nearby personal computer with a
hard-wired or wireless connection.
Net Metering . The owner of a
grid-connected solar electric system may not only buy, but may also sell,
electricity each month. This is because electricity generated by the solar
electric system can be used on-site or fed through a meter into the utility
grid. Utilities are required to buy power from owners of solar electric systems
(and other independent producers of electricity) under the Public Utilities
Regulatory Policy Act of 1978 (PURPA). For instance, California's net metering
law provides that all utilities must allow customers with solar electric systems
rated up to 1.5 megawatts to interconnect with the local utility grid and
receive retail value for the electricity produced. When a home or business
requires more electricity than the solar power array is generating (for example,
in the evening), the need is automatically met by power from the utility grid.
When a home or business requires less electricity than the solar electric system
is generating, the excess is fed (or sold) back to the utility and the electric
meter actually spins backwards. Used this way, the utility serves as a backup to
the solar electric similar to the way in which batteries serve as a backup in
stand-alone systems.
Solar
Power Benefits
The
direct conversion of light into energy offers the following benefits compared to
conventional energy sources:
•
|
Economic — Once a solar
power system is installed, the cost of generating electricity is fixed
over the lifespan of the system. There are no risks that fuel prices will
escalate or fuel shortages will develop. In addition, cash paybacks for
systems range from 5 to 25 years, depending on the level of state and
federal incentives, electric rates, annualized sun intensity and
installation costs. Solar power systems at customer sites generally
qualify for net metering to offset a customer's highest electric rate
tiers, at the retail, as opposed to the wholesale, electric
rate.
|
•
|
Convenience
— Solar power systems can be installed on a wide range of sites, including
small residential roofs, the ground, covered parking structures and large
industrial buildings. Solar power systems also have few, if any, moving
parts and are generally guaranteed to operate for 25 years resulting, we
believe, in low maintenance and operating costs and reliability compared
to other forms of power generation.
|
•
|
Environmental
— We believe solar power systems are one of the most environmentally
friendly ways of generating electricity. There are no harmful greenhouse
gas emissions, no wasted water, no noise, no waste generation and no
particulates. Such benefits continue for the life of the
system.
|
•
|
Security
— Producing solar power improves energy security both on an international
level (by reducing fossil energy purchases from hostile countries) and a
local level (by reducing power strains on local electrical transmission
and distribution systems).
|
•
|
Infrastructure
— Solar power systems can be installed at the site where the power is to
be used, thereby reducing electrical transmission and distribution costs.
Solar power systems installed and operating at customer sites may also
save the cost of construction of additional energy infrastructure
including power plants, transmission lines, distribution systems and
operating costs.
|
30
We
believe the volatility of fuel costs, environmental concerns and national energy
security concerns make it likely that the demand for solar and renewable energy
solutions will grow geometrically given federal mandates, the recent
stimulus package and. The federal government, and several states (primarily
California and New Jersey), have put a variety of incentive programs in place
that directly spur the installation of grid-tied solar power systems, so that
customers will "purchase" their own power generating system rather than
"renting" power from a local utility. These programs include:
•
|
Rebates
— to customers (or to installers) to reduce the initial cost of the solar
power system, generally based on the size of the system. California, New
Jersey, New York, Connecticut and other states have rebates that can
substantially reduce initial costs.
|
•
|
Tax
Credits — federal and state income tax offsets, directly reducing ordinary
income tax. New York and California currently offer state tax credits.
There is currently a 10% federal tax credit up to $2,000 for residential
systems, and a 30% federal tax credit (with no cap) for business
systems.
|
•
|
Accelerated
Depreciation — solar power systems installed for businesses (including
applicable home offices) are generally eligible for accelerated
depreciation.
|
•
|
Net
Metering — provides a full retail credit for energy
generated.
|
•
|
Feed-in
Tariffs — are additional credits to consumers based on how much energy
their solar power system generates. Feed-in Tariffs set at appropriate
rates have been successfully used in Europe to accelerate
growth.
|
•
|
Renewable
Portfolio Standards — require utilities to deliver a certain percentage of
power generated from renewable energy sources.
|
•
|
Renewable
Energy Credits (RECs) — are additional credits provided to customers based
on the amount of renewable energy they produce.
|
•
|
Solar
Rights Acts — state laws to prevent unreasonable restrictions on solar
power systems. California's Solar Rights Act has been updated several
times in past years to make it easier for customers of all types and in
all locations to install a solar power
system.
|
According
to PV News, California and New Jersey account for approximately 90% of the U.S.
residential market. We believe this is largely attributable to the fact that
they currently have the most attractive incentive programs. The California Solar
Initiative provides $3.2 billion of incentives toward solar development over 11
years. In addition, recently approved regulations in New Jersey require solar
photovoltaic power to provide 2% of New Jersey's electricity needs by 2020,
requiring the installation of 1,500 megawatts of solar electric power. According
to DSIRE (the Database of State Incentives for Renewable Energy) at least 18
other states also have incentive programs. We expect that such programs, as well
as federal tax rebates and other incentives, will continue to drive growth in
the solar power market for the near future.
SALES
AND MARKETING
Historically,
we have generated sales through the direct efforts of management and its
preexisting relationships. However, as we expand the breadth of our operations,
our sales and marketing program will entail our participation in industry trade
shows, individual consultations with prospective customers, hiring additional
sales personnel and direct marketing.
COMPETITION
We face
intense competition in the manufacture, design, marketing and installation of
solar power systems. We believe that we have less than 5% of the market as
compared to our principal competitors. Our principal competitors include
SunPower Corporation, another vertically integrated solar products and services
company, SunEdison LLC, an installer and integrator, and Evergreen Solar, Inc.,
United Solar Ovonic LLC, Schott Solar Inc. and Kyocera Corporation, solar panel
and solar cell manufacturers. A significant number of our competitors are
developing or currently producing products based on the more advanced
photovoltaic technologies, including thin film solar module, amorphous silicon,
string ribbon and nano technologies, which may eventually offer cost advantages
over the crystalline polysilicon technologies currently used by us. However, we
believe our solar systems will provide the following benefits compared with
competitors' systems:
•
|
superior
performance delivered by maximizing energy delivery and financial return
through systems technology design;
|
•
|
superior
systems design to meet customer needs and reduce cost;
|
•
|
superior
channel breadth and delivery capability including turnkey systems;
and
|
•
|
significant
cost savings due to our vertically integrated structure that enables us to
source our own high quality, low-cost solar cells directly from suppliers
and avoid paying brokers' fees on the
cells.
|
31
We also
compete against other power generation sources including conventional fossil
fuels supplied by utilities, other alternative energy sources such as wind,
biomass, concentrated solar power and emerging distributed generation
technologies such as micro-turbines, sterling engines and fuel cells. We believe
solar power has certain advantages when compared to these other power generating
technologies. We believe solar power offers a stable power price compared to
utility network power, which typically increases as fossil fuel prices increase.
In addition, solar power systems are deployed in many sizes and configurations
and do not produce air, water and noise emissions. Most other distributed
generation technologies create environmental impacts of some sort. However, due
to the relatively high manufacturing costs compared to most other energy
sources, solar energy is generally not competitive without government incentive
programs.
Competition
is intense, and many of our competitors have significantly greater access to
financial, technical, manufacturing, marketing, management and other resources
than we do. Many also have greater name recognition, a more established
distribution network and a larger base of customers. In addition, many of our
competitors have well-established relationships with our current and potential
suppliers, manufacturing partners and customers and have extensive knowledge of
our target markets. As a result, our competitors may be able to
devote
greater
resources to the research, development, promotion and sale of their products and
respond more quickly to evolving industry standards and changing customer
requirements than we can. Consolidation or strategic alliances among our
competitors may strengthen these advantages and may provide them greater access
to customers or new technologies. In addition to facing competition from other
solar power system providers, our competitors may enter into strategic
relationships with or be acquired by our customers. To the extent that
government funding for research and development grants, customer tax rebates and
other programs that promote the use of solar and other renewable forms of energy
are limited, we compete for such funds, both directly and indirectly, with other
renewable energy providers and with current and potential
customers.
ENVIRONMENTAL,
HEALTH AND SAFETY REGULATIONS
We are
subject to a variety of federal, state and local governmental laws and
regulations related to the purchase, storage, use and disposal of hazardous
materials. We are also subject to occupational health and safety regulations
designed to protect worker health and safety from injuries and adverse health
effects from exposure to hazardous chemicals and working conditions. If we fail
to comply with present or future environmental laws and regulations, we
could be subject to fines, or a cessation of operations. In addition, under some
federal, state and local statutes and regulations, a governmental agency may
seek recovery and response costs from operators of property where releases of
hazardous substances have occurred or are ongoing, even if the operator was not
responsible for the release or otherwise was not at fault.
Any
failure by us to control the use of, or to restrict adequately the discharge of,
hazardous substances could subject us to substantial financial liabilities,
operational interruptions and adverse publicity, any of which could materially
and adversely affect our business, results of operations and financial
condition.
Solar
Energy Industry
We
believe that economic and national security issues, technological advances,
environmental regulations seeking to limit emissions by fossil fuel, air
pollution regulations restricting the release of greenhouse gasses, aging
electricity transmission infrastructure and depletion and limited supply of
fossil fuels, has made reliance on traditional sources of fuel for generating
electricity less attractive. Government policies, in the form of both regulation
and incentives, have accelerated the adoption of solar technologies by
businesses and consumers. For example, in the U.S., EPACT enacted a 30%
investment tax credit for solar, and in January 2006 California approved the
largest solar program in the country's history that provides for long term
subsidies in the form of rebates to encourage use of solar energy where
possible.
Government
Subsidies and Incentives
Various
subsidies and tax incentive programs exist at the federal and state level to
encourage the adoption of solar power including capital cost rebates,
performance-based incentives, feed-in tariffs, tax credits and net metering.
Capital cost rebates provide funds to customers based on the cost of size of a
customer's solar power system. Performance-based incentives provide funding to a
customer based on the energy produced by their solar system. Under a feed-in
tariff subsidy, the government sets prices that regulated utilities are required
to pay for renewable electricity generated by end-users. The prices are set
above market rates and may be differentiated based on system size or
application. Feed-in tariffs pay customers for solar power system generation
based on kilowatt-hours produced, at a rate generally guaranteed for a period of
time. Tax credits reduce a customer's taxes at the time the taxes are due. Under
net metering programs, a customer can generate more energy than used, during
which periods the electricity meter will spin backwards. During these periods,
the customer "lends" electricity to the grid, retrieving an equal amount of
power at a later Net time metering programs enable end-users to sell excess
solar electricity to their local utility in exchange for a credit against their
utility bills. Net metering programs are usually combined with rebates, and do
not provide cash payments if delivered solar electricity exceeds their utility
bills. In addition, several states have adopted renewable portfolio standards,
which mandate that a certain portion of electricity delivered to customers come
from a set of eligible renewable energy resources. Under a renewable portfolio
standard, the government requires regulated utilities to supply a portion of
their total electricity in the form of renewable electricity. Some programs
further specify that a portion of the renewable energy quota must be from solar
electricity.
32
Despite
the benefits of solar power, there are also certain risks and challenges faced
by solar power. Solar power is heavily dependent on government subsidies to
promote acceptance by mass markets. We believe that the near-term growth in the
solar energy industry depends significantly on the availability and size of
these government subsidies and on the ability of the industry to reduce the cost
of generating solar electricity. The market for solar energy products is, and
will continue to be, heavily dependent on public policies that support growth of
solar energy. There can be no assurances that such policies will continue.
Decrease in the level of rebates, incentives or other governmental support for
solar energy would have an adverse affect on our ability to sell our
products.
Building
Codes
We are
required to obtain building permits and comply with local ordinances and
building codes for each project, the cost of which is included in our estimated
costs for each proposal.
As of
January 21, 2010, we have 4 full time
employees.
DESCRIPTION
OF PROPERTY
We lease
approximately 1200 square feet of office space in
New York, New York for $8,500 per month on a
month-to-month basis. This facility serves as our corporate
headquarters.
We
believe that our current facilities are adequate for our immediate and near-term
needs. Additional space may be required as we expand our activities. We do not
currently foresee any significant difficulties in obtaining any required
additional facilities. In the opinion of the management, our property is
adequately covered by insurance.
We are
not dependent on a specific location for the operation of our
business
|
LEGAL
PROCEEDINGS
|
From time
to time we may be involved in claims arising in the ordinary course of business.
Currently, there are no material pending litigation to which we, or our
subsidiaries are a party.
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The
following table sets forth the names and ages of the members of our Board of
Directors and our executive officers and the positions held by each as of January 21, 2010 . There are no family relationships among
any of our Directors and Executive Officers.
Name
|
Age
|
Position
|
||
Steven
Hoffmann
|
34
|
Chief
Executive Officer, Chief Financial Officer and Director
|
||
George
Weiner
|
64
|
Chief
Technology Officer
|
||
Robert
Lynch, Jr.
|
76
|
Director
|
Executive
Biographies
Steven Hoffmann, Chief Executive Officer,
Chief Financial Officer and Director. Steven Hoffmann was appointed as
our Chief Executive Officer, Chief Financial Officer and as a director on
December 30, 2008. He founded IX Energy in 2006 and has served as its
Chief Executive Officer and Chairman since inception. He has served as IX
Energy’s Chief Financial Officer since November 2008. From 2004 until 2006, Mr.
Hoffmann served as the east coast regional sales manager of Solar Integrated
Technologies, Inc., a designer, manufacturer, marketer and installer of solar
roofing and power generation systems. From 2002 until 2004, Mr. Hoffmann was a
sales manager with Turtle & Hughes Inc., a distributor of electrical and
industrial equipment. Additionally, Mr. Hoffmann’s family has been a leading
provider of institutional steam power and heating generation systems for
primarily East Coast companies and institutions for the last thirty years. Mr.
Hoffmann has had ten years experience with the institutional production,
manufacturing, marketing and sales of these systems.
33
George Weiner, Chief Technology
Officer. Mr. Weiner was appointment Chief Technology Officer on March 23,
2009. Mr. Weiner has more than 34 years experience in the energy industry,
including serving as President and sole owner of GALE Associates, AKA GALE
Architectural Services, from 1986 to 2009, and as Director of Energy
Conservation for the City of New York from 1979 to 1980. Mr. Weiner has overseen
numerous energy conservation grant projects for schools and hospitals in
addition to designing numerous RFPs for solar projects. Mr. Weiner is a member
of the American Institute of Architecture, and serves as a director for FIRST
(Fully Independent Residential Solar Technologies). He earned a Masters in
Architecture from M.I.T. and an M.B.A. from Pace University.
Robert Lynch, Jr., Director.
Robert Lynch was appointed to our board of directors on February 5,
2009. Mr. Lynch served as a Director of IX Energy, Inc. from May
2007 through December 2008. Mr. Lynch has been President of American &
Foreign Enterprises, Inc. (“AFE”), an investment firm, for the last 20 years.
Among its many enterprises, AFE is partnered with Hochtief AG and has worked
with international investment banks including Goldman Sachs & Co., BV Bank
of Munich and Citibank. Mr. Lynch is 76 years old. Mr. Lynch has been
a director of many public companies in various industries, including AMASYS,
Dames & Moore (environmental/geotechnical engineering), Data Broadcasting
Corporation (real-time financial market data) and Turner Construction Company.
Mr. Lynch currently serves as a director of Comtex News Network, Inc., a leading
provider of business-related electronic real time news, content and SmarTrend®
market products.
Board
of Directors
Our
Directors are elected by the vote of a majority in interest of the holders of
our voting stock and hold office until the expiration of the term for which he
or she was elected and until a successor has been elected and
qualified.
A
majority of the authorized number of directors constitutes a quorum of the Board
for the transaction of business. The directors must be present at the meeting to
constitute a quorum. However, any action required or permitted to be taken by
the Board may be taken without a meeting if all members of the Board
individually or collectively consent in writing to the action.
Directors
may receive compensation for their services and reimbursement for their expenses
as shall be determined from time to time by resolution of the Board. Each of our
directors currently receives no cash compensation for their service on the Board
of Directors, but do receive a small amount of stock options.
Audit
Committee
We do not
have a separately designated standing audit committee.
Code
of Ethics
We have
not adopted a formal Code of Business Conduct and Ethics.
34
EXECUTIVE
COMPENSATION
The
following table sets forth all compensation earned in respect of our Chief
Executive Officer and those individuals who received compensation in excess of
$100,000 per year, collectively referred to as the named executive officers, for
our last three completed fiscal years.
Summary
Compensation Table
Name & Principal
Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan
Compensation
($)
|
Change in Pension
Value and Non-
Qualified Deferred
Compensation
Earnings ($)
|
All
Other
Compensation
($)
|
Total
($)
|
|||||||||
Steven
Hoffmann,
|
2009
|
225,000
|
0
|
0
|
0
|
0
|
0
|
0
|
225,000
|
|||||||||
CEO,
|
2008
|
150
,000
|
80,000
|
0
|
0
|
0
|
0
|
0
|
230,000
|
|||||||||
CFO
and Director (1)
|
2007
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|||||||||
Roland
J. Bopp,
|
2009
|
25,436
|
0
|
0
|
0
|
0
|
0
|
0
|
25,436
|
|||||||||
President,
|
2008
|
60,000
|
0
|
0
|
0
|
0
|
0
|
0
|
60,000
|
|||||||||
COO
(2)
|
2007
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|||||||||
Michael
Weinstein
|
2009
|
43,025
|
0
|
0
|
0
|
0
|
0
|
0
|
43,025
|
|||||||||
CFO(3)
|
2008
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|||||||||
2007
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
||||||||||
Zvi
Pessahc Frank
|
2008
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|||||||||
President
(4)
|
2007
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|||||||||
2006
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
(1)
|
Mr.
Hoffmann was appointed as our Chief Executive Officer, Chief Financial
Officer and as a Director on December 30, 2008. Prior to that, on May 1,
2008, the Company entered into a two-year employment agreement with Mr.
Hoffmann to serve as the Company’s CEO and Chairman of the Board. The
agreement provided for an annual salary of $225,000 and $80,000 to be paid
as a bonus for services rendered prior to this agreement. For
the period from May 1, 2008 to December 31, 2008, Mr. Hoffmann earned
$150,000 of his annual salary and $80,000 was accrued in full as of
December 31, 2008. The individual is also eligible for a
multi-year grant of the Company’s non-qualified options that will be equal
to 6% of the total common shares outstanding. The bonus and the
options were granted in the first quarter of 2009.
|
(2)
|
Mr.
Bopp was appointed as our President on December 30,
2008. Effective January 31, 2009, Mr. Bopp is no longer serving
as the Company’s President and Chief Operating Officer.
|
(3)
|
Mr.
Weinstein’s employment as the CFO commenced on August 27, 2009. Pursuant
to the terms of the Executive Employment Agreement, the term of the
initial appointment expired after a term of three
months. Mr. Weinstein has not accepted an extension
offered to him by the Company and currently provides such services to the
Company as may be requested from time to time.
|
(4)
|
Mr.
Frank resigned as the Company’s President effective December 30,
2008.
|
Employment
agreements
On May 1,
2008, the Company’s now wholly-owned subsidiary, IX Energy, Inc. entered into an
employment agreement with Steven Hoffmann, pursuant to which Mr.
Hoffmann agreed to serve as Chief Executive Officer of IX Energy,
Inc. Mr. Hoffmann’s employment agreement is for a term of 2
years. Pursuant to his employment agreement, Mr. Hoffmann is entitled
to an annual base salary of $225,000. In addition, Mr. Hoffmann was
entitled to receive compensation of $80,000 as a bonus and expenses for 2008
upon the Company’s sale of debt and/or equity securities in one or more
transactions that result in gross proceeds to the Company of at least $2.5
million. Mr. Hoffmann is also entitled to an annual bonus in an
amount to be determined by the Company’s compensation committee or by the
independent members of the Company’s board of directors, if no such committee
exists. Pursuant to his employment agreement, Mr. Hoffmann is also
eligible to participate in incentive, saving, retirement and other welfare
benefit plans of the Company. In addition, Mr. Hoffmann is entitled
to receive a multi-year grant of non-qualified stock options in an amount equal
to 6% of the total common shares of the Company following the reverse merger,
vesting at a rate of 1/3 per year commencing on May 1, 2008.
35
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information, as of January 21, 2010 with respect to the beneficial ownership
of the outstanding common stock by (i) any holder of more than five (5%)
percent; (ii) each of our executive officers and directors; and (iii) our
directors and executive officers as a group. Except as otherwise indicated, each
of the stockholders listed below has sole voting and investment power over the
shares beneficially owned.
Name
of
Beneficial
Owner (1)
|
Number
of Shares
Beneficially
Owned (2)
|
Percentage
of Common Stock Beneficially Owned (2)
|
||||||
Directors
and Executive Officers:
|
||||||||
Steven
Hoffmann (3)
|
23,698,915 | (5) | 34.87 | % | ||||
Robert Lynch,
Jr.(4)
|
534,572 | * | ||||||
All
Executive Officers and
Directors
as a Group (3 persons)
|
23,895,867 | 35.68 | % | |||||
Beneficial
owners of more than 5%
|
||||||||
Scott
Schlesinger
218
Hudson Street
Hoboken,
NJ 07030
|
8,410,409 | 12.76 | % | |||||
Robert
Prag
3455
El Amigo Road
Del
Mar, CA 92014
|
5,179,063 | 7.86 | % | |||||
Semper
Gastion S.A
5,
rue Pedro-Meylan
Geneva,
Switzerland 1208
|
6,500,000 | (7) | 9.86 | % | ||||
* Less
than 1%
(1)
|
Except
as otherwise indicated, the address of each beneficial owner is c/o IX
Energy Holdings, Inc., 711 Third Ave., New York, NY
10017.
|
(2)
|
Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to the shares shown. Except where indicated by footnote and
subject to community property laws where applicable, the persons named in
the table have sole voting and investment power with respect to all shares
of voting securities shown as beneficially owned by them. The percentage
of shares owned is based on shares issued and outstanding as of January
21, 2010, including options exercisable within 60 days of January 21,
2010.
|
(3)
|
Mr.
Hoffmann was appointed as our Chief Executive Officer, Chief Financial
Officer and as a director on December 30, 2008.
|
(4)
|
Mr.
Lynch was appointed as a Director of the Company on February 5, 2009. Does
not include 534,572 shares held by Mr. Lynch’s wife, which Mr. Lynch
disclaims beneficial ownership.
|
(5)
|
Includes
(i) 21,937,783 shares of common stock and (ii) options to purchase
2,066,131 shares of common stock.
|
(6)
|
Includes
(i) 1,015,495 shares held by Mr. Honig and (ii) 2,640,317 shares held by
GRQ Consultants Inc. 401(k), an entity over which Mr. Honig
has voting and dispositive control.
|
(7) Represents
3,250,000 shares and 3,250,000 shares issuable upon exercise of common stock
purchase warrants. The warrant has an exercise price of $0.50 per share for
a term of three years. Henri De Raemy, has voting and dispositive power with
respect to the securities owned by Semper Gestion S.A.
