Attached files
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2011
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE ACT OF
1934 From the transition period ___________ to ____________.
Commission File Number 0-22965
IRON EAGLE GROUP, INC.
(formerly Pinnacle Resources, Inc.)
(Exact name of small business issuer as specified in its charter)
Delaware 27-1922514
---------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization Identification Number)
61 West 62nd Street, Suite 23F, New York, NY 10023
---------------------------------------------------------------
(Address of principal executive offices, Zip Code)
(800) 481-4445
------------------------------------------
(Registrant's telephone number)
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during
the past 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T (section 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes [ ] No [ ]
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [x]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [x]
The number of outstanding shares of the registrant's common stock as of
August 15, 2011, there were 1,506,337 common shares outstanding.
2
PART I -- FINANCIAL INFORMATION
Iron Eagle Group, Inc.
FORM 10-Q
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 2011 and
December 31, 2010 3
Consolidated Statements of Operations for the Three
Months ended June 30, 2011 and 2010 and the Six Months
Ended June 30, 2011 and 2010 5
Consolidated Statements of Cash Flows for the Six Months
ended June 30, 2011 and 2010 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 36
Item 3. Quantitative and Qualitative Disclosure About
Market Risk 40
Item 4. Controls and Procedures 40
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 42
Item 1A. Risk Factors 42
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds 42
Item 3. Defaults Upon Senior Securities 43
Item 4. (Removed and Reserved) 43
Item 5. Other Information 43
Item 6. Exhibits 43
SIGNATURES 44
3
IRON EAGLE GROUP, INC.
Consolidated Balance Sheets
June 30, 2011 and December 31, 2010
(Unaudited) (Audited)
June 30, December 31,
2011 2010
--------- -----------
ASSETS
Current Assets
Cash $ 2,728,593 $ 976
Contracts Receivable, net of allowance
of $150,000 and $ 0 12,263,762 -
Costs & Estimated Earnings in Excess of
Billings on Uncompleted Contracts 484,187 -
Prepaid Tax Deposits 207,099 -
Deposits 137,340 -
Other Prepaid Assets 682,006 617,563
----------- -----------
Total Current Assets 16,502,987 618,539
Fixed Assets, Net of Accumulated
Depreciation of $784,640 and $15,714 252,159 2,150
Goodwill 4,727,150 -
Non-Compete 234,144 -
----------- -----------
TOTAL ASSETS $21,716,440 $ 620,689
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable - Related Parties $ 539,439 $ 479,439
Accounts Payable 8,037,797 78,409
Advances From Officer 75,305 289,758
Accrued Liabilities 1,150,080 795,936
Notes Payable - Related Party 937,273 18,773
Capital Lease 2,344 2,344
Common Stock to be Issued 104,031 42,155
Billings in Excess of Cost & Estimated
Earnings on Uncompleted Contracts 2,908,834 -
Note Payable - Purchase of Delta 8,865,907 -
Notes Payable - Current Portion 11,602 -
Line of Credit 50,000 50,000
----------- -----------
Total Current Liabilities 23,682,612 1,756,814
----------- -----------
Long-Term Liabilities
Note Payable - Long-Term 3,028 -
Earn-Out 848,022 -
----------- -----------
TOTAL LIABILITIES 24,533,662 1,756,814
4
Stockholders' Equity
Preferred Stock ($.00001 par value,
20,000,000 shares authorized, 0 and 0
shares - -
issued and outstanding)
Common Stock ($.00001 par value,
875,000,000 shares authorized, 1,469,436
and 1,446,463 shares issued and outstanding) 15 15
Additional Paid in Capital 507,937 79,952
Accumulated Deficit (2,325,174) (1,216,092)
----------- -----------
Total Stockholders' Equity (1,817,220) (1,136,125)
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $21,716,440 $ 620,689
----------- -----------
The accompanying notes are an integral
part of these financial statements.
5
IRON EAGLE GROUP, INC.
Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 2011 and 2010
(Unaudited)
Three Months Ended Six Months Ended
------------------- ----------------------
June 30, June 30, June 30, June 30,
2011 2010 2011 2010
----------- ------ ----------- ---------
Revenue $11,105,870 $ - $23,353,436 $ -
Cost of Revenue 10,587,682 - 21,999,625 -
----------- ------ ----------- ---------
Gross Profit 518,188 - 1,353,811 -
----------- ------ ----------- ---------
Operating expenses:
Selling, General and Administrative 214,394 - 512,328 172
Depreciation 26,529 - 79,588 -
Compensation Expense 540,495 - 870,058 50,000
Professional Fees 361,474 - 620,357 -
Professional Fees to Related Parties 60,000 - 60,000 60,000
----------- ------ ----------- ---------
Total Operating Expenses 1,202,892 - 2,142,331 110,172
----------- ------ ----------- ---------
Net Operating Income (Loss) (684,704) - (788,520) (110,172)
Other Income (Expense):
Non-Compete Amortization (37,500) - (65,856) -
Increase in Present Value of Earn-out (19,913) - (34,700) -
Interest Expense (155,920) (782) (220,001) (1,564)
----------- ------ ----------- ---------
Net Income (Loss) Before Income Taxes $ (898,037) $ (782) $(1,109,077) $(111,736)
=========== ====== =========== =========
Basic and Diluted Loss per Share $ (0.61) $(0.78) $ (0.76) $ (111.74)
=========== ====== =========== =========
Weighted Average Shares Outstanding:
Basic and Diluted 1,469,004 1,000 1,462,186 1,000
The accompanying notes are an integral
part of these financial statements.
6
IRON EAGLE GROUP, INC.
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2011 and 2010
(Unaudited)
Six Months Six Months
Ended Ended
June 30, 2011 June 30, 2010
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) $(1,109,077) $ (111,736)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation & Amortization Expense 145,444 -
Stock Issued for Services 427,980 -
Increase in Goodwill (4,727,150) -
Increase in Non-Compete (300,000) -
Increase in Contracts Receivable (12,263,762) -
Increase in Costs & Estimated Earnings
in Excess of Billings (484,187)
(Increase) in Deposits (137,340) -
(Increase) in Other Prepaid Assets (64,443) -
(Increase) in Prepaid Tax Deposits (207,099) -
Increase in Accounts Payable-Related Party 60,000 71,143
Increase (Decrease) in Accounts Payable 7,959,388 (10,971)
Increase in Advances from Officer (214,453) -
Increase in Accrued Liabilities 354,144 50,000
Increase in Capital Lease - -
Increase in Billings in Excess of Cost
& Estimated Earnings 2,908,834 -
Increase in Earn Out 848,022 -
----------- -----------
Net Cash (Used) by Operating Activities (6,803,699) (1,564)
CASH FLOWS USED IN INVESTING ACTIVITIES
Fixed Assets Acquired in the Purchase
of Delta (329,597) -
Cash Paid for Acquisition of Delta - -
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Note Payable - Purchase of Delta 8,865,907 -
Increase in Common Stock to be Issued 61,876 -
Increase in Note Payable - Related Party 918,500 1,564
Increase in Note Payable 14,630 -
----------- -----------
Net Cash Provided by Financing
Activities 9,860,913 1,564
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,727,617 -
7
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 976 -
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 2,728,593 $ -
=========== ===========
SUPPLEMENTAL NON-CASH DISCLOSURES:
Stock Issued for Services $ 423,735 $ -
=========== ===========
Cash Paid for Interest Expense $ - $ -
=========== ===========
Cash Paid for Income Taxes $ - $ -
=========== ===========
The accompanying notes are an integral
part of these financial statements.
8
IRON EAGLE GROUP, INC.
Notes to the Consolidated Financial Statements
For the Six Months Ended June 30, 2011 and 2010
NOTE 1 - Nature of Activities, History and Organization
Iron Eagle Group, Inc. (formerly Pinnacle Resources, Inc.) ("Iron
Eagle" or the "Company") was incorporated under the laws of Wyoming in
January 1995. In March 2010, the Company re-domiciled in Delaware and
changed its name to Iron Eagle Group, Inc. As of April 2009, the
Company has discontinued all mining and exploration activities.
Iron Eagle provides construction and contracting services in the
infrastructure, commercial, and government markets. Iron Eagle's
management consists of business leaders in construction, government
contracting, defense, finance, operations, and business development.
Iron Eagle intends to benefit from the $100+ billion in annual
government infrastructure spending to rebuild the nation's schools,
roads, bridges, airports, highways, power plants, military bases,
dormitories, public transit, etc. (Source: "Construction Outlook 2011"
report McGraw-Hill Construction). In addition, according to
www.recovery.org, the purpose of the $787 billion federal recovery
package is to jump-start the economy to create and save jobs and over
$100 billion has been allocated to improve the nation's infrastructure.
T-here can be no assurance that the Company will not encounter problems
as it attempts to implement its business plan.
On January 21, 2011, Iron Eagle Group, Inc. acquired all of the
members' interests in Sycamore Enterprises, LLC, through Bruce A.
Bookbinder's membership interests (100%). Sycamore Enterprises, LLC is
100% holder of all of the membership interests of Delta Mechanical
Contractors, LLC, a mechanical contractor ("Delta"). The Company is
currently engaged in the identification and ongoing negotiations for
the acquisition of construction related entities.
Iron Eagle entered into a share exchange agreement to acquire 100% of
the outstanding common stock of Iron Eagle Group (a Nevada corporation)
("Iron Eagle Nevada"). On August 18, 2010, Iron Eagle issued
1,167,162 shares of common stock in exchange for a 100% equity
interest in Iron Eagle Nevada. As a result of the share exchange, Iron
Eagle Nevada became the wholly owned subsidiary of Iron Eagle. The
shareholders of Iron Eagle Nevada owned a majority of the voting stock
of Iron Eagle. Therefore, the transaction was regarded as a reverse
merger whereby Iron Eagle Nevada was considered to be the accounting
acquirer as its shareholders retained control of Iron Eagle after the
exchange, although Iron Eagle is the legal parent company. The share
exchange was treated as a recapitalization of Iron Eagle. As such,
Iron Eagle Nevada (and its historical financial statements) is the
continuing entity for financial reporting purposes. The financial
statements have been prepared as if Iron Eagle had always been the
reporting company and then on the share exchange date, reorganized its
capital stock.
9
IRON EAGLE GROUP, INC.
Notes to the Consolidated Financial Statements
For the Six Months Ended June 30, 2011 and 2010
NOTE 1 - Nature of Activities, History and Organization (Continued)
At the time of the exchange transaction, Iron Eagle had assets of
approximately $830,065 and equity of approximately $49,967 and Iron
Eagle Nevada had assets of approximately $10,000 with a deficit of
approximately $382,707.
