On May 12, 2009, the Company granted 120,000 options to this individual, having a fair value of $34,363. The Black-Scholes assumptions used are as follows:
In July 2009, this individual was terminated. As of June 30, 2009, none of the options were vested.
On March 9, 2009, the Company entered into a two-year employment agreement with an individual as Vice President - Finance. The agreement provides for an annual salary of $87,000 plus entitlement to an annual bonus based upon the Company’s performance during each year of employment. The Company agreed to issue 10,000 shares of common stock as additional compensation, having a fair value of $10,100 ($1.01/share) based upon the closing price on the date of the employment agreement. The individual will be granted 200,000 of the Company’s non-qualified options vesting bi-annually. Under the terms of the plan, these stock options are subject to board approval.
On May 12, 2009, the Company granted 200,000 options to this individual, having a fair value of $57,272. The Black-Scholes assumptions used are as follows:
The Company has evaluated for subsequent events between the balance sheet date of June 30, 2009 and August 19, 2009, the date the financial statements were issued.
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:
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:
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 Ended June 30, 2009 Compared to Three Months Ended June 30, 2008
Revenues
. During the three months ended June 30, 2009, we recorded revenues of $118,638 as compared to $4,645,888 for the three months ended June 30, 2008. A decrease of $4,490,131 was related to a few resale transactions for solar panels in the three months of 2008 that did not occur in the three months of 2009. The remaining decrease of $37,119 was related to our construction in progress contracts as we completed more projects in 2008 than in 2009.
Cost of Sales
. During the three months ended June 30, 2009, we recorded cost of sales of $107,131 as compared to cost of sales of $4,526,936 for the three months ended June 30, 2008. A decrease of $4,399,231 was related to the cost of purchasing solar panels for resale in 2008 that did not occur in 2009. The remaining decrease of $20,574 of cost of sales is related to our completion and ongoing construction in progress contracts.
Our margin on the resale of solar panels was approximately 18% for the three months ended June 30, 2009 as compared to 19% for the three months ended June 30, 2008. We expect our margins to increase going forward as we now have a more stable arrangement with our suppliers.
Our margin on our construction in progress contracts for the three months ended June 30, 2009 was approximately (82%) as compared to 18% for the three months ended June 30, 2008.
Operating Expenses
. During the three months ended June 30, 2009, we recorded operating expenses of $1,186,323, as compared to operating expenses of $262,611 for the three months ended June 30, 2008, representing an increase of $923,712. This increase in operating expenses was primarily made up of approximately $163,000 for increased hiring in 2009 for our management and administrative staff, approximately $276,000 related to legal, consulting and accounting expenses, approximately $181,000 related to stock option expense, $108,000 related to a loss on sale of a fixed asset, and approximately $70,000 related to common stock issued for services.
Loss from Operations
. During the three months ended June 30, 2009, we recorded an operating loss of $1,174,816, as compared to an operating loss of $143,659 for the three months ended June 30, 2008, representing an increase of $1,031,157. This increase in loss from operations was primarily due to increased operation expenses by $923,712 that was partially offset by our gross profit in 2009.
Provision for Income Taxes
. We did not recognize any provisions for income taxes during the three months ended June 30, 2009 and 2008 due to our net losses during these periods and the valuation allowances on the resulting deferred tax assets.
Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008
Revenues
. During the six months ended June 30, 2009, we recorded revenues of $1,958,534 as compared to $4,667,427 revenue for the six months ended June 30, 2008. A decrease of $2,671,774 was related to a few resale transactions for solar panels in the first six months of 2008 that did not occur in the first six months of 2009. The remaining decrease of $37,119 was related to our construction in progress contracts as we completed more projects in 2008 than in 2009.
Cost of Sales
. During the six months ended June 30, 2009, we recorded cost of sales of $1,589,785 as compared to cost of sales of $4,557,435 for the six months ended June 30, 2008. $2,951,652 of the decrease was related to solar panels. The remaining decrease of $15,998 of cost of sales is related to our completion and ongoing construction in progress contracts.