36
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND CORPORATE GOVERNANCE
Board
Determination of Independence
Our board
of directors has determined that Robert Lynch, Jr. cannot be deemed
“independent” as that term is defined by the National Association of Securities
Dealers Automated Quotations (“NASDAQ”) as he received compensation for
consulting services for the year ended December 31, 2008 and that Steven
Hoffmann cannot be deemed “independent” in light of his employment as our Chief
Executive Officer and Chief Financial Officer. The
Company is seeking to appoint independent members to the Board but to date none
of its offers has been accepted.
Securities
authorized for issuance under equity compensation plans
As of
December 31, 2008, the Company had no compensation plans under which equity
securities were authorized for issuance.
In
February 2009, our board of directors adopted an incentive stock option plan
(the “2009 Option Plan”). Pursuant to this plan, incentive stock options or
non-qualified options to purchase an aggregate of 12,000,000 shares of common
stock may be issued. The plan may be administered by our board of
directors or by a committee to which administration of the plan, or part of the
plan, may be delegated by our board of directors. Options granted under this
plan are not generally transferable by the optionee except by will, the laws of
descent and distribution or pursuant to a qualified domestic relations order,
and are exercisable during the lifetime of the optionee only by such optionee.
Options granted under the plan vest in such increments as is determined by our
board of directors or designated committee. To the extent that options are
vested, they must be exercised within a maximum of thirty days of the end of the
optionee's status as an employee, director or consultant, or within a maximum of
12 months after such optionee's termination or by death or disability, but in no
event later than the expiration of the option term. The exercise price of all
stock options granted under the plan will be determined by our board of
directors or designated committee. With respect to any participant who owns
stock possessing more than 10% of the voting power of all classes of our
outstanding capital stock, the exercise price of any incentive stock option
granted must equal at least 110% of the fair market value on the grant
date.
To date,
we have 5,101,131 options outstanding under the 2009 Option Plan, all of which
were issued our Chief Executive Officer, Steven Hoffman, pursuant to the terms
of his employment agreement. Our board of directors believes in order
to attract and retain the services of executives and other key employees, it is
necessary for us to have the ability and flexibility to provide a compensation
package which compares favorably with those offered by other companies and,
accordingly, voted unanimously to adopt the 2009 Option Plan.
Transactions
with Related Persons, Promoters and Certain Control Persons
On
November 1, 2007 and December 30, 2007, respectively, the Company issued notes
payable of $3,000 and two notes each in the amount of $110,000, respectively, to
Scott Schlesinger. Mr. Schlesinger owns approximately 13% of the Company’s
issued and outstanding stock. The notes bear interest at 12%, are
unsecured, have a default interest rate of 24% and are due three business days
after the Company receives the cash proceeds from certain solar panel
installation jobs. The Company completed two of the three solar panel
installations in 2008. However, the stockholder extended the repayment
date of the notes to March 31, 2009. On April 1, 2009, the Company repaid
two of the three notes each in the principal amount of $3,000 and $110,000,
respectively, plus accrued interest of $16,500 in full settlement of all amounts
due on those notes.
On July
21, 2008, the Company issued a note payable, of $900,000, to an entity
controlled by Mr. Schlesinger. The note bears interest at 18%, is unsecured, has
a default interest rate of 24% and is due 3 business days after the Company
receives the cash proceeds from a solar panel installation job that is expected
to be completed by the second quarter of 2009. In October and November 2008, the
Company repaid $250,000 of principal and $15,622 of accrued interest. In
January 2009, the Company repaid an additional $250,000 of
principal.
37
DESCRIPTION
OF SECURITIES
The
following description of our capital stock is a summary and is qualified in its
entirety by the provisions of our Articles of Incorporation, with amendments,
all of which have been filed as exhibits to our registration statement of which
this prospectus is a part.
Dividend
Policy
We have
not declared any dividends to date. We have no present intention of paying any
cash dividends on our common stock in the foreseeable future, as we intend to
use earnings, if any, to generate growth. The payment by us of dividends, if
any, in the future, rests within the discretion of our Board of Directors and
will depend, among other things, upon our earnings, our capital requirements and
our financial condition, as well as other relevant factors. There are no
restrictions in our articles of incorporation or bylaws that restrict us from
declaring dividends.
Capital
Structure
Our
authorized capital stock consists of 100,000,000 shares of common stock, par
value $0.0001 per share. The holders of our common stock:
•
|
Have
equal ratable rights to dividends from funds legally available therefore,
when, as and if declared by our Board of Directors;
|
|
•
|
Are
entitled to share ratably in all of our assets available for distribution
to holders of common stock upon liquidation, dissolution or winding up of
our affairs;
|
|
•
|
Do
not have pre-emptive, subscription or conversion rights and there are no
redemption or sinking fund provisions or rights; and
|
|
•
|
Are
entitled to one non-cumulative vote per share on all matters on which
stockholders may vote.
|
The
common shares are not subject to any future call or assessment and all have
equal voting rights. There are no special rights or restrictions of any nature
attached to any of the common shares and they all rank at equal rate or “ pari passu” , each with the
other, as to all benefits, which might accrue to the holders of the common
shares. All registered stockholders are entitled to receive a notice of any
general annual meeting to be convened by our Board of Directors.
At any
general meeting, subject to the restrictions on joint registered owners of
common shares, on a showing of hands every stockholder who is present in person
and entitled to vote has one vote, and on a poll every stockholder has one vote
for each common share of which he is the registered owner and may exercise such
vote either in person or by proxy.
As of
January 21, 2010 , we have outstanding warrants to
purchase 9,377,500 shares of the Company’s common stock.
In
connection with the December 2008 and February 2009 financing transaction, we
issued three-year warrants to purchase an aggregate of 8,687,500 shares of
common stock to the investors. In addition, we issued three-year warrants to
purchase 490,000 shares of common stock to the placement agents. Each
Warrant entitles the holder thereof to purchase shares of common stock at an
exercise price of $0.50 per share, expiring three years from the date of
issuance. We are prohibited from effecting the exercise of these Warrants to the
extent that as a result of such exercise the holder of the exercised Warrants
would beneficially own more than 4.99% (or, if such limitation is waived by the
holder upon no less than 61 days prior notice to us, 9.99%) in the aggregate of
the issued and outstanding shares of common stock calculated immediately after
giving effect to the issuance of shares of common stock upon the exercise of the
Warrants. Prior to exercise, the Warrants will not confer upon holders any
voting or any other rights as a stockholder. The Warrants contain provisions
that protect the holders against dilution by adjustment of the purchase price
and number of shares of our common stock issuable on exercise of the Warrants in
certain events such as stock dividends, stock splits and other similar events.
Furthermore, if during the two year anniversary of the issuance date, we issue
or grant any shares of common stock or any warrants or other convertible
securities pursuant to which shares of common stock may be acquired at a per
share price (a “Lower Price”) less than $0.50 (subject to certain customary
exceptions, including where shares are issued in connection with employment
arrangements or business combinations in which a portion of the consideration
may be payable in shares or convertible securities with a business in
substantially the same line of business as the Company), then the exercise price
of the Warrants shall be reduced to the Lower Price. Finally, should we fail to
achieve at least $17.5 million of consolidated gross revenue within one year of
the final closing of the Private Placement, the exercise price shall be reduced
to $0.01 per share. If at any time following the one year anniversary
of the Merger there is no effective registration statement registering the
resale of the shares of common stock underlying the Warrants, the holders of the
Warrants have the right to exercise the Warrants by means of a cashless
exercise.
38
As of
January 21, 2010, we have outstanding options to purchase 5,101,131 shares of
the Company’s common stock which were issued under the Company’s 2009 Stock
Option Plan. The options were issued to our Chief Executive Officer, Steven
Hoffman, pursuant to the terms of his employment agreement
We refer
you to our Certificate of Incorporation and Bylaws which form a part of this
registration statement and to the applicable statutes of the State of Delaware
for a more complete description of the rights and liabilities of holders of our
securities.
INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Section
145 of the Delaware General Corporation Law, as amended, authorizes us to
Indemnify any director or officer under certain prescribed circumstances and
subject to certain limitations against certain costs and expenses, including
attorney's fees actually and reasonably incurred in connection with any action,
suit or proceeding, whether civil, criminal, administrative or investigative, to
which a person is a party by reason of being one of our directors or officers if
it is determined that such person acted in accordance with the applicable
standard of conduct set forth in such statutory provisions. Our Certificate of
Incorporation contains provisions relating to the indemnification of director
and officers and our By-Laws extends such indemnities to the full extent
permitted by Delaware law. We may also purchase and maintain insurance for the
benefit of any director or officer, which may cover claims for which the Company
could not indemnify such persons.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers or persons controlling us pursuant to the
foregoing provisions, or otherwise, we have been advised that in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
On
January 22, 2009, our board of directors dismissed Weinberg & Associates LLC
(“Weinberg”) as the Company’s independent registered public accounting
firm.
During
the fiscal year ended December 31, 2007, and any subsequent period through
January 29, 2009, (i) there were no disagreements between us and Weinberg on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure which, if not resolved to the satisfaction of
Weinberg would have caused Weinberg to make reference to the matter in its
reports on the Company's financial statements, and (ii) Except as described
below, Weinberg’s reports on our financial statements did not contain an adverse
opinion or disclaimer of opinion, and was not modified as to uncertainty, audit
scope or accounting principles. Weinberg’s audit report for the year ended
December 31, 2007 stated that several factors raised substantial doubt about our
ability to continue as a going concern and that the financial statements do not
include any adjustments that might result from the outcome of this
uncertainty. During the fiscal year ended
December
31, 2007 and through January 29, 2009, there were no reportable events as the
term described in Item 304(a)(1)(iv) of Regulation S-K.
On
January 22, 2009, we engaged Berman & Company, P.A. (“Berman”) as our
independent registered public accounting firm for the Company’s fiscal year
ended December 31, 2008. The change in the Company’s independent registered
public accounting firm was approved by the Company’s Board of Directors on
January 22, 2009.
39
During
the year ended December 31, 2007 and any subsequent period through January 22,
2009, the Company did not consult with Berman regarding either (i) the
application of accounting principles to a specific completed or contemplated
transaction, or the type of audit opinion that might be rendered on the
Company’s financial statements or (ii) any matter that was either the subject of
a disagreement or event identified in response to (a)(1)(iv) of Item 304 of
Regulation S-K.
LEGAL
MATTERS
The
validity of the common stock offered hereby will be passed upon for us by
Sichenzia Ross Friedman Ference LLP, 61 Broadway, New York, New
York 10006.
EXPERTS
Berman
& Company, P.A., independent registered public accounting firm, has audited,
as set forth in their report thereon appearing elsewhere herein, our
consolidated financial statements as of December 31, 2008. Weinberg &
Associates LLC independent registered public accounting firm, has audited, as
set forth in their report thereon appearing elsewhere herein, our consolidated
financial statements as of December 31, 2007. The report includes an
explanatory paragraph relating to our ability to continue as a going concern.
The financial statements referred to above are included in this prospectus with
reliance upon the independent registered public accounting firm's opinion based
on their expertise in accounting and auditing.
AVAILABLE
INFORMATION
IX
Energy, Inc. is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith files reports,
proxy or information statements and other information with the Securities and
Exchange Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates.
In addition, the Commission maintains a web site that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the Commission. The address of the Commission's web site is
http://www.sec.gov
.
The
Company has filed with the Commission a registration statement on Form S-1 under
the Securities Act of 1933, as amended, with respect to the common stock being
offered hereby. As permitted by the rules and regulations of the Commission,
this prospectus does not contain all the information set forth in the
registration statement and the exhibits and schedules thereto. For further
information with respect to IX Energy Holdings Inc. and the common stock offered
hereby, reference is made to the registration statement, and such exhibits and
schedules. A copy of the registration statement, and the exhibits and schedules
thereto, may be inspected without charge at the public reference facilities
maintained by the Commission at the addresses set forth above, and copies of all
or any part of the registration statement may be obtained from such offices upon
payment of the fees prescribed by the Commission. In addition, the registration
statement may be accessed at the Commission's web site. Statements contained in
this prospectus as to the contents of any contract or other document are not
necessarily complete and, in each instance, reference is made to the copy of
such contract or document filed as an exhibit to the registration statement,
each such statement being qualified in all respects by such
reference.
40
INDEX
TO FINANCIAL STATEMENTS
Page(s)
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
Financial
Statements:
|
|
Balance
Sheets as of December 31, 2008 (Consolidated) and 2007
|
F-3
|
Statements
of Operations For the Years Ended December 31, 2008 (Consolidated) and
2007
|
F-4
|
Statements
of Changes in Stockholders' Equity For the Years Ended December 31, 2008
(Consolidated) and 2007
|
F-5
|
Statements
of Cash Flows For the Years Ended December 31, 2008 (Consolidated) and
2007
|
F-6
|
Notes
to Financial Statements For the Years Ended December 31, 2008
(Consolidated) and 2007
|
F-7
– F-20
|
F-1
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of:
IX Energy
Holdings, Inc.
We have
audited the accompanying balance sheets of IX Energy Holdings, Inc. and
Subsidiaries as of December 31, 2008 (consolidated) and 2007, and the related
statements of operations, changes in stockholders' equity and cash flows for the
years then ended. 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 audits.
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 audits 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 includes examining,
on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes 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 IX Energy Holdings, Inc. and
Subsidiaries as of December 31, 2008 (consolidated) and 2007 and the results of
its operations and its cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of
America.
Berman
& Company, P.A.
Boca
Raton, Florida
March 20,
2009
F-2
IX
Energy Holdings, Inc. and Subsidiary
Balance
Sheets
December 31, 2008
(Consolidated) and 2007
2008
|
2007
|
|||||||
Assets
|
||||||||
Assets
|
||||||||
Cash
and cash equivalents
|
$
|
4,736,812
|
$
|
176,160
|
||||
Accounts
receivable (including retainage of $0 and $8,210 in 2008 and
2007)
|
84,420
|
82,100
|
||||||
Costs
and estimated earnings in excess of billings on uncompleted
contracts
|
6,974
|
57,340
|
||||||
Deposits
|
4,000
|
-
|
||||||
Total
Current Assets
|
4,832,206
|
315,600
|
||||||
Property
and equipment, net of accumulated depreciation of $2,505 and $0 in 2008
and 2007
|
1,331,787
|
-
|
||||||
Debt
issue costs, net of accumulated amortization of $3,893 and $0 in 2008 and
2007
|
4,170
|
-
|
||||||
Total
Assets
|
$
|
6,168,163
|
$
|
315,600
|
||||
Liabilities and Stockholders’
Equity
|
||||||||
Liabilities
|
||||||||
Accounts
payable and accrued expenses
|
$
|
525,994
|
$
|
-
|
||||
Notes
payable - related party
|
873,000
|
184,748
|
||||||
Notes
payable - other
|
500,000
|
-
|
||||||
Accrued
interest payable - related party
|
76,217
|
61
|
||||||
Accrued
interest payable - other
|
12,071
|
-
|
||||||
Deferred
revenue
|
2,683,833
|
-
|
||||||
Estimated
losses on uncompleted contracts
|
-
|
20,172
|
||||||
Total
Current Liabilities
|
4,671,115
|
204,981
|
||||||
Stockholders’
Equity
|
||||||||
Common
stock, $0.0001 par value, 100,000,000 shares authorized,
|
||||||||
58,528,285
and 41,635,688 shares issued and outstanding
|
5,853
|
4,164
|
||||||
Additional
paid in capital
|
2,962,960
|
220,728
|
||||||
Accumulated
deficit
|
(1,471,765
|
)
|
(114,273
|
)
|
||||
Total
Stockholders’ Equity
|
1,497,048
|
110,619
|
||||||
Total
Liabilities and Stockholders’ Equity
|
$
|
6,168,163
|
$
|
315,600
|
See
accompanying notes to financial statements
F-3
IX
Energy Holdings, Inc. and Subsidiary
Statements
of Operations
For the Years Ended December
31, 2008 (Consolidated) and 2007
2008
|
2007
|
|||||||
Revenues
- solar panels
|
$
|
10,612,270
|
$
|
-
|
||||
Revenues
- construction contracts
|
219,256
|
185,940
|
||||||
Total
revenues
|
10,831,526
|
185,940
|
||||||
Cost
of revenues - solar panels
|
10,235,171
|
-
|
||||||
Cost
of revenues - construction contracts
|
164,279
|
260,740
|
||||||
Total
cost of revenues
|
10,399,450
|
260,740
|
||||||
Gross
profit (loss)
|
432,076
|
(74,800
|
)
|
|||||
Operating
expenses
|
||||||||
General
and administrative
|
1,567,352
|
25,897
|
||||||
Total
operating expenses
|
1,567,352
|
25,897
|
||||||
Loss
from operations
|
(1,135,276
|
)
|
(100,697
|
)
|
||||
Other
income (expense)
|
||||||||
Interest
income
|
42,348
|
-
|
||||||
Interest
expense
|
(107,743
|
)
|
(1,576
|
)
|
||||
Transaction
loss
|
(35,875
|
)
|
-
|
|||||
Letter
of credit fee - stockholders
|
(120,946
|
)
|
-
|
|||||
Total
other expense - net
|
(222,216
|
)
|
(1,576
|
)
|
||||
Net
loss
|
$
|
(1,357,492
|
)
|
$
|
(102,273
|
)
|
||
Net
Loss per Share - Basic and Diluted
|
$
|
(0.03
|
)
|
$
|
-
|
|||
Weighted
Average Number of Shares Outstanding
|
||||||||
During
the Year - Basic and Diluted
|
43,911,325
|
37,141,315
|
See
accompanying notes to financial statements
F-4
IX
Energy Holdings, Inc. and Subsidiary
Statements
of Changes in Stockholders' Equity
For the Years Ended December
31, 2008 (Consolidated) and 2007
Total
|
||||||||||||||||||||
Common
Stock, $0.0001 Par Value
|
Additional
|
Accumulated
|
Stockholders'
|
|||||||||||||||||
Shares
|
Amount
|
Paid
in Capital
|
Deficit
|
Equity
|
||||||||||||||||
Balance,
December 31, 2006
|
33,308,550
|
$
|
3,331
|
$
|
8,669
|
$
|
(12,000
|
)
|
$
|
-
|
||||||||||
Common
stock issued for cash ($0.08/share)
|
8,327,138
|
833
|
247,107
|
-
|
247,940
|
|||||||||||||||
Forgiveness
of amounts due from affiliate
|
-
|
-
|
(35,048
|
)
|
-
|
(35,048
|
)
|
|||||||||||||
Net
loss for the year ended December 31, 2007
|
-
|
-
|
-
|
(102,273
|
)
|
(102,273
|
)
|
|||||||||||||
Balance,
December 31, 2007
|
41,635,688
|
4,164
|
220,728
|
(114,273
|
)
|
110,619
|
||||||||||||||
Common
stock issued for loan fee - stockholders ($0.03/share)
|
4,332,818
|
433
|
128,576
|
-
|
129,009
|
|||||||||||||||
Common
stock issued for consulting services - related parties
($0.17/share)
|
144,201
|
14
|
24,965
|
-
|
24,979
|
|||||||||||||||
Common
stock issued for officer's compensation ($0.16/share)
|
40,578
|
4
|
6,663
|
-
|
6,667
|
|||||||||||||||
Forgiveness
of amounts due from affiliate
|
-
|
-
|
(44,325
|
)
|
-
|
(44,325
|
)
|
|||||||||||||
Deemed
issuance in recapitalization
|
5,500,000
|
550
|
(424
|
)
|
-
|
126
|
||||||||||||||
Common
stock issued for cash in private placement ($0.40/share)
|
6,875,000
|
688
|
2,749,312
|
-
|
2,750,000
|
|||||||||||||||
Cash
paid as direct offering costs
|
-
|
-
|
(122,535
|
)
|
-
|
(122,535
|
)
|
|||||||||||||
Net
loss for the year ended December 31, 2008
|
-
|
-
|
-
|
(1,357,492
|
)
|
(1,357,492
|
)
|
|||||||||||||
Balance,
December 31, 2008
|
58,528,285
|
$
|
5,853
|
$
|
2,962,960
|
$
|
(1,471,765
|
)
|
$
|
1,497,048
|
See
accompanying notes to financial statements
F-5
IX
Energy Holdings, Inc. and Subsidiary
Statements
of Cash Flows
For the Years Ended December
31, 2008 (Consolidated) and 2007
2008
|
2007
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
loss
|
$
|
(1,357,492
|
)
|
$
|
(102,273
|
)
|
||
Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities:
|
||||||||
Common
stock issued for loan fee - stockholders
|
120,946
|
-
|
||||||
Common
stock issued for consulting services - related parties
|
24,979
|
-
|
||||||
Common
stock issued for officer's compensation
|
6,667
|
-
|
||||||
Depreciation
|
2,505
|
-
|
||||||
Amortization
of debt issue costs
|
3,893
|
-
|
||||||
Changes
in operating assets and liabilities:
|
||||||||
(Increase)
Decrease in:
|
||||||||
Accounts
receivable
|
(2,320
|
)
|
(82,100
|
)
|
||||
Cost
& estimated earnings in excess of billings on uncompleted
contracts
|
50,366
|
(57,340
|
)
|
|||||
Deposits
|
(4,000
|
)
|
-
|
|||||
Increase
(Decrease) in:
|
||||||||
Accounts
payable and accrued expenses
|
518,361
|
-
|
||||||
Accrued
interest payable - related party
|
76,156
|
61
|
||||||
Accrued
interest payable - other
|
12,071
|
-
|
||||||
Estimated
losses on uncompleted contracts
|
(20,172
|
)
|
20,172
|
|||||
Deferred
revenue
|
2,683,833
|
-
|
||||||
Net
Cash Provided by (Used in) Operating Activities
|
2,115,793
|
(221,480
|
)
|
|||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Cash
acquired in recapitalization
|
7,759
|
-
|
||||||
Due
from affiliate
|
(44,325
|
)
|
(35,048
|
)
|
||||
Purchase
of property and equipment
|
(1,334,292
|
)
|
-
|
|||||
Net
Cash Used in Investing Activities
|
(1,370,858
|
)
|
(35,048
|
)
|
||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Advances
made to related party
|
-
|
(50,000
|
)
|
|||||
Advances
repaid by related party
|
-
|
50,000
|
||||||
Proceeds
from issuance of notes payable - related party
|
938,252
|
184,748
|
||||||
Proceeds
from issuance of notes payable - other
|
500,000
|
-
|
||||||
Repayment
of notes payable - related party
|
(250,000
|
)
|
-
|
|||||
Proceeds
from issuance of common stock - related party
|
-
|
247,940
|
||||||
Proceeds
from common stock issued for cash in private placement
|
2,750,000
|
-
|
||||||
Cash
paid as direct offering costs
|
(122,535
|
)
|
-
|
|||||
Net
Cash Provided By Financing Activities
|
3,815,717
|
432,688
|
||||||
Net
Increase in Cash and Cash Equivalents
|
4,560,652
|
176,160
|
||||||
Cash
and Cash Equivalents - Beginning of Year
|
176,160
|
-
|
||||||
Cash
and Cash Equivalents - End of Year
|
$
|
4,736,812
|
$
|
176,160
|
||||
SUPPLEMENTARY CASH FLOW
INFORMATION:
|
||||||||
Cash
Paid During the Year for:
|
||||||||
Income
taxes
|
$
|
-
|
$
|
-
|
||||
Interest
|
$
|
15,622
|
$
|
-
|
||||
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
ACTIVITIES:
|
||||||||
Forgiveness
of amounts due from affiliate
|
$
|
44,325
|
$
|
35,048
|
||||
Stock
issued as debt issue costs
|
$
|
8,063
|
$
|
-
|
See
accompanying notes to financial statements
F-6
IX
Energy Holdings, Inc.