The exchange agreement has been treated as a recapitalization and not a
business combination and therefore no proforma information is
presented.
As a result of the recapitalization, the Company changed its fiscal
year from June 30th to December 31st, to conform to the merged entity.
On August 16, 2011, the registrant's 8-for-1 reverse split of its
outstanding common stock will be effective. All prices and shares for
this filing reflect that split.
Unaudited Interim Financial Statements:
--------------------------------------
The accompanying unaudited interim financial statements have been
prepared in accordance with accounting principles generally accepted in
the United States and applicable Securities and Exchange Commission
("SEC") regulations for interim financial information. These financial
statements are unaudited and, in the opinion of management, include all
adjustments (consisting of normal recurring accruals) necessary to
present fairly the balance sheets, statements of operations and
statements of cash flows for the periods presented in accordance with
accounting principles generally accepted in the United States. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally
accepted in the United States have been condensed or omitted pursuant
to SEC rules and regulations. It is presumed that users of this interim
financial information have read or have access to the audited financial
statements and footnote disclosure for the preceding calendar year
contained in the Form 10K, for the year ended December 31, 2010.
Operating results for the interim periods presented are not necessarily
indicative of the results that may be expected for the year ending
December 31, 2011.
Operating Cycle:
---------------
The Company's work is performed primarily under lump sum contracts.
The duration of each project varies; however, completion typically
occurs within one year.
Significant Accounting Policies:
-------------------------------
The Company's management selects accounting principles generally
accepted in the United States of America and adopts methods for their
application. The application of accounting principles requires the
estimating, matching and timing of revenue and expense. The accounting
policies used conform to generally accepted accounting principles which
have been consistently applied in the preparation of these financial
statements.
10
IRON EAGLE GROUP, INC.
Notes to the Consolidated Financial Statements
For the Six Months Ended June 30, 2011 and 2010
NOTE 1 - Nature of Activities, History and Organization (Continued)
The financial statements and notes are representations of the Company's
management which is responsible for their integrity and objectivity.
Management further acknowledges that it is solely responsible for
adopting sound accounting practices, establishing and maintaining a
system of internal accounting control and preventing and detecting
fraud. The Company's system of internal accounting control is designed
to assure, among other items, that 1) recorded transactions are
valid; 2) valid transactions are recorded; and 3) transactions are
recorded in the proper period in a timely manner to produce financial
statements which present fairly the financial condition, results of
operations and cash flows of the Company for the respective periods
being presented.
FASB Accounting Standards Codification:
--------------------------------------
In June 2009, the Financial Accounting Standards Board ("FASB") issued
new guidance concerning the organization of authoritative guidance
under U.S. Generally Accepted Accounting Principles ("GAAP"). This new
guidance created the FASB Accounting Standards Codification
("ASC")("the Codification"). The Codification has become the source of
authoritative U.S. GAAP recognized by the FASB to be applied by
nongovernmental entities. The Codification became effective for the
Company as of September 15, 2009, the required date of adoption. As
the Codification is not intended to change or alter existing U.S. GAAP,
it did not have any impact on the Company's financial statements.
Basis of Presentation and Principles of Consolidation:
-----------------------------------------------------
The Company prepares its financial statements on the accrual basis of
accounting. The Company is consolidated with its wholly owned
subsidiary, Iron Eagle Nevada (as of August 18, 2010, the date of the
reverse merger) and Sycamore Enterprises, LLC and its wholly owned
subsidiary, Delta Mechanical Contractors, LLC (as of January 21, 2011,
the date of the acquisition). All intercompany transactions have been
eliminated.
Use of Estimates:
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at
the date of the consolidated financial statements. Estimates also
affect the reported amount of revenues and expenses during the
reporting period. Accordingly, actual results could differ from those
estimates.
11
IRON EAGLE GROUP, INC.
Notes to the Consolidated Financial Statements
For the Six Months Ended June 30, 2011 and 2010
NOTE 1 - Nature of Activities, History and Organization (Continued)
Revenue and Cost Recognition - Construction Contracts:
-----------------------------------------------------
Revenues from construction contracts are recognized on the percentage
of completion method, measured by the percentage of costs incurred to
date to estimated total costs for each contract. This method is used
because management considered expended costs to be the best available
measure of progress on these contracts. Revenues from time and
materials contracts are recognized on the basis of costs incurred
during the period plus the fee earned, measured by the cost-to-cost
method. Because of inherent uncertainties in estimating costs, it is
at least reasonably possible that the estimates used will change within
the near-term.
Contract costs include all direct subcontractors, material, labor
costs, benefits, licenses and fees, insurance and payroll taxes, and
those indirect costs related to contract performance such as small
tools and other indirect costs. Selling, general and administrative
costs are changed to expense as incurred. Provisions for estimated
losses on uncompleted contracts are made in the period in which such
losses are determined. Changes in job performance, job conditions, and
estimated profitability, including those arising from contract penalty
provisions and final contract settlements may result in revisions to
costs and revenues and recognized in the period in which the revisions
are determined. Profit incentives are included in revenues when their
realization is reasonably assured. An amount equal to contract costs
attributable to claims is included in revenues when realization is
probably and the amount can be reasonably estimated.
The asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts" represents revenues to be recognized in excess
of amounts billed. The liability, "Billings in excess of costs and
estimated earnings on uncompleted contracts," represents billings in
excess of revenues recognized.
Income Taxes:
------------
The Company has adopted ASC 740-10 "Income Taxes" (formerly SFAS No.
109, "Accounting for Income Taxes"), which requires the use of the
liability method in computation of income tax expense and the current
and deferred income tax payable (deferred tax liability) or benefit
(deferred tax asset). Valuation allowances will be established when
necessary to reduce deferred tax assets to the amount expected to be
realized.
Earnings per Share:
------------------
Earnings per share (basic) is calculated by dividing the net income
(loss) by the weighted average number of common shares outstanding for
the period covered.
12
IRON EAGLE GROUP, INC.
Notes to the Consolidated Financial Statements
For the Six Months Ended June 30, 2011 and 2010
NOTE 1 - Nature of Activities, History and Organization (Continued)
The inclusion of the Company's warrants, which are considered common
stock equivalents as of June 30, 2011 and 2010, in the earnings (loss)
per share computation has not been included because the results would
be anti-dilutive under the treasury stock method, as the Company
incurred a net loss in the periods presented.
Comprehensive Income (Loss):
---------------------------
ASC 220 "Comprehensive Income" (formerly SFAS No. 130, "Reporting
Comprehensive Income" (SFAS No. 130")), establishes standards for
reporting and display of comprehensive income and its components in a
full set of general-purpose financial statements. For the six months
ended June 30, 2011 and 2010, the Company had no items of other
comprehensive income. Therefore, net loss equals comprehensive loss
for the six months ended June 30, 2011 and 2010.
Cash and Cash Equivalents:
-------------------------
The Company considers its holdings to be cash equivalents if the
instruments mature within 90 days from the date of acquisition and have
no penalty for early withdrawal. The Company has a potential
concentration of credit risk in that it maintains deposits with a
financial institution in excess of amounts insured by the Federal
Deposit Insurance Corporation (FDIC). The maximum deposit insurance
amount is $250,000, which is applied per depositor, per insured
depository institution for each account ownership category.
Contracts Receivable:
--------------------
The Company provides an allowance for doubtful accounts equal to
estimated bad debt losses. The estimated losses are based on
historical collection experience, together with a review of the current
status of the existing receivables. Normal contracts receivable are
due 30 days after the issuance of the invoice. Contract retentions are
due 30 days after the completion of the project and acceptance by the
owner.
Prepaid Expenses:
----------------
Prepaid expenses are recognized for services that the Company has paid
in advance. The value of the services to be rendered are amortized on
a straight line basis each month over the term of the contract service
period.
Fixed Assets:
------------
Fixed assets are recorded at historical cost. Equipment is depreciated
on a straight-line basis over its estimated useful life (generally 5 to
7 years). Leasehold improvements are amortized over the shorter of the
estimated useful life or lease term. Capital Leases are amortized of
13
IRON EAGLE GROUP, INC.
Notes to the Consolidated Financial Statements
For the Six Months Ended June 30, 2011 and 2010
NOTE 1 - Nature of Activities, History and Organization (Continued)
the life of the lease. Maintenance and repairs which do not improve or
extend the lives of the respective assets, are expensed as incurred.
Expenditures for major renewals and betterments, which extend the
useful lives of existing equipment, are capitalized and depreciated.
Upon retirement or disposition of property and equipment, the cost and
related accumulated depreciation are removed from the accounts and any
resulting gain or loss is recognized in the statements of operations.
The Company reviews long-lived assets, including property and
equipment, for impairment whenever events or changes in business
circumstances indicate that the carrying amount of the assets may not
be fully recoverable. If impairment is indicated, the carrying value of
the asset is reduced to fair value.
Share Based Payments:
--------------------
The Company accounts for share based payments using a fair value based
method whereby compensation cost is measured at the grant date based on
the value of the services received and is recognized over the service
period. The Company uses the Black-Scholes pricing model to calculate
the fair value of options and warrants issued. In calculating this
fair value, there are certain assumptions used such as the expected
life of the option, risk-free interest rate, dividend yield, volatility
and forfeiture rate. The use of a different estimate for any one of
these components could have a material impact on the amount of
calculated compensation expense.
Advertising:
-----------
Advertising costs are expensed as incurred. Advertising expense for
the six months ended June 30, 2011 and 2010 was $ 0 and $ 0.
Reclassification:
----------------
Certain account balances have been reclassified to enhance financial
statement comparability.
Recent Accounting Pronouncements:
--------------------------------
The Company does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on the Company's results of
operations, financial position or cash flow. See Note 14 for a
discussion of new accounting pronouncements.
Fair Value of Financial Instruments:
-----------------------------------
In accordance with the reporting requirements of ASC 820 "Fair Value
Measurement and Disclosure" (formerly SFAS No. 157, "Disclosures About
Fair Value of Financial Instruments"), the Company calculates the fair
14
IRON EAGLE GROUP, INC.
Notes to the Consolidated Financial Statements
For the Six Months Ended June 30, 2011 and 2010
NOTE 1 - Nature of Activities, History and Organization (Continued)
value of its assets and liabilities which qualify as financial
instruments under this statement and includes this additional
information in the notes to the financial statements when the fair
value is different than the carrying value of those financial
instruments. As of June 30, 2011 and December 31, 2010 the Company did
not have any financial instruments other than cash and cash
equivalents.