Our margin on the resale of solar panels was approximately 19% for the six months ended June 30, 2009 as compared to 2% for the six months ended June 30, 2008. We expect our margins to increase going forward as we now have a more stable arrangement with our suppliers.
Our margin on our construction in progress contracts for the six months ended June 30, 2009 was approximately 1% as compared to (1%) for the six months ended June 30, 2008. We believe that our margin in 2009 is representative of our contracts going forward.
Operating Expenses
. During the six months ended June 30, 2009, we recorded operating expenses of $6,387,750, as compared to operating expenses of $347,843 for the six months ended June 30, 2008, representing an increase of $6,039,907. This increase in operating expenses was primarily made up of approximately $344,000 for increased hiring in 2008 for our management and administrative staff, approximately $560,000 related to legal, consulting and accounting expenses, approximately $465,000 related to stock option expense, approximately $3,765,000 related to common stock issued for employee compensation, and approximately $610,000 related to common stock issued for services and $108,000 related to a loss on sale of a fixed asset.
Loss from Operations
. During the six months ended June 30, 2009, we recorded an operating loss of $6,019,001, as compared to an operating loss of $237,851 for the six months ended June 30, 2008, representing an increase of $5,781,150. This increase in loss from operations was primarily due to increased operation expenses by $6,039,907 that was partially offset by our gross profit in 2009.
Provision for Income Taxes
. We did not recognize any provisions for income taxes during the six months ended June 30, 2009 or 2008 due to our net losses during these periods and the valuation allowances on the resulting deferred tax assets.
17
Liquidity and Capital Resources
We have historically met our liquidity requirements from a variety of sources, including the sale of equity and debt securities to related parties and institutional investors. Based on our strategy and the anticipated growth in our business, we believe that our liquidity needs will increase. The amount of such increase will depend on many factors, including building out our management team, the costs associated with the fulfillment of our projects, whether we upgrade our technology, and the amount of inventory required for our expanding business.
Although we recently raised an aggregate of $3.475 million in a private placement, our ultimate success depends upon our ability to raise additional capital. There can be no assurance that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable to us.
We will need to raise a minimum of $3 million for us to execute our business plan in the short term. If we do not raise this additional our business will be substantially impaired.
We may be required to pursue sources of additional capital through various means, including joint venture projects and debt or equity financings. Future financings through equity investments are likely to be dilutive to existing stockholders.
Our ability to obtain needed financing may be impaired by such factors as the capital markets, both generally and specifically in the renewable energy industry, and the fact that we are not profitable, which could impact the availability or cost of future financings. If the amount of capital we are able to raise from financing activities, together with our revenues from operations, is not sufficient to satisfy our capital needs, even to the extent that we reduce our operations accordingly, we may be required to cease operations.
Cash and Cash Equivalents.
As of June 30, 2009, we had cash and cash equivalents of $1,284,336, as compared to cash and cash equivalents of $4,736,812 as of December 31, 2008.
Net Cash Provided By Operating Activities.
Net cash used in operating activities totaled $3,303,808
for the six months ended June 30, 2009, as compared to cash provided by of
$5,629,071 for the six months ended June 30, 2008. This increase was primarily
due to net loss of $5,651,316, decreases in deferred revenue of $1,796,238
(deferred revenue decreased as we received payment in the prior period and
shipped to the customer in the quarter ended March 31, 2009), a decrease in
accounts payable and accrued expenses of $157,888 (as the company sought ways to
cut expenses and pay off old unpaid balances), a change in fair value of
derivative liability based upon revaluation at June 30, 2009 of $1,827,368, an
increase in accounts receivable of $108,636 and an increase in prepaid expenses
of $114,434. This was partially offset by derivative expense related to warrants
issued on the private placement of $1,422,917, issuance of common stock for
consulting services of $707,474, common stock issued to employees for services
rendered of $3,675,302, and employee stock-based compensation related to stock
options of $461,195.
