AS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON May 13, 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
Amendment
No. 6 to
FORM
S-1
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, 12
th
Floor
New York,
New York 10017
(212)
682-5068
(Address
and telephone number of principal executive offices)
Steven
Hoffman
711 Third
Avenue, 12
th
Floor
New York,
New York 10017
(212)
682-5068
(Name,
address and telephone number of agent for service)
Copies
to:
Sunny
J. Barkats, Esq.
Loan
Nisser, Esq.
Lawrence
Metelitsa, Esq.
JSBarkats
PLL
C
100
Church Street, 8th Fl.
New
York, NY 10007
(646)
502-7001
Fax
(646) 607-5544
www.JSBarkats.com
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.
¨
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.
¨
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.
¨
(COVER
CONTINUES ON FOLLOWING PAGE)
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):
¨
Large accelerated
filer
¨
Accelerated
filer
¨
Non-accelerated
filer
x
Smaller reporting
company
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock, $.0001 par value per share, issuable upon exercise of
warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* 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.
PRELIMINARY
PROSPECTUS, SUBJECT TO COMPLETION, DATED MAY 13, 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 May 12, 2010 was $0.01 per
share.
Investing
in our common stock involves substantial risks.
See
“Risk Factors,” beginning on page 3.
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 May 13, 2010.
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
|
|
4
|
|
Risk
Factors
|
|
6
|
|
Forward-Looking
Statements
|
|
18
|
|
Use
of Proceeds
|
|
18
|
|
Selling
Stockholders
|
|
19
|
|
Plan
of Distribution
|
|
22
|
|
Market
for Common Equity and Related Stockholder Matters
|
|
25
|
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
|
26
|
|
Description
of Business
|
|
31
|
|
Description
of Property
|
|
37
|
|
Legal
Proceedings
|
|
38
|
|
Directors,
Executive Officers, Promoters and Control Persons
|
|
39
|
|
Executive
Compensation
|
|
41
|
|
Security
Ownership of Certain Beneficial Owners and Management
|
|
42
|
|
Certain
Relationships and Related Transactions and Corporate
Governance
|
|
43
|
|
Description
of Securities
|
|
44
|
|
Indemnification
for Securities Act Liabilities
|
|
46
|
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
|
46
|
|
Legal
Matters
|
|
47
|
|
Experts
|
|
47
|
|
Available
Information
|
|
47
|
|
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.
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. (the
“Merger). 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. We began generating revenue from operations in
2007. Currently, our 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 8,687,500 shares and warrants to purchase 8,687,500 in a
private placement offering (the "Private Placement" or the “Offering”), 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, 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
our common stock (the "Bridge Common"). The Bridge Notes are due and
payable upon the earlier of July 13, 2009 and the date we 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.
On
April 29, 2010, we and our wholly owned subsidiary IX Energy entered into a
settlement agreement with the holders of the Bridge Notes. Pursuant
to the terms of the settlement agreement, we granted to holders of an aggregate
of $125,000 and 5,000,000 shares of our common stock in exchange for the bridge
note holders releasing their claims and actions against us. These
5,000,000 shares of our common stock had been duly issued and outstanding prior
to the bridge note holders’ obtaining the promissory notes in July 2008 and were
exchanged for our ability to focus on business opportunities in our same line of
business by removing our obligation to the bridge note holders. The
bridge note holders also received piggy-back registration rights in the event
that, after the date of the settlement agreement, we prepare and file a
registration statement. In addition, in connection with the settlement
agreement, the holders of the Bridge Notes executed Stipulations of
Discontinuance that were filed with the court in New York County, to dismiss,
with prejudice, the actions brought against us related to the promissory
notes.
The
Offering
|
Common
Stock outstanding prior to the offering
|
|
66,773,635
(1)
|
|
|
|
|
|
Common
stock offered by the selling stockholders
|
|
18,135,799
(2)
|
|
|
|
|
|
Common
Stock to be outstanding after the offering
|
|
75,951,135
(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, 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.
|
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
in December 2008 and February 2009 we 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 our private placement
offering, 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. Because of our faliure to reach
the revenue target, the proceeds to us upon exercise of the warrants by the
Selling Shareholders are expected to be $91,775 instead of $4,588,750. This
significant drop in the proceeds to us from the exercise of the warrants will
impact our working capital and will place increased pressures on us to
obtain sufficient funds for our operations. The failure to obtain financing on
acceptable terms to us and our management may cause us to curtail our
operations.
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 we cannot assure you 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, we cannot assure you
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.
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 that any resulting adverse
publicity will have 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 project or otherwise increase our costs. Should
miscalculations in planning a project or 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.
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, 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. Furthermore, 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.
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 may be 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;
|
|
|
•
|
the
imposition of tariffs;
|
|
|
•
|
economic
or political instability in foreign
countries;
|
|
|
•
|
imposition
of limitations on or increase of withholding and other taxes on
remittances and other payments by foreign subsidiaries or joint
ventures;
|
|
|
•
|
conducting
business in places where business practices and customs are unfamiliar and
unknown;
|
|
|
•
|
the
imposition of restrictive trade
policies;
|
|
|
•
|
the
existence of inconsistent laws or
regulations;
|
|
|
•
|
the
imposition or increase of investment requirements and other restrictions
or requirements by foreign
governments;
|
|
|
•
|
uncertainties
relating to foreign laws and legal
proceedings;
|
|
|
•
|
fluctuations
in foreign currency and exchange rates;
and
|
|
|
•
|
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.
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.
Shortages 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
solar cells 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, but 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;
|
|
|
•
|
performance
and reliability of solar power products as compared with conventional and
non-solar alternative energy
products;
|
|
|
•
|
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;
|
|
|
•
|
capital
expenditures by customers that tend to decrease when the United States or
global economy slows;
|
|
|
•
|
continued
deregulation of the electric power industry and broader energy industry;
and
|
|
|
•
|
availability
of government subsidies and
incentives.
|
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;
|
|
|
•
|
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;
|
|
|
•
|
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. We cannot assure you 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 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.
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 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
grid 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.
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. We cannot assure you 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;
|
|
|
•
|
competitive
pricing pressures;
|
|
|
•
|
our
ability to obtain working capital
financing;
|
|
|
•
|
additions
or departures of key personnel;
|
|
|
•
|
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;
|
|
|
•
|
sales
of our common stock (particularly following effectiveness of the resale
registration statement required to be filed in connection with the Private
Placement);
|
|
|
•
|
our
ability to execute our business
plan;
|
|
|
•
|
operating
results that fall below
expectations;
|
|
|
•
|
loss
of any strategic relationship;
|
|
|
•
|
regulatory
developments;
|
|
|
•
|
economic
and other external factors; and
|
|
|
•
|
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.
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 lock-up
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 24,090,416 shares of our common stock, representing
35.2% 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:
|
|
•
|
to
elect or defeat the election of our
directors;
|
|
|
•
|
to
amend or prevent amendment of our Certificate of Incorporation, as amended
or By-laws;
|
|
|
•
|
to
effect or prevent a merger, sale of assets or other corporate transaction;
and
|
|
|
•
|
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 6 of this Prospectus. All forward
looking statements speak only as of the date hereof. We do not
undertake any obligation to update or publicly release any revisions to forward
looking statements to reflect events, circumstances or changes in expectations
after the date hereof.
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.
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 December 2008 and February 2009 (as
described in the Equity Financing section below). We believe that the selling
shareholders listed in the table have sole voting and investment powers with
respect to the securities listed below, 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 us or any of our
predecessors or affiliates within the past three years, except that Margaret
Monahan is the wife of our former President.
|
|
Shares
of Common 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
|
3.51%
|
2,030,988
|
2.70%
|
|
Helios
IX Capital LLC (vi)
|
625,000
|
625,000
|
0.79%
|
--
|
--
|
|
Financial
Pacific , Inc. (vii)
|
5,000,000
|
5,165,000
|
6.53%
|
165,000
|
0.21%
|
|
Semper
Gestion S.A (viii)
|
6,500,000
|
6,500,000
|
8.21%
|
--
|
--
|
|
Michelle
Pappas (ix)
|
125,000
|
125,000
|
0.16%
|
--
|
--
|
|
Tom
Hawkins (x)
|
375,000
|
375,000
|
0.47%
|
--
|
--
|
|
Chris
Diamantis (xi)
|
1,000,000
|
1,000,000
|
1.26%
|
--
|
--
|
|
Bart
Blatstein (xii)
|
500,000
|
500,000
|
0.63%
|
--
|
--
|
|
Lois
E. Haber (xiii)
|
500,000
|
500,000
|
0.63%
|
--
|
--
|
|
Cheney
Investments, Inc. (xiv)
|
500,000
|
500,000
|
0.63%
|
--
|
--
|
|
Nemesis
(xv)
|
1,000,000
|
1,000,000
|
1.26%
|
--
|
--
|
|
Leo
Cavigelli (xvi)
|
500,000
|
500,000
|
0.63%
|
--
|
--
|
|
Jack
DiTeodoro
|
10,832
|
10,832
|
0.01%
|
--
|
--
|
|
Jeffrey
McLaughin
|
13,541
|
13,541
|
0.02%
|
--
|
--
|
|
Margaret
Monahan
|
81,241
|
81,241
|
0.10%
|
--
|
--
|
|
Sal
and Joan Latorraca
|
16,247
|
16,247
|
0.02%
|
--
|
--
|
|
Sandra
Gabriele
|
13,541
|
13,541
|
0.02%
|
--
|
--
|
|
Anthony
DiBenedetto
|
27,079
|
27,079
|
0.03%
|
--
|
--
|
|
John
P. O’Shea
|
54,159
|
54,159
|
0.07%
|
--
|
--
|
|
Giovani
and Antonia Gabriele
|
54,159
|
54,159
|
0.07%
|
--
|
--
|
|
RAM
Partners (xvii)
|
490,000
|
490,000
|
0.62%
|
--
|
--
|
|
|
|
|
|
|
|
|
Total
|
18,135,799
|
20,331,787
|
25.69%
|
2,195,988
|
2.77%
|
(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
79,145,262 shares issued and outstanding as of May 12, 2010, including 2,994,132
options and 9,377,500 warrants exercisable within 60 days of May 12,
2010.
(iii)
Assumes that all securities registered will be sold.