NOTE 2 - CONTRACT RECEIVABLES
The Company's contract receivables as of June 30, 2011 and December 31,
2010 are as follows:
June 30, 2011 December 31, 2010
-------------- -----------------
Contracts Receivable - Billed & Due $ 7,817,946 $ -
Contracts Receivable - Retainage 4,595,816 -
Less: Allowance for Doubtful Accounts (150,000) -
----------- -----------
Total $12,263,762 $ -
=========== ===========
NOTE 3 - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
The Company's Costs and estimated earnings on uncompleted contracts as
of June 30, 2011 and December 31, 2010 are as follows:
June 30, 2011 December 31, 2010
-------------- -----------------
Costs Incurred on Uncompleted
Contracts $ 85,885,873 $ -
Estimated Earnings 6,131,945 -
------------ ------------
92,017,818 -
Less Billings to Date (94,442,465) -
------------ ------------
Total $ (2,424,647) $ -
============ ============
The following amounts are included in the accompanying consolidated
balance sheets under the following captions:
June 30, 2011 December 31, 2010
-------------- -----------------
Costs and estimated earnings in
excess of billings on uncompleted
contracts $ 484,187 $ -
15
IRON EAGLE GROUP, INC.
Notes to the Consolidated Financial Statements
For the Six Months Ended June 30, 2011 and 2010
NOTE 3 - COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
(Continued)
Billings in excess of costs and
estimated earnings on uncompleted
contracts (2,908,834) -
----------- ------------
Total $(2,424,647) $ -
=========== ============
NOTE 4 - PREPAID EXPENSES
The Company has entered into contracts for investor relations and
consulting services to assist in the financing and purchasing of
construction related entities. All services were prepaid with Company
shares and warrants that vested immediately. The values of the
services to be rendered are amortized on a straight line basis each
month over the terms of the contract service periods. The services
remaining to be provided as of June 30, 2011 and December 31, 2010 are
reflected as a prepaid asset. The gross prepaid expense as of June 30,
2011 and December 31, 2010 is $1,288,054 and $827,860. The net prepaid
expense as of June 30, 2011 and December 31, 2010 is $650,691 and
$611,563, reflecting amortization for the three months ended June 30,
2011 of $218,214 and the year ended December 31, 2010 was $216,297.
There were no amounts prepaid as of June 30, 2010.
NOTE 5 - FIXED ASSETS
Fixed assets at June 30, 2011 and December 31, 2010 consist of the
following:
June 30, December 31,
2011 2010
--------- -------
Office Equipment and Furniture $ 172,146 $17,864
Tools and Equipment 324,861 -
Computer Equipment 157,317 -
Vehicles 387,119 -
Leasehold Improvements 21,885 -
--------- -------
Subtotal 1,063,328 17,864
Accumulated Depreciation (811,169) (15,714)
--------- -------
Total $ 252,159 $ 2,150
========= =======
Fixed assets are stated at cost less accumulated depreciation. Major
renewals and improvements are capitalized; minor replacements,
maintenance and repairs are charged to current operations.
Depreciation is computed by applying the straight-line method over the
estimated useful lives which are generally five to seven years.
16
IRON EAGLE GROUP, INC.
Notes to the Consolidated Financial Statements
For the Six Months Ended June 30, 2011 and 2010
NOTE 5 - FIXED ASSETS (Continued)
Depreciation expense for the six months ended June 30, 2011 and 2010
was $79,588 and $0, respectively.
NOTE 6 - INTANGIBLE ASSETS & EARN OUT RELATED TO THE ACQUISITION
OF DELTA
The aggregate purchase price paid by the Company for the purchased
membership interests consisted of:
(i) a $9,000,000 buyer note (secured by Delta Mechanical)
(ii) future contingency payment(s), based on the registrant's
results for the years ended December 31, 2011, 2012, 2013 and 2014, not
to exceed $250,000 per year or $1,000,000 in aggregate, and
(iii) a four year employment contract with the president and chief
financial officer of Delta Mechanical.
The Company has recorded goodwill of $4,727,150 which represents the
purchase price of Delta over the net assets identified less liabilities
assumed.
As part of the purchase of Delta Mechanical, the Company also executed
a two year non-compete with the Seller, which the Company and that both
parties mutually agreed that the $300,000 was a reasonable and fair
value of the non-compete.
The identifiable intangible assets are being amortized over their
respective useful lives of the non-compete agreement, which is two
years. During the six months ended June 30, 2011, the Company recorded
amortization expense of $65,856 related to the non-compete agreement.
Goodwill is tested for impairment on an annual basis and between annual
tests if events or circumstances indicate that an impairment loss may
have occurred, and written down when impaired. The Company will
perform our annual impairment tests during the fourth quarter of each
year using the opening balance sheet as of the first day of the fourth
quarter, with any resulting impairment recorded in the fourth quarter
of the fiscal year.
The Company evaluates long-lived assets and amortizable intangible
assets whenever events or changes in business circumstances or our
planned use of assets indicate that their carrying amounts may not be
fully recoverable or that their useful lives are no longer appropriate.
Reviews are performed to determine whether the carrying values of
assets are impaired based on comparison to the undiscounted expected
future cash flows identifiable to such long-lived and amortizable
intangible assets. If the comparison indicates that impairment exists,
the impaired asset is written down to its fair value.
17
IRON EAGLE GROUP, INC.
Notes to the Consolidated Financial Statements
For the Six Months Ended June 30, 2011 and 2010
NOTE 6 - INTANGIBLE ASSETS & EARN OUT RELATED TO THE ACQUISITION
OF DELTA (Continued)
During the six months ended June 30, 2011, the Company noted no
indications of impairment or triggering events to cause a review of
goodwill for potential impairment and will conduct its annual goodwill
testing during the fourth quarter of 2011. There was no goodwill at
December 31, 2010.
NOTE 7 - RELATED PARTY TRANSACTIONS
The Company entered into an agreement on November 15, 2009 with Belle
Haven Partners, LLC ("Belle Haven") to assist Iron Eagle Nevada with
business development planning, raising additional capital, and
accessing the public markets. One of Belle Haven's principals is also
on Iron Eagle's management team, and the entities have common
ownership. Iron Eagle Nevada agreed to pay Belle Haven $20,000 per
month starting September 1, 2009, as well as to reimburse them for all
out-of-pocket expenses. As discussed in Note 13, Belle Haven agreed to
waive their compensation earned by them during the first quarter of
2011. The compensation expense to Belle Haven began to accrue again as
of April 1, 2011. As of June 30, 2011 and December 31, 2010, the
Company had accrued $539,439 and $479,439, respectively in amounts due
to Belle Haven.
The Company also leases its New York, New York facility under a rental
agreement that has a one year lease starting September 1, 2010 for
$2,100 a month with Belle Haven Capital, LLC, an entity which is owned
by the Company's current Chief Executive officer.
On December 31, 2009, the Company entered into two note agreements with
Jason Shapiro, the Company's current Chief Executive Officer, for a
total of $15,000. These notes, which bear a 10% interest rate, were
originally due on June 30, 2010, and have been extended until June 30,
2011. The Company also owes Jason Shapiro, its current Chief Executive
Officer, $53,323 as of June 30, 2011 and $271,259 as of December 31,
2010 for operating expenses, which, in general include professional
fees for audit, legal and investor relations.
On March 8, 2011, the Company entered into note agreements with two
related parties (the Company's former Chairman of the Board and the
Company's Executive Vice President) for receipt of $60,000 cash for
working capital purposes. These notes have similar terms and bear an
interest rate of 10% and are due in full upon the earlier of the
registrant receiving at least $75,000 of funding or 90 days of issuance
with renewable 30 day periods, at the holder's sole discretion. As of
August 15, 2011, these notes have not been repaid.
On March 17, 2011, the Company converted $250,000 of the "Advances from
Officer" from the Company's CEO into a note agreement. The note bears
an interest rate of 10% and is due December 15, 2011. Should the note
18
IRON EAGLE GROUP, INC.
Notes to the Consolidated Financial Statements
For the Six Months Ended June 30, 2011 and 2010
NOTE 7 - RELATED PARTY TRANSACTIONS (Continued)
not be repaid in it's entirely by December 15, 2011, it will be
considered to be in default and the interest rate shall increase to
15%.
On May 19, 2011, Mr. Sabio purchased for a consideration of $500 from
Jason M. Shapiro and Jake Shapiro an aggregate of 62,500 shares of Iron
Eagle common stock (31,500 shares purchased from each). Mr. Sabio has
agreed not to sell or offer to sell such shares or other shares of
common stock they own in Iron Eagle for a period of 12 months following
the completion of this offering, except as per a Board approved lock-up
agreement. In addition, in accordance with an agreement we entered into
with Mr. Sabio on May 19, 2011, effective upon completion of this
offering, Mr. Sabio waived and relinquished $151,250 of Iron Eagle cash
and stock compensation obligations that accrued for the benefit of Mr.
Sabio during the three month period ended March 31, 2011.
As of June 30, 2011, the Company owes Sycamore's sole member $600,000
for loans and advances previously made to it prior to the date of Iron
Eagle's January 2011 acquisition.
NOTE 8 - ACCRUED COMPENSATION
The Company has entered into employment agreements with the Company's
management team, as outlined in Note 13. As of June 30, 2011 and
December 31, 2010, no cash compensation has been paid, and the Company
has accrued amounts pursuant to these agreements.
NOTE 9 - LINE OF CREDIT
The Company has a $50,000 line of credit with a major U.S. financial
institution. The current balance is $50,000 plus accrued interest of
$469 and carries an interest rate of 6.25%.
NOTE 10 - DEBT ISSUANCES
On March 8, 2011, the Company entered into a note agreement with
Alliance Advisors for $7,500 as consideration for receipt of cash by
the Company. This note has an interest rate of 12% and is due upon the
earlier of June 8, 2011 or the registrant receiving at least $100,000
of funding, unless renewed.
On March 8, 2011, the Company has entered into note agreements with the
Company's CEO Chairman of the Board and the Company's Executive Vice
President for a total of $60,000, as outlined in Note 7.
19
IRON EAGLE GROUP, INC.
Notes to the Consolidated Financial Statements
For the Six Months Ended June 30, 2011 and 2010
On March 17, 2011, the Company converted $250,000 of the "Advances from
Officer" from the Company's CEO into a note agreement, as outlined in
Note 7.