Notes
to Consolidated Financial Statements
For the Years Ended December
31, 2008 (Consolidated) and 2007
On
December 30, 2008, the Company executed a reverse acquisition with a public
shell company (See Note 9). The accompanying financial statements are
consolidated for the year ended December 31, 2008 due to the reverse acquisition
and recapitalization. The financial statements for the year ended
December 31, 2007, consist solely of IX Energy, Inc., the accounting
acquirer.
Note 2 - Organization,
Nature of Operations and Summary of Significant Accounting
Policies
Nature
of operations
IX Energy
Holdings, Inc. (“IX Energy” or the “Company”) was incorporated on March 3,
2006 under the laws of the State of Delaware. The Company is a renewable energy
company primarily focused on solar power project development and
integration. In an effort to become a vertically integrated solar
products and services company that designs, markets and installs its own solar
power systems, the Company plans to design solar modules that will be marketed
primarily to federal military and civilian agencies.
Use
of estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those
estimates.
Significant
estimates included management’s estimate for recording costs and estimated
earnings in excess of billings, estimating the loss on uncompleted contracts in
the period when known, depreciable lives of property, valuation of warrants and
stock options granted for services or compensation pursuant to EITF No. 96-18
and SFAS No. 123R, estimates of the probability and potential magnitude of
contingent liabilities, and a 100% valuation allowance for deferred taxes due to
the Company’s continuing and expected future losses.
Risks
and uncertainties
The
Company operates in an industry that is subject to intense competition and rapid
technological change, and is in a state of fluctuation as a result of the credit
crisis occurring in the United States. The Company's operations are
subject to significant risk and uncertainties including financial, operational,
technological, and regulatory risks including the potential risk of business
failure.
Principles
of consolidation
The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiary. All significant intercompany balances and transactions
have been eliminated in consolidation.
Cash
and cash equivalents
For
purposes of the statement of cash flows, the Company considers all highly liquid
instruments purchased with a maturity of three months or less to be cash
equivalents.
The
Company minimizes its credit risk associated with cash by periodically
evaluating the credit quality of its primary financial institution. The balance
at times may exceed federally insured limits. At December 31, 2008 and 2007, the
balance exceeded the federally insured limit by $4,249,256 and $76,160,
respectively.
F-7
IX
Energy Holdings, Inc.
Notes
to Consolidated Financial Statements
For the Years Ended December
31, 2008 (Consolidated) and 2007
Accounts
receivable and concentrations
Accounts
receivable represents trade obligations from customers that are subject to
normal trade collection terms, without discounts, however, in certain cases we
are entitled to rebates upon the completion of certain jobs post installation.
The Company periodically evaluates the collectability of its accounts receivable
and considers the need to adjust an allowance for doubtful accounts based upon
historical collection experience and specific customer information. Actual
amounts could vary from the recorded estimates. We have determined that as of
December 31, 2008 and 2007, respectively, no allowance was
required.
At
December 31, 2008 and 2007, respectively, the Company had a concentration of
accounts receivable from one customer totaling 100%.
For the
year ended December 31, 2008, the Company had a concentration of sales with two
customers totaling 46% and 43%, respectively. For the year ended
December 31, 2007, the Company had a concentration of sales with two customers
totaling 75% and 25%, respectively.
Property
and equipment
Property
and equipment are stated at cost. Maintenance and repairs are charged to
operations as incurred. Betterments or renewals are capitalized when incurred.
Depreciation is provided using the straight line method over the estimated
useful lives of the asset.
Long
lived assets
Long-lived
assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future undiscounted net cash flows expected to be
generated by the asset. If such assets are considered impaired, the impairment
to be recognized is measured by the amount by which the carrying amount of the
assets exceeds the fair value of the assets. There were no impairment charges
taken during the years ended December 31, 2008 and 2007,
respectively.
Basic
and diluted loss per share
Basic
loss per share is computed by dividing net loss by weighted average number of
shares of common stock outstanding during each period. Diluted
earnings per share is computed by dividing net income by the weighted average
number of shares of common stock, common stock equivalents and potentially
dilutive securities outstanding during each period. The Company has
common stock equivalents consisting of warrants to purchase 7,225,000 and 0
common shares as of December 31, 2008 and 2007, respectively. These
common stock equivalents are not included in the diluted loss per share
computation since the inclusion of such common stock equivalents would be
anti-dilutive for all periods presented due to the Company’s net loss during
2008 and 2007.
As a
result of the reverse acquisition and recapitalization (see Note 9) and stock
dividend (see Note 12(E)), all share and per share amounts have been
retroactively restated.
Fair
value of financial instruments
Statement
of Financial Accounting Standards No. 107, “Disclosures about Fair Value of
Financial Instruments,” requires disclosures of information about the
fair value of certain financial instruments for which it is practicable to
estimate the value. For purpose of this disclosure, the fair value of
a financial instrument is the amount at which the instrument could be exchanged
in a current transaction between willing parties, other than in a forced sale or
liquidation.
The
carrying amount reported in the balance sheet for accounts receivable, costs and
estimated earnings in excess of billings on uncompleted contracts, accounts
payable and accrued expenses, notes payable – related party, notes payable –
other, accrued interest payable – related party and accrued interest payable –
other approximates its fair market value based on the short-term maturity of
these instruments.
F-8
IX
Energy Holdings, Inc.
Notes
to Consolidated Financial Statements
For the Years Ended December
31, 2008 (Consolidated) and 2007
Minority
Interest
Under
generally accepted accounting principles, when losses applicable to the minority
interest in a subsidiary exceed the minority interest in the equity capital of
the subsidiary, the excess is not charged to the minority interest since there
is no obligation of the minority interest to make good on such
losses. The Company, therefore, has included losses applicable to the
minority interest against its interest. If future earnings do materialize, the
Company will be credited to the extent of such losses previously
absorbed. For financial reporting purposes, minority interest will
not be presented until the minority’s share of profit exceeds its previously
recorded deficit.
Revenue
recognition
The
Company follows the guidance of the Securities and Exchange Commission’s Staff
Accounting Bulletin No. 104 for revenue recognition and records revenue when all
of the following have occurred: (1) persuasive evidence of an arrangement
exists, (2) the product is delivered and installed, (3) the sales price to the
customer is fixed or determinable, and (4) collectability of the related
customer receivable is reasonably assured.
The
Company has two methods of revenue recognition:
(1)
Energy product reseller
The
Company purchases product from suppliers and resells them to third
parties. The Company records the revenue from the buyer and related
cost paid to the suppliers on these types of arrangements.
In 2008,
the Company entered into similar arrangements wherein the Company had no
installation responsibility and no further obligation after delivery was made to
the customers. Payments from the customers are received in advance of
delivery of solar panels and are treated as deferred
revenue. Payments are then made to the suppliers and cost of
materials is recorded. A pro-rata portion of the deferred revenue
from the customers is recognized as shipments are made.
Revenues
from these arrangements are recognized upon shipment from the supplier to these
third parties. In addition, the Company has reviewed EITF No. 99-19
to ascertain the relevance of gross versus net reporting. Upon the Company’s
review of this guidance, as well as SAB No. 104, the Company has determined that
it is subject to gross reporting as it bears the risk of loss in each of these
arrangements. There were no such arrangements at December 31, 2007.
For the
years ended December 31, 2008 and 2007, respectively, approximately 98% and 0%
of revenues were earned under this method.
(2)
Percentage of completion
Revenue
from construction contracts are reported under the percentage-of-completion
method for financial statement purposes. The estimated revenue for
each contract reflected in the financial statements represent that percentage of
estimated total revenue that costs incurred to date bear to estimated total
costs, based on the Company’s current estimates. With respect to
contracts that extend over one or more accounting periods, revisions in costs
and revenue estimates during the course of the work are reflected in the period
the revisions become known. When current estimates of total contract
costs indicate a loss, provision is made for the entire estimated
loss.
The
asset, “Costs and estimated
earnings in excess of billings on uncompleted contracts,” represents
revenues recognized in excess of amounts billed. The liability, “Estimated earnings on uncompleted
contracts,” represents billings in excess of revenues
recognized.
Billing
practices for these projects are governed by the contract terms of each project
based upon actual costs incurred, achievement of milestones, or pre-agreed
schedules. Billings do not necessarily correlate with revenue recognized under
the percentage-of-completion method of accounting. With the exception
of claims and change orders that are in the process of being negotiated with
customers, unbilled work is usually billed during normal billing processes
following achievement of the contractual requirements.
F-9
IX
Energy Holdings, Inc.
Notes
to Consolidated Financial Statements
For the Years Ended December
31, 2008 (Consolidated) and 2007
For the
years ended December 31, 2008 and 2007, respectively, approximately 2% and 100%
of revenues were earned under this method.
Cost
of sales
Cost of
sales, including contract costs represents costs directly related to the
purchasing and installation of the Company’s solar panel products. Primary costs
include direct materials and labor costs and those indirect costs related to
contract performance, such as indirect labor, supplies, tools, repairs and
depreciation costs.
Shipping
and handling costs
Shipping
and handling costs associated with inbound freight are included in cost of
sales. Amounts billed to customers for shipping and handling is recorded as
revenue. For the years ended December 31, 2008 and 2007,
respectively, the Company had no such revenues or expenses.
Foreign
currency transactions
The
Company’s functional currency is the U.S. dollar. In those instances where the
Company has foreign currency transactions, the financial statements are
translated to U.S. dollars in accordance with Statement No. 52 of the Financial
Accounting Standards Board (FASB), “Foreign Currency
Translation.” Monetary assets and liabilities denominated in
foreign currencies are translated using the exchange rate prevailing at the date
of settlement. Gains and losses arising on settlement of
foreign-currency-denominated transactions or balances are included in the
determination of income. The Company’s primary foreign currency transactions are
in Euros. The Company has not entered into derivative instruments to offset the
impact of foreign currency fluctuations. The Company had foreign currency
transaction losses of $35,875 and $0 for the year ended December 31, 2008 and
2007, respectively.
Stock-based
compensation
All
share-based payments to employees will be recorded and expensed in the statement
of operations as applicable under SFAS No. 123R, “Share-Based
Payment”.
SFAS No.
123R requires the measurement and recognition of compensation expense for all
share-based payment awards made to employees and directors including grants of
employee stock options based on estimated fair values. The Company
has used the Black-Scholes option-pricing model to estimate grant date fair
value for all option grants.
Share-based
compensation expense is based on the value of the portion of share-based payment
awards that is ultimately expected to vest during the year, less expected
forfeitures. SFAS No. 123R requires forfeitures to be estimated at
the time of grant and revised, if necessary in subsequent periods if actual
forfeitures differ from those estimates.
Non-employee
stock based compensation
Stock-based
compensation awards issued to non-employees for services are recorded at either
the fair value of the services rendered or the instruments issued in exchange
for such services, whichever is more readily determinable, using the measurement
date guidelines enumerated in Emerging Issues Task Force Issue EITF No. 96-18,
“Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services” (“EITF 96-18”).
F-10
IX
Energy Holdings, Inc.
Notes
to Consolidated Financial Statements
For the Years Ended December
31, 2008 (Consolidated) and 2007
Income
Taxes
The
Company accounts for income taxes under the liability method in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Under this method, deferred income tax assets and
liabilities are determined based on differences between the financial
reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when
the differences are expected to reverse.
The
Company adopted the provisions of FASB Interpretation No. 48; “Accounting for Uncertainty in
Income Taxes-An Interpretation of FASB Statement No. 109” (“FIN
48”). FIN 48 contains a two-step approach to recognizing and measuring
uncertain tax positions. The first step is to evaluate the tax position for
recognition by determining if the weight of available evidence indicates it is
more likely than not, that the position will be sustained on audit, including
resolution of related appeals or litigation processes, if any. The second step
is to measure the tax benefit as the largest amount, which is more than 50%
likely of being realized upon ultimate settlement. The Company considers many
factors when evaluating and estimating the Company’s tax positions and tax
benefits, which may require periodic adjustments. At December 31, 2008 and 2007,
the Company did not record any liabilities for uncertain tax
positions.
Segment
information
The
Company follows Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." During 2008 and 2007, the
Company only operated in one segment; therefore, segment information has not
been presented.
Recent
accounting pronouncements
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”
(“SFAS 157”), which clarifies the principle that fair value should be based on
the assumptions that market participants would use when pricing an asset or
liability. It also defines fair value and established a hierarchy
that prioritizes the information used to develop assumptions. SFAS
No. 157 is effective for financial statements issued for fiscal years beginning
after November 15, 2007. The adoption of SFAS No. 157 did not have a
material effect on the Company’s financial position, results of operations or
cash flows.
In
February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial
Assets and Financial Liabilities” (“SFAS 159”), which permits entities to
choose to measure many financial instruments and certain other items at fair
value. The unrealized gains and losses on items for which the fair value option
has been elected should be reported in earnings. The decision to
elect the fair value option is determined on an instrument-by-instrument basis,
should be applied to an entire instrument and is irrevocable. Assets
and liabilities measured at fair values pursuant to the fair value option should
be reported separately in the balance sheet from those instruments measured
using other measurement attributes. SFAS No. 159 is effective as
of the beginning of the Company’s 2008 fiscal year. The adoption of SFAS No. 159
did not have a material effect on the Company’s financial position, results of
operations or cash flows.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of Accounting Research Bulletin
No 51” (“SFAS 160”). SFAS 160 establishes accounting and reporting
standards for ownership interests in subsidiaries held by parties other than the
parent, changes in a parent’s ownership of a noncontrolling interest,
calculation and disclosure of the consolidated net income attributable to the
parent and the noncontrolling interest, changes in a parent’s ownership interest
while the parent retains its controlling financial interest and fair value
measurement of any retained noncontrolling equity investment. SFAS 160 is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. Early adoption
is prohibited. The adoption of SFAS No. 160 is not expected to have a material
effect on the Company’s financial position, results of operations or cash
flows.
In
December 2007, the FASB issued SFAS 141R, “Business Combinations”
(“SFAS 141R”), which replaces FASB SFAS 141, “Business
Combinations”. This Statement retains the fundamental
requirements in SFAS 141 that the acquisition method of accounting be used for
all business combinations and for an acquirer to be identified for each business
combination. SFAS 141R defines the acquirer as the entity that obtains control
of one or more businesses in the business combination and establishes the
acquisition date as the date that the acquirer achieves control. SFAS
141R will require an entity to record separately from the business combination
the direct costs, where previously these costs were included in the total
allocated cost of the acquisition. SFAS 141R will require an entity
to recognize the assets acquired, liabilities assumed, and any non-controlling
interest in the acquired at the acquisition date, at their fair values as of
that date. This compares to the cost allocation method previously
required by SFAS No. 141. SFAS 141R will require an entity to
recognize as an asset or liability at fair value for certain contingencies,
either contractual or non-contractual, if certain criteria are
met. Finally, SFAS 141R will require an entity to recognize
contingent consideration at the date of acquisition, based on the fair value at
that date. This Statement will be effective for business combinations
completed on or after the first annual reporting period beginning on or after
December 15, 2008. Early adoption of this standard is not permitted
and the standards are to be applied prospectively only. Upon adoption
of this standard, there would be no impact to the Company’s results of
operations and financial condition for acquisitions previously
completed. The adoption of SFAS No. 141R is not expected to have a
material effect on the Company’s financial position, results of operations or
cash flows.
F-11
IX
Energy Holdings, Inc.
Notes
to Consolidated Financial Statements
For the Years Ended December
31, 2008 (Consolidated) and 2007
In
January 2008, the SEC released SAB No. 110, which amends SAB No. 107 which
provided a simplified approach for estimating the expected term of a “plain
vanilla” option, which is required for application of the Black-Scholes option
pricing model (and other models) for valuing share options. At the time, the
Staff acknowledged that, for companies choosing not to rely on their own
historical option exercise data (i.e., because such data did not provide a
reasonable basis for estimating the term), information about exercise patterns
with respect to plain vanilla options granted by other companies might not be
available in the near term; accordingly, in SAB No. 107, the Staff permitted use
of a simplified approach for estimating the term of plain vanilla options
granted on or before December 31, 2007. The information concerning exercise
behavior that the Staff contemplated would be available by such date has not
materialized for many companies. Thus, in SAB No. 110, the Staff continues to
allow use of the simplified rule for estimating the expected term of plain
vanilla options until such time as the relevant data becomes widely available.
The Company does not expect its adoption of SAB No. 110 to have a material
impact on its financial position, results of operations or cash
flows.
In March
2008, the FASB issued SFAS No. 161 “Disclosures about Derivative
Instruments and Hedging Activities—An Amendment of FASB Statement
No. 133” (“
SFAS
161”).
SFAS
161 establishes the disclosure
requirements for derivative instruments and for hedging activities with the
intent to provide financial statement users with an enhanced understanding of
the entity’s use of derivative instruments, the accounting of derivative
instruments and related hedged items under Statement 133 and its related
interpretations, and the effects of these instruments on the entity’s financial
position, financial performance, and cash flows. This statement is
effective for financial statements issued for fiscal years beginning after
November 15, 2008. The Company does not expect its adoption of SFAS 161 to
have a material impact on its financial position, results of operations or cash
flows.
In April
2008, the FASB issued FASB Staff Position (“FSP”) SFAS No. 142-3, “Determination of the Useful Life of
Intangible Assets”. This FSP amends the factors that should be considered
in developing renewal or extension assumptions used to determine the useful life
of a recognized intangible asset under FASB Statement No. 142, “Goodwill and Other Intangible
Assets” (“SFAS 142”). The intent of this FSP is to improve the
consistency between the useful life of a recognized intangible asset under
SFAS 142 and the period of expected cash flows used to measure the fair
value of the asset under SFAS 141R, and other GAAP. This FSP is effective for
financial statements issued for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. Early adoption is
prohibited. The Company is currently evaluating the impact of SFAS FSP 142-3,
but does not expect the adoption of this pronouncement will have a material
impact on its financial position, results of operations or cash
flows.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS 162”). SFAS 162 identifies the
sources of accounting principles and the framework for selecting principles to
be used in the preparation of financial statements of nongovernmental entities
that are presented in conformity with generally accepted accounting principles
in the United States. This statement is effective 60 days following the
SEC’s approval of the Public Company Accounting Oversight Board’s amendments to
AU section 411, The Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles. The Company is currently evaluating the
impact of SFAS 162, but does not expect the adoption of this pronouncement will
have a material impact on its financial position, results of operations or cash
flows.
Other
accounting standards have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date and
are not expected to have a material impact on the financial statements upon
adoption.
Note 3 - Construction
Contracts
Information
with respect to uncompleted contracts is summarized below for the periods ended
December 31, 2008 and December 31, 2007:
In 2007,
the Company anticipated that it was going to have a loss on its uncompleted
contracts and recorded the loss at December 31, 2007 prior to the completion of
these contracts in 2008.
December
31,
|
||||||||
2008
|
2007
|
|||||||
Actual
costs incurred on uncompleted contracts
|
$
|
415,320
|
240,568
|
|||||
Estimated
losses
|
(10,124
|
)
|
(74,800
|
)
|
||||
405,196
|
165,768
|
|||||||
Less:
progress billings to date
|
(398,222
|
)
|
(128,600
|
)
|
||||
$
|
6,974
|
37,168
|
||||||
These
amounts are included in the accompanying December 31, 2008 and December
31, 2007 balance sheets under the following captions:
|
||||||||
Costs
and estimated earnings in excess of billings on uncompleted
contracts
|
$
|
6,974
|
57,340
|
|||||
Estimated
losses on uncompleted contracts
|
-
|
(20,172
|
)
|
|||||
$
|
6,974
|
37,168
|
In June
2008, the Company entered into an agreement with Federal Prison Industries, Inc.
("UNICOR"), under which UNICOR provides the labor for assembly and production of
solar panels to the Company, and the Company sells the solar panels to Federal,
civilian and military government customers of both the Company and this
customer. The agreement has a term of five years. In June
2008, the Company received $6,800,000 from UNICOR for the supply of solar
cells. This amount was initially recorded as deferred
revenue. Shipment of these solar cells began in October
2008. At December 31, 2008, the Company has recognized revenue based
on shipments under this agreement of $5,003,762. The balance, of
$1,796,238, remains in deferred revenue and is expected to be earned in
2009.
F-12
IX
Energy Holdings, Inc.
Notes
to Consolidated Financial Statements
For the Years Ended December
31, 2008 (Consolidated) and 2007
In June
2008, the Company entered into an agreement, under which a supplier provides the
labor for the assembly and production of solar panels to the Company, and the
Company sells the solar panels to a third party. The agreement has a term of one
year. In July and September 2008, the Company received $1,897,335
from this customer for the shipment of solar panels. This amount was
initially recorded as deferred revenue. At December 31, 2008, the
Company recognized $1,009,740 of revenue. The balance, of $887,595,
remains in deferred revenue and is expected to be earned in 2009.
Note 4 - Affiliate
Charge to Equity
In 2008
and 2007, a Company related to the Company’s Chief Executive Officer collected
certain funds on contracts entered into by the Company. The
affiliated entity did not have the ability to repay these funds that the Company
was entitled to. As a result, the Company recorded a charge to
additional paid in capital of $44,325 and $35,048, respectively, to reflect the
uncollectible receivable from this related party.
Note 5 - Property and
Equipment
At
December 31, 2008 & December 31, 2007, property and equipment consists of
the following:
December
31, 2008
|
December
31, 2007
|
Estimated
Useful Lives
|
|||||||
Solar
Panel Equipment
|
$
|
1,300,000
|
$
|
-
|
20
years
|
||||
Automobile
|
26,999
|
-
|
5
years
|
||||||
Computers
and Office Equipment
|
7,293
|
-
|
3
years
|
||||||
1,334,292
|
-
|
||||||||
Less:
Accumulated Depreciation
|
(2,505
|
)
|
-
|
|
|||||
Property
and Equipment, Net
|
$
|
1,331,787
|
$
|
-
|
The solar
panel equipment, purchased for $1,300,000, is not in service at December 31,
2008.
