UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form 10-Q
(Mark
One)
x
QUARTERLY REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the quarterly period ended March 31, 2010
OR
TRANSITION REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the transition period from to
COMMISSION
FILE NUMBER
333-142076
IX
ENERGY HOLDINGS, INC.
(Exact
Name of small business issuer as specified in its charter)
|
Delaware
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36-4620445
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|
(State
or other jurisdiction of
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|
(I.R.S.
Employer
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incorporation
or organization)
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Identification
No.)
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711
Third Avenue, 12th floor, New York, New York 10017
(Address
of principal executive offices) (Zip Code)
Issuer’s
telephone Number:
(212)
682-5068
Indicate by check mark whether the
issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes
x
No
Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit
and post such files). Yes
No
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
definitions of “large accelerated filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
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Large
accelerated filer
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Accelerated
filer
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|
|
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Non-accelerated
filer
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Smaller
reporting company
x
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(Do
not check if a smaller reporting company)
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|
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes No
x
As of May
20, 2010 the issuer had 70,443,143 outstanding shares of Common
Stock.
IX
Energy Holdings, Inc. and Subsidiaries
Form
10-Q
March
31, 2010
TABLE OF
CONTENTS
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Page
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PART I
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FINANCIAL
INFORMATION
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Item
1.
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Financial
Statements
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Condensed
Consolidated Balance Sheets as of March 31, 2010 (unaudited) and
December
31, 2009 (audited)
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1
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Condensed
Consolidated Statements of Operations for the three months ended March 31,
2010
and
2009 (unaudited)
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2
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Condensed
Consolidated Statements of Cash Flows for the three months ended March 31,
2010
and
2009 (unaudited)
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3
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Notes
to the Condensed Consolidated Financials (unaudited)
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4
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Item
2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operation
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15
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Item
3.
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Quantitative
and Qualitative Disclosures About Market Risk
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18
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Item
4T
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Controls
and Procedures
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18
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PART II
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OTHER
INFORMATION
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Item
1.
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Legal
Proceedings
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19
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Item
1A.
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Risk
Factors
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19
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Item
2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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19
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Item
3.
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Defaults
Upon Senior Securities
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19
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Item
4.
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(Removed
and Reserved)
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19
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Item
5.
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Other
Information
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19
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Item
6.
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Exhibits
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20
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Signatures
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20
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PART
I.
ITEM
1. FINANCIAL STATEMENTS
IX
Energy Holdings, Inc. and Subsidiaries
Condensed Consolidated
Balance Sheets
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March 31, 2010
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December 31, 2009
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(unaudited)
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(audited)
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Assets
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Assets
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Cash
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$
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281,902
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$
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108,006
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Accounts
receivable
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-
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8,000
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Other
receivables
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143,610
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623,000
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Prepaid
expenses
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15,572
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49,896
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Total
Current Assets
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441,084
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788,902
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Property
and equipment
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18,856
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173,614
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Total
Assets
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$
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459,940
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$
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962,516
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Liabilities and Stockholders’
Deficit
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Liabilities
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Accounts
payable and accrued expenses
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$
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428,274
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$
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387,444
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Notes
payable - related party
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350,000
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350,000
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Notes
payable - other
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350,000
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350,000
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Accrued
interest payable - related party
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163,669
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142,957
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Accrued
interest payable - other
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30,412
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26,097
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Derivative
liability - warrants
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98,786
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261,745
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Registration
rights liability
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347,500
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347,500
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Total
Current Liabilities
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1,768,641
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1,865,743
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Stockholders’
Deficit
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Preferred
Stock, $0.0001 par value, 10,000,000 shares authorized, none issued and
outstanding
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-
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-
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Common
stock, $0.0001 par value, 500,000,000 shares authorized, 70,443,143 and
66,193,143 shares issued and outstanding
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7,044
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6,620
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Additional
paid in capital
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10,634,546
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10,487,819
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Accumulated
deficit
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(11,950,291
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)
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(11,397,666
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)
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Total
Stockholders’ Equity Deficit
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(1,308,701
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)
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(903,227
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)
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Total
Liabilities and Stockholders’ Deficit