(iv)
Number of shares consists entirely of shares of common
(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 312,500 shares and 312,500 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. Ron Tilles has voting and
dispositive power with respect to the shares owned by Helios IX Capital
LLC.
(vii) The
amount being registered represents 2,500,000 shares and 2,500,000 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,
(“Adjustment Period”) 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.
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 Filining 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.
Price
Protection
For a
period of twenty four (24) months following the Initial Closing 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 (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. (“IX Energy”) 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 consummates 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.
On
April 29, 2010, we and our wholly owned subsidiary IX Energy entered into a
settlement agreement with the holders of the Bridge Notes. Pursuant
to the terms of the settlement agreement, we granted to holders of an aggregate
of $125,000 and 5,000,000 shares of our common stock in exchange for the bridge
note holders releasing their claims and actions against us. These
5,000,000 shares of our common stock had been duly issued and outstanding prior
to the bridge note holders’ obtaining the promissory notes in July 2008 and were
exchanged for our ability to focus on business opportunities in our same line of
business by removing our obligation to the bridge note holders. The
bridge note holders also received piggy-back registration rights in the event
that, after the date of the settlement agreement, we prepare and file a
registration statement. In addition, in connection with the settlement
agreement, the holders of the Bridge Notes executed Stipulations of
Discontinuance that were filed with the court in New York County, to dismiss,
with prejudice, the actions brought against us related to the promissory
notes.
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;
|
|
|
•
|
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 this 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 pledgees, 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.
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.
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
MARKET
INFORMATION
Our
common stock was initially quoted on the OTC Bulletin Board on September 5, 2008
under the symbol “YOOO”. During the year ended December 31, 2008, there was no
trading activity. On January 27, 2009, following our name change to IX Energy
Holdings, Inc., our common stock began trading under the symbol “IXEH”. The
following table sets forth the quarterly high and low bid information for our
common stock during the fiscal year ended December 31, 2009.
|
YEAR ENDED DECEMBER 31, 2009
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
May 12, 2010, we had 66,773,635 shares of common stock issued and outstanding
and approximately 49 stockholders of record of our common
stock.
Dividend
Policy
As of
the date hereof, we have not paid any cash dividends to stockholders. The
declaration of any future cash dividend will be at the discretion of our Board
of Directors and will depend upon our earnings, if any, our capital requirements
and financial position, our general economic and other pertinent conditions. It
is our present intention not to pay any cash dividends in the foreseeable
future, but rather to reinvest earnings, if any, into our
business.
Equity
Compensation Plan Information
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.
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.
The
following table shows information with respect to each equity compensation plan
under which our common stock is authorized for issuance at December 31,
2009:
|
Plan category
|
|
Number of
securities
to be issued
upon
exercise of
outstanding
options,
warrants and
rights
|
|
|
Weighted
average
exercise
price of
outstanding
options,
warrants and
rights
|
|
|
Number of
securities
remaining
available for
future
issuance
under equity
compensation
plans
(excluding
securities
reflected in
column (a))
|
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
Equity
compensation plans approved by security holders
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans not approved by security holders
|
|
|
2,516,443
|
|
|
$
|
0.35
|
|
|
|
9,483,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,516,443
|
|
|
$
|
0.35
|
|
|
|
9,483,557
|
|
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
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.
All
forward looking statements speak only as of the date hereof. We do not undertake
any obligation to update or publicly release any revisions to forward looking
statements to reflect events, circumstances or changes in expectations after the
date hereof.
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.
Recent
Events
Recapitalization.
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. Our historical financial statements of the
Company are those of IX Energy and of the consolidated entities from the date of
merger and subsequent to such merger.
RESULTS
OF OPERATIONS
Year
Ended December 31, 2009 Compared to the year ended December 31,
2008.
Revenues
.
During the year ended December 31, 2009, we recorded revenues of approximately
$2,182,000 as compared to revenue of approximately $10,832,000 for the year
ended December 31, 2008. Approximately $10,612,000 of the revenues in 2008 was
primarily due to the fulfillment of our UNICOR Government Agreement and sales to
one commercial customer to supply solar panels. In 2009 we had solar
panel sales with five customers, however, 92% or approximately $1,911,000 of our
revenues were related to our fulfillment contract above.
Cost of
Sales
. During the year ended December 31, 2009, we recorded cost of
sales of approximately $1,687,000 as compared to cost of sales of approximately
$10,399,000 for the year ended December 31, 2008. Approximately $10,235,000 of
the cost of sales in 2008 was related to the sale of solar panels pertaining to
the fulfillment discussed above.
Operating
Expenses
. During the year ended December 31, 2009, we recorded operating
expenses of approximately $8,109,000, as compared to operating expenses of
$5,271,000 approximately $1,604,000 for the year ended December 31, 2008,
representing an increase of approximately $6,505,000. Approximately
$5,294,000 of our operating expenses in 2009 relate to stock-based compensation,
which represented approximately 62% of our operating expenses during 2009.
Stock-based compensation during 2008 was approximately $68,000. This
represents an increase of approximately $5,226,000, and reflects the significant
amount of common stock and common stock options and warrants granted in 2009
relative to 2008. Additionally, consulting, legal and salary
and payroll taxes expenses were approximately $712,000, $364,000 and $758,000,
respectively or approximately 56% of total operating expenses in 2009 after
stock-based compensation. During 2008, consulting, legal, and salary
expenses were approximately $307,000, $242,000 and $410,000, respectively or
approximately 62% of total operating expenses after stock-based
compensation.
Other income
(expense).
During the year
ended December 31, 2009 and 2008, we recorded approximately $472,000 and
$(1,649,000) in other income and expense, respectively. During 2009,
we granted certain warrants to investors (see Note 8 to the consolidated
financial statements) that we determined to be derivative
liabilities. At the inception date, we recorded approximately
$1,423,000 in derivative expense related to the fair value of the
warrants. We utilize the Black Scholes pricing model to value the
warrants. A significant input into the model, and ultimate driver of the fair
value of the warrants, is the Company’s stock price. Significant
increases or decreases in our stock price would increase or decrease the value
of the derivative liability, respectively. At inception or the
date we initially recorded the derivative liability (February 25, 2009) our
stock price was $1.03 per share. At December 31, 2009, our
stock price was $.037 per share. As a result of the significant
decrease in our stock price, we recorded approximately $2,482,000 in unrealized
gain on derivative liability. During 2008, we had no derivative
liabilities. Other expense in 2008 relates primarily to the
letter of credit of approximately $1,503,000 associated with personal guarantees
of our management for certain letters of credit. The expense
represented the fair value of the common stock issued related to our
guarantees. There were no such guarantees in 2009.
Loss from
Operations
. During the year ended December 31, 2009, we recorded an
operating loss of approximately $7,614,000, as compared to an operating loss of
approximately $1,172,000 for the year ended December 31, 2008, representing an
increase of approximately $6,442,000. This increase in loss from operations was
primarily due to increases in stock-based compensation discussed above, as well
as significant increases in salaries, consulting and legal
expenses
Provision for
Income Taxes
. We did not recognize any provisions for income taxes
during the year ended December 31, 2009 and the year ended December 31, 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 raised an aggregate of $725,000 and $2.6 million in a private placement in
2009 and 2008, respectively, our ultimate success will depend upon our ability
to raise additional capital going forward. We cannot assure you 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.
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 December 31, 2009, we had cash of approximately $108,000, as compared to cash
and cash equivalents of approximately $4,737,000 as of December 31,
2008.
Net Cash (Used In) Provided By
Operating Activities
. Net cash used in operating activities totaled
approximately $(4,220,000) for the year ended December 31, 2009, as compared to
cash provided by operating activities of approximately $2,071,000 for the year
ended December 31, 2008. This decrease was primarily due to our increase in
losses, decrease in deferred revenues of approximately $(1,884,000), and changes
in the fair value of the derivative liability of approximately $(2,482,000)
offset by increases in common stock issued for services to employees of
approximately $3,675,000, common stock issued for services to consultants of
approximately $784,000, stock-based compensation to employees of approximately
$758,000, derivative liability expense of approximately
$1,423,000, and registration rights liability of approximately
$348,000.
Net Cash Used in Investing
Activities
. Net cash used in investing activities totaled approximately
$(259,000) during the year ended December 31, 2009, as compared to net cash used
in investing activities of $(1,327,000) during the year ended December 31, 2008.
Cash used in investing activities during the year ended December 31, 2009 was
primarily comprised of purchases of property and equipment for approximately
$(271,000), offset by property and equipment proceeds of $13,000.
For the year ended December 31, 2008, our net cash used in investing
activities was comprised of approximately $(1,334,000) in property and equipment
purchases.
Net Cash (Used in) Provided By
Financing Activities
. Net cash used in financing activities totaled
approximately $(150,000) during the year ended December 31, 2009, as compared to
net cash provided by financing activities of approximately $3,816,000 during the
year ended December 31, 2008. The proceeds for 2009 were derived from the
issuance of $725,000 in common stock with warrants, offset by approximately
$(202,000) in offering costs related to the issuance. This was offset
by payments of $(523,000) and $(150,000), respectively in related party notes
and notes payable to others. During 2008, we had proceeds from common
stock with warrants of $2,750,000, offset by $(123,000) in related direct
offering costs. In Addition, we had proceeds of approximately
$938,000 from the issuance of related party notes, as well as $500,000 in
proceeds from the issuance of notes payable to others. This was
offset by repayments of $(250,000) in related party notes during
2008.
On
April 29, 2010, we and our wholly owned subsidiary IX Energy entered into a
settlement agreement with the holders of the Bridge Notes. Pursuant
to the terms of the settlement agreement, we granted to holders of an aggregate
of $125,000 and 5,000,000 shares of our common stock in exchange for the bridge
note holders releasing their claims and actions against us. These
5,000,000 shares of our common stock had been duly issued and outstanding prior
to the bridge note holders’ obtaining the promissory notes in July 2008 and were
exchanged for our ability to focus on business opportunities in our same line of
business by removing our obligation to the bridge note holders. The
bridge note holders also received piggy-back registration rights in the event
that, after the date of the settlement agreement, we prepare and file a
registration statement. In addition, in connection with the settlement
agreement, the holders of the Bridge Notes executed Stipulations of
Discontinuance that were filed with the court in New York County, to dismiss,
with prejudice, the actions brought against us related to the promissory
notes.