Note 6 - Guarantee
Letter of Credit
On May
27, 2008 the Company entered in to a standby letter of credit with a bank for
$1,600,000. The letter of credit acts as a performance bond, with a
customer being the beneficiary, if the Company defaults on their monthly
delivery agreement. The Company’s Chief Executive Officer has provided a
personal guarantee of $800,000 on behalf of the Company for the letter of
credit. In exchange for the personal guarantee, the Company issued
2,031,030 shares of the Company’s common stock, having a fair value of $60,473
($0.03/share) based upon the then recent cash offering price. The
letter of credit expired in August 2008. However, the bank extended
the letter of credit until August 7, 2009. The full amount of the
letter of credit remains available for use and has not been drawn
down.
F-13
IX
Energy Holdings, Inc.
Notes
to Consolidated Financial Statements
For the Years Ended December
31, 2008 (Consolidated) and 2007
On June
30, 2008, two third party shareholders also provided personal guarantees, of
$400,000 each, for the letter of credit. In exchange for the personal
guarantee, the Company issued 1,015,494 shares of the Company’s common stock to
each stockholder, having a total fair value of $60,473 ($0.03/share), based upon
the recent cash offering price to third parties.
The
letter of credit was released in February 2009, as the Company fulfilled its
obligation under the terms of its government contract with UNICOR.
Note 7 - Loans, Notes and
Accrued Interest Payable
(A)
Notes Payable & Accrued Interest Payable – Related Party
On
February 14, 2007, the Company advanced $50,000, which was unsecured, due on
demand and bore interest at approximately 3.7% to a third party. This individual
repaid the Company on December 10, 2007.
On
November 1, 2007 and December 30, 2007, respectively, the Company issued notes
payable of $3,000 and $220,000, respectively to the same stockholder. The notes
bear interest at 12%, are unsecured, have a default interest rate of 24% and are
due 3 business days after the Company receives the cash proceeds from certain
solar panel installation jobs. The Company completed these solar
panel installations in 2008. However, the stockholder has extended
the repayment date of the notes to March 31, 2009.
On July
21, 2008, the Company issued a note payable, of $900,000, to an affiliate of a
stockholder. The note bears interest at 18%, is unsecured, has a default
interest rate of 24% and is due 3 business days after the Company receives the
cash proceeds from a solar panel installation job that is expected to be
completed by the second quarter of 2009. In October and November 2008, the
Company repaid $250,000 of principal and $15,622 of accrued
interest.
(B)
Notes Payable - Other, Conversion to Equity & Accrued Interest Payable -
Other
In July
2008, the Company entered into eight promissory note agreements for aggregate
principal totaling $500,000 with various third parties. The notes
bear interest at 5%, and the principal and interest is due and payable on the
earlier of July 1, 2009 or when the Company completes the sale of any debt
securities, common stock or common stock equivalents in a single transaction or
series of related transactions resulting in gross proceeds of
$3,500,000.
In July
2008, the Company entered into a Securities Purchase agreement with all eight of
the note holders listed above. The Company issued a total of 270,800
shares to the note holders in connection with these promissory notes. The number
of shares each note holder received was in direct proportion to the amount of
their promissory notes. The fair value of the common shares are
valued at $8,063 ($0.03/share) based upon the then recent cash offering price.
This amount is treated as a debt issue cost and is being amortized to interest
expense over the life of the underlying promissory notes.
For the
year ended December 31, 2008, the Company recorded amortization of debt issue
costs to interest expense of $3,893.
At
December 31, 2008 and December 31, 2007, the Company reflected notes payable –
other of $500,000 and $0, respectively and related accrued interest payable of
$12,071 and $0, respectively.
Note 8 - Stockholders’
Equity
(A)
Share Issuances
On July
17, 2007, the Company issued 8,327,138 shares of common stock for $247,940
($0.03/ share).
On June
30, 2008, the Company issued 83,271 shares of common stock to a related party
shareholder for consulting services provided to the Company. For the
years ended December 31, 2008 and 2007, the Company recorded consulting fees of
$2,479 ($0.03/share) and $0, respectively. The fair value of
the stock issuance was based upon the then recent cash offerings to third
parties.
F-14
IX
Energy Holdings, Inc.
Notes
to Consolidated Financial Statements
For the Years Ended December
31, 2008 (Consolidated) and 2007
(B)
Private Placement and Registration Rights Agreement
In 2008,
the Company sold 27.5 units at $100,000 per unit. Each unit consisted of 250,000
shares of common stock and a detachable three-year warrant to purchase 250,000
shares of common stock for an exercise price of $0.50 per share. Gross
proceeds were $2,750,000 and the Company paid direct offering costs of
$122,535.
As a
result of the offering, the Company issued 6,875,000 shares of common stock and
7,225,000 warrants, inclusive of 350,000 warrants paid to a placement agent as a
direct offering cost. The warrants paid as a direct offering cost
have a net effect of zero on the statement of equity.
The
Company also granted the investors registration rights for the common stock and
common stock underlying the warrants. The Company can be assessed
liquidated damages, as defined in the agreement, for the failure to file a
registration statement within 180 days from the termination from the offering as
well as to have the registration statement declared effective. The termination
date was February 25, 2009. Penalties will be assessed at 1% per month, payable
in cash, for every 30 day period under which the Company is in default under the
terms of the registration rights agreement, up to a maximum of 10%. In assessing
the likelihood and amount of possible liability for liquidated damages, the
Company considered the guidance of EITF No.’s 00-19-2 and 05-04 as well as SFAS
No. 5. The Company has concluded that it believes it will
satisfy the conditions of registration in the time required pursuant to the
registration rights agreement. The Company will not record a
registration rights liability in connection with this offering.
See Note
12(C) for similar arrangement.
(C)
Warrants
The
following is a summary of the Company’s warrant activity:
Warrants
|
Weighted
Average Exercise Price
|
|||||||
Outstanding
– December 31, 2006
|
-
|
$
|
-
|
|||||
Granted
|
-
|
$
|
-
|
|||||
Exercised
|
-
|
$
|
-
|
|||||
Forfeited
|
-
|
$
|
-
|
|||||
Outstanding
– December 31, 2007
|
-
|
$
|
-
|
|||||
Exercisable
- December 31, 2007
|
-
|
$
|
-
|
|||||
Granted
|
7,225,000
|
$
|
0.50
|
|||||
Exercised
|
-
|
$
|
-
|
|||||
Forfeited
|
-
|
$
|
-
|
|||||
Outstanding
– December 31, 2008
|
7,225,000
|
$
|
0.50
|
|||||
Exercisable
- December 31, 2008
|
7,225,000
|
$
|
0.50
|
Warrants
Outstanding
|
Warrants
Exercisable
|
||||
Range
of
exercise
price
|
Number
Outstanding
|
Weighted
Average
Remaining Contractual Life
(in
years)
|
Weighted
Average
Exercise
Price
|
Number
Exercisable
|
Weighted
Average
Exercise
Price
|
$0.50
|
7,225,000
|
3.0
years
|
$0.50
|
7,225,000
|
$0.50
|
At
December 31, 2008, the total intrinsic value of warrants outstanding and
exercisable was $0 and $0, respectively.
F-15
IX
Energy Holdings, Inc.
Notes
to Consolidated Financial Statements
For the Years Ended December
31, 2008 (Consolidated) and 2007
Note 9 - Reverse Acquisition
and Recapitalization
On
December 30, 2008, Yoo, Inc. (“Yoo”), a then shell corporation, merged with IX
Energy, and IX Energy became the surviving corporation. This transaction was
accounted for as a reverse acquisition. Yoo did not have any operations and
majority-voting control was transferred to IX Energy. The transaction also
required a recapitalization of IX Energy. Since IX Energy acquired a controlling
voting interest, it was deemed the accounting acquirer, while Yoo was deemed the
legal acquirer. The historical financial statements of the Company are those of
IX Energy and of the consolidated entities from the date of merger and
subsequent.
Since the
transaction is considered a reverse acquisition and recapitalization, the
guidance in SFAS No. 141 does not apply for purposes of presenting
pro-forma financial information.
Pursuant
to the Merger, Yoo’s majority stockholders cancelled 4,000,000 shares of common
stock and the Company concurrently issued 46,153,284 shares of common stock to
IX Energy. Upon the closing of the reverse acquisition, IX Energy
stockholders held 89% of the issued and outstanding shares of common stock at
the date of the transaction. Yoo retained 5,500,000 shares of common stock upon
the closing of the reverse acquisition.
Note 10 - Commitments and
Contingencies
(A) Litigations, claims and
assessments
From time
to time, the Company may become involved in various lawsuits and legal
proceedings, which arise in the ordinary course of business. However, litigation
is subject to inherent uncertainties, and an adverse result in these or other
matters may arise from time to time that may harm its business. The Company is
currently not aware of any such legal proceedings or claims that they believe
will have, individually or in the aggregate, a material adverse affect on its
business, financial condition or operating results.
(B) Employment
agreements
(1)
CEO
On May 1,
2008, the Company entered into a two-year employment agreement with an
individual to serve as the Company’s CEO and Chairman of the Board. The
agreement provides for an annual salary of $225,000 and $80,000 to be paid as a
bonus for services rendered prior to this agreement. The individual
is also eligible for a multi-year grant of the Company’s non-qualified options
that will be equal to 6% of the total common shares outstanding. At
December 31, 2008, these options have not been granted.
On March
19, 2009, the Company granted 1,033,066 options to this individual, having a
fair value of $284,259. The Black-Scholes assumptions used are as
follows:
Exercise
price
|
$0.50
|
Expected
dividends
|
0%
|
Expected
volatility
|
78.88%
|
Risk
fee interest rate
|
0.98%
|
Expected
life of option
|
5
years
|
Expected
forfeitures
|
0%
|
F-16
IX
Energy Holdings, Inc.
Notes
to Consolidated Financial Statements
For the Years Ended December
31, 2008 (Consolidated) and 2007
(2)
Former CFO
Effective
May 12, 2008, the Company entered into a two-year employment agreement with a
former member of its senior management to serve as CFO. The agreement
provided for a salary of $150,000 per annum. On August 15, 2008, the Company
received a promissory note from the former CFO in the amount of $10,000 bearing
interest at a rate of 6% per annum. This amount plus interest was to
be repaid to the Company by December 31, 2008.
On
September 11, 2008, the Company forgave the $10,000 principal amount and unpaid
interest totaling $10,833 and recorded the forgiveness as compensation
expense.
Effective
October 17, 2008, the Company terminated its employment agreement with this
individual.
(C)
Former COO
On April
23, 2008, the Company entered into a consulting agreement with a then unrelated
party for hourly fees to be paid in the Company’s common stock at a future
date. The Company accrued $22,500 related to this consulting
agreement. On September 23, 2008, the Company authorized the issuance of
60,930 shares of common stock in full satisfaction of all amounts owed to this
individual under this individual’s consulting agreement totaling $22,500. The
Company recorded consulting fees of $22,500. The fair value of the stock issued
was based upon the fair value of the services rendered.
Effective
July 1, 2008, the Company entered into a two-year employment agreement with the
individual to serve as COO. The agreement provides for a salary
$160,000 per annum plus entitlement to an annual bonus based upon the Company’s
performance during each year of employment. The individual will also be eligible
for a multi-year grant of the Company’s non-qualified options that will be equal
to 3% of the total common shares outstanding.
On
September 23, 2008, the Company authorized the issuance of 40,578 shares of
common stock in full satisfaction of $6,667 of accrued salary that was unpaid to
the Company’s COO during the first two weeks of employment in July
2008. The Company recorded consulting fees of $6,667. The
fair value of the stock issued was based upon the fair value of the services
rendered.
In
January 2009, this individual resigned as the Company’s President and Chief
Operating Officer.
Note 11 - Income
Taxes
SFAS No.
109 requires the recognition of deferred tax assets and liabilities for both the
expected impact of differences between the financial statements and the tax
basis of assets and liabilities, and for the expected future tax benefit to be
derived from tax losses and tax credit carryforwards. SFAS No. 109
additionally requires the establishment of a valuation allowance to reflect the
likelihood of realization of deferred tax assets.
The
Company has a net operating loss carryforward for tax purposes totaling
approximately $1,110,000 at December 31, 2008 expiring through the year 2028.
Internal Revenue Code Section 382 places a limitation on the amount of taxable
income that can be offset by carryforwards after a change in control (generally
greater than a 50% change in ownership). Temporary differences, which
give rise to a net deferred tax asset, are approximately as
follows:
F-17
IX
Energy Holdings, Inc.
Notes
to Consolidated Financial Statements
For the Years Ended December
31, 2008 (Consolidated) and 2007
Significant
deferred tax assets at December 31, 2008 and 2007 are approximately as
follows:
2008
|
2007
|
|||||||
Gross
deferred tax assets:
|
||||||||
Future
losses on uncompleted contracts
|
$
|
-
|
$
|
(9,000
|
)
|
|||
Accrued
salary
|
(37,000
|
)
|
-
|
|||||
Net
operating loss carryforwards
|
(509,000
|
)
|
(43,000
|
)
|
||||
Total
deferred tax assets
|
(546,000
|
)
|
(52,000
|
)
|
||||
Less:
valuation allowance
|
546,000
|
52,000
|
||||||
Deferred
tax asset – net
|
$
|
-
|
$
|
-
|
The
valuation allowance at December 31, 2007 was approximately
$52,000. The net change in valuation allowance during the year ended
December 31, 2008 was an increase of approximately $494,000. In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred income tax
assets will be realized. The ultimate realization of deferred income
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred
income tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment. Based on consideration of these items,
management has determined that enough uncertainty exists relative to the
realization of the deferred income tax asset balances to warrant the application
of a full valuation allowance as of December 31, 2008.
The
actual tax benefit differs from the expected tax benefit for the years ended
December 31, 2008 and 2007, respectively, (computed by applying the U.S. Federal
corporate tax rate of 35% to income before taxes and 16.72% for New York state
and city income taxes, a blended rate of 45.86%) as follows:
2008
|
2007
|
|||||||
Expected
tax expense (benefit) – Federal
|
$
|
(396,000
|
)
|
$
|
(30,000
|
)
|
||
Expected
tax expense (benefit) - State
|
(227,000
|
)
|
(17,000
|
)
|
||||
Meals
and Entertainment @ 50%
|
47,000
|
-
|
||||||
Non-deductible
stock compensation
|
73,000
|
-
|
||||||
Other
|
9,000
|
-
|
||||||
Total
deferred tax assets
|
(494,000
|
)
|
(47,000
|
)
|
||||
Change
in valuation allowance
|
494,000
|
47,000
|
||||||
Actual
tax expense (benefit)
|
$
|
-
|
$
|
-
|
F-18
IX
Energy Holdings, Inc.
Notes
to Consolidated Financial Statements
For the Years Ended December
31, 2008 (Consolidated) and 2007
Note 12 - Subsequent
Events
(A)
Employment Agreements
On
February 12, 2009, the Company entered into a three-year employment agreement
with an individual to serve as President of the Company. The
agreement provides for an annual salary of $200,000 plus eligibility for an
annual bonus. In February 2009, the Company paid $25,000 as s sign-on
bonus. The Company issued 50,000 shares of common stock, having a
fair value of $75,000 ($1.50/share) based upon the closing price on that
day. The individual will earn 100,000 shares of common stock 120 days
from the employment date. The individual will also be granted
2,500,000 of the Company’s non-qualified options vesting quarterly. Under the
terms of the plan, these stock options are subject to board approval, which is
expected during the second quarter of 2009.
On March
2, 2009, the Company entered into a two-year employment agreement with an
individual as Senior Vice President - Government Sales. The agreement
provides for an annual salary of $100,000 plus entitlement to an annual bonus
based upon the Company’s performance during each year of
employment. The individual will also be granted 120,000 of the
Company’s non-qualified options vesting bi-annually. Under the terms of the
plan, these stock options are subject to board approval, which is expected
during the second quarter of 2009.
On March
9, 2009, the Company entered into a two-year employment agreement with an
individual as Vice President - Finance. The agreement provides for an
annual salary of $87,000 plus entitlement to an annual bonus based upon the
Company’s performance during each year of employment. The Company
issued 10,000 shares of common stock, having a fair value of $10,100
($1.01/share) based upon the closing price on that day. The
individual will be granted 200,000 of the Company’s non-qualified options
vesting bi-annually. Under the terms of the plan, these stock options are
subject to board approval, which is expected during the second quarter of
2009.
F-19
IX
Energy Holdings, Inc.
Notes
to Consolidated Financial Statements
For the Years Ended December
31, 2008 (Consolidated) and 2007
(B)
2009 Stock Option Plan
On
February 17, 2009, the Company adopted the 2009 Incentive Stock Plan (“the
Plan”). The total number of shares of stock which may be purchased or granted
directly by options, stock awards or restricted stock purchase offers, or
purchased indirectly through exercise of options granted under the Plan shall
not exceed 12,000,000.
The Plan
indicates that the exercise price of an award is equivalent to the market value
of the Company’s common stock on the grant date.
(C)
Private Placement and Registration Rights Agreement
In
January and February 2009, the Company sold an additional 7.25 units at $100,000
per unit. Each unit consisted of 250,000 shares of common stock and a detachable
three-year warrant to purchase 250,000 shares of common stock for an exercise
price of $0.50 per share. Gross proceeds were $725,000 and the Company
paid direct offering costs of $201,000.
As a
result of the offering, the Company issued an additional 1,812,500 shares of
common stock and 1,952,500 warrants, inclusive of 140,000 warrants paid to a
placement agent as a direct offering cost. The warrants paid as a
direct offering cost have a net effect of zero on the statement of
equity.
See Note
8(B) for discussion of similar terms relating to registration rights of the
common stock and common stock underlying the warrants.
(D)
Consulting Agreement
On March
20, 2009, the Company entered into a one-year agreement with a consulting
company to provide investor relation services. In addition to monthly
fees of $5,500, the Company will issue a five-year warrant to purchase 200,000
shares of common stock, having a fair value of $69,708. The
Black-Scholes assumptions used are as follows:
$0.55
|
|
Expected
dividends
|
0%
|
Expected
volatility
|
78.88%
|
Risk
fee interest rate
|
1.23%
|
Expected
life of warrant
|
5
years
|
Expected
forfeitures
|
0%
|
(E)
Stock Dividend
In
January 2009, the Company effected a stock dividend. Each stockholder
of record as of January 12, 2009 received 1.75 shares of common stock for each
share of common stock they owned.