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$
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459,940
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$
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962,516
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See
accompanying notes to
unaudited
condensed consolidated financial statements
Condensed Consolidated
Statements of Operations
(Unaudited)
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Three Months Ended
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March
31,
2010
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March
31,
2009
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Revenues
- solar panels
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$
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-
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$
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1,796,238
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Revenues
- construction contracts
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-
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43,658
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Total
revenues
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-
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1,839,896
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Cost
of revenues - solar panels
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-
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1,447,579
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Cost
of revenues - construction contracts
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-
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35,075
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Total
cost of revenues
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-
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1,482,654
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Gross
profit
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-
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357,242
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General
and administrative expenses
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567,564
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5,201,426
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Loss
from operations
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(567,564
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)
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(4,844,184
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)
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Other
income (expense)
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Other
income
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27,102
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-
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Interest
income
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19
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17,829
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Interest
expense
|
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(25,142
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)
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(32,924
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)
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Loss
on impairment
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(150,000
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)
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-
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Change
in fair value of derivative liability - warrants
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162,960
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-
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Total
other income (expense)
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14,939
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(15,095
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)
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Net
loss
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$
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(552,625
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)
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$
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(4,859,279
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)
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Net
Loss per Common Share - Basic and Diluted
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$
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(0.01
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)
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$
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(0.08
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)
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Weighted Average Number of
Common Shares Outstanding
During the Period - Basic and
Diluted
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69,268,144
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61,075,392
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See
accompanying notes to unaudited condensed consolidated financial
statements
IX
Energy Holdings, Inc. and Subsidiaries
Condensed Consolidated
Statements of Cash Flows
(Unaudited)
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Three Months Ended
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March 31,
2010
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March 31,
2009
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CASH
FLOWS FROM OPERATING ACTIVITIES:
|
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Net
loss
|
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$
|
(552,625
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)
|
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$
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(4,859,279
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)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
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Bad
debt expense
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8,000
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-
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Depreciation
|
|
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4,758
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2,426
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|
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Amortization
of debt issue costs
|
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-
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1,988
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Loss
on impairment
|
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150,000
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|
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-
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Change
in fair value of derivative liability- warrants
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(162,960
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)
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-
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Share
based payments
|
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147,151
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4,501,421
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Changes
in operating assets and liabilities:
|
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(Increase)
Decrease in:
|
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Accounts
receivable
|
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479,390
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-
|
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Cost
& estimated earnings in excess of billings on uncompleted
contracts
|
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|
-
|
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(8,659
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)
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Prepaid
expenses and deposits
|
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34,325
|
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(140,484
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)
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Increase
(Decrease) in:
|
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|
|
|
|
|
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Accounts
payable and accrued expenses
|
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40,830
|
|
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(128,794
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)
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Accrued
interest payable – related party
|
|
|
20,712
|
|
|
|
24,771
|
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|
Accrued
interest payable – other
|
|
|
4,315
|
|
|
|
6,165
|
|
|
Deferred
revenue
|
|
|
-
|
|
|
|
(1,796,238
|
)
|
|
Net
Cash Provided by (Used in) Operating Activities
|
|
|
173,896
|
|
|
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(2,396,683
|
)
|
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|
|
|
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CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
-
|
|
|
|
(260,547
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)
|
|
Net
Cash Used in Investing Activities
|
|
|
-
|
|
|
|
(260,547
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)
|
|
|
|
|
|
|
|
|
|
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|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Repayment
of notes payable - related party
|
|
|
-
|
|
|
|
(250,000
|
)
|
|
Proceeds
from common stock issued for cash in private placement
|
|
|
-
|
|
|
|
725,000
|
|
|
Cash
paid as direct offering costs
|
|
|
-
|
|
|
|
(201,775
|
)
|
|
Net
Cash Provided By Financing Activities
|
|
|
-
|
|
|
|
273,225
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Increase (Decrease) in Cash
|
|
|
173,896
|
|
|
|
(2,384,005
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
- Beginning of Period
|
|
|
108,006
|
|
|
|
4,736,812
|
|
|
|
|
|
|
|
|
|
|
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Cash
- End of Period
|
|
$
|
281,902
|
|
|
$
|
2,352,807
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY CASH FLOW
INFORMATION:
|
|
|
|
|
|
|
|
|
|
Cash
Paid During the Period for:
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Interest
|
|
$
|
-
|
|
|
$
|
-
|
|
See
accompanying notes to unaudited condensed consolidated financial
statements
IX
Energy Holdings, Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
March 31,
2010
(Unaudited)
Note 1 - Nature of
Operations, Basis of Presentation 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.