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. We cannot assure you that actual results will not differ
from those estimates.
Going
Concern
We had
a net loss of $7,141,767 and net cash used in operations of $4,220,300 for
the year ended December 31, 2009; and have a working capital deficit of
$1,076,841 and a stockholders’ deficit of $903,227 at December 31,
2009. Those factors raise substantial doubt about our ability to
continue as a going concern.
We
believe our current available cash, along with anticipated revenues, may be
insufficient to meet our cash needs for the near future. We cannot assure you
that that financing will be available in amounts or terms acceptable to us, if
at all. We may require additional funding to finance the growth of our current
and expected future operations, as well as to achieve our strategic objectives.
We believe that the further implementation of our business plan will provide
future positive cash flows. Our financial statements do not include
any adjustments relating to the recoverability and classification of recorded
assets, or the amounts and classifications of liabilities that might be
necessary should we be unable to continue as a going concern.
Our
ability to continue our 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.
Use of Estimates
. The
preparation of financial statements in conformity with accounting principles
generally accepted in the U.S. 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 their reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Significant
estimates for the year ended December 31, 2009 and 2008 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, and a
100% valuation allowance for deferred taxes due to our continuing and expected
future losses.
Cash and Cash Equivalents
.
For the purpose of reporting cash flows, we consider all highly liquid debt
instruments purchased with original maturities of three months or less to be
cash equivalents. We minimize our credit risk associated with cash by
periodically evaluating the credit quality of our primary financial institution.
The balance at times may exceed federally insured limits. At December 31, 2009
and 2008, the balance exceeded the federally insured limit by $-0- and
$4,736,812, respectively.
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.
We periodically evaluate the collectability of our accounts receivable and
consider 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, 2009 and 2008 no allowance was required.
At
both December 31, 2009 and 2008, we had a concentration of accounts receivable
from one customer totaling 100%. For the year ended December 31,
2009, the Company had a concentration of sales with two customers totaling 92%
and 8%, respectively. For the year ended December 31, 2008, the
Company had a concentration of sales with two customers totaling 46% and
43%.
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.
Share-Based Compensation.
We
follow U.S. GAAP, which 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. We
have used the Black-Scholes option pricing model to estimate grant date fair
value for all option grants. The assumptions we use in calculating
the fair value of share-based payment awards represent management’s best
estimates, but these estimates involve inherent uncertainties and the
application of management judgment. As such, as we use different assumptions
based on a change in factors, our stock-based compensation expense could be
materially different in the future.
Income Taxes.
Significant
management judgment is required in developing the provision for income taxes,
including the determination of foreign tax liabilities, deferred tax assets and
liabilities and any valuation allowances that might be required against the
deferred tax assets. Our management evaluates our ability to realize our
deferred tax assets on a quarterly basis and adjusts our valuation allowance
when we believe that it is more likely than not that the asset will
not be realized in accordance with U.S. GAAP.
Under
U.S. GAAP, deferred tax assets and liabilities are recognized for the future tax
consequences attributed to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment
date. If it is more likely than not that some portion of a deferred
tax asset will not be realized, a valuation allowance is recognized. U.S. GAAP
addresses the accounting and disclosure of uncertain tax positions. U.S GAAP
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken. At December 31, 2009 and 2008, the Company did not record any
liabilities for uncertain tax positions.
DESCRIPTION
OF BUSINESS
Organizational
History
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.
On
December 30, 2008, we entered into an Agreement and Plan of Merger and
Reorganization (“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
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 products and services
company that manufactures, designs, markets and installs its own solar power
systems, we have recently 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. We began generating revenue from operations in 2007. Currently,
our principal customer is 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.
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.
|
We
deliver 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:
We are
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.
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 currently manufactures and intends to supply panels to
the market, while IX Energy can provide design, sales representation and
engineering expertise to market and install solar power systems.
UNICOR solar panels have completed UL listing (underwriters
laboratory), and we anticipate positioning ourselves to assist
customers to achieve their federally mandated renewable energy standards by
integrating turnkey solutions or UNICOR product sales.
Now
that UNICOR has achieved UL listing for the solar panel product, IX Energy
will be able to sell and solicit the product in the market
place. The product is now applicable for government grant funding,
state rebate programs, or interconnectivity with 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:
|
|
•
|
3%
or more in fiscal years 2007 through
2009;
|
|
|
•
|
5%
or more in fiscal years 2010 through 2012;
and
|
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.
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.
|
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 andthe
recent stimulus package. 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 the Database of State Incentives for Renewable Energy (“DSIRE”) 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.
|
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 time. 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.
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. We cannot assure you 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.
Employees
As of
May 12, 2010 we have 3 full time employees. We have also engaged 3
consultants, which we anticipate will become full-time
employees.
DESCRIPTION
OF PROPERTY
We lease
approximately 800 square feet of office space in New York, New York for
approximately $2,582 per month on a month-to-month basis, which does not include
additional services. 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
Action
was brought against us in the Supreme Court of the State of New York, County of
New York by several of our bridge note holders seeking to recover amounts loaned
to us pursuant to promissory notes issued in July 2008. The actions were
discontinued in March 2010. On April 29, 2010, we and our wholly owned
subsidiary IX Energy entered into a settlement agreement with the holders of the
Bridge Notes. Pursuant to the terms of the settlement agreement, we
granted to holders of the Bridge Notes an aggregate of $125,000 and 5,000,000
shares of our common stock in exchange for the holders releasing their claims
and actions against us. Such 5,000,000 shares of our common stock had
been duly issued and outstanding prior to the holders of the Bridge Notes
obtaining the promissory notes in July 2008 and were exchanged for our ability
to focus on business opportunities in our same line of business by removing our
obligation to the holders of the Bridge Notes. The bridge note
holders also received piggy-back registration rights in the event that, after
the date of the settlement agreement, we prepare and file a registration
statement. In addition, in connection with the settlement agreement, the holders
of the Bridge Notes executed Stipulations of Discontinuance that were filed with
the court in New York County, to dismiss, with prejudice, the actions brought
against us related to the promissory notes.
Action
was brought against us by a former recruiter in the Civil Court of
the County of New York for breach of contract. We are currently defending this
action and cannot estimate what the outcome of the case may be.
Action
was brought in the Civil Court of the County of New York against us for breach
of contract by an attorney who previously rendered services to us. We are
currently defending this action and cannot estimate what the outcome of the case
may be. The plaintiff also separately received an arbitration award against us
before the Joint Committee on Fee Disputes, New York County.
Action
was brought against us by one of our officers in the Superior Court of the State
of California, County of San Diego for breach of contract. The matter is
scheduled for arbitration on April 30, 2010. We cannot currently estimate what
the outcome of the case may be.
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
EXECUTIVE
OFFICERS, DIRECTORS AND KEY EMPLOYEES
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 May
12, 2010. There are no family relationships among any of our directors and
executive officers.
|
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
Chief
Executive Officer, Chief Financial Officer and
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. Hoffman’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. The Board of Directors
believes Mr. Hoffman is qualified to serve as a
Director based on his extensive experience in the solar energy
industry.
George Weiner, Chief Technology
Officer.
Mr. Weiner was appointed 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
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 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. The Board of Directors believes that Mr. Lynch is qualified to serve
on the Board because of his extensive experience as a director on the boards of
directors of both domestic and international corporations for over 30
years.
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.
Board
Leadership Structure and Role in Risk Oversight
Although
we have not adopted a formal policy on whether the Chairman and Chief Executive
Officer positions should be separate or combined, we have traditionally
determined that it is in the best interests of the Company and its shareholders
to combine these roles.
Our
Board of Directors focuses on the most significant risks facing us and
our general risk management strategy, and also ensure that risks
undertaken by us are consistent with the Board’s appetite for risk. While the
Board oversees our risk management, management is responsible for day-to-day
risk management processes. We believe this division of responsibilities is the
most effective approach for addressing the risks facing us and that our Board
leadership structure supports this approach.
INVOLVEMENT IN CERTAIN LEGAL
PROCEEDINGS
To our
knowledge, during the past ten years, none of our directors, executive officers,
promoters, control persons, or nominees has been:
·
the subject of any
bankruptcy petition filed by or against any business of which such person was a
general partner or executive officer either at the time of the bankruptcy or
within two years prior to that time;
·
convicted in a
criminal proceeding or is subject to a pending criminal proceeding (excluding
traffic violations and other minor offenses);
·
subject to any
order, judgment, or decree, not subsequently reversed, suspended or vacated, of
any court of competent jurisdiction or any federal or state authority,
permanently or temporarily enjoining, barring, suspending or otherwise limiting
his involvement in any type of business, securities or banking
activities;
·
found by a court of
competent jurisdiction (in a civil action), the Commission or the Commodity
Futures Trading Commission to have violated a federal or state securities or
commodities law.
·
the subject of, or a
party to, any federal or state judicial or administrative order, judgment,
decree, or finding, not subsequently reversed, suspended or vacated, relating to
an alleged violation of (a) any Federal or State securities or commodities law
or regulation; (b) any law or regulation respecting financial institutions or
insurance companies including, but not limited to, a temporary or permanent
injunction, order of disgorgement or restitution, civil money penalty or
temporary or permanent cease-and-desist order, or removal or prohibition order;
or (c) any law or regulation prohibiting mail or wire fraud or fraud in
connection with any business entity; or
·
the
subject of, or a party to, any sanction or order, not subsequently reversed,
suspended or vacated, of any self-regulatory organization (as defined in Section
3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as
defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))),
or any equivalent exchange, association, entity or organization that has
disciplinary authority over its members or persons associated with a
member.
Audit
Committee
We do not
have a separately designated standing audit committee.
Code
of Ethics
We
have adopted a Code of Business Conduct and Ethics which
applies to our principal executive officer, directors and
employees. A copy of the Code of Ethics is filed herewith as Exhibit
14.1.
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 ($)
|
|
|
All
Other
Compe
nsation
($)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
225,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
572,332
|
(5)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
797.332
|
|
|
|
|
|
|
|
150,000
|
|
|
|
80,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
230,000
|
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,436
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
25,436
|
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,025
|
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Mr.
Hoffman was appointed as our Chief Executive Officer, Chief Financial
Officer and as a Director on December 30,
2008.
|
|
|
(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 served as our CFO through December 31,
2009.
|
|
|
(4)
|
Ms.