On January 21, 2011, as part of the purchase price of Delta Mechanical,
the Company issued a buyer note of $ 9,000,000 to Bruce A. Bookbinder
("Buyer Note") which was subsequently adjusted to $8,675,463 pursuant
to a working capital adjustment. The Buyer Note is secured by the
Company's membership interest in Sycamore Enterprises LLC, Delta
Mechanical's parent. The due date for the Buyer Note is June 2, 2011,
which was subsequently extended to September 2, 2011. Unless extended,
there is a possibility that the Mr. Bookbinder may exercise his right
to the collateral and thus the Company may lose its entire equity
investment in Delta, if the note is not paid in full by September 2,
2011. This would have a significant adverse effect of the Company and
its operations. The Company's management team is in good relations with
Bruce Bookbinder and is in discussions about extending the due date of
the Buyer Note.
NOTE 11 - EQUITY
In December 2009, Iron Eagle Nevada issued 1,000 shares pursuant to the
"Founder's Agreement" dated December 1, 2009. Three of the founders
contributed intellectual capital in exchange for 81.639% of the shares.
As no specific intangible assets were identified, the sales were valued
at par. 18.36% of the shares of Iron Eagle Nevada were issued in
change for 200,000 shares of The Saint James Company. The fair value
of the shares obtained, based upon level 3 fair value inputs was $0.
The shares are restricted as to their transferability.
The Company entered into a share exchange agreement to acquire 100% of
the outstanding common stock of Iron Eagle Group, (a Nevada
corporation) ("Iron Eagle Nevada"). On August 18, 2010, Iron Eagle
issued 1,167,162 shares of common stock in exchange for a 100% equity
interest in Iron Eagle Nevada. As a result of the share exchange, Iron
Eagle Nevada became the wholly owned subsidiary of Iron Eagle. As a
result, the shareholders of Iron Eagle Nevada owned a majority of the
voting stock of Iron Eagle. The transaction was regarded as a reverse
merger whereby Iron Eagle Nevada was considered to be the accounting
acquirer as its shareholders retained control of Iron Eagle after the
exchange, although Iron Eagle is the legal parent company. The share
exchange was treated as a recapitalization of Iron Eagle. As such,
Iron Eagle Nevada (and its historical financial statements) is the
continuing entity for financial reporting purposes. The financial
statements have been prepared as if Iron Eagle had always been the
reporting company and then on the share exchange date, reorganized its
capital stock. At the time of the exchange transaction, Iron Eagle had
assets of approximately $830,065 and equity of approximately $49,967
and Iron Eagle Nevada had assets of approximately $10,000 with a
deficit of approximately $(382,707).
In March, 2010, the Company re-domiciled from Wyoming to Delaware.
Also at this time, the terms of its preferred shares was changed from
20
IRON EAGLE GROUP, INC.
Notes to the Consolidated Financial Statements
For the Six Months Ended June 30, 2011 and 2010
NOTE 11 - EQUITY (Continued)
$.01 to $.00001. It also changed its total authorized preferred shares
from 2,000,000 to 20,000,000. No preferred shares are issued or
outstanding as of June 30, 2011 and December 31, 2010, respectively.
Stock Issued for Services
-------------------------
On May 1, 2010, the Company entered into a one year consulting
agreement with an individual for investor relations services. In
satisfaction of the agreement, the Company issued 25,000 shares of the
Company's common stock at a per share price of $9.60. The portion of
services that have not been utilized are recorded as a prepaid expense
as of June 30, 2011 and December 31, 2010.
On May 4, 2010, the Company entered into a consulting agreement with a
website development firm. In satisfaction for the agreement, the
Company issued 625 shares of the Company's common stock at a per share
price of $9.60.
On May 4, 2010, the Board appointed Gary Giulietti as a Director and
granted him 5,208 shares of the Company's common stock at a per share
price of $9.60, which vested immediately.
On May 4, 2010, the Company entered into a one year consulting
agreement with an investor relations firm. In satisfaction for the
agreement, the Company issued 13,594 shares of the Company's common
stock at a per share price of $9.60 and a 5 year warrant to purchase up
to 13,594 shares with an exercise price of $10.56 per share. The
shares issued vested immediately. The fair value of the warrant was
$124,703. The Company has received three months of services under this
agreement, and the remaining services are currently on hold pending the
Company's decision to resume services. The portion of services that
have not been utilized are recorded as a prepaid expense as of June 30,
2011 and December 31, 2010.
On June 5, 2010, the Company entered into a three year consulting
agreement with an individual to help the Company obtain financing and
related services. The value of the services to be received is $400,000
a year. In satisfaction for the agreement, the Company issued 125,000
shares of the Company's common stock, resulting in a per share price of
$3.20. The portion of services that have not been utilized are
recorded as a prepaid expense as of June 30, 2011 and December 31,
2010.
On July 16, 2010, the Board appointed Joseph Antonini as a Director and
granted him 4,808 shares of stock, valued at $10.40 a share, which
vested immediately.
On August 31, 2010, the Company entered into a non-exclusive agreement
with Aegis Capital Corp., an investment bank, to act as their
21
IRON EAGLE GROUP, INC.
Notes to the Consolidated Financial Statements
For the Six Months Ended June 30, 2011 and 2010
NOTE 11 - EQUITY (Continued)
underwriter with respect to a forthcoming public offering. In
connection with this agreement the company issued 3,572 shares of
stock, valued at $8.40 a share, which vested immediately.
On February 4, 2011, the registrant executed a consulting agreement
with IPX Capital, LLC ("IPX"). Pursuant to the agreement, the Company
granted IPX 15,625 common shares valued at $6.40 per common share,
which vested immediately. A success fee of $100,000 in cash will be
due upon raising up to $40,000,000, plus an additional 1% of any
capital raised in excess of $40,000,000. An additional 15,625 shares
will be earned and vest upon the completion of raising the necessary
capital to find the Company's first acquisition.
On March 1, 2011, the Company entered into an investor relations
consulting agreement with Alliance Advisors, LLC. Pursuant to the 15
month agreement, the Company will issue 15,000 restricted shares over
the term of the agreement, including 5,000 to be issued within the
first 30 days of the agreement. In March 2011, the Company issued 5,000
shares of common stock, valued at $8.08 a share, which vested
immediately. The agreement also provides for cash fees beginning on
the fourth month of service. The fees range from $5,000 a month to
$8,500 a month, with the escalations occurring upon closing of a
financing transaction of $10 million or more and upon a successful
listing on the American Stock Exchange of NASDAQ.
On March 1, 2011, the Company entered into a 12 month consulting
agreement with Hayden IR to provide corporate investor and public
relations services. Pursuant to the agreement, the Company will issue
9,375 shares of common stock within 30 days of engagement. In March
2011, the Company issued the 9,375 shares, valued at $8.08 a share,
which vested immediately. The agreement provides for no monthly cash
fee for the first six months of service. In months seven through
twelve, assuming a funding event of $10 million or more occurs, the
fees will be $7,000 per month. If the Company does not raise enough
money to pay the fee, an additional 9,375 shares of restricted common
stock will be issued to Hayden IR within 30 days following the sixth
month of engagement.
On March 1, 2011, the Company entered into a consulting agreement with
RJ Falkner & Company, Inc. ("Falkner") to prepare and distribute
"Research Profile" reports to over 9,500 investment professionals on a
recurring basis, follow-up with investment professionals and investors
on a continuing basis, and respond to inquiries from brokers, money
22
IRON EAGLE GROUP, INC.
Notes to the Consolidated Financial Statements
For the Six Months Ended June 30, 2011 and 2010
NOTE 11 - EQUITY (Continued)
managers and investors. The Company will pay Falkner a monthly retainer
fee of $5,000 payable in restricted shares of common stock, payable
each month in advance, calculated on the average closing price of the
Company's stock during the prior 20 market trading days, which was 962
shares at $10.40 a share for the first two months of service. In
addition, the Company issued Falkner a three-year option to purchase
10,625 shares of the Company's common stock, at an exercise price that
is equivalent to the last trade price of the Company's common stock on
the date prior to the start date of the consulting agreement, which was
$8.08 a share.
On March 1, 2011, the Company entered into a media production and
placement services agreement with NewsUSA ("NUSA") to provide national
media exposure for the Company. NUSA will provide the Company with
$500,000 of media credit to be used in the placement of print and radio
features obtained by NUSA on behalf of the Company. Pursuant to the
agreement, the Company was to issue $125,000 of restricted common
shares valued at the 30 day weighted average price as of the effective
day of the agreement. In March 2011, pursuant to this agreement, the
Company issued 12,019 shares of stock, valued at $10.40 a share, which
vested immediately. For every release after the first media release,
for each $25,000 of media credit utilized, the Company shall debit the
guaranteed media credit by $22,500 and pay the remaining $2,500 in
cash.
On March 13, 2011, the Company granted 5,966 shares of stock to Gary
Giulietti, as compensation for his services as a director of the
Company from the time period of May 4, 2010, the date Mr. Giulietti
joined the board of directors, to March 31, 2011. These shares were
valued at $7.60 a share.
On March 13, 2011, the Company granted 4,650 shares of stock to JEA
Energy LLC, a firm 100% owned by Joseph Antonini, as compensation for
his services as a director of the Company from the time period of July
16, 2010, the date Mr. Antonini joined the board of directors, to March
31, 2011. These shares were valued at $7.60 a share.
On May 5, 2011, pursuant to a Board of Directors authorization, the
Company granted 625 common shares to Solar Flash Partners, LLC, a firm
100% owned by attorney Ron Levy as consideration for Mr. Levy's legal
services. These shares were valued at $6.80 per common share.
There are no other stock option or other equity based compensation
plans. As of June 30, 2011 and December 31, 2010, the Company has
accrued $79,031 and $79,031 in shares to be issued to Mr. Bovalino and
Mr. Hoffman pursuant to these compensation agreements.
Please see NOTE 16 - Subsequent Events for share and equity based
issuances after June 30, 2011.
23
IRON EAGLE GROUP, INC.
Notes to the Consolidated Financial Statements
For the Six Months Ended June 30, 2011 and 2010
NOTE 11 - EQUITY (Continued)
Purchase of Marketable Securities
---------------------------------
On March 15, 2011, the Company purchased 31,250 common shares of the
registrant from Galileo Partners, LLC for $100. Galileo Partners is
an investment firm where Steven Antebi, a non-affiliate, is the
president and chief executive officer.
