IX ENERGY, INC.
See accompanying notes to financial statements
| IX Energy, Inc. |
| Statements of Operations |
| (Unaudited) |
| | | | | | | |
| | | For the Nine Months Ended | | | For the Nine Months Ended | |
| | | September 30, 2008 | | | September 30, 2007 | |
| | | | | | | |
| Sales - construction contracts | | $ | 68,660 | | | $ | - | |
| Sales - other | | | 5,849,699 | | | | | |
| Total sales | | | 5,918,359 | | | | - | |
| | | | | | | | | |
| Cost of sales - construction contracts | | | 88,205 | | | | - | |
| Cost of sales - other | | | 5,525,472 | | | | - | |
| Total cost of sales | | | 5,613,677 | | | | - | |
| | | | | | | | | |
| Gross profit | | | 304,682 | | | | - | |
| | | | | | | | | |
| Operating expenses | | | | | | | | |
| General and administrative | | | 1,003,131 | | | | - | |
| Total operating expenses | | | 1,003,131 | | | | - | |
| | | | | | | | | |
| Loss from operations | | | (698,449 | ) | | | - | |
| | | | | | | | | |
| Other income (expense) | | | | | | | | |
| Interest income | | | 26,175 | | | | - | |
| Interest expense | | | (59,744 | ) | | | - | |
| Transaction loss due to foreign currency | | | (36,505 | ) | | | - | |
| Letter of credit fee | | | (120,946 | ) | | | - | |
| Total other expense - net | | | (191,020 | ) | | | - | |
| | | | | | | | | |
| Net loss | | $ | (889,469 | ) | | $ | - | |
See accompanying notes to financial statements
| IX Energy, Inc. |
| Statements of Cash Flows |
| (Unaudited) |
| | | | | | | |
| | | | | | | |
| | | For the Nine Months Ended | | | For the Nine Months Ended | |
| | | September 30, 2008 | | | September 30, 2007 | |
| | | | | | | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
| Net loss | | $ | (889,469 | ) | | $ | - | |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | | | | |
| Common stock issued for loan fee | | | 120,946 | | | | - | |
| Common stock issued for consulting services - related party | | | 24,979 | | | | - | |
| Common stock issued for officer's compensation | | | 6,667 | | | | - | |
| Amortization of debt issue costs | | | 1,861 | | | | - | |
| Transaction loss due to foreign currency | | | 36,505 | | | | - | |
| Depreciation expense | | | 681 | | | | - | |
| Changes in operating assets and liabilities: | | | | | | | | |
| (Increase) Decrease in: | | | | | | | | |
| Cost & estimated earnings in excess of billings on uncompleted contracts | | | 57,340 | | | | - | |
| Accounts receivable | | | (21,110 | ) | | | - | |
| Deposits | | | (3,775,846 | ) | | | - | |
| Increase (Decrease) in: | | | | | | | | |
| Accounts payable and accrued expenses | | | 184,580 | | | | - | |
| Estimated losses on uncompleted contracts | | | (20,172 | ) | | | - | |
| Accrued interest payable - related party | | | 52,044 | | | | - | |
| Accrued interest payable - bridge loans | | | 5,838 | | | | - | |
| Deferred revenue | | | 7,446,403 | | | | - | |
| Net Cash Provided by Operating Activities | | | 3,231,247 | | | | - | |
| | | | | | | | | |
| | | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | |
| Due from related party | | | (44,526 | ) | | | - | |
| Purchase of fixed asset | | | (26,999 | ) | | | - | |
| Net Cash Used in Investing Activities | | | (71,525 | ) | | | - | |
| | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | |
| Proceeds from issuance of notes payable - related party | | | 938,252 | | | | - | |
| Proceeds from issuance of bridge loans payable | | | 500,000 | | | | - | |
| Net Cash Provided By Financing Activities | | | 1,438,252 | | | | - | |
| | | | | | | | | |
| Net Increase in Cash and Cash Equivalents | | | 4,597,974 | | | | - | |
| | | | | | | | | |
| Cash and Cash Equivalents - Beginning of Period | | | 176,160 | | | | - | |
| | | | | | | | | |
| Cash and Cash Equivalents - End of Period | | $ | 4,774,134 | | | $ | - | |
| | | | | | | | | |
| SUPPLEMENTARY CASH FLOW INFORMATION: | | | | | | | | |
| Cash Paid During the Period for: | | | | | | | | |
| Income Taxes | | $ | - | | | $ | - | |
| Interest | | $ | - | | | $ | - | |
| | | | | | | | | |
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES: | | | | | |
| | | | | | | | | |
| Forgiveness of receivable due from affiliate | | $ | 44,526 | | | $ | - | |
| Debt issue costs | | $ | 8,063 | | | $ | - | |
IX Energy, Inc.