Morgan resigned as President on October 22,
2009.
|
|
|
(5)
|
Amounts
represents the aggregated grant date fair value of awards computed in
accordance with ASC Topic 718
|
Employment
Agreements with Executive Officers
On May
1, 2008, our 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. Hoffman’s employment agreement is for a term of 2
years. Pursuant to his employment agreement, Mr. Hoffman is entitled
to an annual base salary of $225,000. In addition, Mr. Hoffman was
entitled to receive compensation of $80,000 for unpaid salary and expenses for
2008 upon our 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. Hoffman is also entitled to an annual bonus in an amount
to be determined by our compensation committee or by the independent members of
our board of directors, if no such committee exists. Pursuant to his
employment agreement, Mr. Hoffmann is also eligible to participate in our
incentive, saving, retirement and other welfare benefit plans.. In
addition, Mr. Hoffman is entitled to receive a multi-year grant of non-qualified
stock options in an amount equal to 6% of our total common
shares following the reverse merger, vesting at a rate of 1/3 per
year commencing on May 1, 2008.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information, as of May 12, 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:
|
|
|
|
|
|
|
|
|
|
|
23,590,416
|
(4)
|
|
|
34.4
|
%
|
|
|
|
|
500,000
|
|
|
|
*
|
|
All
Executive Officers and
Directors
as a Group (2 persons)
|
|
|
24,090,416
|
|
|
|
35.2
|
%
|
|
|
|
|
|
|
|
|
|
|
Beneficial
owners of more than 5%
|
|
|
|
|
|
|
|
|
|
|
|
|
8,410,410
|
|
|
|
12.6
|
%
|
|
|
|
|
5,179,064
|
|
|
|
7.8
|
%
|
|
|
|
|
6,500,000
|
|
|
|
9.3
|
%
|
* 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. Based upon
66,773,635 shares of common stock issued and outstanding as of May 12,
2010
|
|
(3)
|
Mr.
Hoffman was appointed as our Chief Executive Officer, Chief Financial
Officer and as a director on December 30,
2008.
|
|
(4)
|
Includes
(i) 21,868,639 shares of common stock and (ii) options to
purchase 1,721,777 shares of common
stock.
|
|
(5)
|
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.
|
|
(6)
|
Includes
warrants to purchase 3,250,000 shares of our common
stock exercisable at a price of
$0.01.
|
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. We are seeking to appoint
independent members to the Board but to date none of our offers have been
accepted.
Securities
authorized for issuance under equity compensation plans
As of
December 31, 2009, 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 2,994,132 options outstanding under the 2009 Option Plan;
which included 2,066,132 options that 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 Controls Person
On
July 21, 2008, we issued a note payable, for the principal amount of $900,000,
to an entity controlled by Scott Schlesinger. Mr. Schlesinger owns
approximately 8,410,410 shares of our outstanding
stock. The note bears interest at 18%, is unsecured, has a default interest
rate of 24% and is due 3 business days after we receive the cash proceeds from a
solar panel installation job. In October and November 2008,we repaid $250,000 of
principal and $15,622 of accrued interest. During 2009, we paid $523,000 of
principal and $16,964 of accrued interest, respectively. As of
December 31, 2009 and 2008, notes payable to related party is $350,000 and
$873,000, respectively. As of December 31, 2009 and 2008, accrued interest to
related party is $142,957 and $76,217,
respectively.
DESCRIPTION
OF SECURITIES
The
following description of our capital stock is a summary and is qualified in its
entirety by the provisions of our Certificate 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 certificate of incorporation or bylaws that restrict us from
declaring dividends.
Capital
Structure
Our
authorized capital stock consists of 500,000,000 shares of common stock, par
value $0.0001 per share, and 10,000,000 shares of preferred stock, par value
$0.0001 per share.
Common
Stock
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.
Preferred
Stock
Our
certificate of incorporation, as amended, permits our Board of Directors to
issue up to 10,000,000 shares of preferred stock with designations, preferences,
relative, participating, optional or other special rights and qualifications as
the Board may designate. Such rights may include, voting, conversion, dividend
and other rights and preferences that could adversely affect the voting power or
other rights of our shareholders. The issuance of preferred stock or rights to
purchase preferred stock could have the effect of delaying or preventing a
change in control of our company. In addition, the possible issuance of
additional preferred stock could discourage a proxy contest, make the
acquisition of a substantial block of our common stock more difficult or limit
the price that investors might be willing to pay for shares of our common
stock.
The
description of certain matters relating to our securities is a summary
and is qualified in its entirety by the provisions of our Certificate of
Incorporation and By-Laws, as amended.
As of
May 12, 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, which has passed and we have not
achieved 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. Since we have failed to
satisfy that requirement, the holders of the Warrants have the right to exercise
their Warrants by means of cashless exercise.
As of
May 12, 2010, we have outstanding options to purchase 2,994,132 shares of
our common stock that were issued under our 2009 Stock Option Plan.
We issued 2,066,132 options to our Chief Executive Officer, Steven Hoffman,
pursuant to the terms of his employment agreement
We
refer you to our Certificate of Incorporation, as amended, 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, as amended, 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 we could not indemnify such persons.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933, as
amended, 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 such 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 our 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 our 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 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 our fiscal year ended December
31, 2008. The change in ours independent registered public accounting firm was
approved by our Board of Directors on January 22, 2009.
During
the year ended December 31, 2007 and any subsequent period through January 22,
2009, we 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 our 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
JSBarkats PLLC, 100 Church Street, 8
th
Floor,
New York, New York 10007
EXPERTS
Berman
& Company, P.A., an 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, 2009 and 2008.
Weinberg & Associates LLC, an 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
.
We
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.
FINANCIAL
STATEMENTS
:
IX
ENERGY HOLDINGS, INC. AND SUBSIDIARIES
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
Page(s)
|
|
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
F-2
|
|
|
|
|
|
Financial
Statements:
|
|
|
|
|
|
|
|
Consolidated
Balance Sheets as of December 31, 2009 and 2008
|
|
F-3
|
|
|
|
|
|
Consolidated
Statements of Operations For the Years Ended December 31, 2009 and
2008
|
|
F-4
|
|
|
|
|
|
Consolidated
Statements of Changes in Stockholders' Equity (Deficit) For the Years
Ended December 31, 2009 and 2008
|
|
F-5
|
|
|
|
|
|
Consolidated
Statements of Cash Flows For the Years Ended December 31, 2009 and
2008
|
|
F-6
|
|
|
|
|
|
Notes
to Consolidated Financial Statements For the Years Ended December 31, 2009
and 2008
|
|
F-7
– F-29
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders: IX Energy Holdings, Inc.
We
have audited the accompanying consolidated balance sheets of IX Energy
Holdings, Inc. and Subsidiaries as of December 31, 2009 and 2008, and the
related statements of operations, changes in stockholders' equity (deficit) 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 consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of IX Energy
Holdings, Inc. and Subsidiaries as of December 31, 2009 and 2008, and the
related consolidated statements of operations, changes in stockholders' equity
(deficit), equity, and cash flows for the years ended December 31, 2009 and
2008, in conformity with accounting principles generally accepted in the United
States of America.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has a net loss of $7,141,767 and net cash used
in operations of $4,220,300 for the year ended December
31,
2009; and has a working
capital deficit of $1,076,841, and a stockholders' equity (deficit) of $903,227
at December 31, 2009. These factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plan in regards to these
matters is also described in Note 2.
Berman
&
Company,
P.A.
