UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(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, 2005
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to _____________________
Commission file number000-50739
ENERGENX, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 20-1044677
State or jurisdiction of incorporation
(I.R.S Employer I.D
or organization No.)
6200 E. Commerce Loop, Post Falls, Idaho 83854
(Address of principal executive offices)
(208) 665-5553
(Issuer’s telephone number)
(Former name, former address and former fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 ___
As ofMay 16, 2005, there were26,697,276 shares of the registrant’s common stock outstanding.
Transitional Small Business Disclosure Format (Check one): Yes ___
No X
ENERGENX, INC.
INDEX
PART I.
FINANCIAL INFORMATION
Item 1.
Financial Statements
Balance Sheets as of March 31, 2005 (unaudited)
and December 31, 2004 (audited)
1
Statements of Operations (unaudited) for the three
months ended March 31, 2005 and 2004
2
Statements of Changes in Stockholders’ Equity
(unaudited) for the three months ended March 31, 2005
3
Statements of Cash Flows (unaudited) for the three
months ended March 31, 2005 and 2004
4
Notes to Financial Statements
5
Item 2.
Plan of Operations
Item 3.
Controls and Procedures
PART II.
OTHER INFORMATION
Item 6.
Exhibits and Reports on Form 8-K
PART I. FINANCIAL STATEMENTS
See accompanying notes to interim financial statements.
ENERGENX, INC. | |||||||||||
(Formerly Edward II, Inc.) | |||||||||||
(A Development Stage Company) | |||||||||||
STATEMENTS OF OPERATIONS |
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Three Months Ended | From September 29, 1999 (Inception) to March 31, 2005 | ||||||||||
March 31 | |||||||||||
2005 | 2004 | ||||||||||
(unaudited) | (unaudited) | (unaudited) | |||||||||
REVENUES | $ | - | $ | - | $ | - | |||||
OPERATING EXPENSES | |||||||||||
Amortization and depreciation | 4,869 | 2,428 | 76,534 | ||||||||
Board of directors fees | - | - | 60,000 | ||||||||
Consulting | 27,500 | 14,970 | 311,529 | ||||||||
General and administrative | 13,885 | 1,959 | 107,386 | ||||||||
Legal and accounting | 24,282 | 1,217 | 66,457 | ||||||||
License and fees | - | - | 107,139 | ||||||||
Marketing | - | - | 19,464 | ||||||||
Rent | 6,600 | 670 | 140,068 | ||||||||
Research and development | 2,241 | - | 51,362 | ||||||||
Salaries and benefits | 61,792 | - | 400,049 | ||||||||
Travel | - | - | 1,580 | ||||||||
TOTAL OPERATING EXPENSES | 141,169 | 21,244 | 1,341,568 | ||||||||
LOSS FROM OPERATIONS | (141,169) | �� (21,244) | (1,341,568) | ||||||||
OTHER INCOME (EXPENSES) | |||||||||||
Interest income | - | 24 | 24 | ||||||||
Interest expense | - | - | (34,877) | ||||||||
Loss on disposal of asset | - | - | (1,709) | ||||||||
Gain on forgiveness of debt | - | - | 4,319 | ||||||||
TOTAL OTHER INCOME (EXPENSES) | $ | - | $ | 24 | $ | (32,243) | |||||
LOSS BEFORE TAXES | (141,169) | (21,220) | (1,373,811) | ||||||||
INCOME TAXES | - | - | - | ||||||||
NET LOSS | $ | (141,169) | $ | (21,220) | $ | (1,373,811) | |||||
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NET LOSS PER COMMON SHARE, | |||||||||||
BASIC AND DILUTED | $ | nil | $ | nil | |||||||
WEIGHTED AVERAGE NUMBER OF | |||||||||||
COMMON STOCK SHARES | |||||||||||
OUTSTANDING, BASIC AND DILUTED | 26,697,276 | 19,668,832 | |||||||||
See accompanying notes to interim financial statements.