Notes to Financial Statements
September 30, 2008
(Unaudited)
Note 1 Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. It is management's opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation. The results for the interim period are not necessarily indicative of the results to be expected for the full year.
The unaudited interim financial statements should be read in conjunction with the Company’s Form 8-K, which contains the audited financial statements and notes thereto, together with Management’s Discussion and Analysis, for the year ended December 31, 2007 and for the period from March 3, 2006 (inception) to December 31, 2006. The interim results for the period ended September 30, 2008 are not necessarily indicative of the results for the full fiscal year.
Note 2 Organization, Nature of Operations and Summary of Significant Accounting Policies
Nature of operations
IX Energy, Inc. (“IX Energy” or the “Company”) was incorporated on March 3, 2006 under the laws of the State of Delaware. IX Energy is a renewable energy company primarily focused on solar power project development and integration, and intends to engage in the business of manufacturing, assembly and distribution of energy products for use by government, military, industrial, and commercial end users in the global marketplace. The types of renewable energy efficient sources include photovoltaic, wind, thermal, hydro, geothermal and others.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Significant estimates for the nine months ended September 30, 2008 and 2007 included managements 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.
IX Energy, Inc.
Notes to Financial Statements
September 30, 2008
(Unaudited)
Risks and uncertainties
The Company operates in an industry that is subject to intense competition and rapid technological change. The Company's operations are subject to significant risk and uncertainties including financial, operational, technological, and regulatory risks including the potential risk of business failure.
Cash and cash equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less and money market accounts to be cash equivalents.
The Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial institution. The balance at times may exceed federally insured limits. At September 30, 2008 and December 31, 2007, the balance exceeded the federally insured limit by $4,316,709 and $76,160, respectively.
Accounts receivable
Accounts receivable represents trade obligations from customers that are subject to normal trade collection terms, without discounts, however, in certain cases we are entitled to rebates upon the completion of certain jobs post installation. The Company periodically evaluates the collectability of its accounts receivable and considers the need to adjust an allowance for doubtful accounts based upon historical collection experience and specific customer information. Actual amounts could vary from the recorded estimates. We have determined that as of September 30, 2008 and December 31, 2007 no allowance was required.
At September 30, 2008 and December 31, 2007, the Company had a concentration of accounts receivable from one customer totaling 100%.
For the nine months ended September 30, 2008 and the year ended December 31, 2007, respectively, the Company had a concentration of sales with two customers totaling 78% and 21% in 2008 and 75% and 25% in 2007, respectively.
Earnings (loss) per share
Basic loss per share is computed by dividing net loss by weighted average number of shares of common stock outstanding during each period. Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. At September 30, 2008 and 2007, respectively, the Company had no common stock equivalents that could potentially dilute future earnings per share; however, if present, a separate computation of diluted loss per share would not have been presented, as these common stock equivalents would have been be anti-dilutive due to the Company’s net loss.
IX Energy, Inc.