Boca
Raton, Florida
April
15, 2010
551 NW
77th Street Suite 107 • Boca Raton, FL 33487
Phone:
(561) 864-4444 • Fax: (561) 892-3715
www.bermancpas.com
• infobermancpas.com
Registered
with the PCAOB • Member A1CPA Center for Audit Quality
Member
American Institute of Certified Public Accountants
Member
Florida Institute of Certified Public Accountants
IX
Energy Holdings, Inc. and Subsidiaries
Consolidated
Balance Sheets
|
|
|
December
31, 2009
|
|
|
December
31, 2008
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
108,006
|
|
|
$
|
4,736,812
|
|
|
Accounts
receivable
|
|
|
8,000
|
|
|
|
84,420
|
|
|
Other
receivables
|
|
|
623,000
|
|
|
|
-
|
|
|
Costs
and estimated earnings in excess of billings on uncompleted
contracts
|
|
|
-
|
|
|
|
6,974
|
|
|
Prepaid
expenses
|
|
|
49,896
|
|
|
|
4,000
|
|
|
Total
Current Assets
|
|
|
788,902
|
|
|
|
4,832,206
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net of accumulated depreciation of $5,409 and $2,505 in
2009 and 2008
|
|
|
173,614
|
|
|
|
1,331,787
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
issue costs, net of accumulated amortization of $51,816 and $48,379 in
2009 and 2008
|
|
|
-
|
|
|
|
51,816
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
962,516
|
|
|
$
|
6,215,809
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
387,444
|
|
|
$
|
525,994
|
|
|
Notes
payable - related party
|
|
|
350,000
|
|
|
|
873,000
|
|
|
Notes
payable - other
|
|
|
350,000
|
|
|
|
500,000
|
|
|
Accrued
interest payable - related party
|
|
|
142,957
|
|
|
|
76,217
|
|
|
Accrued
interest payable - other
|
|
|
26,097
|
|
|
|
12,071
|
|
|
Deferred
revenue
|
|
|
-
|
|
|
|
2,683,833
|
|
|
Derivative
liability - warrants
|
|
|
261,745
|
|
|
|
-
|
|
|
Registration
rights liability
|
|
|
347,500
|
|
|
|
-
|
|
|
Total
Current Liabilities
|
|
|
1,865,743
|
|
|
|
4,671,115
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
Common
stock, $0.0001 par value, 500,000,000 shares authorized, 66,193,143 and
58,528,285 shares issued and outstanding
|
|
|
6,620
|
|
|
|
5,853
|
|
|
Additional
paid in capital
|
|
|
10,487,819
|
|
|
|
4,473,786
|
|
|
Accumulated
deficit
|
|
|
(11,397,666
|
)
|
|
|
(2,934,945
|
)
|
|
Total
Stockholders’ Equity (Deficit)
|
|
|
(903,227
|
)
|
|
|
1,544,694
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders’ Equity (Deficit)
|
|
$
|
962,516
|
|
|
$
|
6,215,809
|
|
IX
Energy Holdings, Inc. and Subsidiaries
Consolidated
Statements of Operations
|
|
|
For the years Ended
|
|
|
|
|
December
31, 2009
|
|
|
December
31, 2008
|
|
|
|
|
|
|
|
|
|
|
Revenues
- solar panels
|
|
$
|
2,110,438
|
|
|
$
|
10,612,270
|
|
|
Revenues
- construction contracts
|
|
|
71,904
|
|
|
|
219,256
|
|
|
Total
revenues
|
|
|
2,182,342
|
|
|
|
10,831,526
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues - solar panels
|
|
|
1,628,131
|
|
|
|
10,235,171
|
|
|
Cost
of revenues - construction contracts
|
|
|
59,354
|
|
|
|
164,279
|
|
|
Total
cost of revenues
|
|
|
1,687,485
|
|
|
|
10,399,450
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
494,857
|
|
|
|
432,076
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
|
8,109,121
|
|
|
|
1,604,045
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(7,614,264
|
)
|
|
|
(1,171,969
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
27,493
|
|
|
|
42,348
|
|
|
Interest
expense
|
|
|
(158,646
|
)
|
|
|
(152,229
|
)
|
|
Registration
rights penalty
|
|
|
(347,500
|
)
|
|
|
-
|
|
|
Loss
on issuance of common shares for services
|
|
|
(108,100
|
)
|
|
|
-
|
|
|
Derivative
expense
|
|
|
(1,422,917
|
)
|
|
|
-
|
|
|
Change
in fair value of derivative liability - warrants
|
|
|
2,482,167
|
|
|
|
-
|
|
|
Transaction
loss
|
|
|
-
|
|
|
|
(35,875
|
)
|
|
Letter
of credit loan fee
|
|
|
-
|
|
|
|
(1,502,947
|
)
|
|
Total
other income (expense)
|
|
|
472,497
|
|
|
|
(1,648,703
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(7,141,767
|
)
|
|
$
|
(2,820,672
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss per Share - Basic and Diluted
|
|
$
|
(0.11
|
)
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Number of Common Shares Outstanding
|
|
|
|
|
|
|
|
|
|
During
the Year - Basic and Diluted
|
|
|
64,032,553
|
|
|
|
43,911,325
|
|
IX
Energy Holdings, Inc. and Subsidiaries
Consolidated
Statements of Changes in Stockholders' Equity (Deficit)
For
the Years Ended December 31, 2009 and 2008
|
|
|
Common Stock, $0.0001
Par
Value
|
|
|
Additional
Paid
in
|
|
|
Accumulated
|
|
|
Total
Stockholders'
Equity
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
1,602,709
|
|
|
|
-
|
|
|
|
1,603,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for consulting services - related parties
($0.17/share)
|
|
|
144,201
|
|
|
|
14
|
|
|
|
53,296
|
|
|
|
-
|
|
|
|
53,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for officer's compensation ($0.16/share)
|
|
|
40,578
|
|
|
|
4
|
|
|
|
15,025
|
|
|
|
-
|
|
|
|
15,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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), net of warrants
issued to placement agents
|
|
|
6,875,000
|
|
|
|
688
|
|
|
|
2,609,312
|
|
|
|
-
|
|
|
|
2,610,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
issued to placement agents for cash raised in private placement
($0.40/share)
|
|
|
-
|
|
|
|
-
|
|
|
|
140,000
|
|
|
|
-
|
|
|
|
140,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid as direct offering costs
|
|
|
-
|
|
|
|
-
|
|
|
|
(122,535
|
)
|
|
|
-
|
|
|
|
(122,535
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended December 31, 2008
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,820,672
|
)
|
|
|
(2,820,672
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2008
|
|
|
58,528,284
|
|
|
|
5,853
|
|
|
|
4,473,786
|
|
|
|
(2,934,945
|
)
|
|
|
1,544,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for cash in private placement
($0.40/share)
|
|
|
1,812,500
|
|
|
|
181
|
|
|
|
724,819
|
|
|
|
-
|
|
|
|
725,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid as direct offering costs
|
|
|
-
|
|
|
|
-
|
|
|
|
(201,775
|
)
|
|
|
-
|
|
|
|
(201,775
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for employee compensation ($1.31/share)
|
|
|
2,806,310
|
|
|
|
281
|
|
|
|
3,675,022
|
|
|
|
-
|
|
|
|
3,675,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for third party services ($0.32/share)
|
|
|
2,890,746
|
|
|
|
289
|
|
|
|
938,518
|
|
|
|
-
|
|
|
|
938,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued to settle accounts payable ($0.43/share)
|
|
|
155,303
|
|
|
|
16
|
|
|
|
66,117
|
|
|
|
-
|
|
|
|
66,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition
of stock based compensation - employees
|
|
|
-
|
|
|
|
-
|
|
|
|
757,708
|
|
|
|
-
|
|
|
|
757,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition
of stock based compensation - consultants
|
|
|
-
|
|
|
|
-
|
|
|
|
53,624
|
|
|
|
-
|
|
|
|
53,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
adjustment for warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,320,954
|
)
|
|
|
(1,320,954
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended December 31, 2009
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,141,767
|
)
|
|
|
(7,141,767
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2009
|
|
|
66,193,143
|
|
|
$
|
6,620
|
|
|
$
|
10,487,819
|
|
|
$
|
(11,397,666
|
)
|
|
$
|
(903,227
|
)
|
IX
Energy Holdings, Inc. and Subsidiaries
Consolidated
Statements of Cash Flows
|
|
|
For
the year
|
|
|
For
the year
|
|
|
|
|
Ended
December
31, 2009
|
|
|
Ended
December
31, 2008
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(7,141,767
|
)
|
|
$
|
(2,820,672
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
6,411
|
|
|
|
2,505
|
|
|
Amortization
of debt issue costs
|
|
|
51,816
|
|
|
|
48,379
|
|
|
Amortization
of prepaid services
|
|
|
126,446
|
|
|
|
-
|
|
|
Loss
on settlement of accounts payable
|
|
|
5,412
|
|
|
|
-
|
|
|
Loss
on sale of fixed asset
|
|
|
10,493
|
|
|
|
-
|
|
|
Derivative
expense
|
|
|
1,422,917
|
|
|
|
-
|
|
|
Change
in fair value of derivative liability- warrants
|
|
|
(2,482,167
|
)
|
|
|
-
|
|
|
Common
stock issued for services - employee
|
|
|
3,675,303
|
|
|
|
-
|
|
|
Loss
on issuance of common shares for services
|
|
|
108,100
|
|
|
|
-
|
|
|
Common
stock issued for services - consultant
|
|
|
783,748
|
|
|
|
-
|
|
|
Common
stock issued for consulting services - related party
|
|
|
-
|
|
|
|
53,310
|
|
|
Common
stock issued for loan fee
|
|
|
-
|
|
|
|
1,502,947
|
|
|
Common
stock issued for officer's compensation
|
|
|
-
|
|
|
|
15,029
|
|
|
Recognition
of stock based compensation - employees
|
|
|
757,708
|
|
|
|
-
|
|
|
Recognition
of stock based compensation - consultants
|
|
|
53,624
|
|
|
|
-
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
(Increase)
Decrease in:
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
676,420
|
|
|
|
(46,645
|
)
|
|
Other
receivables
|
|
|
(623,000
|
)
|
|
|
-
|
|
|
Cost
& estimated earnings in excess of billings on uncompleted
contracts
|
|
|
6,974
|
|
|
|
50,366
|
|
|
Prepaid
expenses and deposits
|
|
|
(125,342
|
)
|
|
|
(4,000
|
)
|
|
Increase
(Decrease) in:
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
|
(77,829
|
)
|
|
|
518,361
|
|
|
Accrued
interest payable - related party
|
|
|
66,740
|
|
|
|
76,156
|
|
|
Accrued
interest payable - other
|
|
|
14,026
|
|
|
|
12,071
|
|
|
Estimated
losses on uncompleted contracts
|
|
|
-
|
|
|
|
(20,172
|
)
|
|
Deferred
revenue
|
|
|
(1,883,833
|
)
|
|
|
2,683,833
|
|
|
Registrations
rights liability
|
|
|
347,500
|
|
|
|
-
|
|
|
Net
Cash Provided by (Used in) Operating Activities
|
|
|
(4,220,300
|
)
|
|
|
2,071,468
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Cash
acquired in recapitalization
|
|
|
-
|
|
|
|
7,759
|
|
|
Proceeds
from sale of equipment
|
|
|
13,000
|
|
|
|
-
|
|
|
Purchase
of property and equipment
|
|
|
(271,731
|
)
|
|
|
(1,334,292
|
)
|
|
Net
Cash Used in Investing Activities
|
|
|
(258,731
|
)
|
|
|
(1,326,533
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Repayment
of notes payable - related party
|
|
|
(523,000
|
)
|
|
|
(250,000
|
)
|
|
Repayment
of notes payable - other
|
|
|
(150,000
|
)
|
|
|
-
|
|
|
Proceeds
from common stock issued for cash in private placement
|
|
|
725,000
|
|
|
|
2,750,000
|
|
|
Cash
paid as direct offering costs
|
|
|
(201,775
|
)
|
|
|
(122,535
|
)
|
|
Proceeds
from issuance of notes payable-other
|
|
|
-
|
|
|
|
500,000
|
|
|
Proceeds
from issuance of notes payable- related party
|
|
|
-
|
|
|
|
938,252
|
|
|
Net
Cash Provided By (Used in) Financing Activities
|
|
|
(149,775
|
)
|
|
|
3,815,717
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Increase (Decrease) in Cash and Cash Equivalents
|
|
|
(4,628,806
|
)
|
|
|
4,560,652
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents - Beginning of Year
|
|
|
4,736,812
|
|
|
|
176,160
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents - End of Year
|
|
$
|
108,006
|
|
|
$
|
4,736,812
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY CASH FLOW
INFORMATION:
|
|
|
|
|
|
|
|
|
|
Cash
Paid During the Year for:
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Interest
|
|
$
|
26,600
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
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 ASC
815
|
|
$
|
1,320,995
|
|
|
$
|
-
|
|
|
Exchange
of fixed asset for note receivable and forgiveness of deferred revenue
obligation
|
|
$
|
1,400,000
|
|
|
|
-
|
|
|
Forgiveness
of receivable from affiliate
|
|
$
|
-
|
|
|
$
|
44,526
|
|
|
Debt
issue costs
|
|
$
|
-
|
|
|
$
|
8,063
|
|
IX
Energy Holdings, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
December 31, 2009 and
2008
Note 1 - 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.