ENERGENX, INC. | |||||||||||
(Formerly Edward II, Inc.) | |||||||||||
(A Development Stage Company) | |||||||||||
STATEMENT OF STOCKHOLDERS’ EQUITY |
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Deficit | |||||||||||
Accumulated | |||||||||||
Additional | During | ||||||||||
Common Stock | Paid-in | Development | |||||||||
Shares | Amount | Capital | Stage | Totals | |||||||
Common stock issued for cash at $0.001 per share | 7,836,168 | $ | 7,836 | $ | (6,530) | $ | - | $ | 1,306 | ||
Net loss for period ending December 31, 1999 | - | - | - | (3,588) | (3,588) | ||||||
Balance, December 31, 1999 | 7,836,168 | 7,836 | (6,530) | (3,588) | (2,282) | ||||||
Common stock issued for convertible debt at | |||||||||||
an average of $0.31 per share | 195,060 | 195 | 59,815 | - | 60,010 | ||||||
Common stock issued for cash at $0.33 per share | 330,000 | 330 |
| 109,670 | - | 110,000 | |||||
Stock offering costs | - | - | (7,690) | - | (7,690) | ||||||
Common stock issued for equipment | |||||||||||
at $0.33 per share | 9,750 | 10 | 3,240 | - | 3,250 | ||||||
Net loss for year ending December 31, 2000 | - | - | - | (67,889) | (67,889) | ||||||
Balance, December 31, 2000 | 8,370,978 | 8,371 | 158,505 | (71,477) | 95,399 | ||||||
Common stock issued for cash at $0.33 per share | 453,000 | 453 | 150,547 | - | 151,000 | ||||||
Common stock issued for services | |||||||||||
at $0.33 per share | 158,280 | 158 | 52,602 | - | 52,760 | ||||||
Stock offering costs | - | - | (4,440) | - | (4,440) | ||||||
Common stock issued for office equipment | 1,086 | 1 | 361 | - | 362 | ||||||
Common stock issued for technology license | 5,140,326 | 5,140 | 52,860 | - | 58,000 | ||||||
Common stock issued for services at $1.00 | |||||||||||
per share | 2,606 | 3 | 2,603 | - | 2,606 | ||||||
Net loss for year ending December 31, 2001 | - | - | - | (301,595) | (301,595) | ||||||
Balance, December 31, 2001 | 14,126,276 | $ | 14,126 | $ | 413,038 | $ | (373,072) | $ | 54,092 | ||
See accompanying notes to interim financial statements.
See accompanying notes to interim financial statements.
ENERGENX, INC. | |||||||||||
(Formerly Edward II, Inc.) | |||||||||||
(A Development Stage Company) | |||||||||||
STATEMENT OF STOCKHOLDERS’ EQUITY |
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Deficit | |||||||||||
Accumulated | |||||||||||
Additional | During | ||||||||||
Common Stock | Paid-in | Development | |||||||||
Shares | Amount | Capital | Stage | Totals | |||||||
Balance, December 31, 2001 | 14,126,276 | $ | 14,126 | $ | 413,038 | $ | (373,072) | $ | 54,092 | ||
Common stock issued for cash at $1.00 | |||||||||||
per share | 24,000 | 24 | 23,976 | - | 24,000 | ||||||
Common stock issued for loans payable | |||||||||||
at $1.00 per share | 20,000 | 20 | 19,980 | - | 20,000 | ||||||
Net loss for year ending December 31, 2002 |
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| (141,307) | (141,307) | ||||||
Balance, December 31, 2002 | 14,170,276 | 14,170 | 456,994 | (514,379) | (43,215) | ||||||
Common stock issued for board of directors | |||||||||||
fees at $0.05 per share | 1,000,000 | 1,000 | 49,000 | - | 50,000 | ||||||
Common stock issued for consulting fees | |||||||||||
at $0.05 per share | 2,200,000 | 2,200 | 107,800 | - | 110,000 | ||||||
Common stock issued for licensing fees | |||||||||||
at $0.05 per share | 2,000,000 | 2,000 | 98,000 | - | 100,000 | ||||||
- | |||||||||||
Loss for year ending December 31, 2003 | - | - | - | (310,189) | (310,189) | ||||||
Balance, December 31, 2003 | 19,370,276 | - | 19,370 | 711,794 | (824,568) | (93,404) | |||||
Common stock issued for cash at | |||||||||||
$0.21 per share | 2,400,000 | 2,400 | 497,600 | - | 500,000 | ||||||
Stock offering costs | - | - | (50,000) | - | (50,000) | ||||||
Issuance of common stock for immediate exercise | |||||||||||
of options for cash of $0.21 per share | 2,400,000 | 2,400 | 497,600 | - | 500,000 | ||||||
Common stock issued for loans payable | |||||||||||
at $0.05 per share | 2,527,000 | 2,527 | 123,823 | - | 126,350 | ||||||
Merger and recapitalization of Company | - | - | (4,300) | ��- | (4,300) | ||||||
Net loss for year ending December 31, 2004 | - | - | - | (408,074) | (408,074) | ||||||
Balance, December 31, 2004 | 26,697,276 | 26,697 | 1,776,517 | (1,232,642) | 570,572 | ||||||
Net loss for three months ended | |||||||||||
March 31, 2005 (unaudited) | - | - | - | (141,169) | (141,169) | ||||||
Balance, March 31, 2005 (unaudited) | 26,697,276 | $ | 26,697 | $ | 1,776,517 | $ | (1,373,811) | $ | 429,403 | ||
See accompanying notes to interim financial statements.