Net Cash Used in Investing Activities
Net cash used in investing activities totaled $253,893 during the six months ended June 30, 2009, as compared to net cash used in investing activities of $0 during the six months ended June 30, 2008. Cash used in investing activities during the six months ended June 30, 2009 was comprised of purchases of property and equipment for $266,893 and proceeds from the sale of a fixed asset for $13,000.
Net Cash Provided By Financing Activities
Net cash provided by financing activities totaled $105,225 during the six months ended June 30, 2009, as compared to net cash provided by financing activities of $38,252 during the six months ended June 30, 2008. The proceeds for the six months ended June 30, 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 $418,000 to a related party and cash paid as direct offering costs of $201,775 related to the proceeds raised in the private placement. For the six months ended June 30, 2008, our cash provided by financing activities was comprised of $38,252 proceeds from issuance of notes payable from related party.
18
Going Concern
As reflected in the accompanying financial statements, the Company has a net loss of $5,651,316 and net cash used in operations of $3,308,808 for the six months ended June 30, 2009; and had a working capital deficit of $1,542,146, and an accumulated deficit of $8,444,076 at June 30, 2009.
The ability of the Company to continue its operations is dependent on management’s plans, which include the raising of $3 million capital through debt and/or equity markets with some additional funding from other traditional financing sources, including term notes, until such time that funds provided by operations are sufficient to fund working capital requirements.
Critical Accounting Policies and Estimates
We have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact and any associated risks related to these policies on our business operations are disclosed throughout this section where such policies affect our reported and expected financial results. Our preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenues and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates.
Management’s discussion and analysis of our financial
condition and results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. We review the accounting
policies used by us in reporting our financial results on a regular basis. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses and related disclosure of contingent assets and liabilities. On an
ongoing basis, we evaluate our estimates. We base our estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Results may differ from these estimates due
to actual outcomes being different from those on which we based our assumptions.
These estimates and judgments are reviewed by management on an ongoing basis and
at the end of each quarter prior to the public release of our financial
results.
Our critical accounting policies and estimates, which
require the most significant management estimates and judgment in determining
amounts reported in our consolidated financial statements included elsewhere in
this Annual Report on Form 10-K are as follows:
Accounts Receivable.
Accounts receivable represents
trade obligations from customers that are subject to normal trade collection
terms, without discounts. However, in certain cases we are entitled to rebates
upon the completion of certain jobs post installation. For percentage of
completion installation projects, the amounts are rebates and they are factored
into the total estimated contract price when doing percentage of completion to
recognize revenue on each project. At the completion of a solar instillation
project we record a receivable from the electric company. The Company
periodically evaluates the collectability of its accounts receivable and
considers the need to adjust an allowance for doubtful accounts based upon
historical collection experience and specific customer information. Actual
amounts could vary from the recorded estimates. We have determined that as of
June 30, 2009 and December 31, 2008 no allowance was required.
At June 30, 2009 and December 31, 2008, the Company had a concentration of accounts receivable from two customers and one customer totaling 100%. For the six months ended June 30, 2009, the Company had a concentration of sales with four customers totaling 100%. For the year ended December 31, 2008, the Company had a concentration of sales with four customers totaling 100%.
Revenue Recognition
. We follow the guidance of the Securities and Exchange Commission's Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition" ("SAB 104") for revenue recognition and we record revenue when all of the following have occurred: (1) persuasive evidence of an arrangement exists, (2) the product is delivered and installed, (3) the sales price to the customer is fixed or determinable and (4) collectability of the related customer receivable is reasonably assured. We have two methods of revenue recognition. For our construction contracts, we record revenues based upon the use of the percentage of completion method. For certain energy products that we resell to third parties, we record revenue based upon the shipment date. The Company has two methods of revenue recognition:
(1)
Energy product reseller
The Company purchases product from suppliers and resells
them to third parties. The Company records the revenue from the buyer and
related cost paid to the suppliers on these types of arrangements. In 2008, the
Company entered into similar arrangements wherein the Company had no
installation responsibility and no further obligation after delivery was made to
the customers. Payments from the customers are received in advance of delivery
of solar panels and are treated as deferred revenue. Payments are then made to
the suppliers and cost of materials is recorded. A pro-rata portion of the
deferred revenue from the customers is recognized as shipments are made.