Basis
of Presentation
The
accompanying unaudited condensed consolidated interim financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States of America and the rules and regulations of the United States
Securities and Exchange Commission for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all the information and footnotes necessary for a
comprehensive presentation of financial position, results of operations, or cash
flows. It is management's opinion, however, that all material adjustments
(consisting of normal recurring adjustments) have been made which are necessary
for a fair financial statement presentation.
The
unaudited interim financial statements should be read in conjunction with the
Company’s Annual Report on Form 10-K, which contains the audited financial
statements and notes thereto, together with the Management’s Discussion and
Analysis, for the years ended December 31, 2009 and 2008. The
interim results for the period ended March 31, 2010 are not necessarily
indicative of results for the full fiscal year.
Going
Concern
As
reflected in the accompanying condensed consolidated financial statements, the
Company has a net loss of $552,625 and net cash provided by operations of
$173,896 for the three months ended March 31, 2010; and had a working capital
deficit of $1,327,557 and a stockholders’ deficit of $1,308,701 at March 31,
2010.
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 may 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. The Company is also trying to restructure its
outstanding debt.
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.
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.
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. The Company recorded loss on
impairment of $150,000 and $0, during the three months ended March 31, 2010 and
2009, respectively.
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 three months ended March 31,
2010 and 2009 excludes the following potentially dilutive securities because
their inclusion would be anti-dilutive:
|
|
|
2010
|
|
|
2009
|
|
|
Stock
option
s
|
|
|
2,994,132
|
|
|
|
1,033,066
|
|
|
Stock
warrants
|
|
|
9,377,500
|
|
|
|
9
,
377
,
5
00
|
|
|
|
|
|
|
|
|
|
|
|
|
T
otal
common stock equivalents
|
|
|
12,371,632
|
|
|
|
10
,
410
,
566
|
|
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:
|
|
1.
|
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
|
|
|
2.
|
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 March 31, 2010 and 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.
Reclassifications
Certain
amounts have been reclassified to conform to the current period presentation,
such reclassifications had no effect on the reported results of operations or
cash flows.
Recent
Accounting Pronouncements
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.
In April
2010, FASB issued ASU 2010-17,
Revenue Recognition—Milestone Method
(Topic 605): Milestone Method of Revenue Recognition
(“ASU 2010-17”). ASU
2010-17 provides guidance on defining a milestone and determining when it may be
appropriate to apply the milestone method of revenue recognition for research or
development transactions. ASU 2010-17 is effective on a prospective basis for
milestones achieved in fiscal years, and interim periods within those years,
beginning on or after June 15, 2010. The Company is currently evaluating the
impact of the provisions of ASU 2010-17 on its consolidated results of
operations, financial position or liquidity.
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 three months ended March 31, 2010 and 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):
|
|
|
March 31,
2010
|
|
|
December 31,
2009
|
|
|
Level 1:
Quoted prices
in active markets for identical assets
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Level 2:
Significant
Other Observable Inputs (Derivative Liabilities)
|
|
|
98,786
|
|
|
|
261,745
|
|
|
Level 3:
Significant
Unobservable Inputs
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
98,786
|
|
|
$
|
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.
