UNITED STATES
SECURITIES AND EXCHANGE COMMISSION,
Washington, D.C. 20549
FORM 10-KSB/A/ 4
[ X ]
ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2005.
[ ]
TRANSACTION REPORT UNDER SECTION 13 OR 15(D) OF SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
INTERNATIONAL POWER GROUP, LTD.
(Name of small business issuer in its charter)
Delaware | 000-51449 | 20-1686022 |
(State or other jurisdiction of incorporation) | (Commission file number) | (IRS Employer Identification No.) |
950 Celebration Blvd., Suite A, Celebration, FL. | 34747 | |
(Address of principal executive offices) | (Zip Code) |
Issuer’s telephone number: (407) 566-0318
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Title of Class | Name of each exchange on which registered | |
Common Stock, $0.00001 par value (registration) pending) | None |
Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes [ X ] No [ ]
Check whether the issuer: (1) filed all reports 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ X ]
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act.) Yes [ ] No [ X]
State issuer’s revenues for its most recent fiscal year: $0
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked prices of such common equity, as of a specified date within the past 60 days: $100,687,790 as of October 25 , 2006.
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 315,374,096 shares of common stock as at October 25 , 2006.
Transitional Small Business Disclosure Format (Check One). Yes [ ] No [ X ]
INTERNATIONAL POWER GROUP, LTD.
FORM 10-KSB
December 31, 2005
EXPLANATORY NOTE
This amendment is being filed to expand the Description of Business and Management's Discussion and Analysis, and to make certain changes to the Statements of Changes in Stockholder’s Equity. This Form 10-KSB/A Amendment 4 amends the Company’s Form 10 KSB/A Amendment 3, filed with the United States Securities and Exchange Commission on September 15, 2006. |
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INTERNATIONAL POWER GROUP, LTD.
FORM 10-KSB
December 31, 2005
TABLE OF CONTENTS
Page
Submission of Matters to a Vote of Securities Holders.
Market for Common Equity, Related Stockholder Matters.
Management’s Discussion and Analysis or Plan of Operation.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 53
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. 60
Certain Relationships and Related Transactions.
Principal Accountant Fees and Services.
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Forward-Looking Statements
This Annual Report on Form 10-KSB contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, which relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “intends”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” beginning on page 7, that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. Except as required by applicable law, including the securities laws of the United States, we undertake no obligation to update any of the forward-looking statements whether as a result of new information, future events or otherwise.
PART I
Item 1
Description of Business.
Business Development.
International Power Group, Ltd. (“IPWG” or the “Company”) was incorporated in the State of Delaware on November 30, 1998 as Ednet, Inc. (“Ednet”), whose business plan was to develop, manufacture, market and distribute educational tools aimed at helping new Internet users gain the knowledge necessary to harness the resources of the Internet. From its date of incorporation until October 5, 2004 (the effective date of the closing of the stock purchase agreement among Ednet, International Power, Inc. (“Power”), Peter Toscano and Jack Wagenti), Ednet’s business activities were to develop and launch an educational program for Internet users of all ages .. Ednet never generated revenue from operations or was able to successfully execute its business plan. Ednet changed its name to International Power Group, Ltd. on September 23, 2004.
Power was incorporated in the State of Delaware on April 15, 2002. Power had as its primary assets, the assets of Terra Mar Environmental Systems Incorporated (“TMES”) which Power acquired on August 20, 2004, prior to Ednet’s acquisition of a majority of the issued and outstanding shares of Power. On October 5, 2004, Ednet completed the acquisition of Messers. Toscano’s and Wagenti’s shares of Power pursuant to which the prior stockholders of Ednet received 33,000,000 shares of IPWG common stock. At the time of the acquisition, each of Messers. Toscano and Wagenti owned 6,000,000 shares of Power common stock.
TMES, a closely-held venture capital company, was formed in 1994 by Mr. Toscano to develop and implement strategic systems for the environmentally safe management
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and long term disposal of radiological waste. TMES attempted to coordinate an international consortium of companies and organizations with the requisite managerial and technical expertise to identify sites, select technology, establish legal and regulatory structures, and engineer and construct low level radiological waste treatment and disposal facilities, and manage such facilities over the long-term. TMES was acquired by Power on August 20, 2004. After IPWG’s acquisition of Power, IPWG determined not to pursue the legacy TMES business because IPWG determined that the time and expense of compliance with government regulation in the radiological waste field out weighed the profit potential for the endeavour.
On February 21, 2005, IPWG acquired fifty per cent of Tratamientos Ambientales Tecate, a Mexican corporation (TAT). IPWG has one wholly owned subsidiary, located in Mexico and called IPW Group De Mexico SA #1, which was formed on July 1st, 2005. IPWG is in the business of marketing, and plans to construct and operate, waste-to-energy disposal facilities and is not a “blank check company” as such term is defined in Rule 419 of the Securities Act of 1933, as amended (the “Securities Act”).
Business of IPWG.
We believe we have technology and contractors available to us to build waste-to-energy disposal facilities that reduce solid waste output to approximately 16% of input, which breaks down as follows: 1.7% fly ash must be treated before it can be placed on a landfill and 14.3% is bottom ash of which 15% is ferrous materials that may be sold as scrap metal, 70% may be sold as construction material for manufacture of concrete, cinder block and road and road beds, and 15% is discarded. The waste-to energy facilities earn fees from waste disposal (tipping fees) and also produce at the same time electricity and drinking water in commercially saleable amounts. Collectively, the process is referred to herein as waste-to-energy (“WTE”) technology.
We think the sum of tipping fees, electrical, water and ash receipts will exceed our financial and operating costs and our facilities will have relatively minimal adverse effects on the environment compared with most other waste disposal methods.
Principal products and services. IPWG, on its own and through collaboration with strategic partners and others, is marketing and plans to build and operate waste-to-energy facilities to process solid and hazardous wastes by incineration. The incinerator will produce marketable electricity, drinking water and a component in construction materials including cement and road beds.
We have assembled components and technologies that incinerate solid waste and hazardous waste at high temperatures. The incinerator produces steam, which drives a turbine which produces electricity and condenses the steam into water. The electricity and steam drive further processes which scrub smoke-stack air emissions, produce drinking water, ash and enough excess electricity to sell. We believe we can customize the operation of WTE facilities to suit community needs by maximizing electricity or drinking water, with little or no loss of efficiency or environmental friendliness.
The WTE technology, customized for each locale in which our facilities are to be deployed, is expected to be the basis for our business operations, though management will
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continue to be receptive to the acquisition and development of complimentary businesses and technologies.
We believe our WTE facilities will offer financial rewards from start to finish for waste generators and collectors, governments charged with disposal and ourselves. Waste generators and collectors will not be burdened with potential liabilities for land-fill clean-up; governments need not create land-fills; and we may be able to build a profitable business. We anticipate three primary income streams: (i) tipping fees, (ii) the sale of electricity and (iii) the sale of drinking water. We also expect to augment revenues by selling up to 70% of the ash produced from the processes as construction material, and thereby reducing our disposal costs.
Mexico - IPW Group De Mexico SA #1. We plan to construct WTE facilities in Mexico through our subsidiary IPW Group De Mexico SA #1. We expect that facility will have twelve solid waste modules which are each capable of combusting one hundred eighty (180) tons of solid and hazardous waste per day or 2,160 tons daily for 12 module plant, 788,400 tons annually. The incinerators will be designed to reducing the aggregate waste to less than 10% of its original volume and 20% of its original weight. We expect that each module will generate, assuming full utilization, six (6) megawatts of electricity per hour and 240,000 gallons of distilled water per day.
IPW Group De Mexico SA #1 has applied to the Municipality of Chilpancingo, Mexico (Ensenada region) for licenses and permits to construct a WTE facility. It has also commenced negotiations with (i) producers of waste in the Ensenada region for tipping fees and (ii) purchasers of electricity and drinking water for sales of its electric and water by-products. Officials from the Municipality of Chilpancingo authorized the University of Ensenada and the University of Baja California to conduct studies of IPWG’s proposed technologies. The Universities’ studies were favorably completed in June 2006.
The studies of the Company’s proposed technologies included visiting a working waste-to-energy plant in Sweden, identifying the potential environmental impact of a waste-to-energy plant including emissions to the atmosphere and discharge of residual water, and an analysis of the Company’s program of waste processing and separation. The studies recommended that the Company be permitted to construct a waste-to-energy plant in the Municipality of Ensenada, Mexico. This favorable recommendation of the University studies impacted our proposed business by advancing our efforts to break ground in the future on our proposed waste-to-energy plant in Mexico.
Mexico - Tratamientos Ambientales Tecate (TAT). Effective as of February 21, 2005, IPWG acquired fifty per cent of Tratamientos Ambientales Tecate, a Mexican Corporation in exchange for 3,400,000 shares of common stock. The core business of Tratamientos Ambientales Tecate (TAT) is procuring waste contracts to fuel waste-to-energy projects in Mexico.
The material terms of IPWG’s acquisition of TAT were as follows: on November 11, 2004, IPWG’s Board of Directors authorized the acquisition of a 50% interest in Tratamientos Ambientales Tecate, a Mexican corporation (TAT). On December 2, 2004, IPWG agreed to the issuance to the stockholders of TAT shares of IPWG stock in exchange for a 50% interest in TAT. On February 21, 2005, the transaction closed and on February 23, 2005, the Company issued an aggregate of 3,100,000 shares of IPWG common stock to the eleven original
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stockholders of TAT. The shares were restricted and had a fair market value of $0.04 per share. The Company issued an additional 300,000 shares in lieu of payment for rental automobile charges which had accrued to officers of TAT. The automobile rental charges were approximately $17,500.00. Those shares had a fair market value of $0.06
TAT had prior to IPWG’s investment (i) applied for certain contracts and licenses to receive municipal and industrial waste from governments and commercial entities in the Ensenada, Mexico region and (ii) had commenced the process of obtaining land and permits to operate a solid waste facility in the Ensenada, Mexico region. TAT was not able to consummate all of the contracts, licenses and permits that it sought and therefore returned to IPWG on May 23, 2006, 1,200,000 of the 3,400,000 shares of IPWG that TAT had previously received. IPWG, through its subsidiary IPW Group de Mexico SA #1, is negotiating for any additional contracts, licenses and permits that it deems necessary to complete its Mexican WTE project. Other than negotiations to acquire 50% of TAT, IPWG and TAT were not affiliated before February 21, 2005.
The only contract Tratamientos Ambientales Tecate was able to enter into prior to our acquisition of it was a remediation and disposal contract with Transportacion Integral Industrial, S.A. De C.V. Subsequent to our acquisition, the Company, through its subsidiaries IPW Group de Mexico SA #1 and Tratamientos Ambientales Tecate, entered into additional remediation and disposal contracts with the following Mexican corporations: Ecologia Siglo XXI, Ensamdles de Mexico, Persianas de Mexico, Corporacion International, Quistar, Hospital Santo Thomas and Internacional Del Monte. The Company has not performed any remediation or disposal work or generated any revenues pursuant to these contracts because it has not yet built a waste-to-energy plant in Mexico. No licenses or permits have been obtained through Tratamientos Ambientales Tecate.
Contemplated Projects. During the last several months we developed contacts in several countries that we believe may lead to the construction of WTE facilities. Those contacts are located, and WTE facilities are proposed, in the Kingdom of Saudi Arabia, Mexico, the United Kingdom and the United States. The Kingdom of Saudi Arabia’s Presidency of Metrology and Environment issued to us in July 2006 an environmental license which will enable us to establish waste-to-energy plants in this country. We have identified certain countries and geographic regions where, due to varying combinations of land fill shortages, energy needs and potable water scarcity, we believe WTE technology would be particularly effective. We believe our management’s experience in the waste management industry positions us to address the waste management needs of developed and developing nations.
Distribution methods of the products or services.
Our business plan is to locate, finance, build and operate WTE facilities for governmental entities and others charged with the disposal of municipal, commercial, industrial and certain hazardous wastes. We intend to focus on municipalities that have significant waste-handling and land fill problems and areas that can benefit from drinking water and additional electricity production. Our primary marketing strategies include direct contact with government officials and large producers and handlers of waste. We also intend to rely on limited and highly targeted advertising. Integral to these methods is the development of strong brand identification for the Company coupled with increasing awareness of our target markets in the financial, ecological and tactical advantages of WTE technology.
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Competitive business conditions; competitive position in the industry; methods of competition.
Competition for disposal of solid waste is high. Competition comes from public and private commercial trash haulers, commercial and industrial companies that handle their own waste collection and disposal, public and private waste-to-energy companies and municipalities and regional government authorities. IPWG is a small, start-up company in a highly competitive industry. We have developed a business plan that we believe will maximize our know-how and limited financial assets and minimize the constraints that result from our lack of revenue, limited capital or operating history. Our business model is untested and no assurance can be given that our business plan can be executed or that even if it is executed, will generate profits.
We believe that the waste-to-energy field, due to its relatively young age in the history of solid waste disposal, presents opportunity because of the disparities in technologies and fragmentation in the industry. New technologies emerge frequently. Many have local application only, or insufficient exposure to draw global interest. The components of our WTE technologies are commercially available. We do not believe, however, that any entity has assembled or engineered facilities in the same manner as facilities that we plan to construct. That is not to say that there is not substantial competition for the three primary sources of income from which we expect to receive revenue – tipping fees and sales of electricity and drinking water. As to the production of saleable by-products, i.e. electricity, drinking water and usable ash, we believe there will be competitors in the production of each of these products in each locale in which we plan to operate. Due to the limited production of those products by our process and because they are only by-products, we plan to partner with potential competing vendors in those locales to gain the efficiencies of the established distribution networks.
Governmental agencies may be able to offer lower direct charges to waste producers for waste removal and potentially waste-to-energy incineration by subsidizing costs with tax revenues and tax-exempt financing. Most municipalities presently operate solid waste disposal facilities, most of them as landfills. These facilities generally are subsidized by tax revenues and often produce fiscal losses in addition to environmental damage. We believe we can partner with governmental authorities and provide WTE technologies that can produce profits for IPWG, save our customers substantial amounts and be environmentally responsible.
We expect to compete for business on the basis of geographic location, environmental advantages of waste to energy over landfills, “tipping” or waste disposal fees, power generation fees, the sale of potable water, and the quality of operations. Our ability to obtain permits and to locate WTE facilities may be limited in areas where there is adequate space for low cost landfill based disposal of waste, inadequate tipping fees for waste disposal, or abundant and inexpensive sources of electrical power generation and potable drinking water. We expect that operational costs will be offset (with excess revenue for debt service and profits) by a combination of tipping fees and sales of by products (electricity, water and saleable ash products). If the combination of the revenue streams is estimated to be insufficient to operate a WTE facility, service its debt and produce a profit, we believe that neither local community nor our financial supporters will approve such a facility. Labor, operating and disposal costs, as well as the value of our by-products, vary widely throughout the areas in which we plan to operate. The tipping fees we expect to charge will be determined locally, and typically vary by the
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volume and weight, type of waste, treatment requirements, risk of handling or disposal, and labor costs.
Sources and availability of raw materials.
We believe there is a readily available supply of machinery, materials, equipment and associated vendors to design, fabricate, construct and if necessary operate the waste-to-energy plants that we expect to build. We believe the worldwide need for waste-to-energy plants continues to expand as energy costs and the need for potable water increases and open space for land-fills declines. Increasing energy costs coupled with waste generation and fewer landfills provides a growing opportunity for renewable energy solutions. We do not believe we are dependent on any one source for supply of any of the products used in our WTE process.
We also do not believe that there will be a shortage of waste on which to run our proposed facilities. However, as mentioned above in “Competition”, others compete for tipping fees to dispose of solid and hazardous wastes. We anticipate that the government and private agencies for whom we build WTE facilities will be responsible for providing the solid waste which will be processed through the facilities. We plan to enter into long term tipping arrangements with producers of waste and possibly to securitize or insure the revenues of those contracts to finance construction and operation of our facilities.
We believe there are adequate capital markets, assuming the creditworthiness of the contracting party to the tipping fee contracts, the power generation agreements and drinking water sales (or availability of insurance to augment the creditworthiness of such contracting parties), to securitize the cash flow from such agreements.
Patents, Trademarks, Licenses, Vendors, etc. As of December 31, 2005, IPWG does not own any patents, trademarks or licenses or have any contracts with vendors to provide services. IPWG is in negotiation with parties who provide, or IPWG believes has available to them on reasonable commercial terms, adequate technologies to execute IPWG’s business plan.
IPWG’s business plan relies upon the use of existing technology available and commonly applied in various non US countries, as well as proprietary technologies it intends to purchase or license. IPWG intends to employ WTE technology that has been developed in Sweden and other European countries (over 29 WTE power plants exist in Sweden alone). WTE solutions are increasingly common in other countries, as well. Other industrialized nations, such as Japan, emphasize WTE because of their limited landfill space. WTE can reduce the volume of waste disposed in landfills by up to 90 percent, which prolongs the life of available landfill space.