Notes to Financial Statements
September 30, 2008
(Unaudited)
Fair value of financial instruments
Statement of Financial Accounting Standards No. 107, “Disclosures about Fair Value of Financial Instruments,” requires disclosures of information about the fair value of certain financial instruments for which it is practicable to estimate the value. For purpose of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation.
The carrying amount reported in the balance sheet for accounts receivable, accounts payable and accrued expenses, notes payable – related party, notes payable – bridge loans, accrued interest payable – related party and accrued interest payable – bridge loans approximates its fair market value based on the short-term maturity of these instruments.
Revenue recognition and percentage of completion accounting
The Company has two methods of revenue recognition. The Company records revenues based upon the use of the percentage of completion method of accounting to account for its construction contracts. The Company also records revenues for certain energy products that it resells based upon shipment date.
The Company follows the guidance of the Securities and Exchange Commission’s Staff Accounting Bulletin No. 104 for revenue recognition and records revenue when all of the following have occurred: (1) persuasive evidence of an arrangement exists, (2) the product is delivered and installed, (3) the sales price to the customer is fixed or determinable, and (4) collectability of the related customer receivable is reasonably assured.
(1) 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.
IX Energy, Inc.
Notes to Financial Statements
September 30, 2008
(Unaudited)
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.
(2) Energy Product Reseller
Periodically, 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. Revenues from these arrangements are recognized upon shipment 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. 101, the Company has determined that it is not subject to net reporting as it bears the risk of loss in each of these arrangements. There were no such arrangements at December 31, 2007. However, in May 2008, the Company purchased solar panels for approximately $4.5 million and sold them to a customer for approximately $4.6 million.
In June and July 2008, the Company entered into similar arrangements wherein the Company had no installation responsibility and no further obligation after delivery was made to the customer. Payments from the customer are received in advance of delivery of solar panels and are treated as deferred revenue. Payments are then made to the supplier and cost of materials is recorded. A pro-rata portion of the deferred revenue from the customer is recognized as shipments are made. Due to the role of the Company as reseller having no manufacturing or installation responsibilities, the percentage of completion method would not apply to this type of arrangement. As of September 30, 2008, the Company made two shipments to this customer and $1,250,932 of revenue was recognized.
Cost of sales
Cost of sales, including contract costs represents costs directly related to the production and installation of the Company’s solar panel products. Primary costs include direct materials and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs. General and administrative costs are charged to expense as incurred,
Shipping and handling costs
Shipping and handling costs associated with inbound freight is included in cost of sales. Amounts billed to customers for shipping and handling is recorded as revenue. For the nine months ended September 30, 2008 and 2007, the Company had no such revenues or expenses.
IX Energy, Inc.
Notes to Financial Statements
September 30, 2008
(Unaudited)
Foreign currency transactions
The Company’s functional currency is the U.S. dollar. In those instances where the Company has foreign currency transactions, the financial statements are translated to U.S. dollars in accordance with Statement No. 52 of the Financial Accounting Standards Board (FASB), Foreign Currency Translation. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the date of settlement. Gains and losses arising on settlement of foreign-currency-denominated transactions or balances are included in the determination of income. The Company’s primary foreign currency transactions are in Euros. The Company has not entered into derivative instruments to offset the impact of foreign currency fluctuations. The Company had foreign currency transaction losses of $36,505 and $0 for the nine months ended September 30, 2008 and 2007, respectively.
Segment information
The Company follows Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information." During 2008 and 2007, the Company only operated in one segment; therefore, segment information has not been presented.
Stock-based compensation
All share-based payments to employees will be recorded and expensed in the statement of operations as applicable under SFAS No. 123R, “Share-Based Payment”.
Non-employee stock based compensation
Stock-based compensation awards issued to non-employees for services are recorded at either the fair value of the services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in Emerging Issues Task Force Issue EITF No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services” (“EITF 96-18”).
Recent accounting pronouncements
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, which clarifies the principle that fair value should be based on the assumptions that market participants would use when pricing an asset or liability. It also defines fair value and established a hierarchy that prioritizes the information used to develop assumptions. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The adoption of SFAS No. 157 did not have a material effect on the Company’s financial position, results of operations or cash flows.