Warrants:
--------
As described above, on May 4, 2010, the Company entered into a one year
consulting agreement with an investor relations firm. In satisfaction
for the agreement, the Company issued 13,594 shares of the Company's
common stock at a per share price of $9.60 and a 5 year warrant to
purchase up to 13,594 shares with an exercise price of $10.56 per
share. The fair value of the warrant was $124,703. The fair value of
the warrant was determined using the Black Scholes option pricing model
with the following assumptions:
24
IRON EAGLE GROUP, INC.
Notes to the Consolidated Financial Statements
For the Six Months Ended June 30, 2011 and 2010
NOTE 11 - EQUITY (Continued)
Risk free interest rate 2.57%
Volatility 333%
Dividend 0
Weighted average expected life 5 years
As described above, on March 1, 2011, the Company entered into a one
year consulting agreement with RJ Falkner & Company, Inc. ("Falkner").
As part of the agreement, the Company issued Falkner a three-year
option to purchase 10,625 shares of the Company's common stock, at an
exercise price of $8.08 a share. The fair value of the warrant was
$75,219. The fair value of the warrant was determined using the Black
Scholes option pricing model with the following assumptions:
Risk free interest rate 1.15%
Volatility 177%
Dividend 0
Weighted average expected life 3 years
The following schedule summarizes the Company's warrant activity since
inception through June 30, 2011:
Weighted Weighted
Average Average Aggregate
Exercise Remaining Intrinsic
Warrants Price Term Value
-------- -------- --------- ---------
Outstanding at November 9, 2009 - - - -
Warrants granted during 2010 13,594 $ 10.56 $ 3.50 -
Warrants exercised - - - -
Warrants expired - - - -
------- -------- ------- -------
Outstanding at December 31, 2010 13,594 $ 10.56 3.50 -
======= ======== ======= =======
Warrants granted during Q1 2011 10,625 $ 8.08 $ 2.67 -
Warrants exercised - - - -
Warrants expired - - - -
------- -------- ------- -------
Outstanding at June 30, 2011 24,219 $ 9.47 3.14 -
======= ======== ======= =======
NOTE 12 - INCOME TAXES
The Company has adopted ASC 740-10 "Income Taxes" (formerly SFAS No.
109, "Accounting for Income Taxes"), which requires the use of the
liability method in computation of income tax expense and the current
and deferred income tax payable (deferred tax liability) or benefit
25
IRON EAGLE GROUP, INC.
Notes to the Consolidated Financial Statements
For the Six Months Ended June 30, 2011 and 2010
NOTE 12 - INCOME TAXES (Continued)
(deferred tax asset). Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be
realized.
The cumulative tax effect at the expected tax rate of 25% of
significant items comprising the Company's net deferred tax amounts as
of June 30, 2011 and December 31, 2010, are as follows:
Deferred Tax Asset Related to:
June 30, 2011 December 31, 2010
-------------- -----------------
Prior Year
Tax Benefit for Current Year
Total Deferred Tax Asset $ 304,023 $ 67,743
276,207 236,280
--------- ---------
580,230 304,023
Less: Valuation Allowance (580,230) (304,023)
--------- ---------
Net Deferred Tax Asset $ - $ -
========= =========
The net deferred tax asset generated by the loss carryforward has been
fully reserved. The cumulative net operating loss carry-forward is
approximately $2,320,924 and $1,216,092 at June 30, 2011 and December
31, 2010, and will expire in the years 2029 through 2031.
The realization of deferred tax benefits is contingent upon future
earnings and is fully reserved at June 30, 2011 and December 31, 2010.
26
IRON EAGLE GROUP, INC.
Notes to the Consolidated Financial Statements
For the Six Months Ended June 30, 2011 and 2010
NOTE 13 - COMMITMENTS AND CONTINGENCIES
Employment Agreements:
---------------------
On May 19, 2011, the executive management team, the board of directors,
Belle Haven Partners, and former officers Glen Gamble and Robert
Hildebrand agreed to waive their compensation for the three months
ended March 31, 2011 for an aggregate amount of $615,250. The
compensation expense of these parties, as outlined in the agreements
below, began to accrue again as of April 1, 2011.
Cash Bonus Plan:
---------------------
On May 19, 2011, our board approved a cash bonus plan pool for our
senior executive officers. Under the terms of the cash bonus plan, our
senior executive officers would be entitled to receive 10% of the
consolidated net pre-tax profits of Iron Eagle for each of the four
consecutive 12 month periods from April 1 to March 31, commencing April
1, 2011 and ending March 31, 2015. Any bonus payments due for each of
the 12 month measuring periods ending March 31st are payable on or
before July 31st in each of 2012 through 2015, inclusive; provided,
that not more than $1,000,000 may be paid under the cash bonus plan
pool with respect any one of the four 12 month measuring periods ending
March 31, 2012 through March 31, 2015.
Shapiro Employment Agreement
----------------------------
Mr. Shapiro was hired as the registrant's chief financial officer in
December 29, 2009 to May 4, 2010. Upon the hiring of Eric Hoffman as
chief financial officer, Mr. Shapiro's title and responsibilities
changed to Executive Vice President of Corporate Strategy. Pursuant to
the employment agreement entered into by the registrant, Mr. Shapiro
receives an annual compensation of $200,000 in cash and is eligible to
receive a cash bonus of up to 200% of base salary, at the discretion of
the board of directors.
On November 29, 2010, the board of directors appointed Jason M.
Shapiro, secretary and director, as chief executive officer and chief
financial officer. As of that date, Mr. Shapiro no longer served as
executive vice president of corporate strategy. Effective January 1,
2011, the registrant entered into an employment agreement with Mr.
Shapiro. The term of the employment agreement is four years with an
automatic renewal on an annual basis thereafter. The employment
agreement provides for an initial annual base salary of $225,000 in
cash and 9,375 shares per year. The agreement also provides for an
annual incentive of 100% of his base salary payable.
On May 19, 2011, Mr. Shapiro agreed to waive and relinquish an
additional $75,000 of accrued cash and stock compensation that accrued
during the three month period ended March 31, 2011. Mr. Shapiro also
agreed, that upon a $10,000,000 equity raise by the Company, to convert
an aggregate of $221,250 of cash and stock compensation owed to him
that had accrued through December 31, 2010 into an aggregate of 55,313
additional shares of common stock.
27
On May 24, 2011, we entered into a new employment agreement with Mr.
Shapiro that is effective as of April 1, 2011 and expires on March 31,
2015, with annual renewals thereafter, unless previously terminated by
either party. Pursuant to such employment agreement, Mr. Shapiro
agreed to serve as our chief executive officer, chief financial officer
and a member of our board of directors. Such employment agreement
provides for an annual base salary of $225,000 through December 31,
2011, with minimum increases in such base salary of $25,000 per year in
each of calendar 2012, 2013 and 2014, and thereafter. In addition under
the terms of his employment agreement, Mr. Shapiro will be entitled to
participate in 25% of our cash bonus plan pool and will be entitled to
receive other incentive bonuses of up to 100% of his base salary,
payable in such amounts and at such times as determined in the sole
discretion of the compensation committee of the board of directors.
Sabio Employment Agreement
--------------------------
Mr. Sabio was hired as executive vice president of business development
in November 2010. Effective January 1, 2011, the registrant entered
into an employment agreement with Mr. Sabio. The term of the
employment agreement is four years with an automatic renewal on an
annual basis thereafter. The employment agreement provides for an
initial annual base salary of $200,000 in cash and 6,250 shares in the
registrant as well as a signing bonus of $71,000 in cash and 8,875
shares in the registrant. The agreement also provides for an initial
annual incentive of $50,000 in cash and 9,375 shares in the registrant.
Mr. Sabio's compensation, signing bonus, and other benefits will accrue
until the registrant raises the necessary capital to fund its first
acquisition or acquisitions and the raise is at least $10,000,000.
On May 19, 2011, Mr. Sabio agreed to waive and relinquish all cash and
stock compensation, aggregating $151,250, that accrued under the
consulting agreement for the three month period ended March 31, 2011,
represented by the $71,000 cash signing bonus, 8,875 shares of common
stock having a contractual value of $30,250 and $50,000 of accrued
salary. On May 24, 2011, we entered into a new employment agreement
with Mr. Sabio that is effective as of April 1, 2011 and expires on
March 31, 2015, with annual renewals thereafter, unless previously
terminated by either party. Pursuant to such employment agreement, Mr.
Sabio agreed to continue to serve as our executive vice president of
corporate development and a member of our board of directors. Such
employment agreement provides for an annual base salary of $225,000
through December 31, 2011, with minimum increases in such base salary
of $25,000 per year in each of calendar 2012, 2013 and 2014, and
thereafter. In addition under the terms of his employment agreement,
Mr. Sabio will be entitled to participate in 25% of the cash bonus plan
pool and will be entitled to receive other incentive bonuses of up to
100% of his base salary, payable in such amounts and at such times as
determined in the sole discretion of the compensation committee of the
board of directors.
28
IRON EAGLE GROUP, INC.
Notes to the Consolidated Financial Statements
For the Six Months Ended June 30, 2011 and 2010
NOTE 13 - COMMITMENTS AND CONTINGENCIES (Continued)
LoCurto Consulting Agreement
----------------------------
Mr. LoCurto was appointed as the chairman of the board of directors in
November 2010. Effective January 1, 2011, the registrant entered into
a consulting agreement with Mr. LoCurto. The term of the consulting
agreement is four years with an automatic renewal on an annual basis
thereafter. The consulting agreement provides for an initial annual
base fee of $250,000 in cash and 12,500 shares in the registrant as
well as a signing bonus of $130,000 in cash and 16,250 shares in the
registrant. The agreement also provides for an annual incentive of 100%
of his base salary payable. Mr. Sabio's fee, signing bonus, and other
benefits will accrue until the registrant raises the necessary capital
to fund its first acquisition or acquisitions and the raise is at least
$10,000,000. On July 12, 2011, the Company and Mr. LoCurto agreed to
terminate the consulting agreement waive his compensation and he
accepted $67,500 for mutually agreeing to terminate his agreement with
the Company. These amounts were not due nor were paid as of June 30,
2011.