Government Approval and the Effect of Government Regulations. The United States Environmental Protection Agency (“US EPA”) has adopted regulations related to several aspects of solid waste management, including but not limited to regulations related to the products of waste combustion, heavy metal disposal and ground water contamination. The Company believes that its proposed WTE facilities’ regulated emissions will be less than permissible limits. No assurance can be given that the proposed WTE facilities will perform as specified or that applicable regulations will not be strengthened. In connection with the
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operation of WTE plants outside the United States, the Company will be required to comply with all regulations, rules and directives imposed by the host governments. With specific reference to Mexico, the Company will be required to prepare and file with Ministry of Ecology in Mexico a study of ecological impact for the Ensenada WTE plant, which report must be approved by the ministry. The Company has presented information to the Ministry of Ecology regarding the company and its technology. In response, the Ministry has requested information regarding the proposed building, plans, layout, and machinery processes. As soon as we select a site, we will provide this information as well as an environmental impact report and a risk study including an emissions to atmosphere report.
The Company expects each plant to cost approximately $250 million to construct (a plant being comprised of 6 to 12 lines or modules consuming 150 – 200 tons of waste per line, per day). This amount does not include legal fees or management time. The company anticipates that in each country of operation, the company will face various requirements of independent testing and verification of emissions outputs, water sampling, and other environmental monitoring requirements, in addition to oversight and testing by the various government agencies.
The technology that IPWG plans to utilize is based on WTE facilities already in operation. The Company has emissions reports of some of those operational facilities. The Company believes that it can rely on the emissions output of the similar plants in representing the anticipated emissions levels of the plants it intends to build and operate. It is important to IPWG both as a responsible ecological citizen and to build relationships with the communities it plans to serve, that its emissions are as clean as possible. The Company believes that a “dirty” WTE process would threaten IPWG’s growth and future.
Number of Employees.
As of September 5, 2006, we had nine employees (seven officers and two clerical administrative personnel). Our officers devote as much time to our business as they deem necessary, which presently is in excess of 40 hours per week. However, each is also involved in other business ventures. Our two clerical administrative employees work fulltime for the Company.
Reports to Securities Holders.
We file annual, quarterly and current reports, proxy statements and other documents with the United States Securities and Exchange Commission (the “SEC”), under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). You may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our reports, proxy statements and other documents filed electronically with the SEC are available at the website maintained by the SEC at http://www.sec.gov. We also make available free of charge on or through our Internet website, http://www.international-power.com, our annual, quarterly and current reports, and, if applicable, amendments to those reports, filed or furnished pursuant to Section 13(a) of the Exchange Act, as soon as reasonably practicable after we electronically file such reports with the SEC. Information on our website is not a part of this report.
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Generally, when we use the words “we,” “our,” “us,” the “Company” or “IPWG” in this report, we are referring to International Power Group, Ltd. and its subsidiaries.
RISK FACTORS
AN INVESTMENT IN OUR SECURITIES INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING INFORMATION ABOUT CERTAIN OF THE RISKS OF INVESTING IN OUR COMMON STOCK, TOGETHER WITH OTHER INFORMATION CONTAINED IN THIS REPORT, BEFORE YOU DECIDE TO PURCHASE OUR COMMON STOCK. INVESTORS MUST REMEMBER THAT AN INVESTMENT IN A DEVELOPMENT STAGE COMPANY IN A RELATIVELY NEW INDUSTRY WITH NO HISTORY OF OPERATIONS SUCH AS OURS INVOLVES AN UNUSUALLY HIGH AMOUNT OF RISK, BOTH UNKNOWN AND KNOWN, AND PRESENT AND POTENTIAL, INCLUDING, BUT NOT LIMITED TO THE RISKS DESCRIBED BELOW.
BUSINESS AND FINANCIAL RISKS.
OUR ACCOUNTANTS HAVE ISSUED A GOING CONCERN OPINION AND WE HAVE LIMITED WORKING CAPITAL, MINIMAL NET WORTH AND SUBSTANTIAL CURRENT LOSSES THAT INHIBITS OUR ABILITY TO IMPLEMENT OUR BUSINESS PLAN.
To date, we have met our working capital requirements through the private placement of our securities and loans. To support our operations and planned expansion, we are in need of approximately $3,000,000 of additional capital over the next 12 months. Since entering the WTE field in November 2004, we have not generated any significant revenue and have experienced substantial losses. We also have very limited working capital and, as at December 31, 2005 recorded an accumulated deficit of $3,198,847. For the year ended December 31, 2005, we reported a loss of approximately $3,161,210.
WE HAVE A HISTORY OF LOSSES AND AN ACCUMULATED DEFICIT; OUR FUTURE PROFITABILITY IS UNCERTAIN.
We have experienced significant operating losses since our inception and we expect to incur additional operating losses as we develop WTE facilities. As of December 31, 2005, we had an accumulated deficit of approximately $3,161,210.
THERE IS NO ASSURANCE THAT WE WILL SUCCESSFULLY DEVELOP A COMMERCIALLY VIABLE PRODUCT.
We plan to be assemblers of WTE technology. As of December 31, 2005, other than the process by which we plan to assemble the described WTE facilities, we do not have any patented intellectual property of our own and we are dependent on our relationships with third-parties for location of sites to build facilities, permits for operation, construction of the facilities, purchase of the parts to assemble the facilities, operation of the facilities and sales of the by-products. Since our formation in November 30, 1998, we have engaged in various activities and businesses, but we have not produced a profit. We have generated no revenue from WTE
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facilities operations, do not have any operational WTE facilities, and none are expected to be completed until after July 31, 2008, if at all. There can be no assurance that our efforts will lead to the construction of WTE facilities or profits from such facilities if built.
WE WILL NEED SUBSTANTIAL ADDITIONAL FUNDS TO CONSTRUCT WTE FACILITIES; IF FINANCING IS NOT AVAILABLE, WE MAY BE REQUIRED TO REDUCE OR CEASE OPERATIONS OR PURSUE OTHER FINANCING ALTERNATIVES.
Our operations to date have consumed substantial amounts of cash. Negative cash flow from operations is expected to continue in the foreseeable future. Without substantial additional financing, we may be required to reduce some or all of our WTE project development plans or cease operations. Our cash requirements may vary materially from those now planned because of responses to our proposals and permit requests, cost of financing projects, availability and price of materials to construct our proposed WTE plants, changes in tipping fees that we hope to receive, availability and timely delivery of waste to power WTE facilities once built, the amount we can charge for the WTE by products and the costs of environmental compliance, including disposal of residual waste. We may seek to satisfy future funding requirements through public or private offerings of equity securities, by collaborative or other arrangements with other partners and competitors, issuance of debt or from other sources. Additional financing may not be available when needed or may not be available on acceptable terms. If adequate financing is not available, we may not be able to continue as a going concern or may be required to delay, scale back or eliminate certain programs, forego desired opportunities or license third parties rights to develop locations that we would otherwise seek to develop internally. To the extent we raise additional capital by issuing equity securities, ownership dilution to existing stockholders will result.
OUR CHANCES FOR SUCCESS ARE REDUCED BECAUSE WE ARE AN EARLY STAGE COMPANY WITH REGARD TO OUR NEW BUSINESS OPERATION.
We have generated no revenues and have incurred only losses since that time, and, thus, have a limited operating history. We are subject to all the risks and challenges associated with the operation of a new enterprise, including inexperience, lack of a track record, difficulty in entering the targeted market place, competition from more established businesses with greater financial resources and experience, an inability to attract and retain qualified personnel (including, technical, engineering, sales and marketing personnel) and a need for additional capital to finance our efforts and intended growth. We cannot assure you that we will be successful in overcoming these and other risks and challenges that we face as a new business enterprise.
WE NEED SUBSTANTIAL ADDITIONAL FINANCING TO EXECUTE OUR BUSINESS PLAN WHICH MAY NOT BE AVAILABLE. IF WE ARE UNABLE TO RAISE ADDITIONAL CAPITAL, WE MAY NOT BE ABLE TO CONTINUE OPERATIONS.
We need substantial additional capital to expand our plant development and construction and sales efforts. Our current resources are insufficient to fund operations. We believe that we will need an additional $3,000,000 to fund plant development and support operations over the next 12 months. We have not and cannot assure you that we will be able to secure any such financing. We may not be able to find financing on terms that are acceptable to
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us. If we cannot obtain such financing, we will not be able to execute our business plan or continue operations.
WE DO NOT HAVE EMPLOYMENT CONTRACTS WITH ANY EMPLOYEES OTHER THAN CHRIS DUNCAN
Development of our business depends to a significant degree on the continuing contributions of our key management and technical personnel as well as on the continued cooperation of partners on whom we rely to assist in the design, development, construction and operation of the proposed WTE facilities. None of our key personnel or partners have indicated any intention to sever their relationship with us.
A SUBSTANTIAL PORTION OF THE TECHNOLOGY REQUIRED TO CONSTRUCT AND OPERATE OUR PROPOSED FACILITIES IS DEVELOPED BY PERSONS THAT ARE NOT EMPLOYED BY US.
A substantial portion of the technology required to construct and operate our proposed facilities was developed by individuals employed by others. We do not have control over, knowledge of, or access to those employment arrangements. Many of our suppliers and partners have capability and greater resources to compete with us.
On June 5, 2006, IPWG contracted to purchase patented WTE and other technology, including Anovo AB, Add Power and Scrub Power, from companies controlled by Mr. Lennart Strand, the primary developer of the aforementioned technologies. IPWG also appointed on that date Mr. Strand as the Company’s Chief Technical Advisor. IPWG has not, as of September 5, 2006, completed the purchase of said technologies.
WE ARE DEPENDENT ON THIRD PARTY RELATIONSHIPS FOR CRITICAL ASPECTS OF OUR BUSINESS; PROBLEMS IN THESE RELATIONSHIPS MAY INCREASE COSTS AND/OR DIMINISH OUR ABILITY TO IMPLEMENT OUR BUSINESS PLAN.
We intend to use the expertise and resources of strategic partners and other third parties in a number of key areas, including (i) engineering, (ii) development, including licensing and permitting, (iii) product development and sales and (iv) construction and operation of WTE facilities. If these third parties do not perform in a timely and satisfactory manner, we may incur costs and delays as we seek alternate sources, if available. Such costs and delays may have a material adverse effect on our business.
We may seek additional third party relationships in certain areas, particularly in marketing and construction, where collaborators may enable us to enter geographic markets that are otherwise beyond our current resources and/or capabilities. There is no assurance that we will be able to obtain any such relationships. Our inability to obtain and maintain relationships with third parties may have a material adverse effect on our business, by slowing our ability to execute our business plan, requiring us to expand our internal capabilities, increasing our overhead expenses, impinging on future growth opportunities or causing us to delay or terminate projects.
WE MAY FACE DELAYS IN THE DEVELOPMENT OF OUR TECHNOLOGIES AND OUR TECHNOLOGY MAY NOT WORK AS EXPECTED OR BE ECONOMICALLY VIABLE.
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The technologies we intend to use have not yet been widely applied within the solid waste industry and may not work as well as expected or be economically viable. The successful application of the technologies at the scales we contemplate has yet to occur. The inability to produce large volumes of energy under our current plan may require investment in capital equipment and operating expenses beyond our business and construction plans. Unforeseen difficulties in the development or acceptance of energy produced from waste may lead to delays in the implementation of our WTE process and the subsequent generation of revenue.
WE WILL DEPEND ON A SIGNIFICANT SUPPLY OF SOLID WASTE AND TIMELY PAYMENT FOR THAT SOLID WASTE.
If we do not obtain a supply of solid waste at quantities and qualities that are sufficient to operate our proposed facilities at expected operating levels, our financial condition and operating results could adversely be affected. One or more of the following factors could impact the price and supply of waste:
·
defaults by waste suppliers under their contracts;
·
a decline in solid waste supply due to increased recovery by material recovery facilities;
·
composting of solid waste;
·
incineration of solid waste;
·
legal prohibitions against processing of certain types of solid waste in our facilities; or
·
increased competition from landfills and recycling facilities.
ENVIRONMENTAL REGULATIONS AND LITIGATION COULD SUBJECT US TO FINES, PENALTIES, JUDGMENTS AND LIMITATIONS ON OUR ABILITY TO EXPAND.
We are subject to potential liability and restrictions under environmental laws, including those relating to handling, recycling, treatment, storage of wastes, discharges to air and water, and the remediation of contaminated soil, surface water and groundwater. The waste management industry has been and will continue to be subject to regulation, including permitting and related financial assurance requirements, as well as to attempts to further regulate the industry through new legislation. Our business is subject to a wide range of federal, state and, in some cases, local environmental, odor and noise and land use restrictions and regulations. If we are not able to comply with the requirements that apply to a particular facility or if we operate without necessary approvals, we could be subject to civil, and possibly criminal, fines and penalties, and we may be required to spend substantial capital to bring an operation into compliance or to temporarily or permanently discontinue, and/or take corrective actions. We currently do not have insurance coverage for our environmental liabilities, and we may not be able to obtain sufficient coverage in the future. Those costs or actions could be significant to us and significantly impact our results of operations, as well as our available capital.
In addition to the costs of complying with environmental laws and regulations, if governmental agencies or private parties brought environmental litigation against us, we would likely incur substantial costs in defending against such actions. We may in the future be a defendant in lawsuits brought by parties alleging environmental damage, personal injury, and/or
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property damage. A judgment against us, or a settlement by us, could harm our business, our prospects and our reputation.
We cannot predict with certainty the extent of future costs under environmental, health and safety laws, and cannot guarantee that they will not be material.
We could be liable if our operations cause environmental damage to our properties or to the property of other landowners, particularly as a result of the contamination of drinking water sources or soil. Under current law, we could even be held liable for damage caused by conditions that existed before we acquired the assets or operations involved. Any substantial liability for environmental damage could have a material adverse effect on our financial condition, results of operations and cash flows.
WE MAY BE EXPOSED TO LITIGATION IN THE ORDINARY COURSE OF OUR BUSINESS.
Since our personnel are expected to routinely handle solid waste materials, we may be subject to liability claims by employees, customers and third parties.
WE MAY BE UNABLE TO OBTAIN REQUIRED FINANCING OR PERMITS.
We plan to construct our initial facilities in Mexico and the Kingdom of Saudi Arabia. We cannot assure you that we will successfully obtain the necessary financing or environmental permits to build and operate this facility, or retain the permits that are required to operate the facility or obtain financing or permits we require to build and operate our intended additional facilities. Permits to build and operate waste processing facilities have become increasingly difficult and expensive to obtain and retain as a result of many factors including numerous hearings and compliance with zoning, environmental and other regulatory measures. The granting of these permits is also often subject to resistance from citizen or other groups and other political pressures. Our failure to obtain financing or obtain or retain the required permits to build or operate our facilities could have a material adverse effect on our future results of operations.
WASTE TO ENERGY TECHNOLOGY HAS NOT YET GAINED MARKET ACCEPTANCE, NOR DO WE KNOW WHETHER A MARKET WILL DEVELOP FOR IT IN THE FORESEEABLE FUTURE TO GENERATE ANY MEANINGFUL REVENUES.
WTE technology has received only limited market acceptance. This technology is relatively new to the market place and we have not generated any revenues from WTE technology. Although ever growing concerns and regulation regarding the environment and pollution has increased interest in environmentally friendly products generally, the industry remains in an evolving state. WTE technology competes with more established companies in the waste and alternative energy fields. Acceptance of WTE technology to traditional products and/or services depends upon a number of factors including:
·
favorable pricing vis a vis other alternatives
·
the ability to establish the feasibility and reliability of WTE technology
·
public perception of the product
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For these reasons, we are uncertain whether WTE technology will gain acceptance. Our future success depends upon such acceptance.
WTE TECHNOLOGY MAY BE ADVERSELY AFFECTED BY FUTURE TECHNOLOGICAL CHANGES AND ENVIRONMENTAL REGULATORY REQUIREMENTS AS WELL AS REDUCTION OF TRADITIONAL ENERGY COSTS OR THE ESTABLISHMENT OF LOWER PRICED ENERGY ALTERNATIVES.
Changes in governmental regulation and technological advances by others in the waste or energy industries may render our technology obsolete. Research in this area is currently being sponsored by governmental agencies, major utilities, oil companies and other energy suppliers. If such research successful, the need for our technology could be reduced or eliminated.
CONFIDENTIALITY AGREEMENTS MAY NOT ADEQUATELY PROTECT OUR BUSINESS INFORMATION WHICH COULD RESULT IN UNAUTHORIZED DISCLOSURE OR UNFAIR COMPETITION.
The Company considers its business relationships and process for assembling commercially available equipment to construct waste-to-energy facilities proprietary. We require our employees, consultants and third parties with whom we share our business plans and confidential information to execute confidentiality agreements upon the commencement of their relationship with us. The agreements generally provide that trade secrets and all inventions conceived by the individual and all confidential information developed or made known to the individual during the term of the relationship will be our exclusive property and will be kept confidential and not disclosed to third parties except in specified circumstances. There can be no assurance, however, that these agreements will provide meaningful protection for our business information in the event of unauthorized use or disclosure of such information. If our unpatented intellectual property is publicly disclosed before we have been granted patent protection, our competitors could be unjustly enriched and we could lose the ability to profitably develop products from such information.
WE FACE INTENSE COMPETITION AND MAY NOT HAVE THE FINANCIAL AND HUMAN RESOURCES NECESSARY TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGES WHICH MAY RESULT IN OUR TECHNOLOGY BECOMING OBSOLETE.