IX Energy, Inc.
Notes to Financial Statements
September 30, 2008
(Unaudited)
In February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities”, which permits entities to choose to measure many financial instruments and certain other items at fair value. The unrealized gains and losses on items for which the fair value option has been elected should be reported in earnings. The decision to elect the fair value option is determined on an instrument-by-instrument basis, should be applied to an entire instrument and is irrevocable. Assets and liabilities measured at fair values pursuant to the fair value option should be reported separately in the balance sheet from those instruments measured using other measurement attributes. SFAS No. 159 is effective as of the beginning of the Company’s 2008 fiscal year. The adoption of SFAS No. 159 did not have a material effect on the Company’s financial position, results of operations or cash flows.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No 51” (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, changes in a parent’s ownership of a noncontrolling interest, calculation and disclosure of the consolidated net income attributable to the parent and the noncontrolling interest, changes in a parent’s ownership interest while the parent retains its controlling financial interest and fair value measurement of any retained noncontrolling equity investment. SFAS 160 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The adoption of SFAS No. 160 is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.
In December 2007, the FASB issued SFAS 141R, “Business Combinations” (“SFAS 141R”), which replaces FASB SFAS 141, “Business Combinations”. This Statement retains the fundamental requirements in SFAS 141 that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. SFAS 141R defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control. SFAS 141R will require an entity to record separately from the business combination the direct costs, where previously these costs were included in the total allocated cost of the acquisition. SFAS 141R will require an entity to recognize the assets acquired, liabilities assumed, and any non-controlling interest in the acquired at the acquisition date, at their fair values as of that date. This compares to the cost allocation method previously required by SFAS No. 141. SFAS 141R will require an entity to recognize as an asset or liability at fair value for certain contingencies, either contractual or non-contractual, if certain criteria are met. Finally, SFAS 141R will require an entity to recognize contingent consideration at the date of acquisition, based on the fair value at that date. This Statement will be effective for business combinations completed on or after the first annual reporting period beginning on or after December 15, 2008. Early adoption of this standard is not permitted and the standards are to be applied prospectively only. Upon adoption of this standard, there would be no impact to the Company’s results of operations and financial condition for acquisitions previously completed. The adoption of SFAS No. 141R is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.
IX Energy, Inc.
Notes to Financial Statements
September 30, 2008
(Unaudited)
In January 2008, the SEC released SAB No. 110, which amends SAB No. 107 which provided a simplified approach for estimating the expected term of a “plain vanilla” option, which is required for application of the Black-Scholes option pricing model (and other models) for valuing share options. At the time, the Staff acknowledged that, for companies choosing not to rely on their own historical option exercise data (i.e., because such data did not provide a reasonable basis for estimating the term), information about exercise patterns with respect to plain vanilla options granted by other companies might not be available in the near term; accordingly, in SAB No. 107, the Staff permitted use of a simplified approach for estimating the term of plain vanilla options granted on or before December 31, 2007. The information concerning exercise behavior that the Staff contemplated would be available by such date has not materialized for many companies. Thus, in SAB No. 110, the Staff continues to allow use of the simplified rule for estimating the expected term of plain vanilla options until such time as the relevant data becomes widely available. The Company does not expect its adoption of SAB No. 110 to have a material impact on its financial position, results of operations or cash flows.
In April 2008, the FASB issued FASB Staff Position (“FSP”) SFAS No. 142-3, “Determination of the Useful Life of Intangible Assets”. This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141R, and other GAAP. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The Company is currently evaluating the impact of SFAS FSP 142-3, but does not expect the adoption of this pronouncement will have a material impact on its financial position, results of operations or cash flows.