See accompanying notes to interim financial statements.
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
The Company was incorporated on September 29, 1999 under the laws of the State of Nevada. The primary business purpose of the Company is to undertake research and development relating to an electromagnetic motor. The Company is in the development stage. The fiscal year end of the corporation is December 31.
On June 1, 2001, the Company’s board of directors executed a unanimous written consent to amend its articles of incorporation to provide that the name of the Company be changed from Bedini Technology, Inc. to Energenx, Inc. (hereinafter “Energenx” or the “Company”).
On December 23, 2004, the Company acquired all of the outstanding common stock of Edward II, Inc., a fully reporting public company. For accounting purposes, the acquisition has been treated as a recapitalization of Energenx with Energenx as the acquirer in a reverse acquisition. The historical financial statements prior to December 23, 2004 are those of Energenx, the operating company, while the Company maintains the legal structure of the acquired Edward II, Inc. See Note 11.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Energenx, Inc. is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America, and have been consistently applied in the preparation of the financial statements.
Accounting Method
The Company uses the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.
Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 153. This statement addresses the measurement of exchanges of nonmonetary assets. The guidance in APB Opinion No. 29, “Accounting for Nonmonetary Transactions,” is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in that opinion, however, included certain exceptions to that principle. This statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (continued)
Accounting Pronouncements (continued)
substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This statement is effective for financial statements for fiscal years beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges incurred during fiscal years beginning after the date of this statement is issued. Management believes the adoption of this statement will have no impact on the financial statements of the Company.
In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 152, which amends FASB Statement No. 66, “Accounting for Sales of Real Estate,” to reference the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position (SOP) 04-2, “Accounting for Real Estate Time-Sharing Transactions.” This statement also amends FASB Statement No. 67, “Accounting for Costs and Initial Rental Operations of Real Estate Projects,” to state that the guidance for (a) incidental operations and (b) costs incurred to sell real estate projects does not apply to real estate time-sharing transactions. The accounting for those operations and costs is subject to the guidance in SOP 04-2. This statement is effective for financial statements for fisca l years beginning after June 15, 2005. Management believes the adoption of this statement will have no impact on the financial statements of the Company.
In December 2004, the Financial Accounting Standards Board issued a revision to Statement of Financial Accounting Standards No. 123R, “Accounting for Stock Based Compensations.” This statement supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related implementation guidance. This statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. This statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. This s tatement does not change the accounting guidance for share based payment transactions with parties other than employees provided in Statement of Financial Accounting Standards No. 123. This statement does not address the accounting for employee share ownership plans, which are subject to AICPA Statement of Position 93-6, “Employers’ Accounting for Employee Stock Ownership Plans.” The Company has previously used the guidance under SFAS No. 123 with regards to its stock option plan and therefore this revision will have no impact on its financial statements.
In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 151, “Inventory Costs— an amendment of ARB No. 43, Chapter 4”. This statement amends the guidance in ARB No. 43, Chapter 4,
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (continued)
Accounting Pronouncements (continued)
“Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that “. . . under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges. . . .” This statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal.” In addition, this statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. This statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Management does not believe the adoption of this statement will have any immediate material impact on the Company.
Accounting for Stock Options and Warrants Granted to Employees and Nonemployees
Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (hereinafter “SFAS No. 123”),defines a fair value-based method of accounting for stock options and other equity instruments. The Company has adopted this method, which measures compensation costs based on the estimated fair value of the award and recognizes that cost over the service period.
Advertising Costs
Advertising costs are expensed when incurred. There were no advertising expenditures incurred by the Company during the quarter ended March 31, 2005.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
Compensated Absences
Employees of the Company are entitled to paid vacation, paid sick days and personal days off depending on job classification, length of service, and other factors. The Company’s policy is to recognize the cost of compensated absences when actually paid to employees. If the amount were estimable, it would not be currently recognized as the amount would be deemed immaterial.
Concentration of Credit Risk
The Company maintains its cash in one commercial account at a major financial institution. Although the financial institution is considered creditworthy and has not experienced any losses on its deposits, at March 31, 2005 the Company’s cash balance exceeded Federal Deposit Insurance Corporation (FDIC) limits by $179,447.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (continued)
Derivative Instruments
The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (hereinafter “SFAS No. 133”), as amended by SFAS No. 137, “Accounting for Derivative Instruments and Hedging Activities – Deferral of the Effective Date of FASB No. 133”, and SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities”, and SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”. These standards establish accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. They require that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value.
If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change.
Historically, the Company has not entered into derivatives contracts to hedge existing risks or for speculative purposes.
At March 31, 2005, the Company has not engaged in any transactions that would be considered derivative instruments or hedging activities.