The energy production and alternate energy businesses and related businesses are subject to rapid technological change, especially due to environmental protection regulations, and subject to intense competition. We compete with both established companies and a significant number of startup enterprises. Most of our competitors have substantially greater financial, engineering and marketing resources than we do and may independently develop superior technologies which may result in our technology becoming less competitive or obsolete. We may not be able to keep pace with this change. If we cannot keep up with these advances in a timely manner, we will be unable to compete in our chosen markets.
WE DEPEND ON OUR EXECUTIVE OFFICERS AND NEED ADDITIONAL MARKETING, ENGINEERING, ADMINISTRATIVE AND TECHNICAL PERSONNEL TO BE SUCCESSFUL. WE CAN NOT ASSURE YOU THAT WE WILL BE ABLE TO RETAIN OR
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ATTRACT SUCH PERSONS; OUR CURRENT OFFICERS HAVE OTHER BUSINESS ENDEAVORS IN ADDITION TO THEIR WORK FOR OUR COMPANY.
Since we are a small company, a loss of one or more of our current officers would severely and negatively impact our operations. To implement our business plan, we will need additional marketing, administrative, engineering and technical personnel. The market for such persons remains competitive and our limited financial resources may make it more difficult for us to recruit and retain qualified persons. If any of our officers were to resign or not be able to continue to devote his time to our business, it may have a materially adverse effect upon our business.
Our officers, who are active employees, presently devote in excess 40 hours per week to our business activities. However, they also have outside business activities which may cause a conflict regarding the time available to devote to our business.
OUR CURRENT MANAGEMENT HAS A SIGNIFICANT VOTING MAJORITY OF OUR COMPANY’S OUTSTANDING COMMON STOCK AND CAN PREVENT CHANGES IN MANAGEMENT, POLICY OR OUTSIDE TAKEOVER OF OUR BUSINESS.
Our current officers and directors own over 65% of our issued and outstanding common stock and can control the appointment and/or election of all directors and officers.
RISKS RELATED TO CONSTRUCTION OF WTE PLANTS.
WE WILL DEPEND ON THIRD PARTIES TO DESIGN AND BUILD OUR WTE FACILITIES, HOWEVER, THEIR FAILURE TO PERFORM COULD FORCE US TO ABANDON BUSINESS, HINDER OUR ABILITY TO OPERATE PROFITABLY OR DECREASE THE VALUE OF YOUR INVESTMENT.
We will be highly dependent upon third parties to design, build our WTE facilities. If the third parties do not perform, for any reason, there is no assurance that we would be able to obtain a replacement general contractor. Any such event may force us to abandon our business. We do, however, intend to purchase performance bonds to mitigate some of the risk of a contractor terminating its relationship with us after initiation of construction.
WE MAY NEED TO INCREASE COST ESTIMATES FOR CONSTRUCTION OF OUR WTE FACILITIES, AND SUCH INCREASE COULD RESULT IN DEVALUATION OF YOUR INVESTMENT IF PLANT CONSTRUCTION REQUIRES ADDITIONAL CAPITAL.
We anticipate that our WTE facilities will be built for a fixed contract price, based on the plans and specifications in anticipated design-build agreements. We have based our preliminarily capital needs for plant construction on certain assumptions after discussions and negotiations with parties with design-build experience. These price estimates include construction period interest. The estimated costs are based on preliminary discussions. There is no assurance that the final cost of the plants will not be higher. There is no assurance that there will not be design changes or cost overruns associated with the construction of the WTE facilities. In addition, steel prices and shortages of steel could affect the final cost and final completion date of any project. Any significant increase in the estimated construction cost of the plants could delay our ability to generate revenues and reduce the value of your investment
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because our expected revenue streams may not be able to adequately support the increased cost and expense attributable to increased construction costs.
The political climate in some of the countries where we intend to build WTE facilities could cause problems in the completion of our plants, negatively affecting our plans.
We may meet resistance to our efforts to build our WTE facilities in certain countries. The résistance may be caused by political unrest, labor or union issues, environmental problems, shortage of materials, economic conditions or other issues. There is no assurance that such resistance will not have a material adverse effect on our ability to implement our business plan.
WTE FACILITY CONSTRUCTION DELAYS COULD RESULT IN DEVALUATION OF YOUR INVESTMENT IF OUR PRODUCTION AND SALE OF POWER ARE SIMILARLY DELAYED.
Construction projects often involve delays in obtaining permits, construction delays due to weather conditions, or other events that delay the construction schedule. The builder and designer of the plants may be involved in the construction of other projects while constructing our WTE facilities. This could cause delays in our construction schedules. Changes in interest rates or the credit environment or changes in political administrations at the federal, state or local level that result in policy changes towards waste to energy or our proposed projects could also cause construction and operation delays. If it takes longer to construct the WTE facilities than we anticipate, it would delay our ability to generate revenue and make it difficult for us to meet our debt service obligations. This could reduce the value of your investment.
DEFECTS IN CONSTRUCTION COULD RESULT IN DEVALUATION OF YOUR INVESTMENT IF OUR PLANTS DO NOT PRODUCE POWER AS ANTICIPATED.
There is no assurance that defects in materials and/or workmanship in the WTE facilities will not occur. Under the terms of the anticipated design-build agreements, the designer builder would warrant that the material and equipment furnished to build the plant will be new, of good quality, and free from material defects in material or workmanship at the time of delivery. Though we expect the design-build agreements to require the contractors to correct all defects in material or workmanship for a period of one year after substantial completion of the plant, material defects in material or workmanship may still occur. Such defects could delay the commencement of operations of the plants, or, if such defects are discovered after operations have commenced, could cause us to halt or discontinue the plant’s operation. Halting or discontinuing plant operations could delay our ability to generate revenues and reduce the value of your investment.
PLANT SITES MAY HAVE UNKNOWN ENVIRONMENTAL PROBLEMS THAT COULD BE EXPENSIVE AND TIME CONSUMING TO CORRECT, WHICH MAY DELAY OR HALT WTE FACILITIES’ CONSTRUCTION AND DELAY OUR ABILITY TO GENERATE REVENUE.
We intend to build our WTE facilities all over the world. Accordingly, in areas with which we are not familiar, we will depend on third parties in locating and evaluating the
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proposed sites for our plants. As a result, we could encounter unknown environmental problems that will be costly and time consuming to correct, or may not be correctible at all. These risks of environmental problems could have a material adverse effect on our ability to implement our business plan. Upon encountering a hazardous environmental condition, we may suspend work in the affected area. If we receive notice of a hazardous environmental condition, we may be required to correct the condition prior to continuing construction. The presence of a hazardous environmental condition will likely delay construction of the plant and may require significant expenditure of our resources to correct the condition. In addition, the designer builder will likely be entitled to an adjustment in price and time of performance if it has been adversely affected by the hazardous environmental condition. If we encounter any hazardous environmental conditions during construction that require time or money to correct, such event could delay our ability to generate revenues and reduce the value or your investment.
CHANGES IN ENVIRONMENTAL REGULATIONS OR VIOLATIONS OF THE REGULATIONS COULD BE EXPENSIVE AND REDUCE THE VALUE OF YOUR INVESTMENT.
We will be subject to extensive air, water and other environmental regulations and we will need to obtain a number of environmental permits to construct and operate WTE facilities. In addition, it is likely that our debt financing will be contingent on our ability to obtain the various environmental permits that we will require. If for any reason, any of these permits are not granted, construction costs for WTE facilities may increase, or the WTE facilities may not be constructed at all. Additionally, any changes in environmental laws and regulations, both at the federal and state level, could require us to invest or spend considerable resources in order to comply with future environmental regulations. The expense of compliance could be significant enough to reduce the value of your investment.
THE OPERATION OF WTE FACILITIES COULD SUBJECT US TO CLAIMS OR LIABILITY LAWSUITS.
The operation of WTE facilities may be considered inherently dangerous and injury to individuals or property may occur, subjecting us to lawsuits. We do not currently have insurance for such possibilities. Although we intend to seek insurance coverage, we may not be to do so at a cost we can afford, or the coverage may prove to be insufficient. The time and cost of defending such suits could have an adverse effect on our ability to implement our business plan. Similarly, a costly judgment against us could cause us to cease operations.
CHANGES AND ADVANCES IN PRODUCTION TECHNOLOGY COULD REQUIRE US TO INCUR COSTS TO UPDATE OUR PLANS OR COULD OTHERWISE HINDER OUR ABILITY TO COMPETE IN THE INDUSTRY OR OPERATE PROFITABLY.
Advances and changes in the technology of WTE facilities are expected to occur. Such advances and changes may make the technology we plan to install in our WTE facilities less desirable or obsolete. These advances could also allow our competitors to operate a lower cost than we expect. If we are unable to adopt or incorporate technological advances, our methods and processes could be less efficient than our competitors, which could cause us to become uncompetitive or our projects obsolete. If our competitors develop, obtain or license technology that is superior to ours or that makes our technology obsolete, we may be required to incur significant costs to enhance or acquire new technology so that we remain competitive.
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Alternatively, we may be required to seek third-party licenses, which could also result in significant expenditures. We cannot guarantee or assure you that third-party licenses will be available or, if obtained, will continue to be available on commercially reasonable terms, if at all. These costs could negatively impact our expected financial performance by increasing planned operating costs and reducing expected revenues, which could reduce the value of your investment.
RISKS RELATED TO THE POWER INDUSTRY.
COMPETITION FROM THE ADVANCEMENT OF ALTERNATIVE POWER MAY LESSEN THE DEMAND FOR OUR TECHNOLOGY WHICH COULD NEGATIVELY IMPACT OUR POTENTIAL FOR PROFITABILITY AND REDUCE THE VALUE OF YOUR INVESTMENT.
Alternative power and energy technologies and production methods are continually under development. New developments could reduce the demand for our expected power production and technology, which would negatively impact the value of your investment.
CONSUMER RESISTANCE TO THE CONCEPT OF CONVERTING WASTE TO ENERGY BASED ON THE BELIEF THAT IT IS EXPENSIVE TO PRODUCE, ADDS TO AIR POLLUTION, IS ODOROUS AND TAKES MORE ENERGY TO PRODUCE THAN IT CONTRIBUTES MAY AFFECT THE OUR ABILITY TO ACHIEVE MARKET ACCEPTANCE AND REDUCE THE VALUE OF YOUR INVESTMENT.
Based upon public consumer reports, we believe that certain consumers may resist the concept of converting waste into energy due to the fallacy that WTE facilities add to air pollution and are odorous. Still other consumers may believe that the process of producing power from waste takes more energy in the conversion than the power that is actually produced. If we cannot overcome these misconceptions, market acceptance may be difficult and this could negatively affect the value of your investment.
RISKS RELATED TO OUR COMMON STOCK.
APPLICABLE SEC RULES GOVERNING THE TRADING OF “PENNY STOCKS” LIMITS THE TRADING AND LIQUIDITY OF OUR COMMON STOCK, THAT MAY ADVERSELY AFFECT THE TRADING PRICE OF OUR COMMON STOCK.
The bid and ask quotations of our common stock are routinely reflected on the Unsolicited Pink Sheets market under the symbol “IPWG”. However, there is no sanctioned public market for our common stock at this time. As a result, there is no assurance that there will be liquidity of an investment in our common stock. Since our common stock continues to trade below $5.00 per share, our common stock is considered a “penny stock” and is subject to SEC rules and regulations that impose limitations upon the manner in which our stock can be publicly traded. These regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the associated risks. Under these regulations, certain brokers who recommend such securities to persons other than established customers or certain accredited investors must make a special written suitability determination for the purchaser and receive the purchaser’s written agreement to a transaction prior to sale.
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These regulations have the effect of limiting the trading activity of our common stock and reducing the liquidity of an investment in our common stock.
THE TRADING PRICE OF OUR COMMON STOCK MAY BE VOLATILE.
The trading price of our stock has, from time to time, fluctuated widely and in the future may be subject to similar fluctuations. The trading price may be affected by a number of factors including the risk factors set forth in this report as well as our operating results, financial condition, announcements of innovations or new products by us or our competitors, general conditions in the market place, and other events or factors. In recent years, stock market indices, in general, and the securities of technology companies, in particular, have experienced substantial price fluctuations. Such market fluctuations may adversely affect the future trading price of our common stock.
WE HAVE SOLD STOCK IN PRIVATE PLACEMENTS; THE STOCK SOLD IN THOSE PRIVATE PLACEMENTS AND ANY OTHERS WE MAY CONDUCT MAY BECOME FREELY TRADABLE AND HAVE A DEPRESSIVE EFFECT ON THE MARKET PRICE OF OUR STOCK.
Approximately 42,988,083 of our 315,374,096 shares outstanding as of September 5, 2006 are in the “publicly trading float”. Public sale of those shares could have a depressive effect on the public market price of our common stock.
OUR OUTSTANDING OPTIONS AND WARRANTS MAY ADVERSELY AFFECT OUR ABILITY TO CONSUMMATE FUTURE EQUITY FINANCINGS DUE TO THE DILUTION POTENTIAL TO FUTURE INVESTORS.
We have outstanding options and warrants for the purchase of shares of our common stock with exercise prices currently below market which may adversely affect our ability to consummate future equity financings. To the extent any such options and warrants are exercised, the value of our outstanding shares of our common stock will be diluted.
As of September 5, 2006 we had outstanding vested options to purchase 23,025,000 shares of common stock at a weighted-average exercise price of $0.44 and vested warrants to purchase 7,887,500 shares of common stock with a weighted-average price of $0.31.
Due to the number of shares of common stock we are obligated to sell pursuant to outstanding options and warrants described above, potential investors may not purchase our future equity offerings at market price because of the potential dilution such investors may suffer as a result of the exercise of the outstanding options and warrants.
THE EXERCISE OF OUTSTANDING OPTIONS AND WARRANTS WILL CAUSE A DILUTION TO OUR STOCKHOLDERS AND MAY HAVE A SIGNIFICANT NEGATIVE EFFECT ON THE TRADING PRICE OF OUR COMMON STOCK.
If the outstanding Options and Warrants are exercised (which, as of September 5, 2006 would result in the issuance of an additional 23,025,000 and 7,887,500 shares, respectively, of common stock), we can expect that they would be exercised when the public trading prices of
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our securities are higher than the exercise price, causing a dilution to those of our stockholders who purchased our stock at prices above the exercise price. There can be no assurance that any of the Options or Warrants will be exercised or that the public trading price of our securities will increase.
THE MARKET PRICE OF OUR COMMON STOCK HAS EXPERIENCED SIGNIFICANT VOLATILITY.
The securities markets from time to time experience significant price and volume fluctuations unrelated to the operating performance of particular companies. In addition, the market prices of the common stock of many publicly traded solid waste companies have been and can be expected to be especially volatile. Our common stock price in the 52-week period ended August 25, 2006, had a low of $0.038 and high of $1.90. Announcements of technological innovations or new products by us or our competitors, developments or disputes concerning patents or proprietary rights, publicity regarding actual or potential by us or our competitors, regulatory developments in both the United States and foreign countries, delays in our schedules and economic and other external factors, as well as period-to-period fluctuations in our financial results, may have a significant impact on the market price of our common stock. The realization of any of the risks described in these “Risk Factors” may have a significant adverse impact on such market prices.
WE MAY PAY VENDORS IN STOCK AS CONSIDERATION FOR THEIR SERVICES; THIS MAY RESULT IN STOCKHOLDER DILUTION, ADDITIONAL COSTS AND DIFFICULTY RETAINING CERTAIN VENDORS.
In order for us to preserve our cash resources, we have previously and may in the future pay vendors in stock, warrants or options to purchase shares of our common stock rather than cash. Payments for services in stock may materially and adversely affect our stockholders by diluting the value of outstanding shares of our common stock. In addition, in situations where we have agreed to register the stock issued to a vendor, this will generally cause us to incur additional expenses associated with such registration. Paying vendors in stock, warrants or options to purchase shares of common stock may also limit our ability to contract with the vendor of our choice should that vendor decline payment in stock.
WE DO NOT INTEND TO PAY DIVIDENDS ON OUR COMMON STOCK. UNTIL SUCH TIME AS WE PAY CASH DIVIDENDS OUR STOCKHOLDERS MUST RELY ON INCREASES IN OUR STOCK PRICE FOR APPRECIATION.
We have never declared or paid dividends on our common stock. We intend to retain future earnings to develop and commercialize our products and therefore we do not intend to pay cash dividends in the foreseeable future. Until such time as we determine to pay cash dividends on our common stock, our stockholders must rely on increases in our common stock’s market price for appreciation.
IF WE DO NOT EFFECTIVELY MANAGE OUR GROWTH, OUR RESOURCES, SYSTEMS AND CONTROLS MAY BE STRAINED ANDOUR OPERATING RESULTS MAY SUFFER.
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We plan to add to our workforce and to continue to increase the size of our workforce and scope of our operations as we continue to develop our business plan and move towards construction of WTE facilities. This growth of our operations will place a significant strain on our management personnel, systems and resources. We may need to implement new and upgraded operational and financial systems, procedures and controls, including the improvement of our accounting and other internal management systems. These endeavors will require substantial management effort and skill, and we may require additional personnel and internal processes to manage these efforts. If we are unable to effectively manage our expanding operations, our revenue and operating results could be materially and adversely affected.