In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”). SFAS 162 identifies the sources of accounting principles and the framework for selecting principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. This statement is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board’s amendments to AU section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The Company is currently evaluating the impact of SFAS 162, but does not expect the adoption of this pronouncement will have a material impact on its financial position, results of operations or cash flows.
IX Energy, Inc.
Notes to Financial Statements
September 30, 2008
(Unaudited)
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date and are not expected to have a material impact on the financial statements upon adoption.
Note 3 Construction Contracts
Information with respect to uncompleted contracts is summarized below for the periods ended September 30, 2008 and December 31, 2007:
In 2007, the Company anticipated that it was going to have a loss on its uncompleted contracts and recorded the loss at December 31, 2007 prior to the completion of these contracts in 2008.
| | As of | |
| | | September 30, 2008 | | | December 31, 2007 | |
| | | | | | | |
| Actual costs incurred on uncompleted contracts | | $ | 329,400 | | | | 240,567 | |
| Estimated earnings (losses) | | | (74,800 | ) | | | (74,800 | ) |
| | | | 254,600 | | | | 165,768 | |
| Less: billings to date | | | (254,600 | ) | | | (128,600 | ) |
| | | $ | - | | | | 37,168 | |
| | | | | | | | | |
These amounts are included in the accompanying September 30, 2008 and December 31, 2007 balance sheets under the following captions: | | | | | | | | |
| Costs and estimated earnings in excess of billings on uncompleted contracts | | $ | - | | | | 57,340 | |
| Estimated losses on uncompleted contracts | | | - | | | | (20,172 | ) |
| | | $ | - | | | | 37,168 | |
On June 19, 2008, the Company entered into an agreement, under which a customer provides the labor for the assembly and production of solar panels to the Company and the Company sells the solar panels to Federal, civilian and military government customers of both the Company and this customer. The agreement has a term of five years.
IX Energy, Inc.
Notes to Financial Statements
September 30, 2008
(Unaudited)
On June 16, 2008, the Company received $6,800,000 from this customer for the supply of solar cells. Shipment of these solar cells began in October 2008. At September 30, 2008, the Company has recorded this as deferred revenue.
Also in June 2008, the Company entered into an agreement, under which a supplier provides the labor for the assembly and production of solar panels to the Company and the Company sells the solar panels to a customer. The agreement has a term of one year. In July and September 2008, the Company received $1,897,335 from this customer for the production and shipment of solar panels. This amount was recorded as deferred revenue. As of September 30, 2008, management completed two shipments and recognized $1,250,932 of revenue.
As of September 30, 2008, the Company was owed a $95,000 rebate from a third party vendor pursuant to an agreement with a customer that commenced in 2007. The rebate did not become a receivable of the Company until the project was completed in June of 2008. This rebate was received October 3, 2008.
Note 4 Bad Debt - Affiliate
In 2008 and 2007, a Company related to the Company’s Chief Executive Officer collected certain funds on contracts entered into by the Company. The affiliated entity did not have the ability to repay these funds that the Company was entitled to. As a result, the Company recorded a charge to common stock to reflect the uncollectible receivable from this related party.
Note 5 Deposits
(1) Equipment Deposits
On June 19, 2008, the Company placed a $1,050,000 deposit for the purchase of equipment. The total purchase price for the equipment is $3,000,000.
(2) Solar Panel Deposits
In July, August and September 2008, the Company advanced $2,758,139 to a supplier for the assembly and production of solar panels. As of September 30, 2008, the Company recognized a foreign currency transaction loss of $36,505, leaving $2,721,634 in retainer deposits.
Note 6 Guarantee Letter of Credit
On May 27, 2008 the Company entered in to a standby letter of credit with a bank for $1,600,000. The letter of credit acts as a performance bond, with a customer being the beneficiary, if the Company defaults on their monthly delivery agreement. The Company’s Chief Executive Officer has provided a personal guarantee of $800,000 on behalf of the Company for the letter of credit. In exchange for the personal guarantee, the Company issued 48.781 shares of the Company’s common stock, having a fair value of $60,473 ($1,240/share) based upon the recent cash offering price. The letter of credit expired in August 2008. However, the bank extended the letter of credit until August 7, 2009. The full amount of the line of credit remains available for use and has not been drawn down.