F-20
INDEX
TO FINANCIAL STATEMENTS
Page
|
|
Unaudited Consolidated Balance Sheets as of
September 30, 2009 and December 31, 2008
|
F-22
|
Unaudited Statements of Operations for the
three and nine months ended September 30, 2009 and
2008
|
F-23
|
Unaudited Statements of Cash Flows for the
nine months ended September 30, 2009 and 2008
|
F-24
|
Notes to the Unaudited Consolidated Financial Statements |
F-25
|
F-21
IX Energy Holdings, Inc. and
Subsidiary
Consolidated Balance
Sheets
September
30, 2009
|
December
31, 2008
|
|||||||
(Unaudited)
|
(Audited)
|
|||||||
Assets
|
||||||||
Assets
|
||||||||
Cash
and cash equivalents
|
$ | 722,952 | $ | 4,736,812 | ||||
Investment
in joint venture
|
17,238 | - | ||||||
Accounts
receivable
|
180,701 | 84,420 | ||||||
Costs
and estimated earnings in excess of billings on uncompleted
contracts
|
22,095 | 6,974 | ||||||
Prepaid
expenses
|
115,809 | 4,000 | ||||||
Total
Current Assets
|
1,058,795 | 4,832,206 | ||||||
Property
and equipment, net of accumulated depreciation of $6,411 and $2,505 in
2009 and 2008
|
1,570,550 | 1,331,787 | ||||||
Debt
issue costs, net of accumulated amortization of $8,063 and $3,893 in 2009
and 2008
|
- | 4,170 | ||||||
Total
Assets
|
$ | 2,629,345 | $ | 6,168,163 | ||||
Liabilities and Stockholders’ Equity
(Deficit)
|
||||||||
Liabilities
|
||||||||
Accounts
payable and accrued expenses
|
$ | 295,862 | $ | 525,994 | ||||
Notes
payable - related party
|
400,000 | 873,000 | ||||||
Notes
payable - other
|
500,000 | 500,000 | ||||||
Accrued
interest payable - related party
|
124,047 | 76,217 | ||||||
Accrued
interest payable - other
|
30,701 | 12,071 | ||||||
Deferred
revenue
|
887,595 | 2,683,833 | ||||||
Derivative
liability - warrants
|
108,644 | - | ||||||
Registration
rights liability
|
347,500 | - | ||||||
Total
Current Liabilities
|
2,694,349 | 4,671,115 | ||||||
Stockholders’
Equity (Deficit)
|
||||||||
Common
stock, $0.0001 par value, 500,000,000 shares authorized,
|
||||||||
65,893,144
and 58,528,285 shares issued and outstanding
|
6,590 | 5,853 | ||||||
Additional
paid in capital
|
10,301,727 | 2,962,960 | ||||||
Accumulated
deficit
|
(10,373,321 | ) | (1,471,765 | ) | ||||
Total
Stockholders’ Equity (Deficit)
|
(65,004 | ) | 1,497,048 | |||||
Total
Liabilities and Stockholders’ Equity (Deficit)
|
$ | 2,629,345 | $ | 6,168,163 | ||||
See
accompanying notes to financial statements
F-22
IX
Energy Holdings, Inc. and Subsidiary
Statement of Operations
(Unaudited)
For
the Three Months Ended
|
For
the Nine Months Ended
|
|||||||||||||||
September
30, 2009
|
September
30, 2008
|
September
30, 2009
|
September
30, 2008
|
|||||||||||||
(Consolidated)
|
(Consolidated)
|
|||||||||||||||
Revenues
- solar panels
|
$ | 114,541 | $ | 1,039,857 | $ | 2,019,415 | $ | 5,638,624 | ||||||||
Revenues
- construction contracts
|
- | - | 53,660 | 68,660 | ||||||||||||
Total
revenues
|
114,541 | 1,039,857 | 2,073,075 | 5,707,284 | ||||||||||||
Cost
of revenues - solar panels
|
95,385 | 1,037,267 | 1,631,938 | 5,525,472 | ||||||||||||
Cost
of revenues - construction contracts
|
- | 18,975 | 53,232 | 88,205 | ||||||||||||
Total
cost of revenues
|
95,385 | 1,056,242 | 1,685,170 | 5,613,677 | ||||||||||||
Gross
profit (loss)
|
19,156 | (16,385 | ) | 387,905 | 93,607 | |||||||||||
General
and administrative expenses
|
1,221,482 | 618,595 | 7,609,232 | 1,003,131 | ||||||||||||
Loss
from operations
|
(1,202,326 | ) | (634,980 | ) | (7,221,327 | ) | (909,524 | ) | ||||||||
Other
income (expense)
|
||||||||||||||||
Interest
income
|
2,614 | 22,717 | 26,852 | 26,175 | ||||||||||||
Interest
expense
|
(28,565 | ) | (46,401 | ) | (135,257 | ) | (59,744 | ) | ||||||||
Change
in fair value of derivative liability - warrants
|
807,900 | - | 2,635,268 | - | ||||||||||||
Derivative
expense
|
- | - | (1,422,917 | ) | - | |||||||||||
Translation
loss due to foreign currency
|
- | - | - | (36,505 | ) | |||||||||||
Letter
of credit fee loan fee
|
- | (63,285 | ) | - | (1,535,996 | ) | ||||||||||
Total
other income (expense)
|
781,949 | (86,969 | ) | 1,103,946 | (1,606,070 | ) | ||||||||||
Net
loss
|
$ | (420,377 | ) | $ | (721,949 | ) | $ | (6,117,381 | ) | $ | (2,515,594 | ) | ||||
Net
Income (Loss) per Share - Basic
|
$ | (0.01 | ) | $ | (0.02 | ) | $ | (0.10 | ) | $ | (0.06 | ) | ||||
Net
Income (Loss) per Share - Diluted
|
$ | (0.01 | ) | $ | (0.02 | ) | $ | (0.10 | ) | $ | (0.06 | ) | ||||
Weighted
Average Number of Common Shares Outstanding - Basic and
Diluted
|
64,858,329 | 46,036,659 | 63,320,926 | 43,877,514 |
See
accompanying notes to financial statements
F-23
IX
Energy Holdings, Inc. and Subsidiary
Statements of Cash Flows
(Unaudited)
For
the Nine Months
|
For
the Nine Months
|
|||||||
Ended
September 30, 2009
|
Ended
September 30, 2008
|
|||||||
(Consolidated)
|
||||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
loss
|
$ | (6,117,381 | ) | $ | (2,515,594 | ) | ||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
Depreciation
|
6,411 | 681 | ||||||
Amortization
of debt issue costs
|
51,816 | 1,861 | ||||||
Amortization
of prepaid future services
|
23,500 | - | ||||||
Loss
on issuance of common stock
|
||||||||
Loss
on settlement of accounts payable
|
5,412 | - | ||||||
Loss
on sale of fixed asset
|
10,493 | - | ||||||
Transaction
loss due to foreign currency
|
- | 36,505 | ||||||
Derivative
expense
|
1,422,917 | - | ||||||
Change
in fair value of derivative liability- warrants
|
(2,635,268 | ) | - | |||||
Stock
issued for services - employee
|
3,675,303 | - | ||||||
Stock
issued for services - consultant
|
864,837 | 6,667 | ||||||
Recognition
of stock based compensation - employees
|
603,846 | - | ||||||
Recognition
of stock based compensation - consultants
|
48,334 | - | ||||||
Stock
issued for loan fee
|
- | 120,946 | ||||||
Stock
issued for consulting services - related party
|
- | 24,979 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
(Increase)
Decrease in:
|
||||||||
Accounts
receivable
|
(96,281 | ) | (21,110 | ) | ||||
Cost
& estimated earnings in excess of billings on uncompleted
contracts
|
(15,121 | ) | 57,340 | |||||
Prepaid
expenses and deposits
|
(88,309 | ) | (3,775,846 | ) | ||||
Increase
(Decrease) in:
|
||||||||
Accounts
payable and accrued expenses
|
(169,411 | ) | 184,580 | |||||
Accrued
interest payable - related party
|
47,830 | 52,044 | ||||||
Accrued
interest payable - other
|
18,630 | 5,838 | ||||||
Estimated
losses on uncompleted contracts
|
- | (20,172 | ) | |||||
Deferred
revenue
|
(1,796,238 | ) | 7,657,478 | |||||
Registrations
rights liability
|
347,500 | - | ||||||
Net
Cash Provided by (Used in) Operating Activities
|
(3,791,180 | ) | 1,816,197 | |||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Investment
in joint venture
|
(17,238 | ) | - | |||||
Due
from related party
|
- | (44,526 | ) | |||||
Proceeds
from sale of fixed asset
|
13,000 | - | ||||||
Purchase
of property and equipment
|
(268,667 | ) | (26,999 | ) | ||||
Net
Cash Used in Investing Activities
|
(272,905 | ) | (71,525 | ) | ||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Repayment
of notes payable - related party
|
(473,000 | ) | - | |||||
Proceeds
from common stock issued for cash in private placement
|
725,000 | - | ||||||
Cash
paid as direct offering costs
|
(201,775 | ) | - | |||||
Proceeds
from issuance of notes payable
|
- | 1,438,252 | ||||||
Net
Cash Provided By Financing Activities
|
50,225 | 1,438,252 | ||||||
Net
Increase (Decrease) in Cash and Cash Equivalents
|
(4,013,860 | ) | 3,182,924 | |||||
Cash
and Cash Equivalents - Beginning of Period
|
4,736,812 | 176,160 | ||||||
Cash
and Cash Equivalents - End of Period
|
$ | 722,952 | $ | 3,359,084 | ||||
SUPPLEMENTARY CASH FLOW
INFORMATION:
|
||||||||
Cash
Paid During the Period for:
|
||||||||
Income
taxes
|
$ | - | $ | - | ||||
Interest
|
$ | 17,517 | $ | - | ||||
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
|
||||||||
Stock
issued for future services
|
$ | 155,100 | $ | - | ||||
Stock
issued to settle accounts payable
|
$ | 66,133 | $ | - | ||||
Catch
up adjustment for derivative liabilities due to EITF 07-5
|
$ | 1,320,995 | $ | - | ||||
Forgiveness
of receivable due from affiliate
|
$ | - | $ | 44,526 | ||||
Debt
issue costs
|
$ | - | $ | 8,063 |
See
accompanying notes to financial statements
F-24
IX Energy Holdings, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
September 30, 2009
(Unaudited)
Note 1. Basis of
Presentation
The
accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
and the rules and regulations of the United States Securities and Exchange
Commission for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the
information and footnotes necessary for a comprehensive presentation of
financial position, results of operations, or cash flows. It is management's
opinion, however, that all material adjustments (consisting of normal recurring
adjustments) have been made which are necessary for a fair financial statement
presentation. The results for the interim period are not necessarily indicative
of the results to be expected for the full year.
The
unaudited interim financial statements should be read in conjunction with the
Company’s Form 10-K, which contains the audited financial statements and notes
thereto, together with Management’s Discussion and Analysis, for the years ended
December 31, 2008 and 2007. The interim results for the period ended
September 30, 2009 are not necessarily indicative of the results for the full
fiscal year.
On
December 30, 2008, the Company executed a reverse acquisition with a public
shell company (See Note 10). The accompanying financial statements are
consolidated as of September 30, 2009. The financial statements for the
three and nine months ended September 30, 2008, consist solely of IX Energy,
Inc., the accounting acquirer and are not consolidated.
Note 2. Organization, Nature
of Operations and Summary of Significant Accounting Policies
Nature
of operations
IX Energy
Holdings, Inc. (“IX Energy” or the “Company”) was incorporated on March 3,
2006 under the laws of the State of Delaware. The Company is a renewable energy
company primarily focused on solar power project development and integration.
In an effort to maximize opportunities in the alternative energy industry,
and in response to the rapid changes taking place within the industry, the
Company has been positioned to focus on alternative energy project development
and finance. This broadens the existing strategy of leveraging the relationship
with UNICOR to employ their panels in pursuit of Federal projects.
On March
25, 2009, the Company incorporated IX Geo, LLC (“IX Geo”) under the laws of
Delaware as a wholly owned subsidiary of IX Energy.
On March
25, 2009, the Company formed IX Legatus6, LLC under the laws of Delaware as a
wholly owned subsidiary of IX Energy. On July 21, 2009, the Company
changed the name of IX Legatus6, LLC to IX Energy Solutions, LLC (“IX
Solutions”).
IX
Solutions became operational on August 26, 2009. Under the terms of the Joint
Venture agreement (“JV”), the company contributed $5,000 in cash; however,
Rooftop Energy, Inc. (“RTI”) has yet to contribute their $5,000. During 2009,
the Company advanced $12,238 for expenses that benefit the JV. The JV
has no current operations as of September 30, 2009. The Company and
RTI are intending to establish a relationship whereby the Company can
provide consulting services related to manufacture and installation of rooftop
energy systems.
F-25
IX Energy Holdings, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
September 30, 2009
(Unaudited)
Going
Concern
As
reflected in the accompanying financial statements, the Company has a net loss
of $6,117,381 and net cash used in operations of $3,791,180 for the nine months
ended September 30, 2009; and had a working capital deficit of $1,635,554 and an
accumulated deficit of $10,373,321 at September 30, 2009.
The
ability of the Company to continue its operations is dependent on management’s
plans, which include the raising of capital through debt and/or equity markets
with some additional funding from other traditional financing sources, including
term notes, until such time that funds provided by operations are sufficient to
fund working capital requirements.
The
Company believes its current available cash, along with anticipated revenues,
may be insufficient to meet its cash needs for the near future. There can be no
assurance that financing will be available in amounts or terms acceptable to the
Company, if at all. The Company may require additional funding to finance the
growth of its current and expected future operations, as well as to achieve its
strategic objectives. The Company believes that the further implementation of
its business plan will provide future positive cash flows.
Use
of estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period.
Making
estimates requires management to exercise significant judgment. It is at least
reasonably possible that the estimate of the effect of a condition, situation or
set of circumstances that existed at the date of the unaudited interim condensed
consolidated financial statements, which management considered in formulating
its estimate could change in the near term due to one or more future confirming
events. Accordingly, the actual results could differ significantly from our
estimates. Actual results could differ from those estimates.
Risks
and uncertainties
The
Company operates in an industry that is subject to intense competition and rapid
technological change. The Company's operations are subject to
significant risk and uncertainties including financial, operational,
technological, and regulatory risks including the potential risk of business
failure.
The
recent global economic slowdown has caused a general tightening in the credit
markets, lower levels of liquidity, increases in the rates of default and
bankruptcy, and extreme volatility in credit, equity and fixed income markets.
These conditions not only limit our access to capital, but also make it
difficult for our customers, our vendors and us to accurately forecast and plan
future business activities.
F-26
IX Energy Holdings, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
September 30, 2009
(Unaudited)
Principles
of consolidation
The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiary. All significant intercompany balances and transactions
have been eliminated in consolidation.
Cash
and cash equivalents
For
purposes of the statement of cash flows, the Company considers all highly liquid
instruments purchased with a maturity of three months or less to be cash
equivalents.
The
Company minimizes its credit risk associated with cash by periodically
evaluating the credit quality of its primary financial institution. The balance
at times may exceed federally insured limits. At September 30, 2009 and December
31, 2008, the balance exceeded the federally insured limit by $420,642 and
$4,249,256, respectively.
Accounts
receivable and concentrations
Accounts
receivable represents trade obligations from customers that are subject to
normal trade collection terms, without discounts, however, in certain cases we
are entitled to rebates upon the completion of certain jobs post installation.
The Company periodically evaluates the collectability of its accounts receivable
and considers the need to adjust an allowance for doubtful accounts based upon
historical collection experience and specific customer information. Actual
amounts could vary from the recorded estimates. We have determined that as of
September 30, 2009 and December 31, 2008, respectively, no allowance was
required.
At
September 30, 2009 and December 31, 2008, respectively, the Company had a
concentration of accounts receivable from three customers totaling 52%, 24% and
24%, and one customer totaling 100%, respectively.
Long
lived assets
Long-lived
assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future undiscounted net cash flows expected to be
generated by the asset. If such assets are considered impaired, the impairment
to be recognized is measured by the amount by which the carrying amount of the
assets exceeds the fair value of the assets. There were no impairment charges
taken during the nine months ended September 30, 2009 and 2008,
respectively.
Property
and equipment
Property
and equipment are stated at cost. Maintenance and repairs are charged to
operations as incurred. Betterments or renewals are capitalized when incurred.
Depreciation is provided using the straight line method over the estimated
useful lives of the asset.
As a
result of the stock dividend and reverse acquisition and recapitalization (see
Notes 9 and 10), all share and per share amounts were retroactively
restated.
F-27
IX Energy Holdings, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
September 30, 2009
(Unaudited)
Fair
value of financial instruments
We have
determined the estimated fair value amounts presented in these financial
statements using available market information and appropriate methodologies.
However, considerable judgment is required in interpreting market data to
develop the estimates of fair value. The estimates presented in the unaudited
interim financial statements are not necessarily indicative of the amounts that
we could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts. We have based these fair value estimates on
pertinent information available as of September 30, 2009, and have
determined that, as of such date, the carrying value of all financial
instruments approximates fair value. For purpose of this disclosure, the fair
value of a financial instrument is the amount at which the instrument could be
exchanged in a current transaction between willing parties, other than in a
forced sale or liquidation.
The
carrying amount reported in the balance sheet for accounts receivable, costs and
estimated earnings in excess of billings on uncompleted contracts, prepaid
expenses, accounts payable and accrued expenses, notes payable – related party,
notes payable – other, accrued interest payable – related party and accrued
interest payable – other, deferred revenue, derivative liability – warrants and
registration rights liability, approximates its fair market value based on the
short-term maturity of these instruments.
Derivative
financial instruments
We review
any common stock purchase warrants and other freestanding derivative financial
instruments at each balance sheet date and classify them on our balance sheet
as:
a)
|
Equity
if they (i) require physical settlement or net-share settlement, or
(ii) gives us a choice of net-cash settlement or settlement in our
own shares (physical settlement or net-share settlement), or
as
|
b)
|
Assets
or liabilities if they (i) require net-cash settlement (including a
requirement to net cash settle the contract if an event occurs and if that
event is outside our control), or (ii) give the counterparty a choice of
net-cash settlement or settlement in shares (physical settlement or
net-share settlement).
|
We assess
classification of our common stock purchase warrants and other freestanding
derivatives at each reporting date to determine whether a change in
classification between assets and liabilities is required.
In
determining the appropriate fair value, the Company uses the Black-Scholes
option-pricing model. Once determined, derivative liabilities are adjusted to
reflect fair value at each reporting period end, with any increase or decrease
in the fair value being recorded in results of operations as an adjustment to
fair value of derivatives. In addition, the fair value of freestanding
derivative instruments such as warrants, are also valued using the Black-Scholes
option-pricing model. Finally, the Company has applied the related guidance when
determining the existence of liquidated damage provisions. At September 30,
2009, the Company had recorded a liquidated damages provision due to the failure
to file and have declared effective a registration statement.
F-28
IX Energy Holdings, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
September 30, 2009
(Unaudited)
Revenue
recognition
The
Company follows the guidance of the Securities and Exchange Commission’s Staff
Accounting Bulletin No. 104 for revenue recognition and records revenue when all
of the following have occurred: (1)
persuasive evidence of an arrangement exists, (2) the product is delivered and
installed, (3) the sales price to the customer is fixed or determinable, and (4)
collectability of the customer receivable is reasonably
assured.
The
Company has two methods of revenue recognition:
(1)
Energy product reseller
The
Company purchases product from suppliers and resells them to third parties.
The Company records the revenue from the buyer and related cost paid to
the suppliers on these types of arrangements.
Periodically,
the Company enters into similar arrangements wherein the Company had no
installation responsibility and no further obligation after delivery was made to
the customers. Payments from the customers are received in advance of
delivery of solar panels and are treated as deferred revenue. Payments are
then made to the suppliers and cost of materials is recorded. A pro-rata
portion of the deferred revenue from the customers is recognized as shipments
are made.
Revenues
from these arrangements are recognized upon shipment from the supplier to these
third parties. In addition, the Company has reviewed the relevance of
gross versus net reporting. Upon the Company’s review of this guidance, as well
as SAB No. 104, the Company has determined that it is subject to gross reporting
as it bears the risk of physical loss of inventory in each of these
arrangements, takes title to the inventory, is the primary obligor in the
arrangements, establishes the pricing with customers, has discretion in the
selection of suppliers, determines product specifications with customers and
suppliers and it has credit risk on all sales.
For the
nine months ended September 30, 2009, the Company had a concentration of sales
with one customer totaling 87%. For the nine months ended September 30, 2008,
the Company had a concentration of sales with one customer of 81%.
(2)
Percentage of completion
Revenue
from construction contracts are reported under the percentage-of-completion
method for financial statement purposes. The estimated revenue for each
contract reflected in the financial statements represent that percentage of
estimated total revenue that costs incurred to date bear to estimated total
costs, based on the Company’s current estimates. With respect to contracts
that extend over one or more accounting periods, revisions in costs and revenue
estimates during the course of the work are reflected in the period the
revisions become known. When current estimates of total contract costs
indicate a loss, provision is made for the entire estimated loss.
The
asset, “Costs and estimated
earnings in excess of billings on uncompleted contracts,” represents
revenues recognized in excess of amounts billed. The liability, “Estimated earnings on uncompleted
contracts,” represents billings in excess of revenues
recognized.
Billing
practices for these projects are governed by the contract terms of each project
based upon actual costs incurred, achievement of milestones, or pre-agreed
schedules. Billings do not necessarily correlate with revenue recognized under
the percentage-of-completion method of accounting. With the exception of
claims and change orders that are in the process of being negotiated with
customers, unbilled work is usually billed during normal billing processes
following achievement of the contractual requirements.
F-29
IX Energy Holdings, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
September 30, 2009
(Unaudited)
Cost
of sales
Cost of
sales, including contract costs represents costs directly related to the
purchasing and installation of the Company’s solar panel products. Primary costs
include direct materials and labor costs and those indirect costs related to
contract performance, such as indirect labor, supplies, tools, repairs and
depreciation costs.
Shipping
and handling costs
Shipping
and handling costs associated with inbound freight are included in cost of
sales. Amounts billed to customers for shipping and handling is recorded as
revenue. For the three and nine months ended September 30, 2009 and 2008,
respectively, the Company had no such revenues or expenses.
Share
based payment arrangements
Generally,
all forms of share-based payments, including stock option grants, restricted
stock grants and stock appreciation rights, are measured at their fair value on
the awards’ grant date, and based on the estimated number of awards that are
ultimately expected to vest. Share-based compensation awards issued to
non-employees for services rendered are recorded at either the fair value of the
services rendered or the fair value of the share-based payment, whichever is
more readily determinable. The expense resulting from share-based payments are
recorded in general and administrative expense.
Segment
information
During
2009 and 2008, the Company only operated in one segment; therefore, segment
information has not been presented.
Basic
and diluted loss per share
Basic
earnings per share (“EPS”) is computed by dividing net loss available to common
stockholders by the weighted average number of common shares outstanding during
the period, excluding the effects of any potentially dilutive securities.
Diluted EPS gives effect to all dilutive potential of shares of common stock
outstanding during the period including stock options or warrants, using the
treasury stock method (by using the average stock price for the period to
determine the number of shares assumed to be purchased from the exercise of
stock options or warrants), and convertible debt or convertible preferred stock,
using the if-converted method. Diluted EPS excludes all dilutive potential of
shares of common stock if their effect is anti-dilutive.
The
computation of basic and diluted loss per share for the three and nine months
ended September 30, 2009 and 2008 excludes the following potentially
dilutive securities because their inclusion would be anti-dilutive:
Stock
options
|
4,996,132 | |||
Stock
warrants
|
9,377,500 | |||
Total
common stock equivalents
|
14,373,632 |
F-30
IX Energy Holdings, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
September 30, 2009
(Unaudited)
Since the
three months ending September 30, 2009 resulted in income, these potentially
dilutive shares, consisting of outstanding options and warrants, have been
included in the computation of diluted earnings per share and the weighted
average shares outstanding, except where the result would be anti-dilutive.
The average market price for the three months ended September 30, 2009 was
less than the exercise price, so the basic and diluted earnings per share
computation was the same. For the nine months ended September 30, 2009,
these common stock equivalents are not included in the diluted loss per share
computation since the inclusion of such common stock equivalents would be
anti-dilutive due to the Company’s net loss during the period. There
were no outstanding common stock equivalents at September 30, 2008.
Recent
accounting pronouncements
Effective
July 1, 2009, the Company adopted The “FASB Accounting Standards
Codification” and the Hierarchy of Generally Accepted Accounting Principles (ASC
105). This standard establishes only two levels of U.S. generally accepted
accounting principles (“GAAP”), authoritative and nonauthoritative. The FASB
Accounting Standards Codification (the “Codification”) became the source of
authoritative, nongovernmental GAAP, except for rules and interpretive releases
of the SEC, which are sources of authoritative GAAP for SEC registrants. All
other non-grandfathered, non-SEC accounting literature not included in the
Codification became nonauthoritative. The Company began using the new guidelines
and numbering system prescribed by the Codification when referring to GAAP in
the third quarter of fiscal 2009. As the Codification was not intended to change
or alter existing GAAP, it did not have a material impact on the Company’s
financial statements.
Effective
September 30, 2009, the Company adopted three accounting standard updates which
were intended to provide additional application guidance and enhanced
disclosures regarding fair value measurements and impairments of securities.
They also provide additional guidelines for estimating fair value in accordance
with fair value accounting. The first update, as codified in ASC 820-10-65,
provides additional guidelines for estimating fair value in accordance with fair
value accounting. The second accounting update, as codified in ASC 320-10-65,
changes accounting requirements for other-than-temporary-impairment
(OTTI) for debt securities by replacing the current requirement that a
holder have the positive intent and ability to hold an impaired security to
recovery in order to conclude an impairment was temporary with a requirement
that an entity conclude it does not intend to sell an impaired security and it
will not be required to sell the security before the recovery of its amortized
cost basis. The third accounting update, as codified in ASC 825-10-65, increases
the frequency of fair value disclosures. These updates were effective for fiscal
years and interim periods ended after September15, 2009. The adoption of these
accounting updates did not have a material impact on the Company’s financial
statements.
Effective
September 30, 2009, the Company adopted a new accounting standard for subsequent
events, as codified in ASC 855-10. The update modifies the names of the two
types of subsequent events either as recognized subsequent events (previously
referred to in practice as Type I subsequent events) or non-recognized
subsequent events (previously referred to in practice as Type II subsequent
events). In addition, the standard modifies the definition of subsequent events
to refer to events or transactions that occur after the balance sheet date, but
before the financial statements are issued (for public entities) or available to
be issued (for nonpublic entities). It also requires the disclosure of the date
through which subsequent events have been evaluated. The update did not result
in significant changes in the practice of subsequent event disclosures, and
therefore the adoption did not have a material impact on the Company’s financial
statements.
Effective
January 1, 2009, the Company adopted an accounting standard update
regarding the determination of the useful life of intangible assets. As codified
in ASC 350-30-35, this update amends the factors considered in developing
renewal or extension assumptions used to determine the useful life of a
recognized intangible asset under intangibles accounting. It also requires a
consistent approach between the useful life of a recognized intangible asset
under prior business combination accounting and the period of expected cash
flows used to measure the fair value of an asset under the new business
combinations accounting (as currently codified under ASC 850). The update also
requires enhanced disclosures when an intangible asset’s expected future cash
flows are affected by an entity’s intent and/or ability to renew or extend the
arrangement. The adoption did not have a material impact on the Company’s
financial statements.