Our obligations as a public company under the laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”) and related regulations, are likely to increase our expenses and administrative burden. These expenses and burdens are particularly acute on companies of our small size. Changes in the laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act and related regulations implemented by the Securities and Exchange Commission and the National Association of Securities Dealers, are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We have and will continue to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from commercialization activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies regulatory authorities may initiate legal proceedings against us and our business may be harmed.
THERE ARE LIMITATIONS ON THE LIABILITY OF OUR DIRECTORS, AND WE MAY HAVE TO INDEMNIFY OUR OFFICERS AND DIRECTORS IN CERTAIN INSTANCES.
Our certificate of incorporation limits the personal liability of our directors for monetary damages for breach of their fiduciary duties as directors. Our bylaws provide that we will indemnify our officers and directors and may indemnify our employees and other agents. These provisions may be in some respects broader than the specific indemnification provisions under Delaware law. The indemnification provisions may require us, among other things, to indemnify such officers and directors against certain liabilities that may arise by reason of their status or service as directors or officers (other than liabilities arising from willful misconduct of a culpable nature), to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified and to obtain directors’ and officers’ insurance. Section 145 of the Delaware General Corporation Law provides that a corporation may indemnify a director, officer, employee or agent made or threatened to be made a party to an action by reason of the fact that he or she was a director, officer, employee or agent of the corporation or was serving at the request of the corporation, against expenses actually and reasonably incurred in connection with such action if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.
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Delaware law does not permit a corporation to eliminate a director’s duty of care and the provisions of our certificate of incorporation have no effect on the availability of equitable remedies, such as injunction or rescission, for a director’s breach of the duty of care.
We believe that our limitation of officer and director liability assists us to attract and retain qualified employees and directors. However, in the event an officer, a director or the board of directors commits an act that may legally be indemnified under Delaware law, we will be responsible to pay for such officer(s) or director(s) legal defense and potentially any damages resulting therefrom. Furthermore, the limitation on director liability may reduce the likelihood of derivative litigation against directors, and may discourage or deter stockholders from instituting litigation against directors for breach of their fiduciary duties, even though such an action, if successful, might benefit us and our stockholders. Given the difficult environment and potential for incurring liabilities currently facing directors of publicly-held corporations, we believe that director indemnification is in our and our stockholders’ best interests because it enhances our ability to attract and retain highly qualified directors and reduce a possible deterrent to entrepreneurial decision-making.
Nevertheless, limitations of director liability may be viewed as limiting the rights of stockholders, and the broad scope of the indemnification provisions contained in our certificate of incorporation and bylaws could result in increased expenses. Our board of directors believes, however, that these provisions will provide a better balancing of the legal obligations of, and protections for, directors and will contribute positively to the quality and stability of our corporate governance. Our board of directors has concluded that the benefit to stockholders of improved corporate governance outweighs any possible adverse effects on stockholders of reducing the exposure of directors to liability and broadened indemnification rights.
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PLEASE READ THIS FORM 10-KSB CAREFULLY. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED HEREIN. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION.
Item 2
Description of Property.
The Company’s executive offices are located at 950 Celebration Blvd., Suite A, Celebration, Florida 34747. The premises are leased to the Company at approximately $6,000 per month. The lease is for four years. At this time the Company does not have any tangible assets. Specifically, we do not own any substantial real or personal property. We also maintain satellite offices as follows:
·
Mexican Office: Culiacan No. 17-105, Colonia Hipodromo Condesa, Delegacion Cuauhtémoc, Mexico City. Z. C., Mexico (+52) 55 5564 2955, month-to-month rental at $747.50 (USD) per month;
·
London Office: 1 Threadneedle Street, London EC2R8AW, England, (+44) 2077 110 5412; month-to-month arrangement requiring 60 days’ notice; monthly rent: $1,304.17 (USD);
·
Northeast England Office: Royal Albert House, Sheet Street, Windsor Royal Berkshire, England, 0207 710 5412; month-to-month arrangement requiring 60 days’ notice; monthly rent: $1,130.28 (USD); and
Item 3
Legal Proceedings.
We are not a party to any pending legal proceedings, and no such proceedings are known to be contemplated.
Item 4
Submission of Matters to a Vote of Securities Holders.
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PART II
Item 5
Market for Common Equity, Related Stockholder Matters.
Market Information.
No Public Market. Though bid and ask quotations for our common stock are routinely reflected on the Unsolicited Pink Sheets market under the symbol “IPWG”, there is no sanctioned public market for our common stock at this time. One securities broker-dealer, however, has submitted a Form 211 to the NASD’S OTC Compliance Unit in an effort to become a market maker in our common stock. This application is presently being reviewed by the OTC Compliance Unit. No assurance can be given that the filing will be approved by the NASD. Whether or not approval is received to conduct a market for our common stock on the Pink Sheets market under the currently pending Form 211, we intend to assist one or more brokerage firms to make market in our common stock on the OTC BB if and when our Form 10-SB registration statement, as amended, clears comments by the SEC and/or our intended filing of a selling stockholder Form SB-2 registration statement with the SEC becomes effective.
High Bid | Low Bid | |
2004 | ||
Quarter ended December 31, 2004 | $0.65 | $0.06 |
2005 |
|
|
Quarter ended March 31, 2005 | 0.045 | 0.045 |
Quarter ended June 30, 2005 | 0.40 | 0.25 |
Quarter ended September 30, 2005 | 0.72 | 0.64 |
Quarter ended December 31, 2005 | 1.86 | 1.59 |
2006 |
|
|
Quarter ended March 31, 2006 | 1.18 | 1.00 |
Quarter ended June 30, 2006 | .88 | .81 |
Source: Interdealer prices, without retail mark-up, mark-down or commission and may not represent actual
transactions.
Dividends
We have not paid any cash dividend to date, and we have no intention of paying any cash dividends on our common stock in the foreseeable future. The declaration and payment of dividends is subject to the discretion of our Board of Directors and to certain limitations imposed under the General Corporation Law of the State of Delaware, as amended. The timing, amount and form of dividends, if any, will depend on, among other things, our results of operation, financial condition, cash requirements and other factors deemed relevant by our Board of Directors.
Outstanding Warrants and Options
As of September 5, 2006, there are outstanding warrants to purchase 7,887,500 shares of our common stock, and options to purchase 23,025,000 shares of our common stock.
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Restricted Securities.
As of September 5, 2006 there were 315,374,096 shares of common stock of the Company outstanding registered to 2,756 stockholders of record, of which 272,209,517 are carried as “restricted securities” as that term is defined in Rule 144 under the Securities Act of 1933. Of restricted securities, 53,240,710 shares are held by non-affiliates of the Company and the balance of 218,968,807 are held by officers and directors (“affiliates”) of the Company, including Peter Toscano who beneficially owns 102,454,830 shares and Jack Wagenti who beneficially owns 106,936,840 shares.
Under SEC Rule 144 (17 C.F.R. § 230.144), stockholders whose restricted stock meet the Rule’s one-year holding provisions, including persons who may be deemed affiliates of the Company, may resell restricted securities in broker’s transactions or directly to market makers, provided the number of shares sold in any three-month period is not more than the greater of 1% of the total shares of common stock then outstanding. If the trading circumstances of our common stock changes, this quantity may change to a number of shares equal to the average weekly trading volume for the four calendar week period immediately prior to each such sale. The shares held by Messrs. Toscano and Wagenti have been held by their registered owners for more than one year and are therefore eligible to be sold in limited quantities under Rule 144.
After a two-year holding period, a non-affiliated stockholder may resell restricted securities without regard to most of the above restrictions. Restricted securities held by affiliates continue, even after the two-year holding period, to be subject to the resale limitations discussed above. Holders who may have been deemed promoters or affiliates of a blank check company and their transferees are not able to sell under Rule 144 in accordance with an SEC staff interpretation. Furthermore, the Commission is of the view that shareholders who obtain securities directly from a blank check issuer, rather than through promoters and affiliates, cannot use Rule 144 to resell their securities, since their resale transactions would appear to be designed to distribute or redistribute securities to the public without compliance with the registration requirements of the Securities Act.
Application of the Penny Stock Rules. If and when the Company’s securities are traded, the securities may likely be deemed a “penny stock”. The Securities and Exchange Commission has adopted Rule 15g-9, which defines a “penny stock,” as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (i) that a broker or dealer approve a person’s account for transactions in penny stocks and (ii) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person’s account for transactions in penny stocks, the broker or dealer must: (i) obtain financial information and investment experience and objectives of the person and (ii) make a reasonable determination that the transactions in penny stocks are suitable for that person and that person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by the Commission relating to the penny stock market, which, in highlight form, (i) sets forth the basis on which the broker or dealer made the suitability determination and (ii) that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Disclosure also has to be made about the risks of
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investing in penny stocks in both public offerings and in secondary trading, and about commissions payable to both the broker-dealer and the registered representative, current quotations for the securities, and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
Recent Sales of Unregistered Securities. In fiscal 2004, Mr. Toscano received 50,000,000 shares of common stock valued as salary compensation for the period from June 2004 through May 31, 2005. The shares were valued at $.0001 per share. In fiscal 2004, Mr. Toscano received 75,000,000 shares of common stock in exchange for his shares in International Power, Inc. The shares were valued at $.00001 per share. In fiscal 2004, Mr. Wagenti received 50,000,000 shares of common stock valued as salary compensation for the period from June 2004 through May 31, 2005. The shares were valued at $.0001 per share. In fiscal 2004, Mr. Wagenti received 75,000,000 shares of common stock in 2004 in exchange for his shares in International Power, Inc. The shares were valued at $.00001 per share. Mr. Toscano and Mr. Wagenti, on December 8, 2004, transferred approximately 26,997,040 shares of IPWG common stock to the remaining holders of International Power, Inc. Each of Mr. Toscano and Mr. Wagenti then contributed the shares of International Power, Inc. so obtained to IPWG for no consideration.
Effective as of December 2, 2004, we acquired fifty per cent of Tratamientos Ambientales Tecate a Mexican Corporation in exchange for 3,400,000 shares of common stock (300,000 of which shares were issued for services). The core business of Tratamientos Ambientales Tecate (TAT) is procuring waste contracts to fuel waste energy projects in Mexico. The final stock to complete this transaction was issued on or about February 21, 2005.
IPWG entered into private placements of its common stock in reliance on exemptions from registration provided by §4(2) of the Securities Act, including Rule 506 of Regulation D promulgated thereunder, for the purpose of raising operating capital. All securities issued in the private placements were issued with restrictive legends prohibiting further transfer except in accordance with the Securities Act.
1.
During the months of November and December 2004, we sold a total of 4.95 units to 8 investors for $49,500 in gross proceeds. Each unit consisted of 400,000 shares of common stock and a warrant to purchase 200,000 shares of common stock. The purchase price of each unit was $10,000 (or $0.025 per share of common stock with no value attributed to the warrant). The warrants are exercisable at $0.25 per full share of common stock and expire eighteen months from date of issuance. Each investor represented in writing to the Company that (i) it was an “accredited investor” as that term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act and (ii) such investor was acquiring the securities for the investor’s own account for investment purposes and not for distribution.
2.
January through May 2005, we sold 19.25 units to 22 investors for $192,500 in gross proceeds. Each unit consisted of 400,000 shares of common stock and a warrant to purchase 200,000 shares of common stock. The purchase price of each unit was $10,000 (or $0.025 per share of common stock with no value attributed to the warrant). The warrants are exercisable at $0.25 per full share of common stock and expire eighteen months
Page 27 of 69
from date of issuance. Each investor represented in writing to the Company that (i) it was an “accredited investor” as that term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act and (ii) such investor was acquiring the securities for the investor’s own account for investment purposes and not for distribution.
3.
June 2005, we sold 22.05 units to 20 investors for $441,000 in gross proceeds. Each unit consisted of 400,000 shares of common stock and a warrant to purchase 200,000 shares of common stock. The purchase price of each unit was $20,000 (or $0.05 share of common stock with no value attributed to the warrant). The warrants are exercisable at $0.25 per full share of common stock and expire eighteen months from date of issuance. Each investor represented in writing to the Company that (i) it was an “accredited investor” as that term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act and (ii) such investor was acquiring the securities for the investor’s own account for investment purposes and not for distribution.
4.
August through October, 2005, we sold 21.25 units to 26 investors for $425,000 in gross proceeds. Each unit consisted of 80,000 shares of common stock and a warrant to purchase 40,000 shares of common stock. The purchase price of each unit was $20,000 ($0.25 per share of common stock with no value attributed to the warrant). The warrants are exercisable at $0.75 per full share of common stock and expire eighteen months from date of issuance. Each investor represented in writing to the Company that (i) it was an “accredited investor” as that term is defined in Rule 501(a) of Regulation D promulgated under the Securities Act and (ii) such investor was acquiring the securities for the investor’s own account for investment purposes and not for distribution.
During 2005, 2,135,000 additional stock was issued upon the exercise of warrants described above for gross proceeds to us of $538,750 as follows:
Date | Number of Shares | Exercise Price | Gross Proceeds |
Nov. 01, 2005 | 200,000 | $0.25 | $50,000.00 |
Nov. 18, 2005 | 375,000 | $0.25 | $93,750.00 |
Nov. 25, 2005 | 10,000 | $0.75 | $7,500.00 |
Dec. 12, 2005 | 1,550,000 | $0.25 | $387,500.00 |
Totals | 2,135,000 | $0.25234 | $538,750.00 |
During 2005, we issued options to purchase a total of 19,000,000 shares of our common stock. Options representing two million shares expired in February 2006 and are again available to be issued under our 2005 Stock Option Plan. The remaining options to purchase 17,000,000 shares were issued on June 14, 2005, expire on June 14, 2010, have an exercise price of $0.10 per share and were issued to the persons listed in the table below. 1,600,000 of the options remaining were exercised prior to December 31, 2005 and additional options to purchase 5,250,000 million shares have been exercised since December 31, 2005.
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Shares Underlying Option | Recipient |
1,900,000 | Howard Ash, an independent consultant who acts as our representative in Europe and the Middle East |
1,850,000 | Providence Financial Services, LLC, Consultant |
1,000,000 | Mr. Peter Toscano, Director, President and Chief Executive Officer |
1,000,000 | Mr. Jack Wagenti, Director, Secretary and Chief Financial Officer |
1,000,000 | Mr. Jose Garcia, Director and Vice President |
1,000,000 | Dr. Georgi Grechko, Director |
1,000,000 | Mr. Salvatore J. Arnone, Director |
1,000,000 | Robert Astore, Director |
1,000,000 | Dr. Thomas Morrow, consultant |
1,000,000 | Var Growth Corporation, consultant |
11,750,000 |
Also, during 2005, options to purchase 1,600,000 shares of commons stock were exercised representing a combination of those exercising for cash and those who were permitted to exercise for services rendered. The cash proceeds from the exercise of these options was $105,000.
Date | Number of Shares | Exercise Price | Value Realized |
Sep. 1, 2005 | 425,000 | $0.10 | $42,500.00 |
Oct. 12, 2005 | 800,000 | $0.10 | $80,000.00 |
Oct. 18, 2005 | 275,000 | $0.10 | $27,500.00 |
Dec. 16, 2005 | 100,000 | $0.10 | $10,000.00 |
Totals | 1,600,000 | $0.10 | $160,000.00 |
Between January 1, 2006 and April 13, 2006, we issued options to purchase 5,000,000 shares of common stock to the individuals listed below. Each option expires on June 14, 2010. The exercise price of these options is $0.83 per share purchased.
Recipient | Number of Shares |
Walter Salvadore | 1,000,000 |
Thomas Mitchell | 1,000,000 |
Sheik Hani A. Z. Yamani | 1,000,000 |
Christopher A. Duncan | 1,000,000 |
Gregory Callageri | 1,000,000 |
Total | 5,000,000 |
Item 6
Management’s Discussion and Analysis or Plan of Operation.
Overview.
We commenced our development stage in November 2004 upon our acquisition of International Power, Inc. We have not had any revenues and only losses since well before that time. Accordingly, a comparison of our financial information for accounting periods would likely not be meaningful or helpful in making an investment decision regarding our Company.
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Plan of Operation.
Prior to the adoption of our present business plan, we investigated the option of engaging in the management of low level radioactive waste as a result of our acquisition of TMES’s assets. We determined not to pursue that business because of the time and expense of compliance with government regulation in the field.
Our operating plan for the next 12 months and thereafter has three components: (1) to commence construction of the Ensenada, Mexico WTE project, get it operational and progress as far as possible into joint testing of the project in preparation for taking it over and operating it on a commercial basis, (2) to complete pending negotiations to initiate other WTE projects in Louisiana, Great Britain, Saudi Arabia and The republic of the Philippines and, (3) pending negotiations to initiate the utilization of our services and WTE Technology to continue our existing program of introducing WTE technology to governments and others charged with responsibility to manage solid waste and/or provide potable water and electricity to various population segments. In furtherance of this general plan we have self-imposed the following goals:
PROJECTED DATE
Goal | Projected Date |
1. Processing of site permits in Mexico | Present through December, 2006 |
2. Introduction of WTE technology in Great Britain and beginning of WTE site location negotiations | Present through December, 2006 |
3. Introduction of WTE technology in the Kingdom of Saudi Arabia and beginning of WTE site location negotiations | Present through December, 2006 |
4. Negotiations for WTE sites in several foreign countries now identified. Form subsidiaries as may be required in other countries | Foreseeable future |
Research and Development.