Note 3 – Property and
Equipment
At March
31, 2010 and December 31, 2009, property and equipment consists of the
following:
|
|
|
March 31, 2010
|
|
|
December 31, 2009
|
|
|
Equipment
|
|
$
|
-
|
|
|
$
|
150,000
|
|
|
Computers
and office equipment
|
|
|
29,023
|
|
|
|
29,023
|
|
|
Total
|
|
|
29,023
|
|
|
|
179,023
|
|
|
Less:
accumulated depreciation
|
|
|
(10,167
|
)
|
|
|
(5,409
|
)
|
|
Property
and equipment, net
|
|
$
|
18,856
|
|
|
$
|
173,614
|
|
Estimated
useful lives of property and equipment are as follows:
|
Asset
|
|
Est. useful life
|
|
Equipment
|
|
20
years
|
|
Computers
and office equipment
|
|
3
years
|
In
connection with the sale of equipment in December 2009, the Company retained
approximately $150,000 of equipment related materials. During the three months
ended March 31, 2010, the Company determined that these materials have no future
economic benefit due to projected losses, and expected future negative cash
flows from operations, and recorded and impairment loss for
$150,000.
Note 4 - Notes
Payable
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. The Company is currently negotiating the payment
terms with the other borrowers, and the $350,000 of principal is classified as
current as of March 31, 2010. At December 31, 2009 the balance was
$350,000. As of March 31, 2010 and December 31, 2009, there is
$30,412 and $26,097, respectively of accrued interest related to these
notes.
On April
29, 2010, IX Energy Holdings, Inc. and its wholly owned subsidiary IX Energy,
Inc entered into a settlement agreement with certain individuals (the
“Note-holders”) who were issued promissory notes by IXE in July
2008. Pursuant to the terms of the settlement agreement, the
Note-holders received an aggregate of $125,000, which was paid on April 21,
2010 and 5,000,000 shares of common stock of the Company to settle notes
and accrued interest of approximately $380,000. These shares had a fair value of
$75,000 ($0.015/share), based upon the quoted closing trading price. In
connection with this settlement, the Company has recorded a gain on debt
settlement of approximately $180,000.
The
Note-holders received piggy-back registration rights in connection with the
shares issued under the settlement agreement. In addition, in connection with
the settlement agreement, the Note-holders executed Stipulations of
Discontinuance which were filed with the court in New York County, to dismiss,
with prejudice, the actions brought against the Company related to the
promissory notes.
Note 5 - Stockholders’
Deficit
2010
On
January 15, 2010, the Company issued 1,250,000 shares of common stock regarding
the second of three share issuances to a consultant for services under to a
consulting agreement dated October 15, 2009. The shares had a fair
value of $25,000 ($0.02/share), based on the quoted closing price.
On
January 29, 2010 the Company entered into a consulting agreement with an
investor relations firm. 3,000,000 shares of common stock were issues
for services. The shares had a fair value of $30,000 ($0.01/share)
based on the quoted closing trading price on that day.
(B)
2009 Stock Options
During the three months ended
March 31, 2010, the Company recognized $77,064 due to stock options that have
vested during the period.
The
following is a summary of the Company’s stock option activity:
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
Options
|
|
|
Exercise
Price
|
|
|
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
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
– March 31, 2010
|
|
|
2,994,132
|
|
|
$
|
0.46
|
|
|
Exercisable
– March 31, 2010
|
|
|
2,808,043
|
|
|
$
|
0.36
|
|
|
Weighted
average fair value of options exercisable at March 31,
2010
|
|
|
765,649
|
|
|
$
|
0.27
|
|
|
Options outstanding
|
|
|
Exercise price
|
|
Number outstanding
|
|
Weighted
remaining life
|
|
Weight avg.
exercise price
|
|
|
$0.04-$0.50
|
|
|
2,994,132
|
|
4.
3
2
years
|
|
$
|
0.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable
|
|
|
Exercise
price
|
|
Number outstanding
|
|
Weighted
remaining
life
|
|
Weight avg.
exercise price
|
|
|
$0.04-$0.50
|
|
|
2,808,043
|
|
4.2
2
years
|
|
$
|
0.3
6
|
|
(C)
Warrants & Derivative Liability
During the three months ended March 31, 2010, the Company
recognized $15,087 due to warrants that have vested during the period.
The
following is a summary of the Company’s warrant activity:
|
|
|
Warrants
|
|
|
Weighted Avg.