IX Energy, Inc.
Notes to Financial Statements
September 30, 2008
(Unaudited)
On June 30, 2008, two third party shareholders also provided personal guarantees of $400,000 each on behalf of the Company for the letter of credit. In exchange for the personal guarantee, the Company issued 24.390 shares of the Company’s common stock to each shareholder having a fair value of $60,473 ($1,240/share) based upon the recent cash offering price to third parties.
Note 7 Loans, Notes and Accrued Interest Payable
(1) Notes Payable & Accrued Interest Payable – Related Party
On February 14, 2007, the Company issued an advance of $50,000, which was unsecured, due on demand and bore interest at approximately 3.7% to a then third party, who became a 20% stockholder as described below in Note 8. This individual was repaid by the Company in full on December 10, 2007.
On November 1, 2007 and December 30, 2007, respectively, the Company issued notes payable of $3,000 and $220,000, respectively to the same stockholder. The notes bear interest at 12%, are unsecured, have a default interest rate of 24% per annum and are due 3 business days after the Company receives the cash proceeds from certain solar panel installation jobs. The Company completed these solar panel installations as of June 30, 2008. However, the Company is not in default on repayment, since the cash proceeds were not yet paid to the Company. Repayment of these notes is not due until a rebate related to one of these jobs is received as well as all other related outstanding accounts receivable are received. The rebate was received in October 2008.
On July 21, 2008, the Company issued a note payable of $900,000 to an affiliate of a principal stockholder. The note bears interest at 18%, is unsecured, has a default interest rate of 24% per annum and is due 3 business days after the Company receives the cash proceeds from a solar panel installation job that is expected to be completed by the second quarter of 2009. In October and November 2008, the Company repaid $250,000 of principal and $12,800 of accrued interest.
At September 30, 2008 and December 31, 2007, the Company reflected notes payable – related party, net of $1,123,000 and $184,748, respectively as the Company has the right of offset and related accrued interest payable of $52,105 and $61, respectively.
(2) Bridge Loans Payable, Conversion to Equity & Accrued Interest Payable
In July 2008, the Company entered into eight promissory note agreements for aggregate principal totaling $500,000 with various third parties. The notes bear interest at 5%, and the principal and interest is due and payable on the earlier of July 1, 2009 or when the Company completes the sale of any debt securities, common stock or common stock equivalents in a single transaction or series of related transactions resulting in gross proceeds of $3,500,000.
IX Energy, Inc.
Notes to Financial Statements
September 30, 2008
(Unaudited)
In July 2008, the Company entered into a Securities Purchase agreement with all eight of the note holders listed above. The Company issued a total of 6.5004 shares to the note holders in connection with these promissory notes. The number of shares each note holder received was in direct proportion to the amount of their promissory notes. The fair value of the common shares are valued at $8,063 ($1,240/share) based upon the recent cash offering price. This amount will be treated as a debt issue cost and will be amortized to interest expense over the life of the underlying promissory notes.
For the nine months ended September 30, 2008, the Company recorded amortization of debt issue costs to interest expense of $1,861.
At September 30, 2008 and December 31, 2007, the Company reflected bridge loans payable –of $500,000 and $0, respectively and related accrued interest payable of $5,838 and $0, respectively.
Note 8 Stockholders’ Equity (Deficit)
On July 17, 2007, the Company issued 200 shares of common stock for $247,940 ($1,240/ share). As a result of the sale of these shares, this individual became a 20% stockholder.
On June 30, 2008 the Company issued 48.781 shares of the Company’s stock to the Company Chief Executive Officer in exchange for his personal guarantee of $800,000 on behalf of the Company for a letter of credit. For the nine months ended September 30, 2008 and 2007, the Company recorded a letter of credit fee expense of $60,473 ($1,240/ share) and $0, respectively. The fair value of the stock issuance was based upon recent cash offerings to third parties.