Development Stage
The Company is in the development stage and has not commenced the sale of any products.
Earnings Per Share
On January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 128, which provides for calculation of “basic” and “diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income available to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could share in the earnings of an entity.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (continued)
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted 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 revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Company’s financial instruments as defined by Statement of Financial Accounting Standards No. 107, “Disclosures about Fair Value of Financial Instruments,” include cash, notes receivable, accounts payable, accrued expenses and short-term borrowings. All instruments are accounted for on a historical cost basis, which, due to the short maturity of these financial instruments, approximates fair value at March 31, 2005.
Going Concern
As shown in the accompanying financial statements, the Company has incurred an accumulated deficit of $1,373,811 through March 31, 2005 and has a history of recurring losses. The Company is currently putting technology in place which will, if successful, mitigate these factors which raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
Management has developed technology that if proven will result in a marketable product.Management intends to seek additional capital from new equity securities offerings that will provide funds needed to increase liquidity, fund internal growth and fully implement its business plan.
Management believes $1,000,000 is needed to finance the plan of operation for at least the next twelve months. The timing and amount of capital requirements will depend on a number of factors, including demand for products and services and the availability of opportunities for international expansion through affiliations and other business relationships.
Impaired Asset Policy
The Company reviews its long-lived assets quarterly to determine if any events or changes in circumstances have transpired which indicate that the carrying value of its assets may not be recoverable. At March 31, 2005, the Company determined that there were no impairments of its long-lived assets.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (continued)
Intangible Assets
Intangible assets are composed of a patent and license. They are amortized on a straight-line basis over ten and fifteen year lives, respectively.
Inventory
Inventories are stated at the lower of average cost or market. The cost of finished goods includes the cost of raw material, direct and indirect labor, and other indirect manufacturing costs.
Provision for Taxes
Income taxes are provided based upon the liability method of accounting pursuant to Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (hereinafter “SFAS No. 109”). Under this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end. A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the “more likely than not” standard imposed by SFAS No. 109 to allow recognition of such an asset.
Research and Development
Research and development expenses are charged to operations as incurred. The cost of intellectual property purchased from others that is immediately marketable or that has an alternative future use is capitalized and amortized as intangible assets. Capitalized costs are amortized using the straight-line method over the estimated economic life, typically 10 years, of the related asset. The Company periodically reviews its capitalized patent costs to assess recoverability based on the projected undiscounted cash flows from operations. Impairments are recognized in operating results when a permanent diminution in value occurs.
Revenue Recognition
Revenues from sales will be recognized at the time the hybrid modules are delivered.
NOTE 3 – PREPAID EXPENSES
Prepaid expenses at March 31, 2005 includes the prepayment of a commercial lease and an alarm system monitoring fees. See Note 14.
During the year ended December 31, 2004, the Company purchased a security system. The cost of the system included a prepayment of the related monitoring services, totaling $638.
NOTE 4– PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Major additions and improvements are capitalized. Minor replacements, maintenance and repairs that do not increase the useful lives of the assets are expensed as incurred. Depreciation of property and equipment is calculated using the straight-line method over the expected useful lives of the assets of 5 to 7 years. Depreciation expense for the quarters ended March 31, 2005 and 2004 was $655 and $971, respectively.
Following is a summary of property, equipment, leasehold improvement, and accumulated depreciation:
March 31, | December 31, | |||||
2005 | 2004 | |||||
Machinery | $ | 17,811 | $ | 17,111 | ||
Office Furniture and Equipment | 12,919 | 12,919 | ||||
Leasehold Improvements | 2,891 | 2,891 | ||||
33,621 | 33,621 | |||||
Less Accumulated Depreciation | (21,964) | (21,309) | ||||
Net Property and Equipment | $ | 11,657 | $ | 12,312 | ||
NOTE 5 – PATENTS
Costs relating to the development and approval of patents, other than research and development costs which are expensed, are capitalized and amortized using the straight-line method over ten years. The Company’s patents relate to the creation of an EMF permanent electromagnetic motor generator.
The following is a summary of the costs of patents and patents pending:
Cost | Accumulated Amortization | Net Amount | ||||
Balance, December 31, 2003 | $ | 68,500 | $ | 12,226 | $ | 56,274 |
2004 Activity | - | 6,850 | ||||
Balance, December 31, 2004 | 68,500 | 19,076 | 49,424 | |||
2005 Activity | - | 1,712 | ||||
Balance, March 31, 2005 | $ | 68,500 | $ | 20,788 | $ | 47,712 |
NOTE 6–TECHNOLOGY LICENSES
On October 8, 1999, the Company acquired a technology license, which included all rights, title and interest in certain patent applications, improvements, proprietary information, trade secrets, technical and scientific information pertaining to several designs of the back EMF permanent electromagnetic motor generator from Mr. John C. Bedini, currently a director and officer of the Company. The Company acquired this license for a $50,000 note payable to Mr. Bedini, which was initially due on June 30, 2000. This note is unsecured and bears interest at the rate of 6% per annum. The payment due date for the note was extended until the completion of the Company’s second round of financing.