In
February 2008, the FASB issued an accounting standard update that delayed
the effective date of fair value measurements accounting for all non-financial
assets and non-financial liabilities, except for items that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually), until the beginning of the first quarter of fiscal 2009. These
include goodwill and other non-amortizable intangible assets. The Company
adopted this accounting standard update effective January 1, 2009. The
adoption of this update to non-financial assets and liabilities, as codified in
ASC 820-10, did not have a material impact on the Company’s financial
statements.
Effective
January 1, 2009, the Company adopted a new accounting standard update
regarding business combinations. As codified under ASC 805, this update requires
an entity to recognize the assets acquired, liabilities assumed, contractual
contingencies, and contingent consideration at their fair value on the
acquisition date. It further requires that acquisition-related costs be
recognized separately from the acquisition and expensed as incurred; that
restructuring costs generally be expensed in periods subsequent to the
acquisition date; and that changes in accounting for deferred tax asset
valuation allowances and acquired income tax uncertainties after the measurement
period be recognized as a component of provision for taxes. The adoption did not
have a material impact on the Company’s financial statements.
In
September 2009, the FASB issued Update No. 2009-13,
“Multiple-Deliverable Revenue Arrangements—a consensus of the FASB Emerging
Issues Task Force” (ASU 2009-13). It updates the existing multiple-element
revenue arrangements guidance currently included under ASC 605-25, which
originated primarily from the guidance in EITF Issue No. 00-21, “Revenue
Arrangements with Multiple Deliverables” (EITF 00-21). The revised guidance
primarily provides two significant changes: 1) eliminates the need for objective
and reliable evidence of the fair value for the undelivered element in order for
a delivered item to be treated as a separate unit of accounting, and 2)
eliminates the residual method to allocate the arrangement consideration. In
addition, the guidance also expands the disclosure requirements for revenue
recognition. ASU 2009-13 will be effective for the first annual reporting period
beginning on or after September15, 2010, with early adoption permitted provided
that the revised guidance is retroactively applied to the beginning of the year
of adoption. The Company is currently assessing the future impact of this new
accounting pronouncement.
F-31
IX Energy Holdings, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
September 30, 2009
(Unaudited)
Effective
July 1, 2009, the Company adopted the Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) 105-10, Generally Accepted Accounting
Principles – Overall (“ASC 105-10”). ASC 105-10 establishes the FASB Accounting Standards
Codification (the “Codification”) as the source of authoritative
accounting principles recognized by the FASB to be applied by nongovernmental
entities in the preparation of financial statements in conformity with U.S.
GAAP. Rules and interpretive releases of the SEC under authority of federal
securities laws are also sources of authoritative U.S. GAAP for SEC registrants.
All guidance contained in the Codification carries an equal level of authority.
The Codification superseded all existing non-SEC accounting and reporting
standards. All other non-grandfathered, non-SEC accounting literature not
included in the Codification is non-authoritative. The FASB will not issue new
standards in the form of Statements, FASB Staff Positions or Emerging Issues
Task Force Abstracts. Instead, it will issue Accounting Standards Updates
(“ASUs”). The FASB will not consider ASUs as authoritative in their own right.
ASUs will serve only to update the Codification, provide background information
about the guidance and provide the bases for conclusions on the change(s) in the
Codification. References made to FASB guidance throughout this document have
been updated for the Codification.
Effective
July 1, 2009, the Company adopted FASB ASU No. 2009-05, Fair Value Measurements and
Disclosures (Topic 820) (“ASU 2009-05”). ASU 2009-05 provided amendments
to ASC 820-10, Fair Value
Measurements and Disclosures – Overall, for the fair value measurement of
liabilities. ASU 2009-05 provides clarification that in circumstances in which a
quoted price in an active market for the identical liability is not available, a
reporting entity is required to measure fair value using certain techniques. ASU
2009-05 also clarifies that when estimating the fair value of a liability, a
reporting entity is not required to include a separate input or adjustment to
other inputs relating to the existence of a restriction that prevents the
transfer of a liability. ASU 2009-05 also clarifies that both a quoted price in
an active market for the identical liability at the measurement date and the
quoted price for the identical liability when traded as an asset in an active
market when no adjustments to the quoted price of the asset are required are
Level 1 fair value measurements. Adoption of ASU 2009-05 did not have a material
impact on the Company’s results of operations or financial
condition.
Note 3. Fair
Value
We have
categorized our assets and liabilities recorded at fair value based upon the
fair value hierarchy specified by GAAP.
The
levels of fair value hierarchy are as follows:
|
·
|
Level
1 inputs utilize unadjusted quoted prices in active markets for identical
assets or liabilities that we have the ability to
access;
|
|
·
|
Level
2 inputs utilize other-than-quoted prices that are observable, either
directly or indirectly. Level 2 inputs include quoted prices for similar
assets and liabilities in active markets, and inputs such as interest
rates and yield curves that are observable at commonly quoted intervals;
and
|
|
·
|
Level
3 inputs are unobservable and are typically based on our own assumptions,
including situations where there is little, if any, market
activity.
|
In
certain cases, the inputs used to measure fair value may fall into different
levels of the fair value hierarchy. In such cases, we categorize such financial
asset or liability based on the lowest level input that is significant to the
fair value measurement in its entirety. Our assessment of the significance of a
particular input to the fair value measurement in its entirety requires judgment
and considers factors specific to the asset or liability.
Both
observable and unobservable inputs may be used to determine the fair value of
positions that are classified within the Level 3 category. As a result, the
unrealized gains and losses for assets within the Level 3 category
presented in the tables below may include changes in fair value that were
attributable to both observable and unobservable inputs.
F-32
IX Energy Holdings, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
September 30, 2009
(Unaudited)
The following
are the major categories of assets and liabilities measured at fair value on a
nonrecurring basis during the nine month period ended September 30, 2009,
using quoted prices in active markets for identical assets and
liabilities (Level 1); significant other observable inputs
(Level 2); and significant unobservable inputs (Level 3):
Level 1: | Level 2: | Level 3: | ||||||||||||||
Quoted
Prices in Active Markets for Identical Assets
|
Significant
Other Observable Inputs
|
Significant
Unobservable Inputs
|
Total
at September 30, 2009
|
|||||||||||||
Derivative
Liabilities
|
$ | - | $ | - | $ | 108,644 | $ | 108,644 | ||||||||
Total
|
$ | - | $ | - | $ | 108,644 | $ | 108,644 |
Note 4. Construction
Contracts
Information
with respect to uncompleted contracts is summarized below for the periods ended
September 30, 2009 and December 31, 2008:
September 30, 2009
|
December 31, 2008
|
|||||||
Actual
costs incurred on uncompleted contracts
|
$ | 139,088 | $ | 415,320 | ||||
Estimated
profit (losses)
|
65,168 | ( 10,124 | ) | |||||
204,256 | 405,196 | |||||||
Less:
progress billings to date
|
182,161 | 398,222 | ||||||
$ | 22,095 | $ | 6,974 | |||||
These
amounts are included in the accompanying balance sheets under the
following captions:
|
||||||||
Costs
and estimated earnings in excess of billings on uncompleted
contracts
|
$ | 22,095 | $ | 6,974 | ||||
Estimated
losses on uncompleted contracts
|
- | - | ||||||
$ | 22,095 | $ | 6,974 |
F-33
IX Energy Holdings, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
September 30, 2009
(Unaudited)
In
September 2008, the Company entered into an agreement with Federal Prison
Industries, Inc. ("UNICOR"), under which UNICOR provided the labor for assembly
and production of solar panels to the Company, and the Company sold the solar
panels to Federal, civilian and military government customers of both the
Company and this customer. The agreement has a term of five years.
Under the
UNICOR contract, the Company is obligated to perform sales under two separate
sales and marketing programs:
●
IX shall actively market to and solicit customers, prepare customer
proposals and aid customers in obtaining project financing while UNICOR
assembles and produces solar panels, fabricates and assembles the product.
Pricing is $0.55 per watt for panel fabrication plus the price of
photovoltaic cells that will be added to the price per unit.
●
IX may act as a sales agent for UNICOR. UNICOR may identify
potential customers and refer them to IX. In this program, IX and UNICOR
may work together to prepare customer proposals and to aid customers in
obtaining project financing. Since UNICOR will sell directly to customers
in this program, pricing is such that UNICOR will pay a service fee of 25% of
the net earnings on the project to IX when payment is received from
customers.
In
September 2008, the Company received $6,800,000 from UNICOR for the supply of
solar cells. This amount was initially recorded as deferred revenue.
Shipment of these solar cells began in October 2008. For the nine months
ended September 30, 2009 and 2008, the Company has recognized revenue based on
completion of shipments under this agreement of $1,796,238 and $0, respectively.
In
September 2008, the Company entered into an agreement, under which a supplier
provides the labor for the assembly and production of solar panels to the
Company, and the Company sells the solar panels to a third party. The agreement
has a term of one year. In July and September 2008, the Company received
$1,897,335 from this customer for the shipment of solar panels. This
amount was initially recorded as deferred revenue. For the nine months ended
September 30, 2009 and 2008, the Company recognized $0 and $0 of revenue,
respectively
Note 5 Affiliate Charge to
Equity
For the
nine months ended September 30, 2009, a Company related to the Company’s Chief
Executive Officer collected certain funds on contracts entered into by the
Company. The affiliated entity did not have the ability to repay these
funds that the Company was entitled to. As a result, the Company recorded
a charge to additional paid in capital of $42,823 to reflect the uncollectible
receivable from this related party.
F-34
IX Energy Holdings, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
September 30, 2009
(Unaudited)
Note 6. Property and
Equipment
At
September 30, 2009 and December 31, 2008, property and equipment consists of the
following:
September 30, 2009
|
December 31, 2008
|
Estimated Useful Lives
|
|||||||
Solar
panel equipment
|
$ | 1,550,000 | $ | 1,300,000 |
20
years
|
||||
Automobiles
|
- | 26,999 |
5
years
|
||||||
Computers
and equipment
|
26,961 | 7,293 |
3
years
|
||||||
1,576,961 | 1,334,292 | ||||||||
Less:
accumulated depreciation
|
( 6,411 | ) | ( 2,505 | ) | |||||
Property
and equipment - net
|
$ | 1,570,550 | $ | 1,331,787 |
The solar
panel equipment, purchased for $1,550,000, was not in service at September 30,
2009 as the Company is currently looking for suitable manufacturing warehouse
space to install the equipment to manufacture its own solar panels. The
Company expects to place this asset in service by the end of fiscal year 2009 or
seek a sale of this asset.
Note 7. Guarantee Letter of
Credit
On May
27, 2008 the Company entered in to a standby letter of credit with a bank for
$1,600,000. The letter of credit acts as a performance bond, with a
customer being the beneficiary, if the Company defaults on their monthly
delivery agreement. The Company’s Chief Executive Officer has provided a
personal guarantee of $800,000 on behalf of the Company for the letter of
credit. In exchange for the personal guarantee, the Company issued
2,031,030 shares of the Company’s common stock, having a fair value of $60,473
($0.03/share) based upon the then recent cash offering price. The letter
of credit expired in August 2008. However, the bank extended the letter of
credit until August 7, 2009. The letter of credit was released in February
2009, as the Company fulfilled its obligation under the terms of its government
contract with UNICOR.
On
September 30, 2008, two third party shareholders also provided personal
guarantees, of $400,000 each, for the letter of credit. In exchange for
the personal guarantee, the Company issued 1,015,494 shares of the Company’s
common stock to each stockholder, having a total fair value of $60,473
($0.03/share), based upon the recent cash offering price to third
parties.
Note 8. Notes and
Accrued Interest Payable
(A)
Notes
Payable & Accrued Interest Payable – Related Party
On
November 1, 2007 and December 30, 2007, respectively, the Company issued notes
payable of $3,000 and $220,000, respectively to the same stockholder. The notes
bear interest at 12%, are unsecured, have a default interest rate of 24% and are
due 3 business days after the Company receives the cash proceeds from certain
solar panel installation jobs. The Company completed 2 of the 3 solar
panel installations in 2008. However, the stockholder extended the
repayment date of the notes to March 31, 2009. On April 1, 2009, the
Company repaid principal of $3,000 and $110,000 of notes payable due to this
related party stockholder. On that date, the Company also repaid interest
of $16,500 related to the $3,000 and $110,000 notes on the same date in full
settlement of all interest amounts due on those notes. On May 13, 2009,
the Company repaid principal of $55,000 on the remaining note payable due to
this related party stockholder.
F-35
IX Energy Holdings, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
September 30, 2009
(Unaudited)
On July
21, 2008, the Company issued a note payable, of $900,000, to an affiliate of a
stockholder. The note bears interest at 18%, is unsecured, has a default
interest rate of 24% and is due 3 business days after the Company receives the
cash proceeds from a solar panel installation job that is expected to be
completed by the second quarter of 2009. In January 2009, the Company repaid an
additional $250,000 of principal. The balance due on this note as of
September 30, 2009 is principal totaling $400,000 and accrued interest totaling
$103,523.
Total
principal due on these related party notes at September 30, 2009 is $455,000,
and related accrued interest was $124,047.
(B)
Notes Payable - Other, Conversion to Equity & Accrued Interest Payable -
Other
In July
2008, the Company entered into eight promissory note agreements for aggregate
principal totaling $500,000 with various third parties. The notes bear interest
at 5%, and the principal and interest is due and payable on the earlier of July
1, 2009 or when the Company completes the sale of any debt securities, common
stock or common stock equivalents in a single transaction or series of related
transactions resulting in gross proceeds of $3,500,000. As of August 12,
2009, the Company has not repaid the balance and the notes are in default and
are subject to a late fee of 18% per annum, accruing on a daily basis. The
Company is currently in negotiation with the noteholder’s to cure the default or
to obtain an extension for repayment.
In July
2008, the Company entered into a Securities Purchase agreement with all eight of
the note holders listed above. The Company issued a total of 270,800
shares to the note holders in connection with these promissory notes. The number
of shares each note holder received was in direct proportion to the amount of
their promissory notes. The fair value of the common shares are valued at
$100,195 ($0.37/share) based upon the fair value of stock
issued to a third party for services rendered. This amount is treated
as a debt issue cost and is being amortized to interest expense over the life of
the underlying promissory notes.
As of
September 30, 2009 and 2008, the Company recorded amortization of debt issue
costs to interest expense of $51,816 and $1,861, respectively.
Note 9. Stockholders’ Equity
(Deficit)
(A)
Share Issuances
On
February 5, 2009, the Company issued 2,646,310 shares of common stock to
employees for services rendered, having a fair value of $3,440,203
($1.30/share), based upon the quoted closing trading price.
On
February 5, 2009, the Company issued 26,738 shares of common stock to a
consultant for services rendered, having a fair value of $34,760 ($1.30/share),
based upon the quoted closing trading price.
On
February 12, 2009, the Company issued 150,000 shares of common stock to a now
former employee for services rendered, having a fair value of $225,000
($1.50/share), based upon the quoted closing trading price.
On
February 27, 2009, the Company issued 500,000 shares of common stock to a
consultant for services rendered, having a fair value of $505,000 ($1.01/share),
based upon the quoted closing trading price.
F-36
IX Energy Holdings, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
September 30, 2009
(Unaudited)
On March
9, 2009, the Company issued 10,000 shares of common stock to an employee for
services rendered, having a fair value of $10,100 ($1.01/share), based upon the
quoted closing trading price.
On May
12, 2009, the Company issued 135,303 shares of common stock to a consultant for
services rendered in full settlement of amounts due of $54,121 ($0.44/share),
based upon the price per share paid by investors in the private placement as
agreed upon by the Company and the consultant (See Note 9(D)). In
connection with this issuance, the Company recorded a loss on settlement of
accounts payable of $5,412.
On May
26, 2009, the Company issued 20,000 shares of common stock to a consultant for
services rendered as payment for past services due to this consultant. The
shares have a fair value of $6,600 ($0.33/share), based upon the quoted closing
trading price.
On May
26, 2009, the Company issued 22,500 shares of common stock to a consultant for
services rendered pursuant to an agreement dated February 16, 2009. The
shares have a fair value of $7,425 ($0.33/share), based upon the quoted closing
trading price. In addition, the Company issued 3,000 shares of common
stock to this same consultant as payment towards unpaid amounts, having a fair
value of $990 ($0.33/share), based upon the quoted closing trading
price.
On May
26, 2009, the Company issued 470,000 shares of common stock to a consultant for
services rendered pursuant to an agreement dated April 1, 2009 in settlement of
$50,000. The fair value of the stock issuance was $155,100 ($0.33/share),
based upon the quoted closing trading price. The Company recorded an
additional expense for stock issued for services of $108,100. The balance of
$47,000 has been capitalized as a prepaid asset that is being amortized ratably
through March 31, 2010. The
Company is also required to issue an additional 30,000 shares of common stock by
December 31, 2009 for services to be provided.
Pursuant
to an amended agreement dated May 26, 2009 with a consultant to provide legal
services, on May 26, 2009, the Company issued 100,000 shares of common stock,
having a fair value of $33,000 ($0.33/share), based upon the quoted closing
trading price.
On May
29, 2009, the Company issued 10,000 shares of common stock to a consultant for
services pursuant to an agreement on the same date, having a fair value of
$3,200 ($0.32/share), based upon the quoted closing trading price. On June 29,
2009, the Company issued an additional 50,000 shares of common stock, having a
fair value of $15,000 ($0.30/share), based upon the quoted closing trading
price.
On July
26, 2009 and September 26, 2009, the Company issued 8,333 and 8,333 shares of
common stock, respectively to a consultant for services rendered pursuant to an
agreement dated February 16, 2009. The shares have a fair value of $917
and $750 ($0.11/share and $0.09/share), respectively, based upon the quoted
closing trading price.
On July
31, 2009, the Company issued 25,000 shares of common stock to a consultant for
services rendered pursuant to an agreement dated July 31, 2009. The
shares have a fair value of $4,000 ($0.16/share) based upon the quoted closing
trading price. In addition, the Company issued 105,682 and 112,500
shares of common stock on August 31, 2009 and September 30, 2009 to this same
consultant as a monthly payment pursuant to his consulting agreement, having a
fair value of $11,625 and $11,250 ($0.11/share and $0.10/share), respectively,
based upon the quoted closing trading price.
F-37
IX Energy Holdings, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
September 30, 2009
(Unaudited)
On August
10, 2009 and September 30, 2009, the Company issued 200,000 and 150,000 shares
of common stock to a consultant for services rendered. The shares
have a fair value of $26,000 and $15,000 ($0.13/share and $0.10/share), based
upon the quoted closing trading price.
On August
13, 2009 and September 27, 2009, the Company issued 334,000 and 333,000 shares
of common stock to a consultant for services rendered pursuant to an agreement
dated August 13, 2009. The shares have a fair value of $43,420 and
$29,970 ($0.13/share and $0.09/share), respectively, based upon the quoted
closing trading price.
On August
27, 2009, the Company issued 55,000 shares of common stock to its Chief
Financial Officer for services rendered pursuant to an employment agreement
dated August 27, 2009. The shares have a fair value of $6,765
($0.12/share), based upon the quoted closing trading price. In
addition, the Company issued 76,660 shares of common stock on September 30, 2009
to this officer as a monthly payment pursuant to his employment agreement,
having a fair value of $7,666 ($0.10/share), respectively, based upon the quoted
closing trading price.
(B)
Stock Dividend
In
January 2009, the Company effected a stock dividend. Each stockholder of
record as of January 12, 2009 received 1.75 shares of common stock for each
share of common stock they owned.
(C)
2009 Stock Option Plan
On
February 17, 2009, the Company adopted the 2009 Incentive Stock Plan (“the
Plan”). The total number of shares of stock which may be purchased or granted
directly by options, stock awards or restricted stock purchase offers, or
purchased indirectly through exercise of options granted under the Plan shall
not exceed 12,000,000.
The Plan
indicates that the exercise price of an award is equivalent to the market value
of the Company’s common stock on the grant date.
On March
23, 2009, the Company entered into a one-year agreement with a consultant to
provide services. In addition to monthly fees of $5,000 (See Note 9(A)),
the Company will issue stock options in the amount of 5,000 per month, vesting
immediately upon the date of grant of each issuance. On May 12, 2009, the
Company granted 15,000 options to this individual for April through September
2009, having a fair value of $4,295. The Black-Scholes assumptions used
are as follows:
Exercise
price
|
$ | 0.44 | ||
Expected
dividends
|
0 | % | ||
Expected
volatility
|
82.16 | % | ||
Risk
free interest rate
|
1.03 | % | ||
Expected
life of option
|
5
years
|
|||
Expected
forfeitures
|
0 | % |
During
July through September 2009, the Company granted a total of 15,000 options to
this individual, having a total fair value of $1,722. The
Black-Scholes assumptions used are as follows:
Exercise
price
|
$ | 0.10 - $0.16 | ||
Expected
dividends
|
0 | % | ||
Expected
volatility
|
152,24% - 169.77 | % | ||
Risk
free interest rate
|
2.31% - 2.53 | % | ||
Expected
life of option
|
5
years
|
|||
Expected
forfeitures
|
0 | % |
F-38
IX Energy Holdings, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
September 30, 2009
(Unaudited)
On July
6, 2009, the Company granted 100,000 options due to an employee pursuant to an
employment agreement dated May 25, 2009, having a fair value of $15,136.
The Black-Scholes assumptions used are as follows:
Exercise
price
|
$ | 0.23 | ||
Expected
dividends
|
0 | % | ||
Expected
volatility
|
83.21 | % | ||
Risk
fee interest rate
|
1.18 | % | ||
Expected
life of option
|
5
years
|
|||
Expected
forfeitures
|
0 | % |
On July
6, 2009, the Company also granted 100,000 options due to a consultant to provide
legal services pursuant to an amended consulting agreement dated May 26, 2009,
having a fair value of $15,136. The Black-Scholes assumptions used are as
follows:
Exercise
price
|
$ | 0.23 | ||
Expected
dividends
|
0 | % | ||
Expected
volatility
|
83.21 | % | ||
Risk
fee interest rate
|
1.18 | % | ||
Expected
life of option
|
5
years
|
|||
Expected
forfeitures
|
0 | % |
The
following is a summary of the Company’s stock option activity:
Options
|
Weighted Average Exercise
Price
|
|||||||
Outstanding
– December 31, 2007
|
- | $ | ||||||
Granted
|
- | $ | ||||||
Exercised
|
- | $ | ||||||
Forfeited
|
- | $ | ||||||
Outstanding
– December 31, 2008
|
- | $ | ||||||
Granted
|
5,116,132 | $ | 0.45 | |||||
Exercised
|
- | $ | ||||||
Forfeited
|
(120,000 | ) | $ | 0.44 | ||||
Outstanding
– September 30, 2009
|
4,996,132 | $ | 0.45 | |||||
Exercisable
– September 30, 2009
|
1,993,510 | $ | 0.47 | |||||
Weighted
average fair value of options granted during the period ended September
30, 2009
|
1,416,158 | $ | 0.28 | |||||
Weighted
average fair value of options exercisable at September 30,
2009
|
548,987 | $ | 0.28 |
F-39
IX Energy Holdings, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
September 30, 2009
(Unaudited)
Options outstanding
|
|||||||||||
Range of exercise price
|
Number outstanding
|
Weighted
average remaining contractual
life
|
Weighted
average exercise
price
|
||||||||
$ | 0.10 - $0.50 | 4,996,132 |
4.72
years
|
$ | 0.45 |
Options exercisable
|
|||||||||||
Range of exercise price
|
Number exercisable
|
Weighted
average remaining contractual
life
|
Weighted
average exercise
price
|
||||||||
$ | 0.10 - $0.50 | 1,993,510 |
4.72
years
|
$ | 0.47 |
At
September 30, 2009, the total intrinsic value of options outstanding and
exercisable was $0.