We do not expect to establish a discrete program of research or development as part of our business plan. We expect to expend our research and development efforts towards “on the job” training. We intend to cooperate with our development partners to develop efficient WTE technology customized to each customer’s needs. We intend to share the learning from each project and application to improve all areas of existing WTE technology from air scrubbing to waste disposal.
Purchase of Plant and Equipment. Central to our business plan is the construction of a twelve module WTE plant in Ensenada, Mexico as discussed above. We also intend to negotiate for the purchase and construction of additional WTE plants and modules in several other countries, including Great Britain, where negotiations have already commenced and the Kingdom of Saudi Arabia. The Kingdom of Saudi Arabia’s Presidency of Metrology and Environment issued to us in July 2006 an environmental license which will enable us to establish waste-to-energy plants in the country. The development and construction of each proposed WTE facility will be dependent on: (i) locating appropriate land and obtaining permits for a WTE
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facility, (ii) obtaining financing (including related financial guaranty and risk insurance) for purchase of materials and equipment and construction of facilities and (iii) securing contracts for delivery of waste and sales of byproducts which will produce revenues sufficient to cover debt service and operation costs. In the event we are not able to finance one or more proposed WTE facilities, we would be forced to abandon any such projects.
Changes in the Number of Employees. We expect a substantial increase in full and part time employees in the foreseeable future to bolster our technical and marketing departments. We expect that plant construction projects will be completed by third parties who will be engaged pursuant to contractual agreements.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
IPWG and its predecessors have been in business for less than two years and have conducted active business operations for only eighteen months as of the date of this filing. The first approximately six months were spent exploring business prospects. The Company has spent approximately the last twelve months initiating and developing our WTE technology business plan. Initial steps in that process were negotiation of construction of a twelve-module WTE Plant in Ensenada. The second step in developing our business plan was to find a source that could assist the Company to raise the capital required to build and begin operating WTE facilities. IPWG currently has no income from business operations and does not expect to realize operating revenues for approximately two years when it expects that its first WTE facilities will commence revenue generating operations.
WTE Facility Finance
We intend to finance the construction and operation of WTE facilities through a combination of loans and securitization of income from long-term contracts for tipping fees, power and potable drinking water sales. We believe that we will be successful in securing such financing although no assurance can be given. We have entered into an agreement with Marsh USA, Inc., an international insurance broker with the ability to provide financial guaranty insurance and risk management, to locate insurance for our projects.
Trends
We believe that the single trend that is most likely to affect our business is the burgeoning need of local governments at all levels in most countries to manage sold waste, significant quantities of which are hazardous. We believe this trend will generate demand for the technology we offer although no assurance can be given.
Ability to Meet Cash Requirements. Our Company is considered to be in the development stage as defined in the Statement of Financial Accounting Standards (“FASB”) No. 7. To date, it has received no significant income from its business operations. As of December 31, 2005, we had an accumulated loss of $3,198,847 during the development stage. The expenses that produced this operating loss included stock based compensation expenses in the sum of $2,257,819 and other expenses, including cash expenses, of approximately $941,028. Notwithstanding this loss figure, the Company’s cash position improved from $20,038 at
Page 31 of 69
December 31, 2004 to $955,621 at December 31, 2005 as the result of the receipt of $1,832,250 from the sale of securities.
With our existing cash reserves, the sale of equity through the exercise of outstanding options and warrants, additional equity sales through private placements or public offerings, and debt financing, we believe we will be able to satisfy our cash requirements for the next twelve months, excluding funds required for the construction of WTE facilities.
We have developed a two-year timeline and cash forecast of our cash needs to execute our business plan and we are in the process of raising the funds required to fund our operations for the next 24 months until the time we estimate that our first WTE facility will come online and revenues are expected to commence. There can be no assurance, however, that we will be able to raise the amounts of financing required to operate our business until revenues commence, that we will be able to timely commence revenue generating operations of WTE facility(ies) or that if such facility(ies) commence operation, that we will generate sufficient revenue to be profitable.
IPWG is in the process of raising capital to address approximately $28 MM of financing needs for the next twenty-four months, outside of construction/project financing for specific waste to energy projects. Uses of the capital to be raised include:
1)
Working capital to cover overhead and execution costs during construction of waste to energy plants (approximately $19.5MM), additional details provided in the chart below.
2)
Working capital to cover the recently completed acquisition of Ad-Power AB and the commercialization of AddPower units (a patented low temperature turbine used for converting waste heat into electricity) of approximately $3.3 MM.
3)
Additional development funding to apply AddPower technology to low cost solar power generation, as well as to test the feasibility of integrating the AddPower technology into small scale solar units for office parks, malls, and residential projects ($5.2MM).
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IPWG "Core" Use of Cash
June 2006 - June 2008 Forecast (24 Months)
WTE Overhead, Infrastructure Ramp-up (People, Contractors)
Swedish Acquisition of AddPower et al, Working Capital, Solar R&D Scale Reduction
June - Dec | Jan - June | ||||||||||||||
Per Month | Annualized | 2006 | 2007 | 2008 | Total | ||||||||||
Headcount (ramp up 2006 to full in 2007) | 21 | ||||||||||||||
People $ | 3,900,000 | ||||||||||||||
Benefits | 780,000 | ||||||||||||||
Travel | 510,000 | ||||||||||||||
432,500 | 5,190,000 | 1,056,000 | 4,382,400 | 2,217,600 | 7,656,000 | ||||||||||
Outsourced/Contracted Services (Annual) | |||||||||||||||
Construction/Project Management | 800,000 | ||||||||||||||
Legal Fees | 800,000 | ||||||||||||||
Outsourced Engineering | 1,200,000 | ||||||||||||||
Contractors/Consultants | 750,000 | ||||||||||||||
External & Internal Audit | 500,000 | ||||||||||||||
Corporate Insurance | 500,000 | ||||||||||||||
Accounting Services (Outsourced) | 425,000 | ||||||||||||||
Marketing (Web, Marketing Materials) | 300,000 | ||||||||||||||
Tech/PC/Office Equip | 325,000 | ||||||||||||||
466,667 | 5,600,000 | 1,960,000 | 5,600,000 | 2,800,l000 | 10,360,000 | ||||||||||
- | - | - | - | ||||||||||||
Real Estate/Office Expenses | 30,000 | 360,000 | 49,167 | 328,333 | 180,000 | 557,500 | |||||||||
(FL, GA, UK, Saudi, Mexico office ramp up) | - | - | - | - | |||||||||||
Other Operating Costs | 33,333 | 400,000 | 233,333 | 400,000 | 200,000 | 833,333 | |||||||||
Total Annualized Core Operating | 11,550,000 | 3,298,500 | 10,710,733 | 5,397,600 | 19,406,833 | ||||||||||
Per Month | 962,500 | 471,214 | 892,561 | 899,600 | |||||||||||
Additional Investment/Commercialization Other Proprietary Technology | |||||||||||||||
Acquisition (Cash) for AddPower, ScrubPower, SUPE Intellectual Property | 880,000 | 1,200,000 | - | 2,080,000 | |||||||||||
Commercialization/Working Capital for AddPower Unit for Immediate Sale | 300,000 | 900,000 | - | 1,200,000 | |||||||||||
R&D of Solar/AddPower for Commercialization Small Scale Solar | 300,000 | 3,300,000 | 1,650,000 | 5,250,000 | |||||||||||
- | - | - | - | ||||||||||||
Total Forecasted Cash Usage Excluding | 4,778,500 | 16,110,733 | 7,047,600 | 27,936,833 | |||||||||||
Project Specific Financing | - | - | - | - | |||||||||||
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In addition to the above, as the Company develops and executes contracts for its waste to energy facilities in the United States, Saudi Arabia, Mexico and elsewhere (these contracts may include long term, ie.7-10 year, commitments for waste disposal, electric and water sales), the Company will use these contracts, and the revenue sources they represent, to secure project specific financing. The Company expects to have multiple financing sources for project/construction financing on a project by project basis outside of this specific equity raise.
Payments Due under Contractual Obligations
We have future commitments at March 31, 2006 consisting of obligations as follows:
Year Ending December 31, | Florida Office Lease Obligations |
2006 | 80,477.52 |
2007 | 80,477.52 |
2008 | 80,477.52 |
2009 | 80,477.52 |
Total | 321,910.08 |
Results of Operations
Year Ended December 31, 2005 comparisons with Year Ended December 31, 2004 are as follows: we had an increase in net (cash and non-cash) losses from operations from $37,637 for the year ended December 31, 2004 to $3,161,210 for the year ended December 31, 2005, or a total increase in net losses of $3,123,573. The net non-cash losses increased from $8,891 for the year ended December 31, 2004 to $2,250,428 for the year ended December 31, 2005, or a total increase in net non-cash losses of $2,241,537. This increase in net non-cash losses is primarily attributable to the issuance of common stock and options for services, and the value of options ($2,140,000) granted to officers, directors and consultants and finders. The net cash losses increased from $28,746 for the year ended December 31, 2004 to $910,782 for the year ended December 31, 2005, or a total increase in net cash losses of $882,036. This increase in net cash losses is primarily attributable to fees paid to professionals and consultants.
Page 34 of 69
Item 7
Financial Statements.
INTERNATIONAL POWER GROUP, LTD
(A Development Stage Company)
AUDITED FINANCIAL STATEMENTS
For the years ended December 31, 2005 and 2004
CONTENTS
PAGE
Accountant’s Audit Opinion | 36 |
Balance Sheet | 37 |
Statement of Operations and Deficit Accumulated During Development Stage | 38 |
Statements of Changes in Stockholders’ Equity | 39 |
Statements of Cash Flows | 40 |
Notes to Financial Statements | 41-52 |
Page 35 of 69
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The Board of Directors
International Power Group, Ltd.
I have audited the accompanying balance sheet of International Power Group, Ltd. (a development stage company) as of December 31, 2005, and the related statements of operations and deficit accumulated during development stage, changes in stockholders’ equity, and cash flows for the years ended December 31, 2005 and 2004 and for the period April 15, 2002 (inception) to December 31, 2005. These financial statements are the responsibility of the Company management. My responsibility is to express an opinion on these financial statements based on my audit.
I conducted the audit in accordance with the standards of Public Company Accounting Oversight Board (United States). Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor was I engaged to perform, an audit of its internal control over financial reporting. My audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate under the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, I express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of International Power Group, Ltd. as of December 31, 2005, and the results of its operations and its cash flows for the years ended December 31, 2005 and 2004, and for the period April 15, 2002 (inception) to December 31, 2005, in conformity with U.S. generally accepted accounting principles.
As discussed in Note 4 to the financial statements, certain errors were discovered in the financial statements of the year ended December 31, 2005. Accordingly, the 2005 balance sheet and statements of operations and accumulated deficit, changes in stockholders’ equity and cash flows have been restated to correct the errors.
/s/Robert G. Jeffrey,
Certified Public Accountant
Wayne, NJ
July 17, 2006
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INTERNATIONAL POWER GROUP, LTD
(A Development Stage Company)
BALANCE SHEET
(Restated)
December 31, 2005
ASSETS | |
Current Assets | |
Cash | $955,621 |
Note receivable | 65,000 |
Total current assets | 1,020,621 |
Other Assets | |
Deposit | 2,000 |
Total other assets | 2,000 |
TOTAL ASSETS | $1,022,621 |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
Liabilities |
|
Accounts payable | $ 82,899 |
Total current liabilities | 82,899 |
| |
Stockholders’ Equity |
|
Common stock – authorized, 750,000,000 shares of $.00001 par value; issued and outstanding, 310,407,100 shares | 3,104 |
Capital in excess of par value | 1,906,202 |
Paid in capital – options | 2,104,500 |
Paid in capital – warrants | 231,263 |
Deficit accumulated during development stage | (3,305,347) |
Total stockholders’ equity | 939,722 |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $1,022,621 |
The accompanying notes are integral part of these financial statements.
Page 37 of 69
INTERNATIONAL POWER GROUP, LTD
(A Development Stage Company)
STATEMENTS OF OPERATIONS AND DEFICIT ACCUMULATED DURING
DEVELOPMENT STAGE
(Restated)
Year 2005 | Year 2004 | April 15, 2002 (Date of Inception of Development Stage) to December 31, 2005 | |
REVENUE | $ - | $ - | $ - |
OPERATING EXPENSES | 3,267,710 | 37,637 | 3,305,347 |
LOSS ACCUMULATED DURING DEVELOPMENT STAGE | $3,267,710 | $37,637 | $3,305,347 |
NET LOSS PER SHARE | |||
Basic and diluted | $(.01) | $0.00 | |
WEIGHTED AVERAGE SHARES OUTSTANDING | 297,465,012 | 203,023,760 |
The accompanying notes are integral part of these financial statements.
Page 38 of 69
INTERNATIONAL POWER GROUP, LTD
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the Years Ended December 31, 2005 and 2004
(Restated)
Common Stock | Capital in Excess of Par Value | Warrants | Options | Deficit Accumulated During Development Stage | Total | ||||
Shares | Amount | Number | Amount | Number | Amount | ||||
Balance, January 1, 2004 | 150,000,000 | $ 1, 50 0 | $ - |
| $ - |
| $ - | $ - | $ 1,500 |
Shares issued for acquisition | 33,000,000 | 330 | (330) |
|
|
|
|
| |
Shares issued for services | 100,000,000 | 1,000 | 9,000 |
|
|
|
| 10,000 | |
Sales of common stock | 1,980,000 | 20 | 49,480 | 990,000 | - |
|
| 49,500 | |
Net loss for the year |
|
|
|
|
|
| (37,637) | (37,637) | |
|
|
|
|
|
|
|
| ||
Balance, December 31, 2004 | 284,980,000 | 2,850 | 58,150 | 990,000 | - |
| - | (37,637) | 23,363 |
Shares issued for cash | 18,065,000 | 181 | 936,417 | 9,032,500 | 251,902 |
|
| 1,188,500 | |
Options granted |
|
|
|
|
| 19,000,000 | 2,140,000 |
| 2,140,000 |
Options exercised for services rendered | 725,000 | 7 | 72,493 |
|
| (725,000) |
| 72,500 | |
Proceeds from option exercises | 1,050,000 | 10 | 104,990 |
|
| (1,050,000) |
| 105,000 | |
Transfer re. options exercised | - |
| 35,500 |
|
|
| (35,500) |
| - |
Shares for warrants exercised | 2,135,000 | 21 | 538,729 | (2,135,000) |
|
|
| 538,750 | |
Transfer re. warrants exercised | - |
| 20,639 |
| (20,639) |
|
| - | |
Shares for acquisition of equity interest |
3,400,000 |
34 |
118,966 |
|
|
|
|
119,000 | |
Shares issued for services | 52,100 | 1 | 20,318 |
|
|
|
| 20,319 | |
Net loss for the year |
|
|
|
|
|
| (3,267,710) | (3,267,710) | |
Balance, December 31, 2005 | 310,407,100 | $3,104 | $1,906,202 | 7,887,500 | $231,263 | 17,225,000 | $2,104,500 | $(3,305,347) | $ 939,722 |
The accompanying notes are integral part of these financial statements.
Page 39 of 69
INTERNATIONAL POWER GROUP, LTD.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Restated)
Year 2005 | Year 2004 | April 15, 2002 (Date of Inception of Development Stage) to December 31, 2005 | |
Cash Flows From Operations: |
|
|
|
Net loss from operations | $(3,267,710) | $(37,637) | $(3,305,347) |
Adjustments to reconcile net loss to net cash consumed by operating activities: |
|
|
|
Charges not requiring cash outlay: |
|
|
|
Common stock issued for services | 22,928 | 7,391 | 30,319 |
Impairment charge | 121,500 | 1,500 | 123,000 |
Options exercised for services | 72,500 | - | 72,500 |
Value of options granted | 2,140,000 | - | 2,140,000 |
Changes in assets and liabilities: |
|
|
|
Increase in accounts payable | 79,115 | 3,784 | 82,899 |
Net cash consumed by operating activities | (831,667) | (24,962) | (856,629) |
|
|
| |
Cash Flows From Investing Activities: |
|
|
|
Acquisition of waste disposal permit | - | (2,000) | (2,000) |
Investment in Mexican company | - | (2,500) | (2,500) |
Investment in demand loans | (70,000) | - | (70,000) |
Loan proceeds | 5,000 | - | 5,000 |
Net cash consumed by investing activities | (65,000) | (4,500) | (69,500) |
|
|
| |
Cash Flows From Financing Activities: |
|
|
|
Proceeds of sales of stock units | 1,188,500 | 49,500 | 1,238,000 |
Proceeds from exercise of options | 105,000 | - | 105,000 |
Proceed from exercise of warrants | 538,750 | - | 538,750 |
Net cash provided by financing activities | 1,832,250 | 49,500 | 1,881,750 |
Net increase in cash | 935,583 | 20,038 | 955,621 |
|
|
| |
Cash balance, beginning of period | 20,038 | - | - |
|
|
| |
Cash balance, end of period | $ 955,621 | $ 20,038 | $ 955,621 |
The accompanying notes are integral part of these financial statements.