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. This entity is
inactive.
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”). This entity is inactive.
IX
Solutions became operational on August 26, 2009. Under the terms of a Joint
Venture agreement (“JV”), the company contributed $5,000 in cash; however, the
other venturer did not contribute their $5,000. During 2009, the Company wrote
off $17,238 in advances made under the JV, as the Company determined that the JV
would not become operational.
IX
Energy Holdings, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
December 31, 2009 and
2008
Going
Concern
As
reflected in the accompanying financial statements, the Company has a net loss
of $7,141,767 and net cash used in operations of $4,220,300 for the year ended
December 31, 2009; and had a working capital deficit of $1,076,841 and a
stockholders’ deficit of $903,227 at December 31, 2009.
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. The financial
statements of the Company do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts and
classifications of liabilities that might be necessary should the Company be
unable to continue as a going concern.
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.
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, 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.
IX
Energy Holdings, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
December 31, 2009 and
2008
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries. 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, 2009 and 2008, the
balance exceeded the federally insured limit by $0 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. In certain cases
the Company is 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 December
31, 2009, and 2008 the Company recognized a rebate for $0 and $95,000,
respectively related to completed projects. These rebates are not a part of
every installation contract. 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. The Company determined that as of December 31, 2009 and 2008,
respectively, no allowance was required.
At
December 31, 2009 and 2008, respectively, the Company had a concentration of
accounts receivable from one customer totaling 100%.
For
the year ended December 31, 2009, the Company had a concentration of sales with
two customers totaling 92% and 8%, respectively. For the year ended December 31,
2008, the Company had a concentration of sales with two customers totaling 46%
and 43%, respectively.
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, 2009 and 2008,
respectively.
IX
Energy Holdings, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
December 31, 2009 and
2008
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 years ended December 31,
2009 and 2008 excludes the following potentially dilutive securities because
their inclusion would be anti-dilutive:
|
|
|
2009
|
|
|
2008
|
|
|
Stock
options
|
|
|
5,011,132
|
|
|
|
-
|
|
|
Stock
warrants
|
|
|
9,377,500
|
|
|
|
7,225,000
|
|
|
Total
common stock equivalents
|
|
|
14,388,632
|
|
|
|
7,225,000
|
|
As a
result of the reverse acquisition and recapitalization (see Note 9) and stock
dividend (see Note 8(B)), all share and per share amounts have been
retroactively restated.
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
2009, 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.
IX
Energy Holdings, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
December 31, 2009 and
2008
Revenues
from these arrangements are recognized upon shipment from the supplier to these
third parties. In addition, the Company has reviewed U.S. GAAP 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 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 years ended December 31, 2009 and 2008, respectively, approximately 100% and
98% 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.
For
the years ended December 31, 2009 and 2008, respectively, approximately 3% and
2% 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.
IX
Energy Holdings, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
December 31, 2009 and
2008
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, 2009 and 2008, 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 U.S. GAAP. 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 $0 and $35,875 for the years ended
December 31, 2009 and 2008, respectively.
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 December 31, 2009,
the Company had recorded a liquidated damages provision due to the failure to
file and have declared effective a registration statement.
Share-Based
Payments
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, 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 cost of goods sold or general and administrative expense in the
consolidated statement of operations, depending on the nature of the services
provided.
IX
Energy Holdings, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
December 31, 2009 and
2008
Income
Taxes
The
Company accounts for income taxes in accordance with accounting guidance now
codified as FASB ASC Topic 740, “
Income Taxes
,” which requires
that the Company recognize deferred tax liabilities and assets based on the
differences between the financial statement carrying amounts and the tax bases
of assets and liabilities, using enacted tax rates in effect in the years the
differences are expected to reverse. Deferred income tax benefit (expense)
results from the change in net deferred tax assets or deferred tax liabilities.
A valuation allowance is recorded when it is more likely than not that some or
all deferred tax assets will not be realized.
Accounting
guidance now codified as FASB ASC Topic 740-20,
“Income Taxes – Intraperiod Tax
Allocation,”
clarifies the accounting for uncertainties in income taxes
recognized in accordance with FASB ASC Topic 740-20 by prescribing guidance for
the recognition, de-recognition and measurement in financial statements of
income tax positions taken in previously filed tax returns or tax positions
expected to be taken in tax returns, including a decision whether to file or not
to file in a particular jurisdiction. FASB ASC Topic 740-20 requires that any
liability created for unrecognized tax benefits is disclosed. The application of
FASB ASC Topic 740-20 may also affect the tax bases of assets and liabilities
and therefore may change or create deferred tax liabilities or assets. The
Company would recognize interest and penalties related to unrecognized tax
benefits in income tax expense. At December 31, 2009 and 2008, respectively, the
Company did not record any liabilities for uncertain tax
positions.
Segment
Information
During
2009 and 2008, the Company only operated in one segment; therefore, segment
information has not been presented.
Recent
Accounting Pronouncements
In
April 2009, the FASB issued guidance now codified as FASB ASC Topic 820,
“
Fair Value Measurements and
Disclosures,”
which amends previous guidance to require disclosures about
fair value of financial instruments in interim as well as annual financial
statements in the current economic environment. This pronouncement was effective
for periods ending after June 15, 2009. The adoption of this pronouncement
did not have a material impact on the Company’s business, financial condition or
results of operations; however, these provisions of FASB ASC Topic 820 resulted
in additional disclosures with respect to the fair value of the Company’s
financial instruments.
In
May 2009, the FASB issued guidance now codified as FASB ASC Topic 855,
“
Subsequent Events
,”
which establishes general standards of accounting for, and disclosures of,
events that occur after the balance sheet date but before financial statements
are issued or are available to be issued. This pronouncement was effective for
interim or fiscal periods ending after June 15, 2009. The adoption of this
pronouncement did not have a material impact on the Company’s business, results
of operations or financial position; however, the provisions of FASB ASC Topic
855 resulted in additional disclosures with respect to subsequent
events.
IX
Energy Holdings, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
December 31, 2009 and
2008
In
June 2009, the Financial Accounting Standards Board (FASB) issued guidance
now codified as FASB Accounting Standards Codification (ASC) Topic 105, “
Generally Accepted Accounting
Principles
,” as the single source of authoritative non-governmental U.S.
GAAP. FASB ASC Topic 105 does not change current U.S. GAAP, but is intended to
simplify user access to all authoritative U.S. GAAP by providing all
authoritative literature related to a particular topic in one place. All
existing accounting standard documents will be superseded and all other
accounting literature not included in the FASB Codification will be considered
non-authoritative. These provisions of FASB ASC Topic 105 were effective for
interim and annual periods ending after September 15, 2009 and,
accordingly, were effective for the Company for the current fiscal reporting
period. The adoption of this pronouncement did not have an impact on the
Company’s business, financial condition or results of operations, but will
impact the Company’s financial reporting process by eliminating all references
to pre-codification standards. On the effective date of FASB ASC Topic 105, the
Codification superseded all then-existing non-SEC accounting and reporting
standards, and all other non-grandfathered non-SEC accounting literature not
included in the Codification became non-authoritative.
In
January 2010, the Financial Accounting Standards Board ("FASB") issued updated
guidance to amend the disclosure requirements related to recurring and
nonrecurring fair value measurements. This update requires new disclosures on
significant transfers of assets and liabilities between Level 1 and
Level 2 of the fair value hierarchy (including the reasons for these
transfers) and the reasons for any transfers in or out of Level 3. This
update also requires a reconciliation of recurring Level 3 measurements
about purchases, sales, issuances and settlements on a gross basis. In addition
to these new disclosure requirements, this update clarifies certain existing
disclosure requirements. For example, this update clarifies that reporting
entities are required to provide fair value measurement disclosures for each
class of assets and liabilities rather than each major category of assets and
liabilities. This update also clarifies the requirement for entities to disclose
information about both the valuation techniques and inputs used in estimating
Level 2 and Level 3 fair value measurements. This update will become
effective for the Company with the interim and annual reporting period beginning
January 1, 2010, except for the requirement to provide the Level 3
activity of purchases, sales, issuances, and settlements on a gross basis, which
will become effective for the Company with the interim and annual reporting
period beginning January 1, 2011. The Company will not be required to
provide the amended disclosures for any previous periods presented for
comparative purposes. Other than requiring additional disclosures, adoption of
this update will not have a material effect on the Company's consolidated
financial statements.
Note 2 - 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.
The following
are the major categories of assets and liabilities measured at fair value on a
recurring basis during the year ended December 31, 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
December
31, 2009
|
|
|
Derivative
Liabilities
|
|
$
|
-
|
|
|
$
|
261,745
|
|
|
$
|
-
|
|
|
$
|
261,745
|
|
|
Total
|
|
$
|
-
|
|
|
$
|
261,745
|
|
|
$
|
-
|
|
|
$
|
261,745
|
|
On a
recurring basis, the Company utilizes the Black Scholes pricing model to value
certain derivative liability warrants. The inputs into the model on a
recurring basis include the exercise price of the Company’s common stock, the
market price of the Company’s common stock, expected volatility of the Company’s
common stock, expected life of the warrants, and the risk-free interest
rate.
IX Energy Holdings, Inc. and
Subsidiaries
Notes
to Consolidated Financial Statements
December 31, 2009 and
2008
Note 3 - Construction and
Energy Reseller Contracts
Information
with respect to uncompleted contracts is summarized below for the years ended
December 31, 2009 and December 31, 2008:
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Actual
costs incurred on uncompleted contracts
|
|
$
|
139,088
|
|
|
$
|
415,320
|
|
|
Estimated
profit (losses)
|
|
|
43,073
|
|
|
|
(10,124
|
)
|
|
|
|
|
182,161
|
|
|
|
405,196
|
|
|
Less:
progress billings to date
|
|
|
(182,161
|
)
|
|
|
(398,222
|
)
|
|
|
|
|
-
|
|
|
$
|
6,974
|
|
|
|
|
|
|
|
|
|
|
|
|
These
amounts are included in the accompanying December 31, 2009 and December
31, 2008 balance sheets under the following captions:
|
|
|
|
|
|
|
|
|
|
Costs
and estimated earnings in excess of billings on uncompleted
contracts
|
|
$
|
-
|
|
|
$
|
6,974
|
|
Energy
Reseller Contracts
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. Under the UNICOR contract, the
Company is obligated to perform sales under two separate sales and marketing
programs: 1) 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 and 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. 2) 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
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 recognized
revenue based on shipments under this agreement of $5,003,762. The balance, of
$1,796,238, was recognized in revenue during 2009.