For the
three and nine months ended September 30, 2009, the Company recognized stock
based compensation of $149,723 and $615,214, respectively.
The
following summarizes the activity of the Company’s stock options that have not
vested for the nine months ended September 30, 2009:
Total
unrecognized share-based compensation expense from non-vested stock options at
September 30, 2009 was $832,807, which is expected to be recognized over a
weighted average period of approximately of 1.56 years.
(D)
Private Placement and Registration Rights Agreement
During
2009, the Company sold 7.25 units at $100,000 per unit. Each unit
consisted of 250,000 shares of common stock and a detachable three-year warrant
to purchase 250,000 shares of common stock for an exercise price of $0.50 per
share. Gross proceeds for these additional units were $725,000 and the
Company paid direct offering costs of $201,775. As a result of the
offering, the Company issued an additional 1,812,500 shares of common stock and
1,952,500 warrants, inclusive of 140,000 warrants paid to a placement agent as a
direct offering cost. The total warrants of 490,000 that were paid as a
direct offering cost have a net effect of zero on the statement of equity and
had a fair value of $48,975 (See Note 9(F) for additional detail).
The
Company also granted the investors registration rights for the common stock and
common stock underlying the warrants. The Company can be assessed
liquidated damages, as defined in the agreement, for the failure to file a
registration statement within 180 days from the termination from the offering as
well as to have the registration statement declared effective. The termination
date was February 25, 2009. Penalties will be assessed at 1% per month, payable
in cash, for every 30 day period under which the Company is in default under the
terms of the registration rights agreement, up to a maximum of 10%. In assessing
the likelihood and amount of possible liability for liquidated damages, the
Company has passed the 180 day period and the registration statement has still
not gone effective. As a result, the Company will accrue the maximum
10% liquidated damages which is equivalent to:
F-40
IX Energy Holdings, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
September 30, 2009
(Unaudited)
Liquidated
damages are as follows:
Equity
raised
|
$ | 3,475,000 | ||
Maximum
penalty
|
10 | % | ||
$ | 347,500 |
(E)
Consulting Agreements
On March
20, 2009, the Company entered into a one-year agreement with a consultant to
provide investor relation services. In addition to monthly fees of $5,500,
the Company issued a five-year warrant to purchase 200,000 shares of common
stock, having a fair value of $69,708 ($0.35/share).
The
Black-Scholes assumptions used are as follows:
Exercise
price
|
$ | 0.55 | ||
Expected
dividends
|
0 | % | ||
Expected
volatility
|
78.88 | % | ||
Risk
free interest rate
|
1.23 | % | ||
Expected
life of option
|
5
years
|
|||
Expected
forfeitures
|
0 | % | ||
At
September 30, 2009, the Company had recognized $37,050 of expense related to
this agreement.
(F)
Warrants & Derivative Liability
The
following is a summary of the Company’s warrant activity:
Warrants
|
Weighted Average Exercise
Price
|
|||||||
Outstanding
– December 31, 2007
|
- | $ | ||||||
Granted
|
7,225,000 | $ | 0.50 | |||||
Exercised
|
- | $ | ||||||
Forfeited
|
- | $ | ||||||
Outstanding
– December 31, 2008
|
7,225,000 | $ | 0.50 | |||||
Granted
|
2,152,500 | $ | 0.50 | |||||
Exercised
|
- | $ | ||||||
Forfeited
|
- | |||||||
Outstanding
– September 30, 2009
|
9,377,500 | $ | 0.50 | |||||
Exercisable
– September 30, 2009
|
9,377,500 | $ | 0.50 |
F-41
IX Energy Holdings, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
September 30, 2009
(Unaudited)
Warrants
outstanding/exercisable
|
|||||||||||
Range of exercise price
|
Number outstanding
|
Weighted
average remaining contractual
life
|
Weighted
average exercise
price
|
||||||||
$ | 0.50 | 9,377,500 |
2.44
years
|
$ | 0.50 |
Fair
Value and Assessment of Derivative Financial Instruments under EITF
07-5
The
Company had two offerings of equity based financing. The first was on
December 30, 2008, and the second was on February 25, 2009.
As a
result of the offering on December 30, 2008, the Company issued 7,225,000
warrants, inclusive of 350,000 warrants paid to a placement agent as a direct
offering cost. The warrants have a 3 year term. The exercise price is
$0.50.
The
warrants paid as a direct offering cost have a net effect of zero on the
statement of equity and had a fair value of $63,993 at December 31, 2008.
During
the two year anniversary from the issuance date, if the Company issues or grants
any shares of common stock or any warrants or other convertible securities
pursuant to which shares of common stock may be acquired at a per share price
less than $0.50 (subject to certain customary exceptions, including where shares
are issued in connection with employment arrangements or business combinations
in which a portion of the consideration may be payable in shares or convertible
securities with a business in substantially the same line of business as the
Company), then the exercise price of the Warrants shall be reduced to the Lower
Price. Finally, should the Company fail to achieve at least $17.5 million of
consolidated gross revenue within one year of the final closing of the Private
Placement, the exercise price shall be reduced to $0.01 per share.
The private placement closed on February 25, 2009.
If at any
time following the one year anniversary of the reverse merger (See Note 1) there
is no effective registration statement registering the resale of the shares of
common stock underlying the Warrants, the holders of the Warrants have the right
to exercise the Warrants by means of a cashless exercise.
On
January 1, 2009, the Company determined that the embedded conversion feature in
the warrants is not indexed to the Company’s own stock and, therefore, is an
embedded derivative financial liability (the “Embedded Derivative”), which
requires bifurcation and to be separately accounted for pursuant to Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. The Company, due to both provisions, concluded that
neither embedded feature (ratchet down of exercise price or contingent revenue)
is indexed to its own stock.
F-42
IX Energy Holdings, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
September 30, 2009
(Unaudited)
The
Company measured the fair value of these warrants using a Black-Scholes
valuation model on January 1, 2009, since this represents the effective
commitment date since these warrants were not indexed to the Company’s own
stock. The fair
value of the 7,225,000 warrants was determined to be $1,320,995 based upon the
following management assumptions:
The
Black-Scholes assumptions used are as follows:
Exercise
price
|
$ | 0.50 | ||
Expected
dividends
|
0 | % | ||
Expected
volatility
|
78.88 | % | ||
Risk
free interest rate
|
0.94 | % | ||
Expected
life of option
|
3
years
|
|||
Expected
forfeitures
|
0 | % |
The fair
value of these warrants was charged to accumulated deficit on January 1, 2009,
as a cumulative adjustment due to a change in accounting principle.
On
February 25, 2009, the date of the closing of the second offering, the Company
granted 1,952,500 warrants, having a fair value of $1,422,917. The warrants have
a 3 year term. The exercise price is $0.50. These warrants were
inclusive of 140,000 warrants paid to a placement agent as a direct offering
cost. The warrants paid as a direct offering cost have a net effect of
zero on the statement of equity and had a fair value of $102,027 at February 25,
2009. As a result of the application of EITF 07-5, the fair value of these
warrants was determined to be $1,422,917 based upon the following management
assumptions:
The
Black-Scholes assumptions used are as follows:
Exercise
price
|
$ | 0.50 | ||
Expected
dividends
|
0 | % | ||
Expected
volatility
|
80.91 | % | ||
Risk
free interest rate
|
1.49 | % | ||
Expected
life of option
|
3
years
|
|||
Expected
forfeitures
|
0 | % |
The fair
value of these warrants was recorded on February 25, 2009 as derivative
expense.
Mark
to Market
At
September 30, 2009, the Company re-measured these warrants and recorded a fair
value of $108,644. As a result of the remeasurement, the Company recorded
a change in fair value associated with these warrants as income totaling
$807,900 and $2,635,268 for the three and nine months ended September 30, 2009.
The following management assumptions were considered:
F-43
IX Energy Holdings, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
September 30, 2009
(Unaudited)
The
Black-Scholes assumptions used are as follows:
Exercise
price
|
$ | 0.50 | ||
Expected
dividends
|
0 | % | ||
Expected
volatility
|
82.62 | % | ||
Risk
free interest rate
|
1.45 | % | ||
Expected
life of option
|
3
years
|
|||
Expected
forfeitures
|
0 | % |
Note 10. Reverse
Acquisition and Recapitalization
On
December 30, 2008, Yoo, Inc. (“Yoo”), a then shell corporation, merged with IX
Energy, and IX Energy became the surviving corporation. This transaction was
accounted for as a reverse acquisition. Yoo did not have any operations and
majority-voting control was transferred to IX Energy. The transaction also
required a recapitalization of IX Energy. Since IX Energy acquired a controlling
voting interest, it was deemed the accounting acquirer, while Yoo was deemed the
legal acquirer. The historical financial statements of the Company are those of
IX Energy and of the consolidated entities from the date of merger and
subsequent.
Since the
transaction is considered a reverse acquisition and recapitalization, the
guidance in SFAS No. 141 did not apply for purposes of presenting pro-forma
financial information.
Pursuant
to the Merger, Yoo’s majority stockholders cancelled 4,000,000 shares of common
stock and the Company concurrently issued 46,153,284 shares of common stock to
IX Energy. Upon the closing of the reverse acquisition, IX Energy
stockholders held 89% of the issued and outstanding shares of common stock at
the date of the transaction. Yoo retained 5,500,000 shares of common stock upon
the closing of the reverse acquisition.
Note 11. Commitments and
Contingencies
(A)
Litigations, claims and assessments
From time
to time, the Company may become involved in various lawsuits and legal
proceedings, which arise in the ordinary course of business. However, litigation
is subject to inherent uncertainties, and an adverse result in these or other
matters may arise from time to time that may harm its business.
1.
|
A
complaint was filed in the Supreme Court of the State of New York by a
vendor seeking to recover the sum of $101,820, plus costs and
disbursements. The original complaint was divided into two pieces, with
the first piece totaling $40,000 being submitted to arbitration before the
Joint Committee on Fee Disputes and Conciliation in dispute of attorney’s
fees against the above-referenced vendor to recover fees of $40,000.
The arbitrators awarded a judgment of $33,000 in this portion of the
case, and the Company had accrued this amount in full at September 30,
2009. The remaining $61,820 remains in dispute, however, no estimate or
range of loss can be estimated at this
time.
|
2.
|
A
complaint was filed in the Supreme Court of the State of New York by the
holder of a promissory note issued by the Company, seeking summary
judgment for repayment of the principal amount of the Note in the amount
of $150,000 plus accrued interest. The Company has recorded $10,643
of interest on this note. while this case was in progress. On September
30, 2009, the court awarded a judgment against the Company for a total
amount of $177,846 inclusive of interest and legal
fees.
|
3.
|
In
September 2009, the Company was served with a claim for breach of
contract, breach of implied covenant of good faith and fair dealing and a
breach of guarantee in the Superior Court of the State of California,
County of San Diego. The amount claimed in the complaint is
$175,000. The Company cannot at this time estimate the amount or range of
loss in connection with this
matter.
|
F-44
IX Energy Holdings, Inc. and
Subsidiary
Notes to Consolidated Financial
Statements
September 30, 2009
(Unaudited)
(B)
Employment agreements
(1)
Chief Executive Officer
On May 1,
2008, the Company entered into a two-year employment agreement with an
individual to serve as the Company’s CEO and Chairman of the Board. The
agreement provides for an annual salary of $225,000 and $80,000 to be paid as a
bonus for services rendered prior to this agreement. The individual is
also eligible for a multi-year grant of the Company’s non-qualified options that
will be equal to 6% of the total common shares outstanding after the reverse
merger.
On March
19, 2009, the Company granted 1,033,066 stock options to this individual, having
a fair value of $284,259. On May 12, 2009, the Company granted the 2nd
one-third of total options due to this individual in the amount of 1,033,066
options, having a fair value of $288,073.
These
options vested upon grant and were immediately expensed. The Company
expensed the full amount of the fair value to stock option expense on the date
of grant.
The
Black-Scholes assumptions used are as follows:
Exercise
price
|
$ | 0.48 – $0.50 | ||
Expected
dividends
|
0 | % | ||
Expected
volatility
|
78.88% - 82.16 | % | ||
Risk
free interest rate
|
0.98% - 1.03 | % | ||
Expected
life of option
|
5
years
|
|||
Expected
forfeitures
|
0 | % |
(2)
Former President
February
12, 2009, the Company entered into a three-year employment agreement with Karen
Morgan to serve as President of the Company. Effective October 22, 2009, Karen
Morgan resigned as President of IX Energy Holdings, Inc. In February
2009, the Company paid $25,000 as s sign-on bonus. The Company agreed to
issue 150,000 shares of common stock as additional compensation, having a fair
value of $225,000 ($1.50/share) based upon the closing price on the date of the
employment agreement (See Note 9(A)). Also, the Company granted 2,500,000
of the Company’s non-qualified options vesting quarterly. Under the terms
of the plan, these stock options are subject to board approval.
On May
12, 2009, the Company granted 2,500,000 options to this individual, having a
fair value of $715,900.
The
Black-Scholes assumptions used are as follows:
Exercise
price
|
$ | 0.44 | ||
Expected
dividends
|
0 | % | ||
Expected
volatility
|
82.16 | % | ||
Risk
free interest rate
|
1.03 | % | ||
Expected
life of option
|
5
years
|
|||
Expected
forfeitures
|
0 | % |
(3)
Chief Financial Officer
Effective
August 27, 2009, Michael Weinstein was retained as Chief Financial Officer of
the Company. Pursuant to the terms of the Agreement, this agreement
is for an initial term of 90 days which commenced on August 27, 2009. The
agreement provides for a monthly compensation of $8,500 in cash and $7,666 in
shares of the Company’s common stock.
If the
Company shall consummate a bridge financing transaction during the term of the
employment agreement, base Salary shall be paid solely in cash. The Company
agreed to grant a signing bonus of 55,000 shares of common stock, having a fair
value of $6,765 ($0.12/share), based upon the quoted closing trading price; of
the Company’s common stock and a cash payment of $7,500
(4)
Others
In March
2009, the Company entered into two separate two-year employment agreements to
serve as executives. Annual salary ranged from $87,000 - $120,000 plus
entitlement to an annual bonus based upon the Company’s performance during each
year of employment. The Company agreed to issue 10,000 shares of common
stock as additional compensation to one individual, having a fair value of
$10,100 ($1.01/share) based upon the closing price on the date of the employment
agreement.
On May
12, 2009, the Company granted 320,000 options to these individuals, having a
fair value of $91,635.
The
Black-Scholes assumptions used are as follows:
Exercise
price
|
$ | 0.44 | ||
Expected
dividends
|
0 | % | ||
Expected
volatility
|
82.16 | % | ||
Risk
free interest rate
|
1.03 | % | ||
Expected
life of option
|
5
years
|
|||
Expected
forfeitures
|
0 | % |
In July
2009, one individual, who was granted 120,000 options was terminated. As
of September 30, 2009, none of the options were vested.
Note 11. Subsequent
Events
The
Company has evaluated for subsequent events between the balance sheet date of
September 30, 2009 and November 20, 2009, the date the financial statements were
issued.
F-45
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Forward-Looking
Statements
The
information in this report contains forward-looking statements. All statements
other than statements of historical fact made in this report are
forward-looking. In particular, the statements herein regarding industry
prospects and future results of operations or financial position are
forward-looking statements. These forward-looking statements can be identified
by the use of words such as “believes,” “estimates,” “could,” “possibly,”
“probably,” “anticipates,” “projects,” “expects,” “may,” “will,” or “should” or
other variations or similar words. No assurances can be given that the future
results anticipated by the forward-looking statements will be achieved.
Forward-looking statements reflect management’s current expectations and are
inherently uncertain. Our actual results may differ significantly from
management’s expectations.
The
following discussion and analysis should be read in conjunction with our
financial statements, included herewith. This discussion should not be construed
to imply that the results discussed herein will necessarily continue into the
future, or that any conclusion reached herein will necessarily be indicative of
actual operating results in the future. Such discussion represents only the best
present assessment of our management.
Recent
Events
Prior to
December 30, 2008, we were a development stage company that sought to market and
sell a natural energy drink derived from coconut water to distributors of soft
drinks in Israel. On December 30, 2008, we completed a reverse merger,
pursuant to which we merged with and into a private company, IX Energy, with IX
Energy being the surviving company. In connection with this reverse merger, we
discontinued our former business and succeeded to the business of IX Energy as
our sole line of business. Since IX Energy acquired a controlling voting
interest, it was deemed the accounting acquirer, while we were deemed the legal
acquirer. The historical financial statements of the Company are those of IX
Energy and of the consolidated entities from the date of merger and
subsequent. All costs associated with the reverse merger were expensed as
incurred.
Overview
IX Energy
was incorporated in the State of Delaware on March 3, 2006 for the purpose of
designing, manufacturing and installing high-performance solar electric power
technologies. Historically, our operations have principally involved the
integration and installation of solar power systems manufactured by third
parties. However, in an effort to become a vertically integrated solar products
and services company that manufactures, designs, markets and installs its own
solar power systems, we have recently entered into an agreement to manufacture
solar modules that will be marketed primarily to federal, military and civilian
agencies.
F-46
Three
Months Ended September 30, 2009 Compared to Three Months Ended September 30,
2008
Revenues.
During the three months ended September
30, 2009, we recorded revenues of $114,541
as
compared to $1,039,857
for the
three months ended September 30, 2008, respectively. This decrease of
$925,316 was
related to lower resale transactions for solar panels in the three months ended
September 30, 2009 that did not occur during the three months ended September
30, 2008, respectively.. Business activity and revenues were
significantly impacted by the recession and the lack of credit and bank lending
to fund solar projects.
Cost
of Sales. During the three months ended September 30, 2009, we recorded
cost of sales of $95,385 as
compared to $1,056,242
for the three months ended September 30, 2008. This decrease of $960,857
was related to the purchasing of solar panels for resale in 2008 that did
not occur in 2009.
Our
margin on the resale of solar panels was approximately 17% for the three months
ended September 30, 2009 as compared to less than 1% for the three months ended
September 30, 2008, respectively. Additionally, our margin on our
construction in progress contracts for the three months ended September 30, 2009
was approximately (82%) as
compared to 18% for the three months ended September 30, 2008,
respectively.
Operating
Expenses. During the three months ended September 30, 2009, we recorded
operating expenses of $1,221,482,
as compared to $618,595
for the three months ended September 30, 2008, respectively, representing an
increase of $602,887.
This increase in operating expenses was primarily made up of approximately
$163,000
for increased hiring in 2009 for our management and administrative staff,
approximately $276,000
related to legal, consulting and accounting services, approximately $181,000
related to stock-based compensation, $108,000
related to a loss on sale of a fixed asset, and approximately $70,000
related to common stock issued for services.
Loss
from Operations. During the three months ended September 30, 2009, we
recorded an operating loss of $1,202,326,
as compared to loss of $634,980
for the three months ended September 30, 2008, respectively, representing
an increase of $567,346.
This increase in loss from operations was primarily due to increased operational
expenses by $602,887
that was partially offset by our gross profit in
2009.
Provision
for Income Taxes. We did not recognize any provision for income taxes
during the three months ended September 30, 2009 and 2008 due to our net losses
during these periods and the valuation allowances on the resulting deferred tax
assets.
Nine
Months Ended September 30, 2009 Compared to Nine Months Ended September 30,
2008
Revenues.
During the nine months ended September 30, 2009, we recorded revenues of $2,073,075
as compared to $5,707,284
revenue for the nine months ended September 30, 2008, respectivley.
This decrease of $3,634,209
was related to lower resale transactions for solar panels in the first
nine months of 2009 that did not occur in the first nine months of 2008 due to
the slowdown in the economy and general lack of availability of credit for solar
projects.
Cost
of Sales. During the nine months ended September 30, 2009, we recorded
cost of sales of $1,685,170
as compared to $5,613,677
for the nine months ended September 30, 2008,
respectively.
Our
margin on the resale of solar panels was approximately 19%
for the nine months ended September 30, 2009 as compared to 2%
for the nine months ended September 30, 2008, respectively. We expect our
margins to sequentially increase going forward as we now have a more favorable
arrangement with our suppliers and vendors.
F-47
Our
margin on our construction in progress contracts for the nine months ended
September 30, 2009 was approximately 1%
as compared to (1%)
for the nine months ended September 30, 2008, respectively. We believe
that our margin for the nine months ended September 30, 2009 is representative
of our contracts going forward.
Operating
Expenses. During the nine months ended September 30, 2009, we recorded
operating expenses of $7,609,232,
as compared to $1,003,131
for the nine months ended September 30, 2008, representing an increase of
$6,606,101,
respectively. This increase in operating expenses was primarily comprised up
approximately $344,000
for increased hiring in 2009 for our management and administrative staff,
approximately $560,000
related to legal, consulting and accounting services, approximately $465,000
related to stock-based compensation , approximately $3,765,000
related to common stock issued for employee compensation, and
approximately $610,000
related to common stock issued for services and $108,000
related to a loss on the sale of a fixed asset.
Loss
from Operations. During the nine months ended September 30, 2009, we
recorded an operating loss of $7,221,327,
as compared to a loss of $909,524
for the nine months ended September 30, 2008, representing an increase of
$6,311,803,
respectively. This increase in loss from operations was primarily due to
increased operational expenses by $6,606,101
that was partially offset by our gross profit in
2009.
Provision for Income Taxes.
We did not recognize any provision for income taxes during the nine months ended
September 30, 2009 or 2008 due to our net losses during these periods and the
valuation allowances on the resulting deferred tax assets.
Liquidity
and Capital Resources
We have
historically met our liquidity requirements from a variety of sources, including
the sale of equity and debt securities to related parties and institutional
investors. Based on our strategy and the anticipated growth in our business, we
believe that our liquidity needs will increase. The amount of such increase will
depend on many factors, including building out our management team, the costs
associated with the fulfillment of our projects, whether we upgrade our
technology, and the amount of inventory required for our expanding business.