Page 40 of 69
INTERNATIONAL POWER GROUP, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
Note 1.
ORGANIZATION AND BUSINESS
Organization
International Power Group, Ltd., (the Company) was incorporated November 30, 1998 in the state of Delaware as Ednet, Inc. Its name was changed to International Power Group, Ltd. on September 23, 2004.
The Company acquired 66% of the stock of International Power, Inc. (Power) in return for 150,000,000 shares of its common stock, which represented 82% of the number of shares of the Company outstanding after this transaction. Subsequently, Messrs. Toscano and Wagenti transferred a total of 26,997,040 shares of Company stock held by them to the remaining holders of Power stock. Each of Mr. Toscano and Mr. Wagenti contributed the stock of Power so acquired to the Company for no consideration. In two stages, therefore, the Company acquired 100% of the outstanding stock of Power for 150,000,000 shares of IPWG common stock. The acquisition has been accounted for as a reverse merger with the Company being treated as the acquired company and Power being treated as the acquirer. Historic financial and other information of Power will be presented in all public filings. Under the accounting for a reverse merger, the assets and liabilities of the Company were recorded on the books of the continuing company at their market values which approximate net realizable value and the stockholders equity accounts of Power were reorganized to reflect the shares issued in this transaction. The financial statements include the effect of the acquisition on the financial position of the Company and the results of its operations. The statements of operations for the years ended December 31, 2005 and 2004 are based on the historical statements of income of the Company and Power for those periods and assume the acquisition took place on January 1, 2003.
Power is a Delaware corporation organized April 15, 2002. During 2004, it acquired the assets of Terra Mar Environmental Systems, Inc. (TMES) in return for 2,281,040 shares of its capital stock. The assets of TMES consisted principally of two contracts and proposals for the construction of waste disposal plants in countries of the former Soviet Union; neither of the contracts had been implemented; they expired December 31, 2005 and were not implemented. The shares of Power that were issued for the assets of TMES were redeemed from a portion of the shares that were acquired from the Company in the acquisition of Power. Power was later dissolved.
The Company and TMES had each previously operated in central Asia with contracts for the disposal of waste material; these companies, and Power, had been inactive in recent years.
Ordinarily audited financial statements of Power would be included with this filing. Since Power has been inactive in recent years, however, and has no assets or liabilities except the two contracts referred to above which were deemed to have no value, such audited financial statements have been omitted.
Page 41 of 69
INTERNATIONAL POWER GROUP, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
On November 11, 2004 the Board of Directors authorized the acquisition of a 50% interest in Tratamientos Ambientales de Tecate, S.A. de C.V. (TAT), a Mexican corporation involved in the waste disposal business. This acquisition was concluded on February 21, 2005 by the issuance of 3,400,000 shares of the capital stock of the Company.
Nature of Operations
The business of the Company will be the coordination of construction and management of waste disposal plants. These plants will reduce solid waste to a fraction of its original mass, thus reducing landfill requirements; they will also treat the waste so that it can be used as construction material and for other uses. Burning of the waste will produce energy and, in some cases, drinking water The Company is currently negotiating with strategic partners in Mexico and elsewhere for the construction of facilities for the treatment of waste material and the production of electricity and drinking water.
Note 2. DEVELOPMENT STAGE
The Company is a development stage company, as defined in Statement of Financial Accounting Standards (SFAS) No. 7. Generally accepted accounting principles that apply to established operating enterprises govern the recognition of revenue by a development stage enterprise and the accounting for costs and expenses. The Company has been in the development stage since April 15, 2002, the date of its inception.
Page 42 of 69
INTERNATIONAL POWER GROUP, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
Note 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a.
Cash
For purposes of the Statement of Cash Flows, the Company considers all short-term debt securities purchased with a maturity of three months or less to be cash equivalents.
b.
Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes”, which requires the use of the “liability method”. Accordingly, deferred tax liabilities and assets are determined based on differences between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. Current income taxes are based on the income that is currently taxable.
c.
Fixed Assets
Fixed assets will be recorded at cost and depreciated over their useful lives using an appropriate method.
d.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimated.
e.
Recognition of Revenue
Revenue will be realized from the sales of product and services. Recognition will occur upon delivery of product or performance of services. In determining recognition, the following criteria will be considered: persuasive evidence that an arrangement exists; delivery has occurred; the sales price is fixed or determinable; and collectability is reasonably assured.
Page 43 of 69
INTERNATIONAL POWER GROUP, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
f.
Fair Value of Financial Instruments
The carrying amounts of the Company’s financial instruments, which include cash equivalents and accounts payable, approximate their value at December 31, 2005.
g.
Net Loss Per Share
The Company computes net income (loss) per common share in accordance with SFAS No. 128, Earnings Per Share, and SEC Staff Accounting Bulletin (SAB) No. 98. Under the provisions of SFAS No. 128 and SAB 98, basic and diluted net loss per common share are computed by dividing the net income (loss) available to common shareholders for the period by the weighted average number of shares of common stock outstanding during the period. Accordingly, the number of weighted average shares outstanding as well as the amount of net income (loss) per share are presented for basic and diluted calculations for all periods reflected in the accompanying financial statements.
h.
Common Stock
Common stock of the Company has been issued in return for services. Values are assigned to these issuances equal to the value of services received or the market value of the common stock, whichever is most clearly evident.
i.
Warrants Outstanding
Warrants to purchase capital stock of the Company are valued at fair value using a Black Scholes valuation model, in accordance with the provisions of SFAS No. 123, “Accounting for Stock Based Compensation”.
j.
Options Issued
Options issued were valued at fair value using a Black Scholes valuation model, in accordance with the provisions of SFAS #123, “Accounting for Stock Based Compensation”. Certain options exercised for services were valued at their exercise price.
Page 44 of 69
INTERNATIONAL POWER GROUP, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
k.
Advertising Cost
The Company expenses advertising cost when the advertisement occurs. There were no advertising costs during the years 2005 and 2004.
l.
Segment Reporting
Management treats the operations of the Company as one segment.
Note 4. RESTATEMENTS
Certain amounts have been reclassified or adjusted in these financial statements, resulting in a decrease in liabilities offset by increase in equity. The shares outstanding at December 31, 2005, and have been recalculated to reflect the additional issued shares.
BALANCE SHEET
As Originally Presented | Adjustments | As Restated | |
Investment | $ 2,531 | $ (2,531)(4) | $ - |
Note Receivable Current | - | 65,000 (1) | 65,000 |
Loans Receivable Other Assets | 65,000 | (65,000)(1) | - |
Liability For Unissued Stock | 25,000 | (25,000)(2) | - |
Common Stock – Par Value | 3,100 | 4 (2) | 3,104 |
Capital in excess of par | 1,777,907 | 20,826 (2) | 1,906,202 |
3,500 (3) | |||
103,969(4) | |||
Paid in Capital - options | 2,108,000 | (3,500)(3) | 2,104,500 |
Paid in Capital - warrants | 227,093 | 4,170(2) | 231,263 |
Deficit | $ (3,198,847) | $ (106,500)(4) | $ (3,305,347) |
Page 45 of 69
INTERNATIONAL POWER GROUP, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
As Originally Presented | Adjustments | Restated | |
Common Shares Outstanding: | |||
Balance December 31, 2003 | 500 | (500)(5) | 150,000,000 |
150,000,000(5) | |||
Stock split 330,000 to 1 | 164,999,500 | (164,999,500)(5) | - |
Shares cancelled | (132,000,000) | 132,000,000(5) | - |
Shares issued for acquisition | 150,000,000 | (150,000,000)(5) | |
33,000,000(5) | 33,000,000 | ||
Balance December 31, 2004 | 284,980,000 | - | 284,980,000 |
Shares issued for cash in 2005 | 17,765,000 | 300,000(6) | 18,065,000 |
Options granted in 2005 | 675,000 | 50,000(6) | 725,000 |
Options exercised for cash in 2005 | 925,000 | 125,000(6) | 1,050,000 |
Balances December 31, 2005 | 309,932,100 | 475,000 | 310,407,100 |
Capital In Excess of Par Value: | |||
Balance December 31, 2004 | $ 58,150 | $ - | $ 58,150 |
Shares issued for cash | 933,090 | 3,327(2) | 936,417 |
Options exercised for services | 67,493 | 5,000(2) | 72,493 |
Proceeds of option exercises | 92,491 | 12,499(2) | 104.990 |
Transfer re. options exercised | 32,000 | 3,500(3) | 35,500 |
Acquisition of equity interest in TAT | - | 118,966(4) | 118,966 |
Shares issued for services | 35,315 | (14,997)(4) | 20,318 |
Balance, December 31, 2005 | $ 1,777,907 | $ 128,295 | $ 1,906,202 |
Warrants Outstanding | |||
Balance, December 31, 2004 | 990,000 | - | 990,000 |
Shares issued for cash | 8,882,500 | 150,000(5) | 9,032,500 |
Balance, December 31, 2005 | 7,737,500 | 150,000 | 7,887,500 |
Warrants outstanding (Dollars) | |||
Balance, December 31, 2004 | $ - | $ - | $ - |
Shares issued for cash | 247,732 | 4,170(2) | 251,902 |
Balance, December 31, 2005 | $ 227,093 | $ 4,170 | $ 231,263 |
Page 46 of 69
INTERNATIONAL POWER GROUP, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
As Originally Presented | Adjustments | Restated | |
Operating Expenses | $ 3,161,210 | $ 106,500(4) | $ 3,267,710 |
Net Loss from Operations | $(3,161,210 ) | $ (106,500) | $ (3,267,710) |
Weighted Average Shares (2005) | 297,302,546 | 162,466(7) | 297,465,012 |
Weighted Average Shares (2004) | 247,182,404 | (44,158,644)(8) | 203,023,760 |
STATEMENTS OF CASH FLOWS | |||
As Originally Presented | Adjustments | Restated | |
Net Loss from Operations | $ (3,161,210 ) | $ (106,500)(4) | $ (3,267,710) |
Impairment | - | 121,500(4) | 121,500(4) |
Common Stock issued for Services | 37,928 | (15,000)(4) | 22,928 |
Net Cash Consumed by Operating activities. | $ (831,667) | $ - | $ (831,667) |
(1)
Reclassification to reflect the short term maturity of note receivable.
(2)
Reclassification relating to stock paid for in 2005 and options exercised for services during 2005, for which stock was issued during 2006.
(3)
Reclassification of options exercised during 2005, for which stock was issued in 2006.
(4)
Adjustments to revalue TAT transaction and to recognize impairment of investment.
(5)
Consolidation of amounts related to reverse merger.
(6)
Share amounts related to reclassification of unissued stock liability.
(7)
Shares not issued until 2006 have been reclassified as outstanding.
(8)
Represents effect of restating share balance re: merger.
Note 5. RELATED PARTY TRANSACTIONS
Until late in 2005, the Company made its headquarters in premises owned by the Company vice president, which was rent free until that date. The market value of these rental facilities was negligible.
Shares of common stock were issued to the officers of the Company for their services during the period August 1, 2003 to June 30, 2005. These issuances totaled 100,000,000 shares. They were valued at $10,000 which has been charged to expense during the periods benefited.
These officers also received 150,000,000 shares of Company stock in exchange for their two thirds interest in the capital stock of Power. Subsequently, these officers acquired the remaining 1/3 of the capital stock of Power by transferring to the remaining stockholders of Power shares of the Company owned by them. The officers then contributed the shares of Power
Page 47 of 69
INTERNATIONAL POWER GROUP, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
so acquired to the Company. Both the Company and Power had only nominal assets at the time of the acquisition, so these shares were assigned a nominal value.
As more fully described in Note 8, concerning the Company Stock Option Plan, the Company awarded options to purchase 3,000,000 shares of common stock to officers during 2005.
Note 6. INCOME TAXES
The Company experienced losses during 2005 and 2004. The Internal Revenue Code allows net operating losses (NOL’s) to be carried forward and applied against future profit for a period of twenty years. At December 31, 2005, the Company had an NOL carry forward of $3,305,347 available for Federal taxes and state taxes. The potential tax benefit of both the state and Federal NOL has been offset by a valuation allowance. If not used, the carry forward will expire as follows:
2024 | $ 37,637 | ||
2025 | 3,267,710 |
Under SFAS No. 109, deferred tax assets are not recognized unless it is more likely than not that the benefits will be realized. If realization is not likely, the amounts are offset by a valuation allowance. Accordingly, at December 31, 2005, $479,827 of deferred tax asset has been fully offset by a valuation allowance.
Note 7. CAPITAL STOCK AND WARRANTS
During the months of November and December of 2004, the Company sold stock units, each unit comprised of four hundred thousand shares of common stock and two hundred thousand warrants to purchase common stock at a price of $.25 per share. The warrants are exercisable within an eighteen month period of the date of issuance. A total of 1,980,000 shares and 990,000 warrants were sold, yielding proceeds of $49,500.
Page 48 of 69
INTERNATIONAL POWER GROUP, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
During the year 2005, the Company sold stock units. Certain of these units were comprised of 400,000 shares of stock with 200,000 warrants exercisable at $.25 for eighteen months. Other units were comprised of 80,000 shares with 40,000 warrants exercisable at $.75 for eighteen months. Total proceeds from these sales was $1,188,500. Warrant activity during the year ended December 31, 2005 is recapped below:
Balance December 31, 2004 | 990,000 |
Warrants granted during 2005 | 9,032,500 |
Warrants exercised during 2005 | (2,135,000) |
Balance December 31, 2005 | 7,887,500 |
These warrants are exercisable as follows: |
|
$.25 | 6,787,500 |
$.75 | 1,100,000 |
Total exercisable | 7,887,500 |
Note 8. STOCK OPTIONS
During 2005, the Company adopted and the shareholders approved a stock option plan (the 2005 Stock Option Plan). The Plan permits the Board of Directors to grant options to purchase up to 30,000,000 shares of common stock to officers, employees, and key individuals deemed important to the success of the Company. The Plan has a term that runs through June 15, 2010. The exercise price shall not be less than the market value as determined at date of grant.
The fair value of option grants are estimated using a Black-Sholes option pricing model. The following weighted assumptions were used for options granted during the year ended December 31, 2005: dividend yield 0.0%; expected stock volatility 156.24%; risk free rate of 3.75%; and expected option life of .75 years.
Page 49 of 69
INTERNATIONAL POWER GROUP, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
A summary of options outstanding as at December 31, 2005 and changes during the year are presented below:
Weighted Average | ||
Shares | Exercise Price | |
Options outstanding at beginning of year | - | $ - |
Options granted during the year | 19,000,000 | .13 |
Options exercised during the year | 1,775,000 | .10 |
Options voided during the year | - | - |
Outstanding options at end of year | 17,225,000 | $.13 |
The following table summarizes information about stock options outstanding at December 31, 2005.
Options Exercisable | ||||
Options Outstanding | Remaining Contractual Life | Weighted Average Exercise Price | Number | Weighted Price |
17,225,000 | 4.22 yrs | $.13 | 17,225,000 | $.13 |
Page 50 of 69
INTERNATIONAL POWER GROUP, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
Note 9. OPERATING EXPENSES
Major categories of operating expenses are presented below.
2005 | 2004 | April 15, 2002 (Date of Inception of Development Stage) to December 31, 2005 | |
Stock Based Compensation | $2,140,000 |
| $2,140,000 |
Consulting expense | 439,594 |
| 439,594 |
Legal fees | 108,618 |
| 108,618 |
Impairment | 121,500 | 1,500 | 123,000 |
Office expenses | 74,069 | $ 11,403 | 85,472 |
Travel & Meals | 203,804 | 6,448 | 210,252 |
Public relations | 29,960 |
| 29,960 |
Officers’ payroll | 56,192 |
| 56,192 |
Insurance | 13,478 |
| 13,478 |
Automobile expenses | 17,595 |
| 17,595 |
Web development expense | 19,500 |
| 19,500 |
Rent | 10,547 |
| 10,547 |
Other officer compensation | 2,609 | 7,391 | 10,000 |
Other expenses | 30,244 | 10,895 | 41,139 |
$3,267,710 | $37,637 | $3,305,347 |
Note 10. IMPAIRMENT
Following the acquisition of TAT, the Company determined that the entity would not provide the expected benefits and the investment was abandoned. Early in 2006, the Company began to use a Mexican subsidiary to pursue its business interests in Mexico. The Mexican subsidiary had previously been inactive. The value of the TAT investment was written off during 2005.
Page 51 of 69
INTERNATIONAL POWER GROUP, LTD.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2005
Note 11. RENTS UNDER OPERATING LEASES
Rent expense for the period was $10,547. At December 31, 2005, there were no operating leases with a non-cancelable period in excess of one year.
Note 12. SUPPLEMENTAL CASH FLOWS
There was no cash paid for interest or income taxes during the years ended December 31, 2005 and 2004.
The following non-cash investing and financing activity took place during 2004:
a.
The Company acquired two thirds of the capital stock of Power on October 1, 2004 in exchange for 150,000,000 shares of common stock.
b.
On October 19, 2004, 100,000,000 shares of common stock were issued to the officers of the Company in exchange for their services.
c.
On August 20, 2004, Power acquired the assets of TMES in exchange for 2,281,040 shares of its common stock. These shares were later redeemed by officers of the Company, and cancelled.