IX
Energy Holdings, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
December 31, 2009 and
2008
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. During 2009, the Company sold $1,400,000 of
solar panel equipment (see Note 5) to the supplier, and the supplier forgave
$800,000 of certain performance obligations included as deferred revenue to the
supplier. As of December 31, 2009, related to the sale, the Company
has recorded an other receivable for $600,000 due from the
supplier.
During
the year ended December 31, 2009, in connection with the sale of equipment, the
remaining balance associated with deferred revenues totaling approximately
$87,000 was recorded as additional revenue since the Company had no further
obligation to perform under the terms of this contract with its
customer.
Note 4 - Affiliate Charge to
Equity
In
2008, 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. As a result, the Company recorded
a charge to additional paid in capital of $44,325 to reflect the uncollectible
receivable from this related party.
Note 5 – Property and
Equipment
At
December 31, 2009 and 2008, property and equipment consists of the
following:
|
|
|
December 31,
2009
|
|
|
December 31,
2008
|
|
Estimated
Useful Lives
|
|
|
Solar
Panel Equipment
|
|
$
|
150,000
|
|
|
$
|
1,300,000
|
|
20 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile
|
|
|
-
|
|
|
|
26,999
|
|
5
years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computers
and Office Equipment
|
|
|
29,023
|
|
|
|
7,293
|
|
3
years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
179,023
|
|
|
|
1,334,292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Accumulated Depreciation
|
|
|
(5,409
|
)
|
|
|
(2,505
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and Equipment, Net
|
|
$
|
173,614
|
|
|
$
|
1,331,787
|
|
|
|
The
solar panel equipment is not in service at December 31, 2009.
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 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 $ 751,481 ($0. 37 /share) based upon the
fair value of stock issued to a third party for services rendered . During 2009
the letter of credit was released by the Bank, and is not outstanding at
December 31, 2009.
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 $ 751,465 ($0. 37 /share), based upon
the fair value of stock issued to a third party for services
rendered.
The
letter of credit was released in February 2009, as the Company fulfilled its
obligation under the terms of its government contract with UNICOR.
IX
Energy Holdings, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
December 31, 2009 and
2008
Note 7 - Loans, Notes and
Accrued Interest Payable
(A)
Notes Payable & Accrued Interest Payable – Related Party
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. In October and November 2008,
the Company repaid $250,000 of principal and $15,622 of accrued interest. During
2009, the Company paid $523,000 of principal and $16,964 of accrued interest,
respectively. As of December 31, 2009 and 2008, notes payable to
related party is $350,000 and $873,000, respectively. As of December 31, 2009
and 2008, accrued interest to related party is $142,957 and $76,217,
respectively. The Company has classified the notes as a current
liability as of December 31, 2009, as payment is expected in the next twelve
months.
(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 of $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 October 2009,
the Company paid $150,000 of principal and $9,082 in accrued interest related to
these notes (see Note 11(A)2). The Company is currently
negotiating the payment terms with the other borrowers, and the $350,000 of
principal is classified as current as of December 31, 2009. At December 31, 2008
the balance was $500,000. As of December 31, 2009 and 2008, there is $26,097 and
$12,071, respectively of accrued interest related to these
notes. (See Note 10A )
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.
For
the years ended December 31, 2009 and 2008, the Company recorded amortization of
debt issue costs to interest expense of $51,816 and $48,379,
respectively.
Note 8 - Stockholders’
Equity (Deficit)
(A) Share
Issuances
2008
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 year ended December 31, 2008, the Company recorded
consulting fees of $30,810 ($0.37/share). The fair value of the
stock issuance was based upon the fair value of stock issued to a third party
for services rendered.
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 and had a fair value of
$63,993 as of December 31, 2008. The 350,000 warrants paid to the
placement agent had a fair value of $63,993 based upon a Black-Sholes valuation
using the following inputs:
|
Excercise
Price
|
|
$
|
0.50
|
|
|
Expected
dividends
|
|
|
0
|
%
|
|
Expected
volatility
|
|
|
78.88
|
%
|
|
Risk-free
interest rate
|
|
|
0.94
|
%
|
|
Expected
life of option
|
|
3 years
|
|
2009
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 former
employee for services rendered, having a fair value of $225,000 ($1.50/share),
based upon the quoted closing trading price.
IX
Energy Holdings, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
December 31, 2009 and
2008
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.
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. During 2009, the Company recognized $35,250 of
consulting expense related to the agreement, and the prepaid asset was $11,750
as of December 31, 2009.
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.
IX
Energy Holdings, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
December 31, 2009 and
2008
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.
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.
On
October 15, 2009, the Company issued 300,000 shares of common stock to a
consultant for services pursuant to an agreement dated October 15,
2009. The shares have a fair value of $27,000 ($.09/share) as of the
October 15, 2009 commitment date based on the quoted closing trading price at
this date. In connection with this agreement, on January 15, 2010, the Company
issued an additional 1,250,000 shares of common stock. The shares have a fair
value of $25,000 ($0.02/share), based upon the quoted closing trading
price.
(B)
Stock Dividend
In
January 2009, the Company affected 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, the Company
will issue stock options in the amount of 5,000 per month, vesting immediately
upon the date of grant of each issuance. From May 2009 to December 2009,
the Company granted 45,000 options to this individual having a fair
value of $6,602. The Black-Scholes assumptions used are as
follows:
|
Exercise
price
|
|
$0.04 - $0.44
|
|
|
Expected
dividends
|
|
0.00
|
%
|
|
Expected
volatility
|
|
82.0% - 169.7
|
%
|
|
Risk
free interest rate
|
|
1.03
|
%
|
|
Expected
life of option
|
|
5
years
|
|
|
Expected
forfeitures
|
|
0.00
|
%
|
IX
Energy Holdings, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
December 31, 2009 and
2008
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
|
|
|
0.00
|
%
|
|
Expected
volatility
|
|
|
83.21
|
%
|
|
Risk
fee interest rate
|
|
|
1.18
|
%
|
|
Expected
life of option
|
|
5 years
|
|
|
Expected
forfeitures
|
|
|
0.00
|
%
|
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
|
|
|
0.00
|
%
|
|
Expected
volatility
|
|
|
83.21
|
%
|
|
Risk
fee interest rate
|
|
|
1.18
|
%
|
|
Expected
life of option
|
|
5 years
|
|
|
Expected
forfeitures
|
|
|
0.00
|
%
|
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
|
|
|
5,131,132
|
|
|
$
|
0.46
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited
|
|
|
(2,137,000
|
)
|
|
$
|
0.44
|
|
|
Outstanding
– December 31, 2009
|
|
|
2,994,132
|
|
|
$
|
0.46
|
|
|
Exercisable
– December 31, 2009
|
|
|
2,516,443
|
|
|
$
|
0.35
|
|
|
Weighted
average fair value of options granted during the period ended
December
31, 2009
|
|
|
1,416,743
|
|
|
$
|
0.28
|
|
|
Weighted
average fair value of options exercisable at December 31,
2009
|
|
|
688,585
|
|
|
$
|
0.27
|
|
IX
Energy Holdings, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
December 31, 2009 and
2008
|
Options outstanding
|
|
|
Range of exercise price
|
|
Number outstanding
|
|
Weighted average
remaining contractual life
|
|
Weighted average exercise
price
|
|
|
$
0.04
- $0.50
|
|
|
2,994,132
|
|
4.57
years
|
|
$
|
0.46
|
|
|
Options exercisable
|
|
|
Range of exercise price
|
|
Number exercisable
|
|
Weighted average
remaining contractual life
|
|
Weighted average exercise
price
|
|
|
$
0.04
- $0.50
|
|
|
2,516,443
|
|
4.46
years
|
|
$
|
0.35
|
|
At
December 31, 2009 and 2008, the total intrinsic value of options outstanding and
exercisable was $0.
For
the years ended December 31, 2009 and 2008, the Company recognized stock based
compensation of $757,708 and $0, respectively.
The
fair value of options vested for the years ended December 31, 2009 and 2008 was
$686,294 and $0, respectively.
Total
unrecognized share-based compensation expense from non-vested stock options at
December 31, 2009 was $696,085 which is expected to be recognized over a
weighted average period of 2.03 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 from these units were $725,000 and the Company paid
direct offering costs of $201,775. As a result of the offering, the
Company issued 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 8(E) 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:
IX
Energy Holdings, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
December 31, 2009 and
2008
Liquidated
damages are as follows:
|
Equity raised
|
|
$
|
3,475,000
|
|
|
|
|
|
|
|
|
Maximum
penalty
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
$
|
347,500
|
|
(E)
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
– December 31, 2009
|
|
|
9,377,500
|
|
|
$
|
0.50
|
|
|
Exercisable
– December 31, 2009
|
|
|
9,377,500
|
|
|
$
|
0.50
|
|
|
Warrants outstanding/exercisable
|
|
|
Range of exercise price
|
|
Number outstanding
|
|
Weighted average
remaining contractual life
|
|
Weighted average exercise
price
|
|
|
$
|
0.50
|
|
|
9,377,500
|
|
2.18
years
|
|
$
|
0.50
|
|
Fair
Value and Assessment of Derivative Financial Instruments
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.
IX
Energy Holdings, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
December 31, 2009 and
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. As a result of this
provision, the Company adjusted the exercise price of the warrants to $0.01 per
share at December 31, 2009 to determine the fair value of the derivative
warrants.
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.
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 $1,320,954
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.