On May 1, 2001, the Company acquired a second license, accompanied by similar rights as the aforementioned license, from Mr. Bedini in exchange for 5,140,326 shares of the Company’s common stock. The second license was recorded at $58,000 and is for certain technology referred to as Monopole Energy Delivery System (“MEDS”). MEDS is an energy producing system designed to use a magnetic monopole motor configuration and produce electrical energy.
See Note 7 regarding royalty agreements on aforementioned licenses.
NOTE 7 – LICENSE AGREEMENT WITH AFFILIATED COMPANY
On December 1, 2004, the Company entered into an exclusive technology license agreement with a corporation that is principally controlled by a member of the board of directors. Pursuant to that agreement, the Company granted an exclusive license in the area of North America (the United States, Canada and Mexico) to proprietary Energenx technology relating to a battery charging system, known as the Potential Battery Charger, for charging battery operated vehicles, excluding automobiles. The license granted includes a license of existing patents rights owned by Energenx and of any patent applications to be filed to the extent that it relates to the proprietary Energenx technology involving a battery charging system utilized for charging battery operated vehicles other than automobiles. The license shall remain exclusive for a period of ten years, with an option to extend the exclusivity for an additional ten years. There was no right to sublicense granted in the agreement.
The licensee agrees to pay royalties equal to five percent of the gross sales price of all products sold which utilize the licensed proprietary technology to Energenx. A de minimus up front license fee of $1 was paid for the license.
NOTE 7 – LICENSE AGREEMENT WITH AFFILIATED COMPANY (continued)
As condition to entering into the exclusive technology license agreement, the licensee agreed to purchase all of Energenx’s proprietary hybrid module components to be installed in the Potential Battery Chargers, named “Radiant modules” in the agreement, but now referred to as Potential modules between the parties, on a cost plus basis at a base price of $50 per module. Under the agreement, the Company is obligated to pay all patent filing, prosecution and maintenance costs.
While either party can terminate the exclusive technology license agreement if the other party defaults in the performance of any obligation under the agreement or is adjudged bankrupt, the license formally terminates upon expiration of the last to expire of the licensed patents or patents to be filed in the future concerning the proprietary Energenx technology.
NOTE 8 – RELATED PARTY TRANSACTIONS
At December 31, 2003, unpaid loans from several shareholders totaled $147,455. These loans, with interest ranging from 6% to 8% per annum, were unsecured and fully paid by December 31, 2004. The majority of the outstanding principal and accrued interest at year end 2003 was converted into common stock during 2004.
During the quarter ended March 31, 2005, the Company paid expenses on behalf of Bedini Electronics, Inc., a company privately owned by two officers of Energenx. At the same time, Bedini Electronics, Inc. paid some of the expenses of the Company. This was done as the two companies shared joint office space and split certain expenses. The net amount owing from Bedini Electronics at March 31, 2005 is $15,653. Of this amount, $4,000 is secured by a note from Bedini Electronics, bearing interest of 6%. Monthly payments of $352 will commence on April 15, 2005 until the loan is repaid.
Also during the years ended December 31, 2002, the Company loaned to two of its officers a total of $4,900. At the time the Company was not paying salaries. Because the transactions occurred while the Company was still private, it was not subject to the Sarbanes-Oxley Act of 2002, and therefore, was not prohibited. However, now that the Company is a fully reporting entity, the officers expect to repay the loaned amount through payroll deductions.
For additional related party transactions, see Notes 6, 7, and 14.
NOTE 9 – NOTES PAYABLE
In addition to the notes referenced in Note 8, the Company also received loans from outside parties in 2002 totaling $44,500. These notes were unsecured and interest is payable at 6% per annum. Accrued interest at March 31, 2005 is $5,281.
NOTE 10 - PROVISION FOR TAXES
At March 31, 2005, the Company had net deferred tax assets calculated at an expected rate of 34% of approximately $374,218 principally arising from net operating loss carryforwards for income tax purposes. As management of the Company cannot determine that it is more likely than not that the Company will realize the benefit of the net deferred tax asset, a valuation allowance equal to the net deferred tax asset was recorded at March 31, 2005. The significant components of the deferred tax asset at March 31, 2005 were as follows:
March 31, 2005 | December 31, 2004 | |||
Net operating loss carryforward | $ 1,114,000 | $ 970,000 | ||
Deferred tax asset | $ 378,000 | $ 331,000 | ||
Deferred tax asset valuation allowance | $ (378,000) | $ (331,000) |
At March 31, 2005, the Company had net operating loss carryforwards of approximately $1,114,000, which expire in the years 2019 through 2024. In 2003, the Company recognized approximately $260,000 of losses from the issuance of common stock for services and license fees which were not deductible for tax purposes and are not included in the above calculation of deferred tax assets. The change in the allowance account from December 31, 2004 to March 31, 2005 was $47,000.