Exercise price
|
|
|
Balance,
December 31, 2008
|
|
|
7,225,000
|
|
|
$
|
0.50
|
|
|
Granted
|
|
|
2,152,000
|
|
|
$
|
0.50
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2009
|
|
|
9,377,500
|
|
|
$
|
0.01
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 31, 2010
|
|
|
9,377,500
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
and Exercisable, March 31, 2010
|
|
|
9,377,500
|
|
|
$
|
0.01
|
|
|
Exercise price
|
|
Number outstanding
|
|
Weight average life remaining
|
|
|
|
|
|
|
|
$0.01
|
|
|
9,377,500
|
|
1.94
years
|
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.
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.
In
connection with the ASC 815, “
Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entity’s Own Stock
,” the Company
determined that the embedded conversion feature and the warrant issuances
(ratchet down of exercise price based upon lower exercise price in future
offerings) are 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.
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.
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 March
31, 2010, the Company re-measured these warrants and recorded a fair value of
$98,785. As a result of the re-measurement, the Company recorded a change
in fair value associated with these warrants as income totaling $162,960 for the
three months ended March 31, 2010. The following management assumptions were
considered:
The
Black-Scholes assumptions used are as follows:
|
Exercise
price
|
|
$
|
0.01
|
|
|
Expected
dividends
|
|
|
0
|
%
|
|
Expected
volatility
|
|
|
163
|
%
|
|
Risk
free interest rate (2 year treasury note)
|
|
|
1.02
|
%
|
|
Expected
life of option, remaining period
|
|
1.75-1.91
years
|
|
|
Expected
forfeitures
|
|
|
0
|
%
|
Note 6 - Commitments and
Contingencies
|
|
A.
|
Litigation 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 had accrued this amount as
of December 31, 2009.
|
|
|
2.
|
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.
|
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
%
|
|
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 issued 3,000,000 shares of common
stock, having a fair value of $30,000 ($0.01/share), based upon the quoted
closing trading price.
ITEM 2. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Forward-Looking
Statements
The
information in this report contains forward-looking statements. All statements
other than statements of historical fact made in this report are forward
looking. In particular, the statements herein regarding industry prospects and
future results of operations or financial position are forward-looking
statements. These forward-looking statements can be identified by the use of
words such as “believes,” “estimates,” “could,” “possibly,” “probably,”
anticipates,” “projects,” “expects,” “may,” “will,” or “should” or other
variations or similar words. No assurances can be given that the future results
anticipated by the forward-looking statements will be achieved. Forward-looking
statements reflect management’s current expectations and are inherently
uncertain. Our actual results may differ significantly from management’s
expectations.
The
following discussion and analysis should be read in conjunction with our
financial statements, included herewith. This discussion should not be construed
to imply that the results discussed herein will necessarily continue into the
future, or that any conclusion reached herein will necessarily be indicative of
actual operating results in the future. Such discussion represents only the best
present assessment of our management.
Recent
Events
Prior to
December 30, 2008, we were a development stage company that sought to market and
sell a natural energy drink derived from coconut water to distributors of soft
drinks in Israel. On December 30, 2008, we completed a reverse merger,
pursuant to which we merged with and into a private company, IX Energy, with IX
Energy being the surviving company. In connection with this reverse merger, we
discontinued our former business and succeeded to the business of IX Energy as
our sole line of business. Since IX Energy acquired a controlling voting
interest, it was deemed the accounting acquirer, while we were deemed the legal
acquirer. The historical financial statements of the Company are those of IX
Energy and of the consolidated entities from the date of merger and
subsequent. All costs associated with the reverse merger were expensed as
incurred.
Overview
IX Energy
was incorporated in the State of Delaware on March 3, 2006 for the purpose of
designing, manufacturing and installing high-performance solar electric power
technologies. Historically, our operations have principally involved the
integration and installation of solar power systems manufactured by third
parties. However, in an effort to become a vertically integrated solar products
and services company that manufactures, designs, markets and installs its own
solar power systems, we have recently entered into an agreement to manufacture
solar modules that will be marketed primarily to federal military and civilian
agencies.