The following non-cash investing and financing activity took place during 2005:
d.
The Company issued 3,400,000 shares of its common stock for its equity interest in Tratamientos Ambientales Tecate (TAT).
e.
The Company issued options to purchase 19,000,000 shares of common stock under the 2005 Stock Option Plan.
f.
The Company issued 52,100 shares for services valued at $20,319. For additional services, it granted option holders the right to exercise without payment options to purchase 725,000 shares of common stock. The additional rights was $72,500.
Note 13. RECENT ACCOUNTING PRONOUNCEMENTS
The Company does not anticipate the adoption of recently issued accounting pronouncements to have a significant effect on the Company’s results of operations, financial position, or cash flows.
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Item 8
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
No disclosure necessary.
Item 8A.
Controls and Procedures.
The Company’s Chief Executive Officer and Principal Financial Officer have reviewed the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon this review, such officers believe that the Company’s disclosure, controls and procedures are effective (i) in timely alerting them to material information required to be included in this report and (ii) to ensure that we are able to record, process and summarize and report the information we are required to disclose in the reports we file with the SEC within the required time periods. There have been no significant changes in internal control over financial reporting that occurred during the year covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Page 53 of 69
PART III
Item 9
Directors and Executive Officers of the Registrant; Compliance with Section 16(a) of the Exchange Act.
The directors and executive officers of the Company, their ages, and the positions they hold are set forth below. The directors of the Company hold office until the next annual meeting of stockholders of the Company and until their successors in office are elected and qualified. All officers serve at the discretion of the Board of Directors.
(A)
Directors and Executive Officers.
Name | Age | Title |
Peter Toscano | 57 | Chairman of the Board, Chief Executive Officer and President |
Jack Wagenti | 69 | Vice President, Secretary, and Director |
Jose Garcia | 50 | Vice President, and Director |
Louis D. Garcia | 55 | Vice President, Finance |
Christopher A. Duncan | 43 | Chief Operating Officer |
Sheik Hani A. Z. Yamani | 45 | Director |
Georgi Grechko | 74 | Director |
Thomas J. Mitchell | 63 | Director |
Salvatore Arnone | 45 | Director |
Robert Astore | 69 | Director |
Walter J. Salvadore | 50 | Director |
Mr. Peter Toscano. Mr. Toscano has been Director, President and Chief Executive Officer of International Power Group since October of 2004. Mr. Toscano also is President, Chief Executive Officer and Director of U.S. Precious Metals, Inc., positions he has held since May 9, 2002. Mr. Toscano was an officer of Material Waste Recycling, Inc. from February 2001 through May 9, 2002. Material Waste Recycling, Inc. was in the business of recycling wools, cottons and acrylics both in the United States and Mexico. Mr. Toscano over the past five years has been heavily involved in materials reprocessing, export, and importation in Mexico. In addition, Mr. Toscano has had extensive experience in the development of systems for the management of hazardous wastes in Russia and Central Asia. Also, Mr. Toscano has been involved in various low-level radioactive waste management projects within the Pacific Rim. Within those arenas, Mr. Toscano has spearheaded projects that utilized strategic alliances with major companies such as Westinghouse Electric Company and Waste Management, Inc. Among his responsibilities, Mr. Toscano has acted as a liaison bridging the gap between Russian and US corporations.
U.S. Precious Metals, Inc. is a venture owned by, among others, Messrs. Toscano, Wagenti and J. Garcia. U.S. Precious Metals, Inc.’s principal activity is to acquire, explore and develop mineral properties in Mexico. It is in its exploration stage and is focused on acquiring prospective mineral properties, principally gold and silver. U.S. Precious Metals, Inc. acquired exploration concessions to certain mineral properties known as Solidaridad I, Solidaridad II, Solidaridad III, Solidaridad IV and Solidaridad V located in Michoacan, Mexico. Material Waste Recycling, Inc., which ceased operations in May 2002, was in the business of collecting
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and recycling fabric remnants. The remnants were collected primarily from domestic U.S clothing manufacturers and sold to overseas processors.
Mr. Jack Wagenti. Mr. Wagenti has been Director and Secretary of International Power Group since October of 2004. Mr. Wagenti is also a Director and the Secretary and Chief Financial Officer of U.S. Precious Metals Inc., a company which is traded on the Over The Counter Bulletin Board. Mr. Wagenti has held positions with U.S. Precious Metals since May 2002. From 1996 to the present, Mr. Wagenti has served in varying capacities of American International Ventures, Inc., a company which is traded on the Over the Counter Bulletin Board and Pink Sheets Market. Presently, Mr. Wagenti is a Director of American International Ventures, Inc. American International Ventures, Inc. is in the mineral exploration business in the State of Nevada and its assets include the Brunner Property located in Nye County, Nevada.
Mr. Jose Garcia. Mr. Garcia has been a Director and Vice President of International Power Group since October of 2004. Mr. Garcia was employed by La Carvella Restaurant from February 2001 to May 9, 2002. Mr. Garcia has been Vice President of U.S. Precious Metals, Inc. since May 2002, a company trading on the Over The Counter Bulletin Board and President of U.S. Precious Metals de Mexico since March 2003. Mr. Garcia is from Morelia, Mexico and is President of IPW Group de Mexico, which is a wholly owned subsidiary of International Power Group, Ltd.
Mr. Christopher A. Duncan. Mr. Duncan has been the Chief Operating Officer of International Power Group, Ltd. since May 2006. From January 2005 until May 2006, Mr. Duncan was Managing Director, National Business Development for Marsh USA Inc. From November 1999 until January 2005, Mr. Duncan was the Chief Risk Officer, Vice-President of Finance for Delta Air Lines, Inc. Mr. Duncan received a Bachelor of Arts in Business Administration and an MBA in Finance from the University of Georgia.
Mr. Louis D. Garcia. Mr. Garcia, Vice President, Finance. From 1997 through March 2006, Mr. Garcia was the Managing Director of Providence Financial Services, LLC. Prior to Providence, Mr. Garcia was a Senior Managing Director with GCR Highland LLC and Senior Managing Director (Real Estate) with Jesup, Josenthal and Co., Inc. Mr. Garcia received a Bachelor of Science in Finance from Saint Johns University in New York.
Sheik Hani A. Z. Yamani. Sheik Yamani has been a Director of International Power Group, Ltd. since March 2006. He is also the Executive Chairman of Hazy Trading Establishment and its affiliated companies, an organization he founded in 1988. Hazy Trading Establishment has completed energy and development projects in Africa and Middle East valued at over 5 billion US. He has been an advisor to a number of multi-national companies including Asea Brown Boveri (ABB) (1991 to 1998), Astaldi spA. (1991 to 1998), Interbeton BV (1992 to 1999) and Avia Mineral (1994 to 1998). He has also been a member of World Travel & Tourism Council and the Young Presidents’ Organization. He is a member of the Board and the Executive Committee of the International Islamic Relief Organization.
Sheik Yamani attended Oxford University and the Wharton School of Business at the University of Pennsylvania and, from 1983 to 1984, trained at Citibank in New York City
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and Geneva, and at MKS Finance in Geneva, one of the world’s leading integrated precious metals and foreign exchange trading houses. Sheik Yamani is also the author of “To Be a Saudi”, a book that received positive reviews in the international media during the late 1990s. Sheik Yamani is often an editorial contributor in the Saudi Arabian media on economic, political and social issues.
Dr. Georgi Grechko. Dr. Grechko has been a Director since October 2004. He brings extensive technical expertise in the field of applied sciences. He will also help foster the international cooperation that is required for International Power’s operation. He qualifies as an independent director as defined under the Sarbanes Oxley Act of 2002. Dr. Grechko, a Russian cosmonaut, flew on three space flights and at one time held the space endurance record. He graduated from the Leningrad Institute of Mechanics with a doctorate in mathematics. He went on to work at Sergei Korolev’s design bureau and from there was selected for cosmonaut training in the Soviet moon program. He went on to work on the Salyut space stations. After leaving the space program in 1992, Dr. Grechko became a lecturer in atmospheric physics at the Soviet Academy of Sciences. Dr. Grechko from November 1997 to September 2004 was the Chief Advisor to the Chairman of the Board of Investsberbank, Pokrovka Street 47A, Moscow, 105062, Russian Federation, from September 2004 to present he is a member of the Board of Directors of Investsberbank.
Mr. Thomas J. Mitchell. Mr. Mitchell has been a Director of the Company since January 2006. He retired as a Colonel with the United States Air Force in 1989 after 25 years of service. During his Air Force career, he held many positions, including Air Force Director for the Department of Defense (Reorganization Act, and roles as a Senior Level Negotiator with the North American Treaty Organization (NATO) in Brussels, Belgium and Chairman of and a Professor in the Aerospace Studies Department of San Francisco State University. From 1991 to 2000 Mr. Mitchell was Senior Vice President of Federal Programs for Marketing and Sales with Metcalf & Eddy, Inc., a Wakefield, Massachusetts firm which is an international environmental and engineering company specializing in municipal water and waste water systems. Mr. Mitchell has a B.A. in social science and a M.A. in history from Chapman College in California.
Mr. Salvatore J. Arnone. Mr. Arnone has been a director of International Power Group, Ltd. since December 2004. He is a Senior Account Executive with KMBS, Inc. (a/k/a Konica-Minolta Business Systems, Inc.), a company that manufactures, sells and services photocopiers and other office equipment. Mr. Arnone has been with KMBS, Inc. since May of 1998. Mr. Arnone has received many exceptional achievement awards in management and sales.
Mr. Robert Astore. Mr. Astore has been a director of International Power Group, Ltd. since January 2005. He was President and owner of Bergen Film Laboratories, Inc., Lodi New Jersey from 1960 to 1981. From 1981 to 1990 Mr. Astore was a self employed builder. Mr. Astore from 1990 to present he has been employed as an independent consultant in seafood sales and brokerage. Mr. Astore received a Bachelor’s Degree in Business Administration from the University of Miami.
Mr. Walter Salvadore. Mr. Salvadore has been a director of International Power Group, Ltd. since January 2006. Since 1982, Mr. Salvadore, a ceramic engineer, has been the
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president of R&S Enterprises, a business consulting firm located in Medford, New Jersey. In addition, since 2000, he has maintained a junior partnership position in Draseena Funds Group, an asset management firm located in Stateline, Nevada. From 1982 to 1999, Mr. Salvadore was the President and CEO of Risco, an engineering and distribution firm specializing in high temperature refractory and industrial insulation materials. From 1977 to 1982, he held various engineering and marketing positions with the Carborundum Company (Niagara Falls, New York). He was a former president of the American Ceramic Society and has a B.S. degree in Ceramic Engineering from Rutgers University.
The officers of the Company are not full time employees and are involved in other business endeavors, the Company does not have a formal conflicts of interest policy governing its officers and directors. The Company does not have written employment agreements with any of its officers other than Christopher Duncan. Its officers intend to devote sufficient business time and attention to the affairs of the Company to develop the Company’s business in a prudent and business-like manner. There are periods when the Company’s business requires full time attention from Messrs. Toscano and/or Wagenti, particularly periods where travel is required. There are other periods when the time requirements are far less extensive.
The officers of IPWG may engage in other businesses related and unrelated to the business of the Company. As a result, the officers of the Company may have a conflict of interest in allocating their respective time, services, and future resources, and in exercising independent business judgment with respect to their other businesses and that of the Company. However, each officer of IPWG has committed to giving priority to IPWG matters to the extent reasonably possible.
Each director’s term concludes at the Company’s next annual meeting of stockholders or until his successor is elected and qualified. Each officer is elected to serve at the pleasure of the Board of Directors and until his successor has been elected and qualified.
Other (Non Executive) Officers and Significant Personnel.
Dr. Kenny Tang. In March 2006, the Company appointed Dr. Tang, 47, to its newly created Environmental Advisory Board. Currently, he is the first and, to date, the only member of this board. Since June 2000, Dr. Kenny Tang has been the CEO of Oxbridge Capital, an investment and advisory firm which he founded at that time, specializing in environmental clean technologies and renewable energy. Prior to June 2000, he was employed in corporate finance with the Union Bank of Switzerland in London and as a strategy consultant with KPMG Consultants and Stern Stewart, the later two being pioneers in corporate governance and shareholder value creation. Dr. Tang also serves (since 2005) as the European Managing Partner at Enhancement Partners LP which is a global consortium that is developing Gigawatt-size wind farms in China. Prior to 2000, he was the President and CEO of SUSTAIN, an Asian research institute focusing on economic and environmental sustainability from an Asian perspective, which he founded.
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Dr. Tang earned his doctorate at Judge Business School, Cambridge University’s business school and he is a member of the Board of Governors of Middlesex University, London. He is also a Chartered Financial Analyst (CFA).
Gregory J. Callageri. In April 2006, the Company appointed Gregory J. Callageri, 47, as Chairman of its newly formed Finance Advisory Committee. He is the first and, to date, the only member of this board. Mr. Callageri is the CEO of REGF, LLC, a private investment manager and consulting firm that he founded in April 2005. From 1999 to April 2005, Mr. Callageri owned and operated an asset management and consulting firm named MAP Fund LLC, which he had founded. Mr. Callageri sold MAP Fund LLC in April 2005.
Mr. Callageri has over 23 years experience working with global banks, asset managers and hedge funds. Throughout his career, he has had prominent roles and high level responsibilities in international capital markets and has worked in the major financial centers. His experience in hedge funds and derivatives operations has given him a broad range of exposure and experience in dealing with international banking institutions. He has visited, analyzed and completed due diligence on over 200 hedge funds throughout his career. He received an MBA from Pace University in New York and lives in Chicago, Illinois.
(C)
Involvement in Certain Legal Proceedings. To the knowledge of the Company, none of its officers or directors has been personally involved in any bankruptcy or insolvency proceedings within the last five years. Similarly, to the knowledge of the Company, none of the directors or officers, within the last five years, have been convicted in any criminal proceedings (excluding traffic violations and other minor offenses) or are the subject of a criminal proceeding which is presently pending, nor have such persons been the subject of any order, judgment, or decree of any court of competent jurisdiction, permanently or temporarily enjoining them from acting as an investment advisor, underwriter, broker or dealer in securities, or as an affiliated person, director or insurance company, or from engaging in or continuing in any conduct or practice in connection with any such activity or in connection with the purchase or sale of any security, nor were any of such persons the subject of a federal or state authority barring or suspending, for more than 60 days, the right of such person to be engaged in any such activity, which order has not been reversed or suspended.
(D)
Audit Committee Financial Expert. The Company does not have an audit committee or an audit committee financial expert, as such term is defined in Item 401(e) of Regulation S-B. The Company is not required at this time to have an audit committee because it is not a “listed issuer” as described in Rule 10A-3(c)(2) promulgated under the Exchange Act. The Board is considering current and potential independent board members for post when the appropriate time arrives.
(E)
Compliance with Section 16(A) of the Exchange Act. Section 16(a) of the Exchange Act requires the Company’s directors, executive officers, and persons who own more than 10% of the Company’s equity securities to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Officers, Directors and greater than 10% stockholders are required by SEC regulations to furnish the Company with copies of all Section
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16(a) forms they file. During the fiscal year ended December 31, 2005, the period covered by this Form 10K-SB, there were eight such individuals who were subject to the reporting requirements of the Exchange Act. To the best of the Company’s knowledge, none of those directors, executive officers or 10% stockholders had complied with all Section 16(a) filing requirements applicable to them during the Company’s fiscal year end December 31, 2005. However, such filings for seven of those individuals were completed subsequent thereto but prior to filing this Form 10-KSB. With regard to the other individual, Director Robert Astore, the Company understands that he intends to prepare such reports and intends to make all requisite Exchange Act filings as promptly as possible.
(F)
Code of Ethics. The Company’s Board of Directors has been considering adoption of a Code of Ethics to be applicable to its Chief Executive Officer and senior financial executives. The Code of Ethics will be designed to deter wrong-doing and promote honest and ethical behavior, full, fair, timely, accurate and understandable disclosure, and compliance with applicable laws. The Board anticipates it will adopt the Code of Ethics during the current fiscal year.
Item 10
Executive Compensation.
The following table sets forth certain information regarding the compensation of our Chief Executive Officer and our three Vice Presidents for the fiscal years ended December 31, 2004 and 2005. Except as set forth below, no other compensation was paid to these individuals during the years indicated.
SUMMARY COMPENSATION
Annual Compensation Name and Principal Position | Year | Salary | Bonus | Compensation in the form of equity |
Peter Toscano | 2004 | $0 | 0 | $5,000(1) |
President, Chief Executive Officer and Director | 2005 | $19,558(2) | 0 | 0(3) |
Jack Wagenti | 2004 | $0 | 0 | $5,000(1) |
Vice President and Director | 2005 | $17,058(2) | 0 | 0(3) |
Jose Garcia | 2004 | $0 | $0 | 0 |
Vice President and Director | 2005 | $17,058 | $0 | 0(3) |
Louis D. Garcia | 2004 | $0 | $0 | 0 |
Vice President, Finance | 2005 | 122,353(4) | 0(4) |
(1)
The $5,000 in compensation received by Messrs. Toscano and Wagenti in 2004 was paid in the form of 50,000,000 shares each which was valued as salary compensation at $0.0001 per share.