IX
Energy Holdings, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
December 31, 2009 and
2008
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. 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
December 31, 2009, the Company re-measured these warrants and recorded a fair
value of $261,745. As a result of the re-measurement, the Company recorded
a change in fair value associated with these warrants as income totaling
$2,482,167 for the year ended December 31, 2009. The following management
assumptions were considered:
The
Black-Scholes assumptions used are as follows:
|
Exercise
price
|
|
$
|
0.01
|
|
|
Expected
dividends
|
|
|
0
|
%
|
|
Expected
volatility
|
|
|
81.77
|
%
|
|
Risk
free interest rate
|
|
|
1.45
|
%
|
|
Expected
life of option
|
|
2
years
|
|
|
Expected
forfeitures
|
|
|
0
|
%
|
(F)
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
|
%
|
IX
Energy Holdings, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
December 31, 2009 and
2008
In
September 2009, the agreement was terminated, and the Company recognized $37,050
of expense.
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
presenting pro-forma financial information is not required.
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 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 costs and disbursements. The arbitrators awarded
a judgment of $33,000 and the Company paid this amount as of December 31,
2009. And additional $51,640.
|
|
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. 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. In October 2009 (see Note
7), the Company paid the $177,846, which included $150,000 of principal
and $27,846 in accrued interest and legal fees. The Company is
currently negotiating a settlement with the other note holders, and
expects to settle the notes in full with cash and common
stock.
|
|
3.
|
In
September 2009, a former employee, served the Company 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 estimate the amount or range of
loss in connection with this
matter.
|
IX
Energy Holdings, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
December 31, 2009 and
2008
(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 as a bonus, paid
in February 2009, 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 and monthly over a year.
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 its former
President of the Company. Effective October 22, 2009, this individual
resigned. 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
|
%
|
IX
Energy Holdings, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
December 31, 2009 and
2008
(3) Former
Chief Financial Officer
Effective
August 27, 2009, this individual received monthly compensation of $8,500 and
$7,666 in shares of the Company’s common stock. The agreement was terminated in
December 2009. 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 December 31, 2009, none of the options were vested.
Note 11 - Income
Taxes
The
Company recognizes 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. The Company will
establish a valuation allowance to reflect the likelihood of realization of
deferred tax assets.
IX
Energy Holdings, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
December 31, 2009 and
2008
The
Company has a net operating loss carryforward for tax purposes totaling
approximately $3,683,000 at December 31, 2009 expiring through the year 2029.
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:
Significant
deferred tax assets at December 31, 2009 and 2008 are approximately as
follows:
|
|
|
2009
|
|
|
2008
|
|
|
Gross
deferred non-current tax assets:
|
|
|
|
|
|
|
|
Accrued
registration rights
|
|
$
|
159,000
|
|
|
$
|
|
|
|
Accrued
salary
|
|
|
|
|
|
|
37,000
|
|
|
Net
operating loss carryforwards
|
|
|
1,689,000
|
|
|
|
487,000
|
|
|
Total
non-current deferred tax assets
|
|
|
1,848,000
|
|
|
|
524,000
|
|
|
Gross
deferred non-current tax liabilities:
|
|
|
|
|
|
|
|
|
|
Change
in derivative liability
|
|
|
(1,138,000
|
)
|
|
|
|
|
|
Net
non-current deferred tax asset
|
|
|
710,000
|
|
|
|
524,000
|
|
|
Less:
valuation allowance
|
|
|
(710,000
|
)
|
|
|
(524,000
|
)
|
|
Deferred
tax asset – net
|
|
$
|
-
|
|
|
$
|
-
|
|
The
valuation allowance at December 31, 2008 was approximately $524,000. The net
change in valuation allowance during the year ended December 31, 2009 was an
increase of approximately $186,000. 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, 2009.
The
actual tax benefit differs from the expected tax benefit for the years ended
December 31, 2009 and 2008, 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:
|
|
|
2009
|
|
|
2008
|
|
|
Expected
tax expense (benefit) – Federal
|
|
$
|
(2,428,000
|
)
|
|
$
|
(822,000
|
)
|
|
Expected
tax expense (benefit) – State
|
|
|
(48,000
|
)
|
|
|
(471,000
|
)
|
|
Meals
and Entertainment @ 50%
|
|
|
6,000
|
|
|
|
45,000
|
|
|
Derivative
liability expense at inception
|
|
|
484,000
|
|
|
|
|
|
|
Non-deductible
stock compensation
|
|
|
1,800,000
|
|
|
|
767,000
|
|
|
Other
|
|
|
|
|
|
|
9,000
|
|
|
Change
in valuation allowance
|
|
|
186,000
|
|
|
|
472,000
|
|
|
Actual
tax expense (benefit)
|
|
$
|
-
|
|
|
$
|
-
|
|
IX Energy Holdings, Inc. and
Subsidiaries
Notes to Consolidated
Financial Statements
December 31, 2009 and
2008
Note 12 - Subsequent
Events
The
Company has evaluated for subsequent events between the balance sheet date of
December 31, 2009 and April 13, 2010, the date the financial statements were
issued.
Consulting
agreement
On
January 29, 2010, the Company entered into an agreement with a consultant to
provide certain investor relations services. The term of the
agreement is for six months, and the Company has agreed to pay a non refundable
retainer fee of $5,000 upon signing, $5,000 on March 31, 2010 and $7,500 on
April 30, 2010. Furthermore, the Company shall issue 3,000,000 shares of common
stock ratably over three months. The fair value of the shares is $30,000
($0.01/share), based upon the quoted closing trading price.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Estimated Costs of Offering
|
|
|
|
|
|
Item 14.
|
Indemnification
of Directors and Officers
|
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, as amended, 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 we
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 such Act and is, therefore,
unenforceable.
|
Item 15.
|
Recent
Sales of Unregistered Securities
|
On
October 15, 2009, the Company issued 300,000 shares of common stock to a
consultant for services pursuant to an agreement dated October 15,
2009. In connection with this agreement, on January 15, 2010, the
Company issued an additional 1,250,000 shares of common stock.
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. 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.
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.
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.
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. In
addition, the Company issued 105,682 and 112,500 shares of common stock on
August 31, 2009 and September 30, 2009 to the same consultant as a monthly
payment pursuant to his consulting agreement.
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.
On May
29, 2009, the Company issued 10,000 shares of common stock to a consultant for
services pursuant to an agreement dated as of the same date. On June 29, 2009,
the Company issued an additional 50,000 shares of common stock to the
consultant.
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.
Pursuant
to an amended agreement dated May 26, 2009 with a consultant to provide legal
services, the Company issued 100,000 shares of common stock on May
26, 2009
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. In
addition, the Company issued 3,000 shares of common stock to the same consultant
as payment towards unpaid amounts, having a fair value of $990.
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.
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.
On March
9, 2009, the Company issued 10,000 shares of common stock to an employee for
services rendered.
On
February 27, 2009, the Company issued 500,000 shares of common stock to a
consultant for services rendered.
On
February 12, 2009, the Company issued 150,000 shares to a former
employee.
On
February 5, 2009, the Company issued 26,738 shares to a consultant.
On
February 5, 2009, the Company issued 2,646,310 shares to certain of its
employees.
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.
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 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 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.
Item
16. Exhibits
|
Number
|
|
Description of Exhibit
|
|
|
|
|
|
|
|
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).
|
|
|
|
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)
|
|
|
|
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).
|
|
|
|
Amended
and Restated By-laws (Incorporated by reference to the Registrant’s Form
8-K filed on January 6, 2009).
|
|
|
|
Certificate
of Amendment to Certificate of Incorporation filed with the Secretary of
State on March 22, 2010 (Incorporated by reference to the Registrant’s
Form 8-K filed on March 24, 2010).
|
|
|
|
Opinion
of Sichenzia Ross Friedman Ference LLP . (Incorporated by reference to the
Registrant’s Form S-1 filed on July10, 2009)
|
|
|
|
Form
of Subscription Agreement (Incorporated by reference to the Registrant’s
Form 8-K filed on January 6, 2009).
|
|
|
|
Form
of Warrant (Incorporated by reference to the Registrant’s Form 8-K filed
on January 6, 2009).
|
|
|
|
Form
of Placement Agent Warrant (Incorporated by reference to the Registrant’s
Form 8-K filed on January 6, 2009).
|
|
|
|
Form
of Registration Rights Agreement (Incorporated by reference to the
Registrant’s Form 8-K filed on January 6, 2009).
|
|
|
|
Form
of Management Lock-Up Agreement (Incorporated by reference to the
Registrant’s Form 8-K filed on January 6, 2009).
|
|
|
|
Form
of Directors and Officers Indemnification
Agreement
|
|
|
|
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).
|
|
|
|
Employment
Agreement, dated August 1, 2008, by and between IX Energy, Inc. and Roland
. Bopp. (To be filed by Amendment)
|
|
|
|
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)
|
|
|
|
Securities
Purchase Agreement, dated as of July 1,2008, between IX Energy, Inc. and
each purchaser of 5% Promissory Notes of IX Energy,
Inc.
|
|
|
|
Form
of 5% Promissory Notes of IX Energy, Inc. (Incorporated by reference to
the Registrant’s Form 8-K filed on January 6,
2009).
|
|
|
|
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)
|
|
|
|
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).
|
|
|
|
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).
|
|
|
|
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).
|
|
|
|
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).
|
|
|
|
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).
|
|
|
|
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).
|
|
|
|
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
|
|
|
|
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).
|
|
|
|
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)
|
|
|
|
Settlement
Agreement between IX Energy Holdings, Inc. , its wholly owned subsidiary
IX Energy, Inc. and certain individuals who were issued promissory notes
by IX Energy Inc., in July 2008 (Incorporated by reference to
the Registrant’s Form 8-k filed May 5, 2010)
|
|
14.1
|
|
Code
of Ethics
|
|
|
|
Consent
of Berman & Company,
P.A.
|
* Filed
herewith.
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.
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 May13, 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
|
May 13,
2010
|
|
Steven
Hoffman
|
|
|
Chief
Executive Officer (Principal Executive
Officer),
and Director
|
|
|
/s/
Robert Lynch, Jr.
|
May 13,
2010
|
|
Robert
Lynch, Jr.
|
|
|
Director
|
|
IX Energy (CE) (USOTC:IXEH)
Gráfico Histórico do Ativo
De Fev 2025 até Mar 2025
IX Energy (CE) (USOTC:IXEH)
Gráfico Histórico do Ativo
De Mar 2024 até Mar 2025