Three
Months Ended March 31, 2010 Compared to Three Months Ended March 31,
2009
Revenues
. During the three
months ended March 31, 2010, our revenues were $0 as compared to $1,839,896
revenue for the three months ended March 31, 2009. The $1,839,896 decrease in
revenues was primarily due to the fulfillment of our UNICOR Government Agreement
in 2009.
Cost of Sales
. During the
three months ended March 31, 2010, our cost of sales was $0 as compared to cost
of sales of $1,482,654 for the three months ended March 31, 2009. The $1,482,654
decrease was related to the fulfillment of our UNICOR Government Agreement in
2009.
Operating Expenses
. During
the three months ended March 31, 2010, we recorded operating expenses of
$567,564, as compared to operating expenses of $5,201,426 for the three
months ended March 31, 2009, representing a decrease of $4,633,862. This
decrease in operating expenses was primarily due to decreased consulting fees
related to IR consulting agreements, and decreased common stock issued for
long-term compensation.
Loss from Operations
. During
the three months ended March 31, 2010, we recorded an operating loss of $567,564
as compared to an operating loss of $4,844,184 for the three months ended
March 31, 2009, representing a decrease of $4,276,620. This decrease in
loss from operations was primarily due to decreased in operating expenses by
$4,633,862 that was partially offset by our gain on the reduction of our
derivative liability of $162,960.
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. We
believe that we have sufficient cash to fund our operations for the next twelve
months.
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. As
of March 31, 2010, we had cash of $281,902, as compared to cash of $108,006 as
of December 31, 2009.
Net Cash
Provided By Operating Activities. Net cash provided by operating activities
totaled $173,896 for the three months ended March 31, 2010, as compared to cash
used of $2,396,683 for the three months ended March 31, 2009. This increase was
primarily due to the net collection of accounts receivable in the amount of
approximately $480,000, increase in accounts payable and accrued expenses
related to professional fees in the amount of $40,830, as partially offset by
the gain realized on the reduction of our derivative liability of approximately
$163,000, stock-based compensation of $147,151 and a loss on impairment in the
amount of $150,000. For the three months ended March 31, 2009, our net cash used
in operating activities of $2,396,683 was comprised of primarily net loss of
$4,859,729, stock-based compensation of $4,501,421, an increase in accrued
interest payable to a related party of $24,771, accrued interest payable of
$6,165, depreciation expense of $2,426, and amortization of debt issue costs of
$1,988. The increase in net cash used in operating activities was partially
offset by our net loss of $4,859,279, and decreases in deferred revenue of
$1,796,238, accounts payable and accrued expenses of $128,794, an increase in
cost and estimated earnings in excess of billings on uncompleted contracts of
$8,659, and an increase in prepaid expenses of $140,484
Net Cash
Used in Investing Activities. Net cash used in investing activities totaled $0
during the three months ended March 31, 2010, as compared to net cash used in
investing activities of $260,547 during the three months ended March 31, 2009.
Cash used in investing activities during the three months ended March 31, 2009
was comprised of purchases of property and equipment for $260,547.
Net Cash
Provided By Financing Activities. Net cash provided by financing activities
totaled $0 during the three months ended March 31, 2010, as compared to net cash
of $273,225 from financing activities during the three months ended March 31,
2009. The proceeds for the three months ended March 31, 2009 were derived from
proceeds from common stock for cash in a private placement totaling $725,000.
This was partially offset by repayment of notes payable of $250,000 to a
related party and cash paid as direct offering costs of $201,775 related to the
proceeds raised in the private placement.
Going
Concern
As
reflected in the accompanying financial statements, the Company has a net loss
of $552,625 for the three months ended March 31, 2010; a working capital deficit
of $1,327,557, and an accumulated deficit of $11,950,291 at March 31,
2010.
The
ability of the Company to continue its operations is dependent on management’s
plans, which include the raising of capital through debt and/or equity markets
with some additional funding from other traditional financing sources, including
term notes, until such time that funds provided by operations are sufficient to
fund working capital requirements.
The
Company believes its current available cash, along with anticipated revenues,
may be insufficient to meet its cash needs for the near future. There can be no
assurance that financing will be available in amounts or terms acceptable to the
Company, if at all. The Company may require additional funding to finance the
growth of its current and expected future operations, as well as to achieve its
strategic objectives. The Company believes that the further implementation of
its business plan will provide future positive cash flows.