NOTE 11 – ACQUISITION OF EDWARD II, INC.
On December 23, 2004, the Company acquired all of the outstanding common stock (430,000 shares) of Edward II, Inc. from its sole shareholder by paying $4,300 in cash. The acquired shares were subsequently retired. The Company reissued its outstanding common shares to its shareholders of record in compliance with a transaction pursuant to Rule 12g-3 of the Securities and Exchange Commission. For accounting purposes, the acquisition has been treated as a recapitalization of Energenx, with Energenx as the acquirer (reverse acquisition). The historical financial statements prior to December 23, 2004 are those of Energenx while the legal structure of Edward II, Inc. remains in place. Edward, II, Inc. had no assets or liabilities at the time of the acquisition.
NOTE 12 – COMMON STOCK
During the initial period ended December 31, 1999, the Company issued 7,836,168 shares of its common stock at par, for cash.
During the year ended December 31, 2000, the Company issued 195,060 shares for convertible debt of $60,010. The Company also issued 9,750 shares for equipment valued at $3,250 and 330,000 shares for cash of $0.33 per share, or $110,000.
During the year ended December 31, 2001, the Company issued 453,000 shares of common stock for cash of $151,000, or $0.33 per share. The Company also issued 160,886 share of common stock for services totaling $55,366, 1,086 shares of common stock to purchase equipment totaling $362, and 5,140,326 shares of common stock in payment of a technology license with a value of $58,000. See Note 6.
On May 4, 2001, the Company executed a 1 for 6 forward split to all shareholders of record as of May 1, 2001. The financial records have been restated to reflect this stock split in the accompanying financial statements.
During the year ended December 31, 2002, the Company issued 24,000 shares of its common stock for cash of $1.00 per share, or $24,000. The Company also issued 20,000 shares of common stock in payment of debt of $20,000.
During the year ended December 31, 2003, the Company issued 3,200,000 shares of common stock to board members and other consultants at $0.05 per share, or $160,000.
Also during the year ended December 31, 2003, the Company issued 2,000,000 shares of common stock to Mr. John Bedini as a supplement to the licensing agreement. The Company valued these shares at $0.05 per share, or $100,000.
During the year ended December 31, 2004, the Company issued 2,527,000 shares of common stock at $0.05 per share in payment of outstanding loans and interest totaling $126,350. See Notes 9 and 8.
In addition, the Company issued 4,800,000 shares of common stock for cash of $1,000,000, or $0.21 per share. Half of these shares were exercised from options granted to the purchaser for purchasing the shares of stock. See Note 13.
No common stock was issued during the three months ended March 31, 2005.
NOTE 13 – STOCK OPTION PLAN
Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (hereinafter “SFAS No. 123”), defines a fair value-based method of accounting for stock options and other equity instruments. The Company has adopted this method, which measures compensation costs based on the estimated fair value of the award and recognizes that cost over the service period.
The Company’s board of directors approved the adoption of the “1999 Non-Qualified Stock Option and Stock Appreciation Rights Plan” by unanimous consent on October 7, 1999. The plan was initiated to encourage and enable officers, directors, consultants, advisors and other key employees of the Company to acquire and retain a proprietary interest in the Company by ownership of its common stock. Up to 300,000 shares of common stock can be issued under the plan. No options have been issued under the plan through the date of this report.
During the year ended December 31, 2004, the Company granted non-qualified options to an individual as consideration for purchasing 2,400,000 shares of stock at $0.21 per share. The options allow the individual to purchase up to 2,400,000 shares of common stock at $0.21 per share in the first six months of the contract and at $0.40 per share in the last six months. The initial 2,400,000 options were exercised within the first six months of the grant for a cash payment of $500,000.
The following is a summary of stock option activity:
Number of Shares | Weighted Average Exercise Price | |||
Outstanding at January 1, 2004 | - | $ | - | |
Granted | 2,400,000 | 0.21 | ||
Exercised | (2,400,000) | 0.21 | ||
Outstanding at December 31, 2004 | - | $ | - | |
Options Exercisable at December 31, 2004 | - | $ | - | |
NOTE 14 – COMMITMENTS AND CONTINGENCIES
Leases
In 2003, the Company abandoned its leased commercial space and moved to a different location. Accrued lease payments of $24,760 were included in accounts payable in the financial statements at December 31, 2003. In January 2004, the Company came to an agreement and paid $21,506 which was accepted by the landlord in full payment of the note. The remaining balance was written off as a gain on debt forgiveness in the financial statements.