Bovalino Employment Agreement
-----------------------------
Mr. Bovalino was hired as the registrant's chief executive officer in
April 2010. In connection with his employment, the registrant entered
into a 30 month employment agreement on April 26, 2010. The employment
agreement provides for an annual base salary of $300,000, payable as
$175,000 in cash and $125,000 in stock awards. The agreement also
provides for an annual incentive of 100% of his base salary. Upon
termination by the registrant for Cause or Employee's voluntary
termination without Good Reason, Employee will receive a) three (3)
months of Base Salary if such termination occurred within one (1) year
of the signing of this Agreement or b) nine (9) months of Base Salary
if such termination occurred over one (1) year from the signing of this
Agreement. On September 13, 2010, the registrant amended the employment
agreement with Mr. Bovalino. The amendment changed the allocation
between cash and stock payments for base and bonus compensation, but
had no impact on total compensation. Mr. Bovalino's cash based salary
increased to $215,000 and stock based salary decreased to $85,000. The
allocation of the annual incentive payment between cash and stock
changed to $175,000 and $125,000, respectively. Mr. Bovalino resigned
from the Company on November 23, 2010.
Hoffman Employment Agreement
----------------------------
Mr. Hoffman was hired as the registrant's chief financial officer in
May 2010. In connection with his employment, the registrant entered
into a 24 month employment agreement on May 4, 2010. The employment
agreement provides for an annual base salary of $225,000, payable as
$125,000 in cash and $100,000 in stock awards. The agreement also
provides for an annual incentive of 100% of his base salary payable in
a ratio consistent with his base salary.
On September 13, 2010, the registrant amended the employment agreement
with Mr. Hoffman. The amendments changed the allocation between cash
and stock payments for base and bonus compensation, but had no impact
on total compensation. Mr. Hoffman's cash based salary increased to
29
IRON EAGLE GROUP, INC.
Notes to the Consolidated Financial Statements
For the Six Months Ended June 30, 2011 and 2010
NOTE 13 - COMMITMENTS AND CONTINGENCIES (Continued)
$165,000 and stock based salary decreased to $60,000. The allocation
of the annual incentive payment between cash and stock changed to
$125,000 and $100,000, respectively. Mr. Hoffman resigned from the
Company on November 23, 2010.
Former Officers and Directors Resignations
------------------------------------------
Glen R. Gamble resigned from the registrant effective August 18, 2010.
In connection with his resignation and to ensure a smooth transition,
the registrant agreed to pay Mr. Gamble $8,000 per month in connection
with consulting services to be provided until such time the registrant
no longer requires Mr. Gamble's services.
Robert Hildebrand resigned from the registrant effective August 18,
2010. In connection with his resignation and to ensure a smooth
transition, the registrant agreed to pay Mr. Hildebrand $8,000 per
month for consulting services to be provided until such time the
registrant no longer requires Mr. Hildebrand's services.
Michael Bovalino resigned from the Company effective November 23, 2010.
Eric Hoffman resigned from the Company effective November 23, 2010.
Director Compensation
---------------------
Independent directors receive an initial stock award of $50,000 for
joining the registrant's board of directors. They shall also receive
$100,000 a year in compensation that consists of $50,000 in stock
awards and $50,000 in cash. Non-independent directors do not receive
any compensation for serving on the board.
Belle Haven Agreement
---------------------
The Company entered into an agreement on November 15, 2009 with Belle
Haven Partners, LLC ("Belle Haven") to assist Iron Eagle Nevada with
business development planning, raising additional capital, and
accessing the public markets. One of Belle Haven's employees is also
on Iron Eagle's management team, and the entities have common
ownership. Iron Eagle Nevada agreed to pay Belle Haven $20,000 per
month starting September 1, 2009, as well as to reimburse them for all
out-of-pocket expenses.
Facilities Leases
-----------------
The Company leases office space and equipment under noncancelable
operating leases with terms of three years. The Company occupies its
Englewood, Colorado facility under a rental agreement that has a lease
30
IRON EAGLE GROUP, INC.
Notes to the Consolidated Financial Statements
For the Six Months Ended June 30, 2011 and 2010
NOTE 13 - COMMITMENTS AND CONTINGENCIES (Continued)
term that was to expire in December 2008. On October 1, 2008, the
Company entered into an agreement to extend the lease for an additional
36 months ending December 2011 at a rate of $2,885 a month. The Company
also leases its New York, New York facility under a rental agreement
that has a one year lease starting September 1, 2010 for $2,100 a month
with Belle Haven Capital, LLC, a company of which Jason Shapiro (CEO),
is a principal.
The following is a schedule of future minimum rentals under the leases
for the years ending December 31:
Year Amount
---- ------
2011 $50,878
2012 -
2013 -
2014 and beyond -
-------
Total $50,878
Additionally, the Company leases two warehouse facilities as a tenant
at will with monthly payments of $2,000 and $950, respectively.
Loss Contingencies
------------------
Certain conditions may exist as of the date the combined financial
statements are issued, which may result in a loss to the Company, but
which will only be resolved when one or more future events occur or
fail to occur. The Company's management and its legal counsel assess
such contingent liabilities, and as such, assessment inherently
involves an exercise of judgment. In assessing loss contingencies
related to legal proceedings that are pending against the Company or
unasserted claims that may result in such proceedings, the Company's
legal counsel evaluates the perceived merits of any legal proceedings
or unasserted claims as well as the perceived merits of the amount of
relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a
material loss has been incurred and the amount of the liability can be
estimated, then the estimated liability would be accrued in the
Company's combined financial statements. If the assessment indicates
that a potentially material loss contingency is not probable but is
reasonably possible, or is probable but cannot be estimated, then the
nature of the contingent liability, together with an estimate of the
range of possible loss if determinable and material, would be
disclosed. Loss contingencies considered remote are generally not
disclosed unless they involve guarantees, in which case the guarantees
would be disclosed.
31
IRON EAGLE GROUP, INC.
Notes to the Consolidated Financial Statements
For the Six Months Ended June 30, 2011 and 2010
NOTE 14 - RECENT ACCOUNTING PRONOUNCEMENTS
Recently Adopted Accounting Guidance
------------------------------------
On January 1, 2010, the Company adopted Accounting Standard Update
("ASU") 2009-16, "Transfers and Servicing (Topic 860): Accounting for
Transfers of Financial Assets." This ASU is intended to improve the
information provided in financial statements concerning transfers of
financial assets, including the effects of transfers on financial
position, financial performance and cash flows, and any continuing
involvement of the transferor with the transferred financial assets.
The Company does not have a program to transfer financial assets;
therefore, this ASU had no impact on the Company's consolidated
financial statements.
On January 1, 2010, the Company adopted ASU 2009-17, "Consolidations
(Topic 810): Improvements to Financial Reporting by Enterprises
Involved with Variable Interest Entities," which amended the
consolidation guidance applicable to variable interest entities and
required additional disclosures concerning an enterprise's continuing
involvement with variable interest entities. The Company does not
have variable interest entities; therefore, this ASU had no impact on
the Company's consolidated financial statements.
On January 1, 2010, the Company adopted ASU 2010-06, "Fair Value
Measurements and Disclosures (Topic 820): Improving Disclosures about
Fair Value Measurements," which added disclosure requirements about
transfers in and out of Levels 1 and 2 and separate disclosures about
activity relating to Level 3 measurements and clarifies existing
disclosure requirements related to the level of disaggregation and
input and valuation techniques. The adoption of this guidance did not
have a material impact on the Company's consolidated financial
statements or the related disclosures.
In October 2009, the FASB issued ASU 2009-13, "Revenue Recognition
(Topic 605): Multiple-Deliverable Revenue Arrangements - a consensus of
the FASB Emerging Issues Task Force," which amends the criteria for
when to evaluate individual delivered items in a multiple deliverable
arrangement and how to allocate consideration received. This ASU is
effective for fiscal years beginning on or after June 15, 2010, which
was January 1, 2011 for the Company. The adoption of this guidance
did not have a material impact on the Company's consolidated financial
statements or the related disclosures.
Accounting Guidance Issued But Not Adopted as of June 30, 2011
---------------------------------------------------------------
In December 2010, the FASB amended its existing guidance for goodwill
and other intangible assets. This authoritative guidance modifies Step
1 of the goodwill impairment test for reporting units with zero or
negative carrying amounts. For those reporting units, an entity is
required to perform Step 2 of the goodwill impairment test if there are
32
IRON EAGLE GROUP, INC.
Notes to the Consolidated Financial Statements
For the Six Months Ended June 30, 2011 and 2010
NOTE 14 - RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
qualitative factors indicating that it is more likely than not that a
goodwill impairment exists. The qualitative factors are consistent with
the existing guidance which requires goodwill of a reporting unit to be
tested for impairment between annual tests if an event occurs or
circumstances change that would more likely than not reduce the fair
value of a reporting unit below its carrying amount. This authoritative
guidance becomes effective for the Company in 2012. The implementation
of this authoritative guidance is not expected to have a material
impact on our consolidated financial position, results of operations
and cash flows.
Management has reviewed these new standards and believes they had or
will have no material impact on the financial statements of the
Company.
NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS AND LIABILITIES
The Company has adopted fair value guidance and utilized the market
approach to measure fair value of financial assets. The market approach
uses prices and other relevant information generated by market
transactions involving identical or comparable assets. The standard
describes a fair value hierarchy based on three levels of inputs, of
which the first two are considered observable and the last
unobservable, that may be used to measure fair value which are the
following:
Level 1: Quoted prices (unadjusted) in active markets that are
accessible at the measurement date for assets or liabilities.
The fair value hierarchy gives the highest priority to Level
1 inputs.
Level 2: Observable prices that are based on inputs not quoted
on active markets, but corroborated by market data.
Level 3: Unobservable inputs are used when little or no market
Data is available. The fair value hierarchy gives the lowest
priority to Level 3 inputs.
In determining fair value, the Company utilizes valuation techniques
that maximize the use of observable inputs and minimize the use of
unobservable inputs to the extent possible.
As of June 30, 2011 and December 31, 2010, the Company's financial
assets and liabilities are measured at fair value using Level 3 inputs,
with the exception of cash, which was valued using Level 1 inputs.
33
IRON EAGLE GROUP, INC.