Critical
Accounting Policies and Estimates
We have
identified the policies below as critical to our business operations and the
understanding of our results of operations. The impact and any associated risks
related to these policies on our business operations are disclosed throughout
this section where such policies affect our reported and expected financial
results. Our preparation of our financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of our
financial statements, and the reported amounts of revenues and expenses during
the reporting period. There can be no assurance that actual results will not
differ from those estimates.
Significant
estimates for the three months ended March 31, 2010 and the year ended December
31, 2009 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
the Company’s continuing and expected future losses.
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. 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. As of March
31, 2010 and December 31, 2009, the Company recorded an allowance of $8,000 and
$0, respectively.
At
December 31, 2009, the Company had a concentration of accounts receivable from
one customer totaling 100%
Revenue Recognition
. The
Company follows the guidance of the FASB Accounting Standard Codification (ASC)
605-10-25-1 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. 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 FASB ASC 718-10-30 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK.
N/A
ITEM 4T. CONTROLS AND
PROCEDURES.
Evaluation of Disclosure Controls
and Procedures
. Under the supervision and with the participation of our
management, including our President, Chief Financial Officer and Secretary, we
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”))
as of the end of the period covered by this report. Based upon that evaluation,
our President, Chief Financial Officer and Secretary concluded that our
disclosure controls and procedures as of the end of the period covered by this
report were effective such that the information required to be disclosed by us
in reports filed under the Securities Exchange Act of 1934 is (i) recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms and (ii) accumulated and communicated to our
management to allow timely decisions regarding disclosure. A controls system
cannot provide absolute assurance, however, that the objectives of the controls
system are met, and no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within a company have
been detected.
Changes in Internal Control Over
Financial Reporting.
During the most recent quarter ended March 31, 2010,
there has been no change in our internal control over financial reporting (as
defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) )
that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
PART II
ITEM 1. LEGAL
PROCEEDINGS.
From time
to time, the Company may become involved in various lawsuits and legal
proceedings, which arise in the ordinary course of business. However, litigation
is subject to inherent uncertainties, and an adverse result in these or other
matters may arise from time to time that may harm its business.
An action
was commenced in the Civil Court of the County of New York for breach of
contract totaling $51,640. The company is defending the action and cannot
estimate what the outcome of the case may be.
The
company was engaged in Arbitration before the Joint Committee on Fee
Disputes. The Arbitration yielded an award against IX Energy, Inc. in
the amount of $33,000. The Arbitration award in the amount of $33,000
was confirmed by decision dated March 31, 2010. A judgment was
entered on May 12, 2010 against IX Energy, Inc. in the amount of
$33,941.75.
An action
commenced in Superior Court of the State of California, County of San
Diego for breach of contract, breach of implied covenant of good
faith and fair dealing, breach of guarantee, intentional misrepresentation,
negligent misrepresentation, intentional infliction of emotion distress,
emotional distress resulting from financial injury, fraud and deceit, and
conspiracy totaling $175,000.
An action
was commenced in Court of State of New York, County of New York for breach of
contract, disparagement and defamation, and breach of fiduciary duty totaling
$500,000.
ITEM 1A. RISK
FACTORS.
There
have been no material changes to the Risk Factors described in our 2009 Annual
Report on Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR
SECURITIES.
None
ITEM 4.
REMOVED AND
RESERVED
None
ITEM 5. OTHER
INFORMATION.
None
ITEM 6. EXHIBITS.
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Exhibit
Number
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Description of Exhibit
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31.1
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Certifications
required by Rule 13a-14, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
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32.1
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Certification
of Chief Executive Officer and Principal Accounting Officer pursuant to 18
U.S.C.§ 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
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IX
ENERGY HOLDINGS, INC.
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/s/ Steven Hoffmann
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May
24, 2010
|
|
Steven
Hoffmann
|
|
|
|
Chief
Executive Officer, Chief Financial Officer
and
Director
|
IX Energy (CE) (USOTC:IXEH)
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