On March 31, 2004, the Company entered into a new two-year lease for office space. In lieu of a security deposit, the Company in 2004 prepaid the entire amount of the lease, $52,800, which was then included in prepaid expenses in the financial statements. The unamortized prepaid balance at March 31, 2005 was $26,400.
Royalty Agreements
The Company has a royalty agreement with Mr. John Bedini as part of its EMF license. Mr. Bedini is entitled to royalties of 3% of the net selling price of all products covered by the EMF license and 3% of any gross rent or lease income associated with the license.
The Company also has a royalty agreement with Mr. Bedini regarding the MEDS license for Mr. Bedini to receive 5% of the net selling price of all products covered by the MEDS license and 5% of any gross rent or lease income associated with the license. The agreement also provides that a 3% royalty shall be paid on any sub-licensee income derived from the MEDS license.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION
The matters discussed in this Form 10-QSB contain certain forward-looking statements and involve risks and uncertainties (including changing market conditions, competitive and regulatory matters, etc.) detailed in the disclosures contained in this Form 10-KSB and other filings with the Securities and Exchange Commission made by the Registrant from time to time. The discussion of the Registrant’s liquidity, capital resources and results of operations, including forward-looking statements pertaining to such matters, does not take into account the effects of any changes to the Registrant’s operations. Accordingly, actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those identified herein. This item should be read in conjunction with the consolidated financial statements and other items contained el sewhere in the report.
Liquidity and Capital Resources
Energenx, Inc.’s (the “Company” or “Energenx”) financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Energenx uses cash and cash equivalents as its primary measure of liquidity. Except as discussed above, management is not aware of any other known trends, events, commitments or uncertainties that will have a significant impact on liquidity.
As of March 31, 2005, we had a working capital surplus of $295,834, compared to a working capital surplus of $432,134 for the year ended December 31, 2004. This must be read in conjunction with the notes to the financial statements of December 31, 2004. We believe that our current cash needs for at least the next twelve months can be met by our revenues.
Results of Operations
For the three months ended March 31, 2005, compared to the three months ended March 31, 2004.
Revenues
Total revenues amounted to $0 for the three months ended March 31, 2005 compared to $0 for the corresponding period in the prior year. Since the company has had no revenues since its inception, a comparison of the two periods is not meaningful.
Operating Expenses
Costs and expenses amounted to $141,169 for the three months ended March 31, 2005 compared to $21,244 for the corresponding period in the prior year, an increase of $119,925. This increase was primarily the result of the Company merging with a company that had a plan of operations in the process of implementation.
Net Income or Loss
Net loss amounted to $141,169 for the three months ended March 31, 2005 compared to a net loss of $21,220 for the corresponding period in the prior year, an increase of $119,949. The net loss increase primarily due to an increase in operating expenses.
Plan of Operations
Since commencement of operations in 1999, our efforts have been principally devoted to research and development activities, including the development of an efficient energy generation system and battery chargers, recruiting management personnel and advisors, and raising capital.
Our current business strategy is to concentrate our financial resources primarily on the further development of our battery charger technology. In addition to the battery charger program, we plan to continue to undertake research and development on our electromagnetic motor/generator battery system.
We have a history of losses and depend upon our principal shareholders or private offerings of our common stock for capital contributions. There can be no assurance that we will be able to fund our operations for the next twelve months without such capital contributions.
Product Research and Development Plans
Our current plan of operation for the next 12 months primarily involves meeting any demand for Potential modules from GTG Corp., and research and development activities on energy generation and battery charger prototypes.
We may generate revenues pursuant to our Exclusive Technology License Agreement with GTG Corp. if they order Potential hybrid modules. We cannot assure you that GTG Corp. will order any Potential modules from us in 2005 or ever, that licensed battery charger products will ever reach the market giving rise to royalty payments or that additional revenues from patent licensing will be generated.
We plan to continue product research on improving the efficiency of the Potential Battery Charger. We will begin development of variations of the Potential Battery Charger for specific markets to accommodate 12-volt, 24-volt, 36-volt and 48-volt applications with a wide range of capacity requirements. We anticipate spending between $100,000 and $150,000 on further research and development over the next six months, depending on availability of capital for improvement of the Potential Battery Charger, including the development of new applications and new product development, using the technology.