Notes to the Consolidated Financial Statements
For the Six Months Ended June 30, 2011 and 2010
NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS AND LIABILITIES
(Continued)
Fair Value Measurement at June 30, 2011 Using:
-----------------------------------------------
Quoted Prices
In
Active Markets Significant Other Significant
For Identifical Observable Unobservable
June 30, Assets Inputs Inputs
2011 (Level 1) (Level 2) (Level 3)
---------- ---------- ---------- ----------
Assets:
Cash and Cash Equivalents $2,728,593 $2,728,593 $ - $ -
---------- ---------- ---------- ----------
$2,728,593 $2,728,593 $ - $ -
========== ========== ========== ==========
Liabilities:
Note Payable -
Seller's Note $8,865,907 $ - $ - $8,865,907
Capital Lease 2,344 - - 2,344
Line of Credit 50,000 - - 50,000
---------- ---------- ---------- ----------
$8,918,251 $ - $ - $8,918,251
========== ========== ========== ==========
Fair Value Measurement at December 31, 2010 Using:
--------------------------------------------------
Quoted Prices
In
Active Markets Significant Other Significant
For Identifical Observable Unobservable
December 31, Assets Inputs Inputs
2010 (Level 1) (Level 2) (Level 3)
---------- ---------- ---------- ---------
Assets:
Cash and Cash Equivalents $ 976 $ 976 $ - $ -
---------- ---------- ---------- ---------
$ 976 $ 976 $ - $ -
========== ========== ========== =========
Liabilities:
Capital Lease $ 2,344 $ - $ - $ 2,344
Line of Credit 50,000 - - 50,000
---------- ---------- ---------- ---------
$ 52,344 $ - $ - $ 52,344
========== ========== ========== =========
34
IRON EAGLE GROUP, INC.
Notes to the Consolidated Financial Statements
For the Six Months Ended June 30, 2011 and 2010
NOTE 16 - SUBSEQUENT EVENTS
In May 2009, the FASB issued ASC 855-10, "Subsequent Events", (formerly
SFAS No. 165, "Subsequent Events," which establishes general standards
for accounting for and disclosure of events that occur after the
balance sheet date but before the financial statements are issued or
are available to be issued. The pronouncement requires the disclosure
through the date on which an entity has evaluated subsequent events and
the basis for that date, whether that date represents the date the
financial statements were issued or were available to be issued.
In February 2010, the FASB issued Accounting Standards Update 2010-09,
"Amendments to Certain Recognition and Disclosure Requirements", which
amended ASC 855 and which requires issuers of financial statements to
evaluate subsequent events through the date on which the financial
statements are issued. FASB 2010-09 defines the term "SEC Filer" and
eliminates the requirement that an SEC filer disclose the date through
which subsequent events have been evaluated. This change was made to
alleviate potential conflicts between ASC 855-10 and the reporting
requirements of the SEC. FASB 2010-09 is effective immediately, but is
not expected to have a material effect on the Company's financial
statements.
In conjunction with the preparation of these financial statements, an
evaluation of subsequent events was performed and the following items
were noted:
In July and August, 2011, Iron Eagle sold an aggregate of 8 units of
its securities to 4 investors, each unit consisting of:
(a) Iron Eagle's 13% 25,000 note due December 31, 2012,
(b) a Series A Warrant expiring December 31, 2012 entitling the holder
to purchase 6,250 shares of common stock at an exercise price of $4.00
per share,
(c) a Series B Warrant entitling the holder to purchase an additional
6,250 shares of common stock at an exercise price of $4.00 per share,
and
(d) a Series C Warrant entitling the holder to purchase an additional
31,250 shares of common stock at an exercise price of $0.08 per share.
The Series A Warrants and the Series B Warrants are identical in all
respects except that
(i) the Series A Warrants may be exercised either for cash or by
cancelling the Note,
(ii) the Series B Warrants has certain cashless exercise features, and
(iii) the Series A Warrants provide, among other rights, for full-
ratchet anti-dilution adjustments and the Series B Warrants provide for
weighted-average anti dilution adjustments for lower priced issuances
of common stock.
35
Both the Series A Warrants and the Series B Warrants included in the
units sold are callable by Iron Eagle for $0.08 per warrant if the
common stock trades at $20.00, for ten consecutive business days after
the shares underlying the warrants are registered for resale under the
Securities Act of 1933, as amended. As a result of its sale of the 6
units of securities, Iron Eagle received total proceeds of $200,000,
less $20,000 paid in commissions and related expenses to certain
broker/dealers, including Aegis Capital Corp., who acted as placement
agents in connection with the sale of such securities. Iron Eagle used
the proceeds of the sale of such securities solely to pay accrued and
unpaid professional fees, and defray certain costs of this public
offering, including fees payable to Nasdaq, additional professional
fees, printing costs, travel expenses and fees payable to the selling
agents and their counsel.
On July 20, 2011, Iron Eagle granted 5,000 shares of stock valued at
$5.20 a share for a total value of $26,000 to Alliance Advisors as part
of the contract entered into in March 2011 to provide investor relation
services.
On July 20, 2011, Iron Eagle granted 1,216 shares of stock valued at
$8.22 a share for a total value of $10,000 to RJ Falkner & Company,
Inc. as part of the contract entered into with RJ Falkner & Company,
Inc. in March 2011 to provide consulting services.
On July 20, 2011, Iron Eagle granted 2,841 shares of stock for a total
value of $12,500 to Gary Giulietti, as compensation for his services as
a director of Iron Eagle from the three months ended June 30, 2011.
On July 20, 2011, Iron Eagle granted 2,841 shares of stock for a total
value of $12,500 to JEA Energy LLC, a firm 100% owned by Joseph
Antonini, as compensation for his services as a director of Iron Eagle
from the three months ended June 30, 2011.
On July 20, 2011, Iron Eagle granted 12,500 shares of stock valued at
$5.20 a share for a total value of $65,000 to Joseph LoCurto, the
Company's former Chairman, as a result of loan made by Mr. LoCurto in
March 2011.
On July 20, 2011, Iron Eagle granted 12,500 shares of stock valued at
$5.20 a share for a total value of $65,000 to Jed Sabio, the Company's
Executive Vice President of Business Development, as a result of loan
made by Mr. Sabio in March 2011.
All of these issuances were made to accredited investors pursuant to an
exemption from registration under Section 4(2) of the Securities Act of
1933.
On August 12, 2011, the registrant's Form S-1 filed with the Securities
and Exchange Commission for an offering up to 3,000,000 common shares
was declared effective.
On August 16, 2011, the registrant's 8-for-1 reverse split of its
outstanding common stock will be effective. All prices and shares for
this filing reflect that split.
No other reportable subsequent events were noted.
36
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The registrant provides construction and contracting services in both
the infrastructure and government markets. The registrant's management
consists of business leaders in construction, government contracting,
defense, finance, operations, and business development.
Results of Operations
---------------------
Backlog
The backlog as of June 30, 2011 was $32,300,000. During the three
months ended June 30, 2011, the registrant has been awarded a number of
new contracts totaling approximately $10.8 million.
A portion of anticipated revenue in any year is not reflected in its
backlog at a certain time because some projects are awarded and
performed in the same year. Delta Mechanical believes that
approximately $6,000,000 of the existing backlog at June 30, 2011, is
not reasonably expected to be completed during the 2011 calendar year.
The schedule for each project is different and subject to change due to
circumstances outside the control of Delta Mechanical. Accordingly, it
is not reasonable to assume that the performance of backlog will be
evenly distributed throughout a year. Delta Mechanical believes that
its backlog is firm, notwithstanding provisions contained in the
contracts which allow customers to modify or cancel the contracts at
any time, subject to certain conditions, including reimbursement of
costs incurred in connection with the contracts and the possible
payment of cancellation fees. Delta Mechanical is actively seeking
new contracts to add to its backlog.
Three Months Ended June 30, 2011 Compared to the Three Months Ended
June 30, 2010
Revenues
Total revenues for the quarter ended June 30, 2011 increased by $
11,105,900 as compared to $0 for the quarter ended June 30, 2010. The
increase in revenue was due to the acquisition of Delta Mechanical.
Cost of Revenues
Cost of revenues for the quarter ended June 30, 2011 was $ 10,587,700
as compared to $0 for the quarter ended June 30, 2010. The increase in
cost of revenues for the quarter ended June 30, 2011, as compared to
June 30, 2010, was due to the acquisition of Delta Mechanical.
Gross Profit
Gross profit for the quarter ended June 30, 2011 was $518,200, or 4.7%
of revenues, as compared to a gross profit of $0 for the quarter ended
June 30, 2010. The increase in gross profits for the quarter ended June
30, 2011, as compared to June 30, 2010, was due to the acquisition of
Delta Mechanical.
37
Operating Expenses
Selling, general and administrative expenses for the quarter ended June
30, 2011 was $ 214,400, as compared to $0 for the quarter ended June
30, 2010. This increase was primarily a result of the acquisition of
Delta Mechanical.
Compensation expense for the three months ended June 30, 2011 was
$540,500 compared to $0 for the three months ended June 30, 2010. This
increase was primarily a result of the acquisition of Delta Mechanical
and the addition of senior managers and board of directors. All
compensation expense related to the registrant's officers has been
accrued and not paid as of June 30, 2011.
Professional fees for the quarter ended June 30, 2011 was $421,474, as
compared to $0 for the quarter ended June 30, 2010. This increase was
primarily a result of the acquisition of Delta Mechanical and
consulting expenses. $60,000 of these fees were incurred with a
related party.
Total operating expenses for the three months ended June 30, 2011 were
$1,202,900 compared to $0 for the three months ended June 30, 2010.
This increase was primarily a result of the acquisition of Delta
Mechanical.
We generated no bad debt expense during the three months ended June 30,
2011 nor for the three months ended June 30, 2010.
Other Income (Expense)
Other income (expense) for the quarter ended June 30, 2011 was
$(213,333), as compared to $(782) for the quarter ended June 30, 2010.
This increase in other income was a primarily a result of the
acquisition of Delta Mechanical including $155,920 from interest
expense on the seller note, $37,500 amortization from the non-compete
of the seller, and $19,900 due to the increase of the present value of
the earn-out payments.
Provision for Income Taxes
The provision for income taxes for the quarter ended June 30, 2011 was
$0, as compared to the provision for income taxes of $0 for the quarter
ended June 30, 2010.
Net Loss
As a result of the above mentioned items, the registrant reported a net
loss of $898,000, or $0.61 per share-basic and diluted, for the quarter
ended June 30, 2011, as compared to reported net loss of $782, or $0.78
per share-basic and diluted, for the quarter ended June 30, 2010.
Six Months Ended June 30, 2011 Compared to the Six Months Ended June
30, 2010
Revenue
Total revenue for six months ended June 30, 2011 increased by
$23,353,400 as compared to $0 for the six months ended June 30, 2010.
The increase in revenue was due to the acquisition of Delta Mechanical.
38
Cost of Revenue
Cost of revenue for the six months ended June 30, 2011 was $21,999,600
as compared to $0 for the six months ended June 30, 2010. The increase
in cost of revenues for the six months ended June 30, 2011, as compared
to June 30, 2010, was due to the acquisition of Delta Mechanical.