Although
we recently raised an aggregate of $3.475 million in a private placement, our
ultimate success depends upon our ability to raise additional capital. There can
be no assurance that additional funds will be available when needed from any
source or, if available, will be available on terms that are
favorable to us.
We will
need to raise a minimum of $3.0 million for us to execute our business plan in
the short term. If we do not raise this additional capital our business will be
substantially impaired.
We may be
required to pursue sources of additional capital through various means,
including joint venture projects and debt or equity financings. Future
financings through equity investments are likely to be dilutive to existing
stockholders.
Our
ability to obtain needed financing may be impaired by such factors as the
capital markets, both generally and specifically in the renewable energy
industry, and the fact that we are not profitable, which could impact the
availability or cost of future financings. If the amount of capital we are able
to raise from financing activities, together with our revenues from operations,
is not sufficient to satisfy our capital needs, even to the extent that we
reduce our operations accordingly, we may be required to cease
operations.
F-48
Cash and Cash
Equivalents.
As of
September 30, 2009, we had cash and cash equivalents of $722,952,
as compared to cash and cash equivalents of $4,736,812
as of December 31, 2008, respectively.
Net Cash Provided By
Operating Activities.
Net cash
used in operating activities totaled $3,791,180
for the nine months ended September 30, 2009, as compared to cash
provided by of $1,816,197
for the nine months ended September 30, 2008. This increase was primarily
due to a net loss of $6,117,381,
decreases in deferred revenue of $1,796,238
(deferred revenue decreased as we received payment in the prior period
and shipped to the customer in the quarter ended March 31, 2009), a decrease in
accounts payable and accrued expenses of $169,411
(as the company sought ways to cut expenses and pay off old unpaid
balances), a change in fair value of derivative liability based upon revaluation
at September 30, 2009 of $2,635,268,
an increase in accounts receivable of $96,281
and an increase in prepaid expenses of $88,309,
respectively. This was partially offset by derivative expense related to
warrants issued on the private placement of $1,422,917,
issuance of common stock for consulting services of $864,837,
common stock issued to employees for services rendered of $3,675,303,
and employee stock-based compensation related to stock options of $603,846.
Net Cash Used in Investing
Activities
Net cash
used in investing activities totaled $272,905
during the nine months ended September 30, 2009, as compared to net cash
used in investing activities of $71,525
during the nine months ended September 30, 2008, respectively. Cash used in
investing activities during the nine months ended September 30, 2009 was
comprised of purchases of property and equipment for $268,667
and an investment in a joint venture of $17,238.
Net Cash Provided By
Financing Activities
Net cash
provided by financing activities totaled $50,225
during the nine months ended September 30, 2009, as compared to net cash
provided by financing activities of $1,438,252
during the nine months ended September 30, 2008, respectively. The
proceeds for the nine months ended September 30, 2009 were derived from common
stock for cash in a private placement totaling $725,000.
This was partially offset by repayment of notes payable of $473,000
to a related party and cash paid as direct offering costs of $201,775
related to the proceeds raised in the private placement.
Going
Concern
As
reflected in the accompanying financial statements, the Company has a net loss
of $6,117,381
and net cash used in operations of $3,791,180
for the nine months ended September 30, 2009; and had a working capital
deficit of $1,635,554,
and an accumulated deficit of $10,373,321
at September 30, 2009, respectively.
The
ability of the Company to continue its operations is dependent on management’s
plans, which include the raising of $3.0 million capital through debt and/or
equity markets with some additional funding from other traditional financing
sources, including term notes, until such time that funds provided by operations
are sufficient to fund working capital requirements.
Critical Accounting Policies and
Estimates
We have
identified the policies below as critical to our business operations and the
understanding of our results of operations. The impact and any associated risks
related to these policies on our business operations are disclosed throughout
this section where such policies affect our reported and expected financial
results. Our preparation of our financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of our
financial statements, and the reported amounts of revenues and expenses during
the reporting period. There can be no assurance that actual results will not
differ from those estimates.
F-49
Management’s
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. We review the accounting policies used by us in reporting our financial
results on a regular basis. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses and related disclosure of contingent
assets and liabilities. On an ongoing basis, we evaluate our estimates. We base
our estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Results may differ from these
estimates due to actual outcomes being different from those on which we based
our assumptions. These estimates and judgments are reviewed by management on an
ongoing basis and at the end of each quarter prior to the public release of our
financial results. Please refer to “Management’s Discussion and
Analysis of Financial Condition and Results of Operations-Critical Accounting
Policies and Estimates” included in our Annual Report on Form 10-K for the year
ended December 31, 2009 for further information regarding our critical
accounting policies and estimates.
Accounts Receivable. Accounts
receivable represents trade obligations from customers that are subject to
normal trade collection terms, without discounts. However, in certain cases we
are entitled to rebates upon the completion of certain jobs post installation.
For percentage of completion installation projects, the amounts are rebates and
they are factored into the total estimated contract price when doing percentage
of completion to recognize revenue on each project. At the completion of a solar
installation project we record a receivable from the electric company. The
Company periodically evaluates the collectability of its accounts receivable and
considers the need to adjust an allowance for doubtful accounts based upon
historical collection experience and specific customer information. Actual
amounts could vary from the recorded estimates. We have determined that as of
September 30, 2009 and December 31, 2008 no allowance was required.
At
September 30, 2009 and December 31, 2008, the Company had a concentration of
accounts receivable from three customers totaling 100%. For the
nine months ended September 30, 2009, the Company had a concentration of sales
with four customers totaling 100%. For the year ended December 31, 2008, the
Company had a concentration of sales with four customers totaling
100%.
Revenue Recognition. We
follow the guidance of the Securities and Exchange Commission's Staff Accounting
Bulletin ("SAB") No. 104, "Revenue Recognition" ("SAB 104") for revenue
recognition and we record revenue when all of the following have occurred: (1)
persuasive evidence of an arrangement exists, (2) the product is delivered and
installed, (3) the sales price to the customer is fixed or determinable and (4)
collectability of the related customer receivable is reasonably assured. We have
two methods of revenue recognition. For our construction contracts, we record
revenues based upon the use of the percentage of completion method. For certain
energy products that we resell to third parties, we record revenue based upon
the shipment date. The Company has two methods of revenue
recognition:
(1)
Energy product reseller
The
Company purchases product from suppliers and resells them to third parties.
The Company records the revenue from the buyer and related cost paid to
the suppliers on these types of arrangements.
Periodically,
the Company enters into similar arrangements wherein the Company had no
installation responsibility and no further obligation after delivery was made to
the customers. Payments from the customers are received in advance of
delivery of solar panels and are treated as deferred revenue. Payments are
then made to the suppliers and cost of materials is recorded. A pro-rata
portion of the deferred revenue from the customers is recognized as shipments
are made.
F-50
Revenues
from these arrangements are recognized upon shipment from the supplier to these
third parties. In addition, the Company has reviewed the relevance of
gross versus net reporting. Upon the Company’s review of this guidance, as well
as SAB No. 104, the Company has determined that it is subject to gross reporting
as it bears the risk of physical loss of inventory in each of these
arrangements, takes title to the inventory, is the primary obligor in the
arrangements, establishes the pricing with customers, has discretion in the
selection of suppliers, determines product specifications with customers and
suppliers and it has credit risk on all sales.
(2)
Percentage of completion
Revenue
from construction contracts are reported under the percentage-of-completion
method for financial statement purposes. The estimated revenue for each contract
reflected in the financial statements represent that percentage of estimated
total revenue that costs incurred to date bear to estimated total costs, based
on the Company’s current estimates. With respect to contracts that extend over
one or more accounting periods, revisions in costs and revenue estimates during
the course of the work are reflected in the period the revisions become known.
When current estimates of total contract costs indicate a loss, provision is
made for the entire estimated loss.
The
asset, “Costs and estimated
earnings in excess of billings on uncompleted contracts,” represents
revenues recognized in excess of amounts billed. The liability, “Estimated earnings on uncompleted
contracts,” represents billings in excess of revenues recognized. Billing
practices for these projects are governed by the contract terms of each project
based upon actual costs incurred, achievement of milestones, or pre-agreed
schedules. Billings do not necessarily correlate with revenue recognized under
the percentage-of-completion method of accounting. With the exception of claims
and change orders that are in the process of being negotiated with customers,
unbilled work is usually billed during normal billing processes following
achievement of the contractual requirements.
Share
based payment arrangements
Generally,
all forms of share-based payments, including stock option grants, restricted
stock grants and stock appreciation rights, are measured at their fair value on
the awards’ grant date, and based on the estimated number of awards that are
ultimately expected to vest. Share-based compensation awards issued to
non-employees for services rendered are recorded at either the fair value of the
services rendered or the fair value of the share-based payment, whichever is
more readily determinable. The expense resulting from share-based payments are
recorded in general and administrative expense.
N/A
Evaluation of Disclosure Controls
and Procedures. As of the end of the period covered by this report, we
conducted an evaluation, under the supervision and with the participation of our
chief executive officer and chief financial officer of our disclosure controls
and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange
Act). Based upon this evaluation, our chief executive officer and chief
financial officer concluded that our disclosure controls and procedures are
effective to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is: (i) recorded,
processed, summarized and reported, within the time periods specified in the
Commission's rules and forms, and (ii) accumulated and communicated to our
management, including our chief executive officer and chief financial officer,
as appropriate to allow timely decisions regarding required
disclosure.
Changes in Internal Control Over
Financial Reporting. During the most recent quarter ended September 30,
2009, there has been no change in our internal control over financial reporting
(as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange
Act) ) that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
F-51
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
13.
|
Other
Expenses of Issuance and
Distribution
|
We will
pay all expenses in connection with the registration and sale of the common
stock by the selling shareholders. The estimated expenses of issuance
and distribution are set forth below.
$
|
455.39
|
|||
Legal
Fees
|
$
|
60,000
|
*
|
|
Accounting
Fees
|
$
|
15,000
|
*
|
|
Total
Estimated Costs of Offering
|
$
|
75,455
|
.39
|
|
*
Estimate
|
Section
145 of the Delaware General Corporation Law, as amended, authorizes us to
Indemnify any director or officer under certain prescribed circumstances and
subject to certain limitations against certain costs and expenses, including
attorney's fees actually and reasonably incurred in connection with any action,
suit or proceeding, whether civil, criminal, administrative or investigative, to
which a person is a party by reason of being one of our directors or officers if
it is determined that such person acted in accordance with the applicable
standard of conduct set forth in such statutory provisions. Our Certificate of
Incorporation contains provisions relating to the indemnification of director
and officers and our By-Laws extends such indemnities to the full extent
permitted by Delaware law. We may also purchase and maintain insurance for the
benefit of any director or officer, which may cover claims for which the Company
could not indemnify such persons.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers or persons controlling us pursuant to the
foregoing provisions, or otherwise, we have been advised that in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
Item
15.
|
Recent
Sales of Unregistered Securities
|
During the
quarter ended September 30, 2009, our Board of Directors approved the following
issuances:
·
|
an
aggregate of 926,848 shares valued at $101,932 for consulting
services
|
·
|
an
aggregate of 482,760 shares valued at $55,541 for
services
|
During
the six months ended June 30, 2009, we issued 526,738 shares of common stock to
consultants for services rendered in the amount of $539,759.
On
February 25, 2009, we accepted subscriptions for a total of 7.25 Units or
gross proceeds of $725,000, consisting of an aggregate of 1,812,500 shares of
the Company’s common stock, par value $.0001 per share, and three-year Warrants
to purchase an aggregate of 1,812,500 shares of common stock at an exercise
price of $0.50 per share for a purchase price of $100,000 per Unit pursuant to
the terms of a Confidential Private Offering Memorandum, dated August 22, 2008,
as supplemented.
II-1
The
Private Placement was made solely to “accredited investors,” as that term is
defined in Regulation D under the Securities Act. The securities sold in the
Private Placement were not registered under the Securities Act, or the
securities laws of any state, and were offered and sold in reliance on the
exemption from registration afforded by Section 4(2) and Regulation D (Rule 506)
under the Securities Act and corresponding provisions of state securities laws,
which exempt transactions by an issuer not involving any public
offering.
We agreed
to pay the placement agents commissions of 8% of the aggregate purchase price of
units sold to investors in the private placement. In addition,
certain placement agents also received three-year warrants to purchase such
number of shares of common stock equal to 8% of the common stock sold to the
investors in the private placement, at an exercise price of $0.50 per
share.
During
the year ended December 31, 2008, we accepted subscriptions for a total of 27.5
Units in the Private Placement or gross proceeds of $2,750,000, consisting of an
aggregate of 6,875,000 shares of the our common stock, par value $.0001 per
share, and three-year Warrants to purchase an aggregate of 6,875,000 shares of
common stock at an exercise price of $0.50 per share for a purchase price of
$100,000 per Unit pursuant to the terms of a Confidential Private Offering
Memorandum, dated August 22, 2008, as supplemented.
The
Private Placement was made solely to “accredited investors,” as that term is
defined in Regulation D under the Securities Act. The securities sold in the
Private Placement were not registered under the Securities Act, or the
securities laws of any state, and were offered and sold in reliance on the
exemption from registration afforded by Section 4(2) and Regulation ID (Rule
506) under the Securities Act and corresponding provisions of state securities
laws, which exempt transactions by an issuer not involving any public
offering.
We agreed
to pay the placement agents commissions of 8% of the aggregate purchase price of
units sold to investors in the Private Placement. In addition,
certain placement agents also received three-year warrants to purchase such
number of shares of common stock equal to 4% of the common stock on which the
cash fee is payable, at an exercise price of $0.50 per share.
As of
April 30, 2008, we issued 2,000,000 shares of common stock to 44 investors in a
fully subscribed private placement made pursuant to the exemption from the
registration requirements of the Securities Act provided by Regulation S. The
consideration paid for such shares was $0.025 per share, amounting in the
aggregate to $50,000. Each purchaser represented to us that such purchaser was
not a United States person (as defined in Regulation S) and was not acquiring
the shares for the account or benefit of a United States person. Each purchaser
further represented that at the time of the origination of contact concerning
the subscription for the units and the date of the execution and delivery of the
subscription agreement for such units, such purchaser was outside of the United
States. We did not make any offers in the United States, and there were no
selling efforts in the United States. There were no underwriters or
broker-dealers involved in the private placement and no underwriting discounts
or commissions were paid.
On
November 14, 2007, we issued 2,700,000 shares of our common stock to Mr. Zvi
Pessahc Frank, a former Director and the former President of the Company. The
purchase price paid for such shares was equal to their par value, $0.0001 per
share, and amounted in the aggregate to $270. The shares were issued under
Section 4(2) of the Securities Act of 1933, as amended. Mr. Frank was a Director
and officer of the Company and had access to all of the information which would
be required to be included in a registration statement, and the transaction did
not involve a public offering.
On
November 19, 2007, we issued 1,100,000 shares of our common stock to Mr. Moshe
Nachum Bergshtein, our former Secretary, Treasurer and Director. The purchase
price paid for such shares was equal to their par value, $0.0001 per share, and
amounted in the aggregate to of $110. The shares were issued under Section 4(2)
of the Securities Act of 1933, as amended. Ms. Bergshtein was an officer and
Director of the Company and had access to all of the information which would be
required to be included in a registration statement, and the transaction did not
involve a public offering.
On
November 20, 2007, we issued 200,000 shares of our common stock to Mr. Ivo
Everss, a former Director of the Company. The purchase price paid for such
shares was equal to their par value, $0.0001 per share, and amounted in the
aggregate to of $20. The shares were issued under Section 4(2) of the Securities
Act of 1933, as amended. Mr. Everss was a Director and officer of the Company
and had access to all of the information which would be required to be included
in a registration statement, and the transaction did not involve a public
offering.
II-2
Item
16. Exhibits
Number
|
Description
of Exhibit
|
|
|
|
|
2.1
|
Agreement
of Merger and Plan of Reorganization, dated as of December 30, 2008, by
and among IX Energy Holdings, Inc., IX Acquisition Corp. and IX Energy,
Inc (Incorporated by reference to the Registrant’s Form 8-K filed on
January 6, 2009).
|
|
3.1
|
Certificate
of Incorporation of Yoo, Inc. filed with the Secretary of State of
Delaware on October 31, 2007. (Incorporated by reference to the
Registrant’s Form S-1 filed on June 3, 2008)
|
|
3.2
|
Certificate
of Ownership as filed on January 13, 2009 with the Delaware Secretary of
State (Incorporated by reference to the Registrant’s current report on
Form 8-K filed on January 14, 2009).
|
|
3.
3
|
Amended
and Restated By-laws (Incorporated by reference to the Registrant’s Form
8-K filed on January 6, 2009).
|
|
5.1
|
Opinion
of Sichenzia Ross Friedman Ference LLP . (Incorporated by reference to the
Registrant’s Form S-1 filed on July10, 2009)
|
|
10.1
|
Form
of Subscription Agreement (Incorporated by reference to the Registrant’s
Form 8-K filed on January 6, 2009).
|
|
10.2
|
Form
of Warrant (Incorporated by reference to the Registrant’s Form 8-K filed
on January 6, 2009).
|
|
10.3
|
Form
of Placement Agent Warrant (Incorporated by reference to the Registrant’s
Form 8-K filed on January 6, 2009).
|
|
10.4
|
Form
of Registration Rights Agreement (Incorporated by reference to the
Registrant’s Form 8-K filed on January 6, 2009).
|
|
10.5
|
Form
of Management Lock-Up Agreement (Incorporated by reference to the
Registrant’s Form 8-K filed on January 6, 2009).
|
|
10.7
|
Form
of Directors and Officers Indemnification Agreement
|
|
10.8
|
Employment
Agreement, dated May 1, 2008, by and between IX Energy, Inc. and Steven
Hoffmann (Incorporated by reference to the Registrant’s Form 8-K filed on
January 6, 2009).
|
|
10.9
|
Employment
Agreement, dated August 1, 2008, by and between IX Energy, Inc. and Roland
. Bopp. (To be filed by Amendment)
|
|
10.10
|
Stock
Purchase Agreement, dated as of August, 2008 among IX Energy Holdings,
Inc. and the Buyers set forth therein. (To be filed by Amendment to the
Registrant's Form 8-K filed on January 6, 2009)
|
|
10.11
|
Securities
Purchase Agreement, dated as of July 1,2008, between IX Energy, Inc. and
each purchaser of 5% Promissory Notes of IX Energy,
Inc.
|
|
10.12
|
Form
of 5% Promissory Notes of IX Energy, Inc. (Incorporated by reference to
the Registrant’s Form 8-K filed on January 6, 2009).
|
|
10.13
|
Promissory
Note issued to Scott Schlesinger, dated November 1, 2007 (To be filed by
Amendment to the Registrant's Form 8-K filed on January 6,
2009)
|
|
10.14
|
Promissory
Note, dated November 1, 2007, issued by IX Energy, Inc. to Scott
Schlesinger in the principal sum of $3,000 (Incorporated by reference to
the Registrant’s Form 8-K filed on January 6, 2009).
|
|
10.15
|
Promissory
Note, dated December 30, 2007, issued by IX Energy, Inc. to Scott
Schlesinger in the principal sum of $110,000(Incorporated by reference to
the Registrant’s Form 8-K filed on January 6, 2009).
|
|
10.16
|
Promissory
Note, dated December 30, 2007, issued by IX Energy, Inc. to Scott
Schlesinger in the principal sum of $110,000(Incorporated by reference to
the Registrant’s Form 8-K filed on January 6, 2009).
|
|
10.17
|
Promissory
Note, dated July 21, 2008, issued by IX Energy, Inc. to IX Energy
Investment, LLC in the principal sum of $900,000
(Incorporated by reference to the Registrant’s Form 8-K filed on January
6, 2009).
|
|
10.18
|
Teaming
Agreement, dated February 14, 2008, between Federal Prison Industries,
Inc. and IX Energy(Incorporated by reference to the Registrant’s Form 8-K
filed on January 6, 2009).
|
|
10.19
|
Solar
Panel Manufacture Agreement, dated June 19, 2008, between Federal Prison
Industries, Inc. and IX Energy, Inc. (Incorporated by reference to the
Registrant’s Form 8-K filed on January 6, 2009).
|
|
10.20
|
OEM
Supply Agreement, dated June 24, 2008, between Tynsolar Corporation and IX
Energy, Inc. (Incorporated by reference to the Registrant’s Form 8-K filed
on January 6, 2009
|
|
10.21
|
Comprehensive Services Agreement dates as of March 23, 2009 between IX Energy and Gale Architectural Services, LLC. (Incorporated by reference to the Registrant’s Form 8-K filed on July 8, 2009). | |
10.22
|
IX
Energy Holdings, Inc. 2009 Incentive Stock Plan (Incorporated by reference
to the Registrant’s Registration Statement on Form S-8 filed on March 25,
2009)
|
|
23.1*
|
Consent
of Berman & Company,
P.A.
|
* Filed
herewith.
II-3
Item
17.
|
Undertakings
|
The
undersigned registrant hereby undertakes to:
(1) File,
during any period in which offers or sales are being made, a post-effective
amendment to this registration statement to:
(i)
Include any prospectus required by Section 10(a)(3) of the Securities Act of
1933, as amended (the "Securities Act");
(ii)
Reflect in the prospectus any facts or events which, individually or together,
represent a fundamental change in the information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of the securities offered would
not exceed that which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the form of a
prospectus filed with the Commission pursuant to Rule 424(b) under the
Securities Act if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement, and
(iii)
Include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the
Securities Act, treat each post-effective amendment as a new registration
statement of the securities offered, and the offering of the securities at that
time to be the initial bona fide offering.
(3) File
a post-effective amendment to remove from registration any of the securities
that remain unsold at the end of the offering.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
(4) Each
prospectus filed pursuant to Rule 424(b) as part of a registration statement
relating to an offering, other than registration statements relying on Rule 430B
or other than prospectuses filed in reliance on Rule 430A , shall be
deemed to be part of and included in the registration statement as of the date
it is first used after effectiveness. Provided, however, that no statement made
in a registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by reference
into the registration statement or prospectus that is part of the registration
statement will, as to a purchaser with a time of contract of sale prior to such
first use, supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement or made in
any such document immediately prior to such date of first use.
II-4
SIGNATURES
In
accordance with the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, , in the city of New York,
in the State of New York, on January 22 ,
2010 .
IX
ENERGY HOLDINGS, INC.
|
||
By:
|
/s/ Steven Hoffman
|
|
Steven
Hoffman
|
||
Chief
Executive Officer (Principal Executive Officer and
Principal Financial and Accounting
Officer
)
|
In
accordance with the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons on behalf of the
Company in the capacities and on the dates indicated.
/s/ Steven Hoffman
|
January
22, 2010
|
Steven
Hoffman
|
|
Chief
Executive Officer (Principal Executive Officer), and
Director
|
|
/s/ Robert Lynch, Jr.
|
January
22, 2010
|
Robert
Lynch, Jr.
|
|
Director
|
|
II-5