We plan to research and development of our electromagnetic motor/generator battery system, we intend to improve the current system and design larger scale systems that may allow us to generate larger amounts of energy that can be utilized to charge multiple banks of batteries. We anticipate spending between $200,000 and $300,000, depending on availability of capital, for further research and development of the motor/generator system, including prototype models, which will require computer design modeling and machining. We anticipate that the development of our motor/generator system will be completed by the first quarter of 2006.
While we have no plans to relocate our current research facility within the next twelve months, equipment purchases will be necessary if we receive orders for the Potential hybrid module from GTG Corp. Such equipment would include test equipment, oscilloscopes, analyzers, soldiering stations, and packaging equipment. Such equipment purchases are likely to be in the range of $100,000 for the next twelve months. We may also need to hire up to three more employees if we receive orders from GTG Corp. We intend to contract out the bulk of the manufacturing of the Potential hybrid modules, with final testing, potting and packaging of the hybrid modules to be done in house.
Our actual research and development and related activities may vary significantly from current plans depending on numerous factors, including changes in the costs of such activities from current estimates, the results of our research and development programs, technological advances, determinations as to commercial viability and the status of competitive products. The focus and direction of our operations will also be dependent on the establishment of our collaborative arrangement with other companies, the availability of financing and other factors. We expect our development costs to increase as our battery charger systems development programs enters the later stages of development.
Since inception, we have financed our operations and capital needs from private placements of our common stock and financial contributions or loans from our shareholders. We have no revenues, have experienced losses, and anticipate continuing to experience losses until the fourth quarter of 2005, when we expect that our operations will have been commenced and we will start to generate revenue. We are dependent upon equity offerings of our common stock and contributions from our principals to finance our operations. We intend to commence a private offering of up to $1.5 million in common stock within the next twelve months, but there can be no assurance that this offering will be successful. Alternatively, we will rely on our principal shareholders for financial contributions. However, there are no firm commitments from our principal shareh olders to contribute further capital at this time.
ITEM 3. CONTROLS AND PROCEDURES
The Registrant’s management has evaluated the effectiveness of the Registrant’s disclosure controls and procedures (as such term is defined in Rules 13a-15(c) under the Securities Exchange Act of 1934, as amended) as of the period covered by this report. Based on such evaluation, the Registrant’s Chief Executive Officer has concluded that, as of the end of such period, the Registrant’s disclosure controls and procedures are effective.
There have not been any changes in the Registrant’s internal control over financial reporting (as defined in Rule 13-a 15(f) under the Securities and Exchange Act of 1934, as amended) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Registrant is not currently involved in any litigation.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
No securities were issued during the three months ended March 31, 2005.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
There have been no submissions of matters to the vote of security holders in the period ended March 31, 2005.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits: 31.1 Rule 13a-14(a)/15d-14(a) Certification 31.2 Rule 13a-14(a)/15d-14(a) Certification 32.1 Section 1350 Certification. 32.2 Section 1350 Certification |
(b) Reports on Form 8-K:
February 4, 2005: Dismissal of Beckstead and Watts; LLP and appointment of Williams and Webster, PS
as independent accountant.
February 24, 2005: Amendment to change of independent accountants
April 19, 2005: Completion of acquisition of Edward II and merger.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ENERGENX, INC.
BY: /s/ Gary A. Bedini -------------------------------------- Gary A. Bedini Chief Executive Officer Date: May 16, 2005 |
Exhibit 31.1
CERTIFICATIONS
I, Gary A. Bedini, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Energenx Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation.
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting; and
Date:
May 16, 2005
/s/ Gary A. Bedini
Gary A. Bedini
President and Chief Executive Officer
Exhibit 31.2
CERTIFICATION
I, Rick M. Street, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Energenx Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation.
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date:
May 16, 2005
/s/ Rick M. Street
Rick M. Street
Chief Financial Officer
Exhibit 32
ENERGENX, INC.
SECTION 1350 CERTIFICATION
In connection with the periodic report of ENERGENX, INC., a Nevada corporation (the “Company”), on Form 10-QSB for the period ended March 31, 2005, as filed with the Securities and Exchange Commission (the “Report”), I, GARY A. BEDINI, Chief Executive Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.
This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.
Date:
May 16, 2005
By:/s/ Gary A. Bedini
Gary A. Bedini
Chief Executive Officer
ENERGENX, INC.
SECTION 1350 CERTIFICATION
In connection with the periodic report of ENERGENX, INC., a Nevada corporation (the “Company”), on Form 10-QSB for the period ended March 31, 2005, as filed with the Securities and Exchange Commission (the “Report”), I, RICK M. STREET, Chief Financial Officer of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.
This Certification has not been, and shall not be deemed, “filed” with the Securities and Exchange Commission.
Date:
May 16, 2005
By:/s/ Rick M. Street
Rick M. Street
Chief Financial Officer