Gross Profit
Gross profit for the six months ended June 30, 2011 was $1,353,800, or
5.8% of revenues, as compared to a gross profit of $0 for the six
months ended June 30, 2010. The increase in gross profits for the six
months ended June 30, 2011, as compared to June 30, 2010, was due to
the acquisition of Delta Mechanical.
Operating Expenses
Selling, general and administrative expenses for the six months ended
June 30, 2011 was $512,300, as compared to $172 for the six months
ended June 30, 2010. This increase was primarily a result of the
acquisition of Delta Mechanical.
Compensation expense for the three months ended June 30, 2011 were
$870,100 compared to $50,000 for the three months ended June 30, 2010.
This increase was primarily a result of the acquisition of Delta
Mechanical and the addition of senior managers and board of directors.
All compensation expense related to the registrant's officers has been
accrued and not paid as of June 30, 2011.
Professional fees for the six months ended June 30, 2011 was $676,100,
as compared to $60,000 for the six months ended June 30, 2010. This
increase was primarily a result of the acquisition of Delta Mechanical
and consulting expenses. $60,000 of these fees in each period were
incurred with a related party.
Total operating expenses for the six months ended June 30, 2011 were
$2,142,100 compared to $110,200 for the six months ended June 30, 2010.
This increase was primarily a result of the acquisition of Delta
Mechanical.
We generated no bad debt expense during the six months ended June 30,
2011 nor for the six months ended June 30, 2010.
Other Income (Expense)
Other income (expense) for the six months ended June 30, 2011 was
$(320,600), as compared to $(1,600) for the six months ended June 30,
2010. This increase in other income was a primarily a result of the
acquisition of Delta Mechanical including $190,400 from interest
expense on the seller note, $65,900 amortization from the non-compete
of the seller, and $34,700 due to the increase of the present value of
the earn-out payments.
Provision for Income Taxes
The provision for income taxes for the six months ended June 30, 2011
was $0, as compared to the provision for income taxes of $0 for the six
months ended June 30, 2010.
39
Net Income
As a result of the above mentioned items, the registrant reported a net
loss of $1,109,077, or $0.76 per share-basic and diluted, for the six
months ended June 30, 2011, as compared to reported net loss of
$111,700, or $111.74 per share-basic and diluted, for the six months
ended June 30, 2010.
Trends and Uncertainties
------------------------
The current global economic and financial crisis has severely hampered
our ability to obtain additional funds with which to seek additional
natural resources, construction contracts or other types of business
opportunities. We are uncertain what potential business ventures will
be available to us in the near future, or whether, if they are
available, we will be able to obtain debt or equity financing necessary
to take advantage of those opportunities.
Liquidity and Capital Resources
-------------------------------
June 30, 2010 compared to December 31, 2010
The registrant's principal capital requirement is to fund its work on
construction projects. Projects are billed monthly based on the work
performed to date. These project billings, less a withholding of
retention, which is received as the project nears completion, are
collectible based on their respective contract terms. The registrant's
subsidiary Delta has historically relied primarily on internally
generated funds and bank borrowings to finance its operations.
During the six months ended June 30, 2010, we relied on loans from
management and key shareholders. As of June 30, 2011, total cash and
cash equivalents was $2,728,600 compared to the $0 reported as of June
30, 2010. This increase was primarily a result of the acquisition of
Delta Mechanical.
Cash used by operations - Net cash used by operations was $(6,803,700)
for the six months ended June 30, 2011, as compared to $0 for the six
months ended June 30, 2010. This increase was primarily a result of
the increase in accounts receivable due to the acquisition of Delta
Mechanical.
Cash used in investing activities
Net cash used in investing activities was $(330,000) for the six months
ended June 30, 2011 compared to $0 used in investing activities for the
six months ended June 30, 2010. This increase was primarily a result
of the acquisition of Delta Mechanical.
Cash provided by financing activities
Net cash provided by financing activities during the six months ended
June 30, 2011 was $9,860,900 compared to $0 for the six months ended
June 30, 2010. This increase was primarily a result of the acquisition
of Delta Mechanical.
Commitments
The registrant currently has no significant capital expenditure
commitments.
40
Surety
On some of its projects, the registrant is required to provide a surety
bond. The registrant obtains its surety bonds from Berkley Surety.
Delta Mechanical's ability to obtain bonding, and the amount of bonding
required, is solely at the discretion of the surety and is primarily
based upon net worth, working capital, the number and size of projects
under construction and the surety's relationship with management.
The larger the project and/or the number of projects under contract,
the greater the requirements are for net worth and working capital.
Delta Mechanical is generally reimbursed from the general contractors
for the fee required to be paid to the bonding company. The fees are
calculated on a sliding scale and they approximate one percent of the
amount of the contract to be performed.
Since inception, Delta Mechanical has neither been denied any request
for payment or performance bonds, nor has a bonding company been
required to make a payment on any bonds issued for the registrant.
The registrant's bonding limits have been sufficient given the volume
and size of the registrant's contracts. The registrant's surety may
require that the registrant maintain certain tangible net worth levels,
and may require additional guarantees if the registrant should desire
increased bonding limits. At June 30, 2011, approximately $26,200,000
of the registrant's backlog of $32,300,000 is anticipated to be bonded.
Completed Agreements
On January 8, 2010, the registrant agreed to the terms of a share
exchange agreement with Iron Eagle Group, a Nevada corporation and its
shareholders. The terms of this agreement were completed on August 18,
2010.
On January 21, 2011, the registrant acquired all of the members'
interests in Sycamore Enterprises, LLC, through the principal owner's
membership interests. Sycamore Enterprises, LLC is 100% holder of all
of the membership interests of Delta Mechanical Contractors, LLC, a
mechanical contractor. The registrant is currently engaged in the
identification and ongoing negotiations for the acquisition of
construction related entities.
Off-Balance Sheet Arrangements
------------------------------
We have no off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We do not consider the effects of interest rate movements to be a
material risk to our financial condition. We do not hold any
derivative instruments and do not engage in any hedging activities.
Item 4. Controls and Procedures
During the quarter ended June 30, 2010, there were no changes in our
internal controls over financial reporting (as defined in Rule 13a-
15(f) and 15d-15(f) under the Exchange Act) that have materially
affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
41
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management,
including our chief executive officer and chief financial officer, we
conducted an evaluation of our disclosure controls and procedures, as
such term is defined under Rule 13a-15(e) and Rule 15d-15(e)
promulgated under the Securities Exchange Act of 1934, as amended, as
of June 30, 2011. Based on this evaluation, our chief executive
officer and chief principal financial officers have concluded such
controls and procedures to be effective as of June 30, 2011 to ensure
that information required to be disclosed by the issuer in the reports
that it files or submits under the Act is recorded, processed,
summarized and reported, within the time periods specified in the
Commission's rules and forms and to ensure that information required to
be disclosed by an issuer in the reports that it files or submits under
the Act is accumulated and communicated to the issuer's management,
including its principal executive and principal financial officers, or
persons performing similar functions, as appropriate to allow timely
decisions regarding required disclosure.
42
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The registrant is subject, from time to time, to litigation resulting
from the normal ongoing operations of the registrant's business. The
registrant believes that resolution of these matters will be covered by
the registrant's insurance policy, and not result in any payment that,
in the aggregate, would be material to the financial position and
results of the operations of the registrant.
Item 1A. Risk Factors
Not applicable to smaller reporting companies.
Item 2. Unregistered Sale of Securities and Use of Proceeds
On May 5, 2011, pursuant to a Board of Directors authorization, the
Company granted 625 common shares to Solar Flash Partners, LLC, a firm
100% owned by attorney Ron Levy as consideration for Mr. Levy's legal
services. These shares were valued at $6.80 per common share.
There are no other stock option or other equity based compensation
plans. As of June 30, 2011 and December 31, 2010, the Company has
accrued $79,031 and $79,031 in shares to be issued to Mr. Bovalino and
Mr. Hoffman pursuant to these compensation agreements.
In July and August, 2011, Iron Eagle sold to a total of 4 investors, an
aggregate of 8 units of its securities; each unit consisting of:
(a) Iron Eagle's 13% 25,000 note due December 31, 2012,
(b) a Series A Warrant expiring December 31, 2012 entitling the holder
to purchase 6,250 shares of common stock at an exercise price of $4.00
per share,
(c) a Series B Warrant entitling the holder to purchase an additional
6,250 shares of common stock at an exercise price of $4.00 per share,
and
(d) a Series C Warrant entitling the holder to purchase an additional
31,250 shares of common stock at an exercise price of $0.08 per share.
The Series A Warrants and the Series B Warrants are identical in all
respects except that
(i) the Series A Warrants may be exercised either for cash or by
cancelling the Note,
(ii) the Series B Warrants has certain cashless exercise features, and
(iii) the Series A Warrants provide, among other rights, for full-
ratchet anti-dilution adjustments and the Series B Warrants provide for
weighted-average anti dilution adjustments for lower priced issuances
of common stock.
43
As a result of its sale of the 8 units of securities, Iron Eagle
received total proceeds of $200,000, less $20,000 paid in commissions
and related expenses to certain broker/dealers, including Aegis Capital
Corp., who acted as placement agents in connection with the sale of
such securities. Iron Eagle used the proceeds of the sale of such
securities solely to pay accrued and unpaid professional fees, and
defray certain costs of its proposed public offering, including fees
payable to NASDAQ, additional professional fees, printing costs, travel
expenses and fees payable to the selling agents and their counsel.
All of the above securities were issued to sophisticated investors
pursuant to an exemption under Section 4(2) of the Securities Act.
Item 3. Defaults Upon Senior Securities
None
Item 4. (Removed and Reserved)
Item 5. Other Information
None
Item 6. Exhibits
Exhibit 31* - Certifications pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 32* - Certifications pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
101.INS** XBRL Instance Document
101.SCH** XBRL Taxonomy Extension Schema Document
101.CAL** XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF** XBRL Taxonomy Extension Definition Linkbase Document
101.LAB** XBRL Taxonomy Extension Label Linkbase Document
101.PRE** XBRL Taxonomy Extension Presentation Linkbase Document
* Filed herewith
**XBRL (Extensible Business Reporting Language) information is
furnished and not filed or a part of a registration statement or
prospectus for purposes of Sections 11 or 12 of the Securities Act of
1933, as amended, is deemed not filed for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended, and otherwise is not
subject to liability under these sections.
44
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report to be signed on its behalf
by the undersigned thereunto duly authorized.
Dated: August 15, 2011
Iron Eagle Group, Inc.
By /s/Jason M. Shapiro
------------------------
Jason M. Shapiro
Chief Executive Officer
Chief Financial Officer