On June 30, 2008 the Company issued 24.390 shares each to two private shareholders, in exchange for their personal guarantees of $400,000 each on behalf of the Company for the letter of credit. For the nine months ended September 30, 2008 and 2007, the Company recorded a letter of credit fee expense of $60,473 ($1,240/share) and $0, respectively. The fair value of the stock issuance was based upon recent cash offerings to third parties.
On June 30, 2008, the Company issued 2 shares of common stock to a related party shareholder for consulting services provided to the Company. For the nine months ended September 30, 2008 and 2007, the Company recorded consulting fees of $2,479 ($1,240/share) and $0, respectively. The fair value of the stock issuance was based upon recent cash offerings to third parties.
IX Energy, Inc.
Notes to Financial Statements
September 30, 2008
(Unaudited)
Note 9 Commitments and Contingencies
Litigations, claims and assessments
From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm its business. The Company is currently not aware of any such legal proceedings or claims that they believe will have, individually or in the aggregate, a material adverse affect on its business, financial condition or operating results.
Employment agreements
(1) CEO
On May 1, 2008, the Company entered into a two-year employment agreement with an individual to serve as the Company’s CEO and Chairman of the Board. The agreement provides for an annual salary of $225,000. There is additional compensation that can be earned upon the sale of the Company’s debt and/or equity securities. 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 planned reverse acquisition and recapitalization with a public shell occurs.
(2) Former CFO
Effective May 12, 2008, the Company entered into a two-year employment agreement with a former member of its senior management to serve as CFO. The agreement provided for a salary of $150,000 per annum. On August 15, 2008, the Company received a promissory note from the former CFO in the amount of $10,000 bearing interest at a rate of 6% per annum. This amount plus interest was to be repaid to the Company by December 31, 2008.
On September 11, 2008, the Company forgave the entire $10,000 principal amount and unpaid interest totaling $10,833 and recorded the forgiveness as compensation expense.
Effective October 17, 2008, the Company terminated its employment agreement with this individual. According to the termination agreement, the Company is obligated to pay $65,000 in to this individual. To date, the Company has not made any payments related to the termination agreement.
IX Energy, Inc.
Notes to Financial Statements
September 30, 2008
(Unaudited)
(C) Employment Agreement - COO
On April 23, 2008, the Company entered into a consulting agreement with a then unrelated party for hourly fees to be paid in the Company’s common stock at a future date. The Company accrued $22,500 related to this consulting agreement. On July 1, 2008, the Company entered into an employment agreement with this individual. On September 23, 2008, the Company authorized the issuance of 1.4634 shares of common stock in full satisfaction of all amounts owed to this individual under this individual’s consulting agreement totaling $22,500. The Company recorded consulting fees of $22,500. The fair value of the stock issued was based upon the fair value of the services rendered.
Effective July 1, 2008, the Company entered into a two-year employment agreement with a member of its senior management to serve as COO. The agreement provides for a salary $160,000 per annum plus entitlement to an annual bonus based upon the Company’s performance during each year of employment. The individual will also be eligible for a multi-year grant of the Company’s non-qualified options that will be equal to 3% of the total common shares outstanding after the planned reverse acquisition and recapitalization with a public shell occurs.
On September 23, 2008, the Company authorized the issuance of 0.9756 of one share of common stock in full satisfaction of $6,667 of accrued salary that was unpaid to the Company’s COO during the first two weeks of employment in July 2008. The Company recorded consulting fees of $6,667. The fair value of the stock issued was based upon the fair value of the services rendered.
Note 10 Subsequent Events
On December 18, 2008, the Company issued 64.2189 shares of common stock as bonus compensation to its employees and officers. The shares were valued at $79,631 ($1,240/share), based upon the fair value of the recent cash offerings to third parties.