(2)
The $19,558 and $17,058, respectively, received as salary compensation in fiscal 2005 was paid in cash.
(3)
On June 15, 2005, all of the then directors, including these individuals, were each issued options to purchase 1,000,000 shares of our common stock at $.10 per share which price was above the trading price of our stock on the date of the grant (June 15, 2005). Accordingly, we deemed the options to have a value $.02 per share at that time.
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(4)
Mr. Louis Garcia earned the above fee as a consultant providing services as Providence Financial Services, LLC. Providence was also granted an option to purchase 2,000,000 shares of IPWG stock at an exercise price of $0.10 per share. Providence used $15,000 of its compensation to exercise options for 150,000 shares.
No other form of compensation was paid to any officer or director during fiscal 2004 or 2005.
We did not have any form of compensation payable to its officers or directors, including any stock option plans, stock appreciation rights, or long term incentive plan awards for the periods during the fiscal years 2002 and 2003.
We have no employment contracts with any our officers.
Directors’ Compensation. Directors receive no monetary compensation for their service as directors. Directors are reimbursed for expenses incurred in connection with the Company’s business.
All Directors have been granted stock options for their board service. All such options were granted at or above fair market value determined on the date of grant. (See Part III, Item 12. “Certain Relationships and Related Transactions”, below, and “Stock Incentive Plans”, immediately below.
Stock Incentive Plans. On September 13, 2005, our Board adopted and our shareholders approved the Company’s 2005 Stock Option Plan, effective June 15, 2005, a copy of which is attached as Exhibit 4.1 to the Company’s Form 10-QSB filed with the SEC on November 21, 2005. This plan authorizes the granting of options representing up to 30,000,000 shares of common stock to Officers, Directors, and consultants. As of December 31, 2005, options to purchase 19,000,000 shares of common stock had been granted pursuant to this plan to individuals at an exercise price of $0.10 per share. The options vested upon grant, including options to purchase 8,000,000 shares of common stock that were granted to eight directors (1,000,000 each). Options to purchase 2,000,000 shares that were granted to non directors have expired unexercised. The options issued pursuant to this plan have been deemed by the Company to have a value of $.12 per share. See Part III, Item 12, “Certain Relationships and Related Transactions”, below.
Item 11
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of the date of this registration statement, the number of shares of Common Stock owned of record and beneficially by our current Directors, Officers, and persons who hold 5.0% or more of the outstanding common stock of IPWG based upon the 315,374,096 shares of our common stock that were issued and outstanding on September 5, 2006. Also included are the shares held by all Directors and Officers as a group.
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The address for each officer and director is that of the Company. The securities listed below as being beneficially owned by the security holder also include securities owned by his spouse or minor children, or securities held jointly, if any.
Name and Address of Beneficial Owner | Shares of Common Stock Beneficially Owned | Common Stock Underlying Vested Options or Warrants | Percentage of Class* |
Peter Toscano(a)(1) 950 Celebration Blvd., Suite A, Celebration, FL 34747 | 100,954,830 | 1,000,000 | 32.41% |
Jack Wagenti(a)(1) 950 Celebration Blvd., Suite A, Celebration, FL 34747 | 106,936,480 | 1,000,000 | 34.31% |
Jose Garcia(a)(1) 950 Celebration Blvd., Suite A, Celebration, FL 34747 | 1,500,000 | 1,000,000 | ** |
Louis D. Garcia(b)(4) 950 Celebration Blvd., Suite A, Celebration, FL 34747 | 150,000 | 1,850,000 | ** |
Salvatore Arnone(c)(1) 950 Celebration Blvd., Suite A, Celebration, FL 34747 | 1,367,000 | 1,000,000 | ** |
Dr. Georgi Grechko(c)(1) 950 Celebration Blvd., Suite A, Celebration, FL 34747 | 80,000 | 1,000,000 | ** |
Robert Astore(c)(1) 950 Celebration Blvd., Suite A, Celebration, FL 34747 | 1,000,000 | 1,000,000 | ** |
Thomas Mitchell(c)(2) 950 Celebration Blvd., Suite A, Celebration, FL 34747 | 0 | 1,000,000 | ** |
Walter Salvadore(c)(2)(3) 950 Celebration Blvd., Suite A, Celebration, FL 34747 | 165,000 | 1,080,000 | ** |
Sheik Hani A. Z. Yamani(c)(2) 950 Celebration Blvd., Suite A, Celebration, FL 34747 | 0 | 1,000,000 | ** |
Christopher Duncan(b)(2) 950 Celebration Blvd., Suite A, Celebration, FL 34747 | 18,500 | 1,000,000 | ** |
All 11 Directors and Officers as a group | 212,171,810 | 11,930,000 | 65.18% |
*
The percentages listed for each shareholder assume the exercise by that shareholder only, of his options or warrants and thus include the shares underlying said option and/or warrant. However, the percentages do not assume the exercise of all options and/or warrants by all the shareholders holding options and/or warrants except for the total percentage for all 9 Directors as a group.
**
Less than one (1%) percent.
(a)
Officer and Director
(b)
Director only
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(1)
On June 15, 2005, this shareholder was issued immediately exercisable options to purchase 1,000,000 shares with an exercise price of $0.10 per share. These options expire on June 14, 2010.
(2)
On March 14, 2006, this shareholder was issued immediately exercisable options to purchase 1,000,000 shares with an exercise price of $0.83 per share. These options expire on June 14, 2010.
(3)
On October 6, 2005, this shareholder purchased immediately exercisable warrants to purchase 80,000 shares with an exercise price of $0.75 per share. The warrants expire on April 6, 2007. The warrant purchase was made as part of a private placement before this shareholder became a director.
(4) Mr. Louis Garcia, Providence was granted an option to purchase 2,000,000 shares of IPWG stock at an exercise price of $0.10 per share. Mr. Garcia used $15,000 of its compensation to exercise options for 150,000 shares.
“Beneficial ownership” means having or sharing, directly or indirectly (i) voting power, which includes the power to vote or to direct the voting, or (ii) investment power, which includes the power to dispose or to direct the disposition, of shares of the common stock of an issuer. The definition of beneficial ownership includes shares underlying options or warrants to purchase common stock, or other securities convertible into common stock, that currently are exercisable or convertible or that will become exercisable or convertible within 60 days.
Securities Authorized for Issuance under Equity Compensation Plans
The following table provides information as of December 31, 2005, regarding compensation plans (including individual compensation arrangements) under which our equity securities are authorized for issuance.
Plan category (in thousands) | Number of securities to be issued upon exercise of outstanding options (a) | Weighted average exercise price of outstanding options (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column(a)) (c) |
Equity compensation plans approved by security holders | 17,400,000 | $0.10 | 11,000,000 |
Equity compensation plans not approved by security holders | n/a | n/a | n/a |
Total | 17,400,000 | $0.10 | 11,000,000 |
Predecessor Entities.
The Company acquired International Power, Inc. (“Power”), which was formed as a Delaware corporation on April 15, 2002 on October 5, 2004 for 75,000,000 common shares of the company issued to Peter Toscano and 75,000,000 common shares of the Company issued to Jack Wagenti in exhange for 6,000,000 shares each of Power. The total of 12,000,000 shares of Power exchanged by Messrs, Toscano and Wagenti represented 66% of Power outstanding common stock. The value of the transaction was determined by the Company’s board of directors to be $1,200 representing 12,000,000 shares of Power vaued at $.0001 per share.. The acquisition was completed when Toscano and Wagenti each caused 13,498,520 of the Company shares they received in the transaction to be transferred to other persons who had previously held shares in Power and contributed to the Company for no compensation the shares of Power they
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received in the exchanges .. The shares held by the minority shareholders of Power represented 34% of Power. When all the transactions had been completed, the Company acquired 100% of the issued and outstanding shares of Power. in exchange for a total of 150,000,000 common shares and Power was dissolved.
The minority shareholders of Power were:
Deenaleen Astore, Richard Paszyc, Mabel Paszyc, John Malin, Gregory D. Naylor, Salvatore Catalino, William Szymanski, Joseph Incandela, Salvatore Tagliavia, Anthony Caruso, Emanuel Ploumis, Sea Friends, Incorporated, Jenevive Gillen, Jacqueline Larsen, Nicholas Toscano, Christopher Toscano, Joan Wagenti, Virginia Toscano, Jacek Galaj, Murphy Girls, LLC, Santo D’Angelo, Jan Moczydlowski, Anthony Dolce, Carmella Guisto, Angelo Llarda, Vincenzo D’Angelo, Karen Zito, Gandalfo Vassallo, Francis Dorazi, Cheng Ching-Yaun, Georgy Grechko, Alexi Grechko, Yu Sheng Technology Limited, Ignazio Panevuro, Peter Macchia, Fred Bari, Walter Wisbauer, Katherine Toscano, Richard Hebron, Robert Hebron, Jong-Yien Ho, Arthur deWitt Ackerman, Halil Aksalic, The Valentine Family Trust, Jose Garcia, Michael King, Michael Pittoni, Robert Astore, Frederick Newcomb Jr., and Federick W. Newcomb.
Power, prior to its merger with Ednet, had no operations other than its acquisition of TMES, and its plan to implement the contracts that it acquired from TMES. After its acquisition of the assets of TMES, Power engaged the service of business brokers to locate and consummate the acquisition of a public shell company in order to expedite the registration of its shares for public trading. Other than as set forth above, Power paid no compensation for Ednet.
Power paid to TMES on August 20, 2004, 2,281,040 shares of Power’s common stock which were subsequently distributed to the stockholders of TMES, pro rata, in accordance with their stock ownership of TMES. At the time of Power’s acquisition of TMES, (i) Peter Toscano, a 40% owner of Power, was an approximate 29% owner of TMES and (ii) TMES had no operations or revenues. TMES was a privately held venture capital company that was formed in 1994 by Peter Toscano and others for the purposes of developing and implementing strategic systems for the environmentally safe management and long-term disposal of radiological waste. TMES attempted to coordinate an international consortium of companies and organizations with the requisite managerial and technical expertise to identify sites, select technology, establish legal and regulatory structures, and engineer and construct low level radiological waste treatment and disposal facilities, and manage such facilities over the long-term. TMES’s assets on October 5, 2004 consisted principally of good will and two contracts and proposals for the construction of waste disposal plants in countries of the former Soviet Union; neither of the contracts were implemented and they expired December 31, 2005 and the proposals were not pursued. The TMES project was unsuccessful and has been abandoned by IPWG, at least for the present time. Mr. Toscano also held several officer positions with TMES from 1994 until approximately December 2000.
Item 12
Certain Relationships and Related Transactions.
The only transactions in which any director or executive officer or any holder of more than 5% of the outstanding common shares of the Company or any member of his or her family, or any nominee for a position as an officer or director of the Company has been, or is expected to be a party, are the following:
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1.
The Company acquired International Power, Inc. (“Power”) on October 5, 2004 in exchange for 75,000,000 common shares issued to Peter Toscano and 75,000,000 common shares issued to Jack Wagenti who were the owners of most of the outstanding shares of International Power, Inc. The transaction was completed when Toscano and Wagenti each caused approximately 27,600,000 common shares previously registered to them to be transferred to other persons who had previously held shares in International Power, Inc. and contributed to the Company for no compensation the shares of Power they received in the exchanges. When all the transactions had been completed, IPWG acquired 100% of the issued and outstanding shares of Power, Inc. in exchange for a total of 150,000,000 common shares of International Power Group, Ltd. and Power was dissolved.
2.
In fiscal 2004, Peter Toscano received 50,000,000 shares of common stock valued as salary compensation for the period from June 2004 through May 31, 2005. The shares are valued at $0.0001 per share. In fiscal 2004, Jack Wagenti received 50,000,000 shares of common stock valued as salary compensation for the period from June 2004 through May 31, 2005. The shares are valued at $0.0001 per share.
3.
The following officers and directors were part of a group of shareholders of Power, who exchanged their shares of Power for shares of the Company which were formerly owned by Messrs. Toscano and Wagenti. The number of Company shares received by each in that transaction is presented below. Certain of the directors own additional shares which are reported in paragraph 2, immediately above, and Item 11 of Part III, above.
Name | Number of Shares | Date Issued |
Jose Garcia | 1,500,000 | December 8, 2004 |
Richard C. Paszyc (retired) | 7,320,000 | December 8, 2004 |
Georgi Grechko | 40,000 | December 8, 2004 |
Robert Astore | 1,000,000 | December 8, 2004 |
John Malin (retired) | 250,000 | December 8, 2004 |
4.
Options expiring on June 14, 2010 to purchase an equal number of common shares at $.10 per share have been granted to directors and officers of the corporation in the following numbers on the dates indicated, except that the options issued to directors Mitchell, Salvadore and Yamani have an exercise price of $.83 per share.
Name | Number of Options | Date Issued |
Peter Toscano | 1,000,000 | June 15, 2005 |
Jack Wagenti | 1,000,000 | June 15, 2005 |
Richard C. Paszyc (now resigned)* | 1,000,000 | June 15, 2005 |
Georgi Grechko | 1,000,000 | June 15, 2005 |
Salvatore Arnone | 1,000,000 | June 15, 2005 |
Jose Garcia | 1,000,000 | June 15, 2005 |
Robert Astore | 1,000,000 | June 15, 2005 |
John Malin (now resigned)* | 1,000,000 | June 15, 2005 |
Thomas Mitchell | 1,000,000 | March 14, 2006 |
Walter Salvadore** | 1,000,000 | March 14, 2006 |
Sheik Hani A. Z. Yamani | 1,000,000 | March 14, 2006 |
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*
Mr. Malin converted his million share option on January 9, 2006 by check of $100,000 issued to the Company.
* Mr. Paszyc exercised his million share option on August 29, 2006 by check of $100,000 issued to the Company.
**
Mr. Salvadore, prior to his appointment as a director in January 2006, participated in a private placement offering of our securities. Specifically, on October 6, 2005, he purchased 160,000 of our restricted common stock and 80,000 of our 18 month warrants to purchase 80,000 additional shares of our common stock at $.75 per share.
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Item 13
Exhibits
Exhibit No. | Description of Document |
3(i)(a) | Articles of Incorporation of the Registrant(1) |
3(i)(b) | Certificate of Amendment to Articles of Incorporation of the Registrant(1) |
3(i)(c) | Articles of Incorporation of International Power Group de Mexico (1) |
3(ii) | By-Laws of the Registrant (1) |
4.1 | 2005 Stock option Plan(2) |
10.1 | Contract with NAANOVO Energy USA(1) |
10.2 | Contract with Providence Financial(1) |
10.3 | Contract with Anthony Crisci, Esq.(3) |
10.4 | Letter of Engagement with Fran Tech International Licensing(3) |
10.5 | Contract with CVI(3) |
10.6 | October 24, 2005 Insurance, Brokerage and related Consulting Services Agreement with Marsh USA, Inc.(4) |
10.7 | November 7, 2005 Conditional Joint Venture and Warrant Agreement with NAANOVO International Free Zone, N.V.(5) |
10.8 | Kingdom of Saudi Arabia license (6) |
31.1 | |
31.2 | |
32.1 | |
32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)(7) |
(1)
Incorporated by reference to the Company’s Form 10-SB as filed with the Securities Exchange Commission on July 19, 2005.
(2)
Incorporated by reference to the Company’s Form 10-QSB as filed with the Securities Exchange Commission on November 21, 2005.
(3)
Incorporated by reference to the Company’s Form 10- SB/A as filed with the Securities Exchange Commission on August 24, 2005.
(4)
Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K as filed with the Securities Exchange Commission on October 27, 2005.
(5)
Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K as filed with the Securities Exchange Commission on November 7, 2005.
(6)
Incorporated by reference to Exhibit 10.8 to the Company’s Form 10-SB/A6 as filed with the Securities and Exchange Commissions on September 18, 2006.
(7)
Filed herewith
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Item 14
Principal Accountant Fees and Services.
The following is a summary of the fees billed to us by the principal accountants to the Company for professional services rendered for the fiscal years ended September 30, 2005 and 2004:
Fee Category | Fiscal 2005 Fees | Fiscal 2004 Fees |
Audit Fees | $5,850 | $0 |
Audit Related Fees | $0 | $0 |
Tax Fees | $0 | $0 |
All Other Fees | $0 | $0 |
Total Fees | $5,850 | $0 |
Audit Fees. Consists of fees billed for professional services rendered for the audit of our financial statements and review of interim consolidated financial statements included in quarterly reports and services that are normally provided by the principal accountants in connection with statutory and regulatory filings or engagements.
Audit Related Fees. Consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported under “Audit Fees”.
Tax Fees. Consists of fees billed for professional services for tax compliance, tax advice and tax planning. These services include preparation of federal and state income tax returns.
All Other Fees. Consists of fees for product and services other than the services reported above.
Pre-Approval Policies and Procedures. Prior to engaging its accountants to perform a particular service, the Company’s Board of Directors obtains an estimate for the service to be performed. All of the services described above were approved by the Board of Directors in accordance with its procedures.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
International Power Group, Ltd.
/s/ Peter Toscano | |
Peter Toscano | |
(Chief Executive Officer, Principal Operating Officer and Chairman of the Board of Directors) | |
Date: November 3, 2006
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