Revenues from these arrangements are recognized upon
shipment from the supplier to these third parties. In addition, the Company has
reviewed EITF No. 99-19 to ascertain the relevance of gross versus net
reporting. Upon the Company’s review of this guidance, as well as SAB No.
104, the Company has determined that it is subject to gross reporting as it
bears the risk of physical loss of inventory in each of these arrangements,
takes title to the inventory, is the primary obligor in the arrangements,
establishes the pricing with customers, has discretion in the selection of
suppliers, determines product specifications with customers and suppliers and it
has credit risk on all sales.
(2)
Percentage of completion
Revenue from construction contracts are reported under the
percentage-of-completion method for financial statement purposes. The estimated
revenue for each contract reflected in the financial statements represent that
percentage of estimated total revenue that costs incurred to date bear to
estimated total costs, based on the Company’s current estimates. With
respect to contracts that extend over one or more accounting periods, revisions
in costs and revenue estimates during the course of the work are reflected in
the period the revisions become known. When current estimates of total contract
costs indicate a loss, provision is made for the entire estimated loss.
The asset,
“Costs and estimated earnings in excess
of billings on uncompleted contracts,”
represents revenues recognized
in excess of amounts billed. The liability,
“Estimated earnings on
uncompleted contracts,”
represents billings in excess of revenues
recognized. Billing practices for these projects are governed by the
contract terms of each project based upon actual costs incurred, achievement of
milestones, or pre-agreed schedules. Billings do not necessarily correlate with
revenue recognized under the percentage-of-completion method of accounting.
With the exception of claims and change orders that are in
the process of being negotiated with customers, unbilled work is usually billed
during normal billing processes following achievement of the contractual
requirements.
Share-Based Compensation.
We follow Statement of
Financial Accounting Standards (“SFAS”) No. 123R (revised 2004),
“Share-Based Payment,” (“SFAS 123R”) 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.
19
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 June 30, 2009, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) ) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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.
A complaint was filed in the Supreme Court of the State of New York by a vendor seeking to recover the sum of $101,820, plus costs and disbursements. The Company believes this complaint is without merit. As of June 30, 2009, the Company has accrued $29,900 based on actual invoices received from this vendor.
A complaint was filed in the Supreme Court of the State of New York by the holder of a promissory note seeking a summary judgment for repayment of the noteholder’s $150,000 original investment plus interest. The Company believes this complaint is without merit.
ITEM 1A. RISK FACTORS.
N/A
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
During the six months ended June 30, 2009, we issued and sold 1,812,500 shares of common stock for proceeds of $725,000. The Company also paid $201,775 in cash for direct offering costs. In addition, we issued 526,738 shares of common stock to consultants for services rendered in the amount of $539,759. In connection with the issuance of such shares, we relied on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
20
ITEM 6. EXHIBITS.
|
|
|
|
|
|
|
|
|
Exhibit
Number
|
|
Description of Exhibit
|
|
|
|
|
|
31.1
|
|
Certifications required by Rule 13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32.1
|
|
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.
|
21
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.
|
|
|
|
|
|
|
|
|
|
IX ENERGY HOLDINGS, INC.
|
|
|
|
|
/s/ Steven Hoffmann
|
|
August 19, 2009
|
Steven Hoffmann
|
|
|
Chief Executive Officer, Chief Financial Officer and Director
|
|
|
|
|
22
IX Energy (CE) (USOTC:IXEH)
Historical Stock Chart
From Feb 2025 to Mar 2025
IX Energy (CE) (USOTC:IXEH)
Historical Stock Chart
From Mar 2024 to Mar 2025
