UNITED STATES
SECURITIES AND EXCHANGE COMMISSION,
Washington, D.C. - 20549
FORM 10-K/A2
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2006.
[ ] 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: Common Stock
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act
[ ] Yes [ X ] No
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-K 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-K/A2 or any amendment to this Form 10K/A2. [ X ]
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act:
Large Accelerated Filer [ ] Accelerated Filer [ ] Non-Accelerated Filer [ 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: $36,973,742 as of May 15, 2007. On such day, the price of the stock was last sold for $0.27.
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 350,089,096 shares of common stock as of May 15, 2007.
TABLE OF CONTENTS
Submission of Matters to a Vote of Security Holders
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Quantitative and Qualitative Disclosures About Market Risk.
Financial Statements and Supplementary Data.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Directors, Executive Officers and Corporate Governance.
Security Ownership of Certain Beneficial Owners, Management And Related Stockholder
Certain Relationships and Related Party Transactions, and Director Independence.
Principal Accounting Fees and Services.
Exhibits, Financial Statement Schedules.
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INTERNATIONAL POWER GROUP, LTD.
Form 10-K/A2
December 31, 2006
EXPLANATORY NOTE
This Form 10-K/A2 is being filed to amend the Registrant’s Form 10-K/A, filed on May 21, 2007, in order to revise Footnotes 15 and 16 of Notes to Financial Statements in Item 8 of Part II.
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FORWARD-LOOKING STATEMENTS
Many of the matters discussed within this prospectus include forward-looking statements within the meaning of Rule 175 under the Securities Act of 1933 and Rule 3b-6 under the Securities Exchange Act of 1934. In some cases you can identify forward-looking statements by terminology such as “may,” “should,” “potential,” “continue,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” and similar expressions. These statements are based on our current beliefs, expectations, and assumptions and are subject to a number of risks and uncertainties, many of which are set forth in this prospectus. Actual results and events may vary significantly from those discussed in the forward-looking statements.
These forward-looking statements may include, among other things, statements relating to the following matters:
·
locating, financing, building and operating WTE facilities;
·
generating revenues from planned WTE facilities in the form of tipping fees, the sale of electricity, and the sale of potable water;
·
selling AddPower patented technologies and using this technology to increase the efficiency of our own planned WTE facilities; and
·
construction of WTE facilities in the Kingdom of Saudi Arabia, Mexico, Egypt or the United States.
These forward-looking statements are made as of the date of this prospectus, and we assume no obligation to explain the reason why actual results may differ. In light of these assumptions, risks, and uncertainties, the forward-looking events discussed in this prospectus might not occur.
PART I
Item 1.
Description of Business
We were incorporated in the State of Delaware on November 30, 1998. We plan to build and operate WTE facilities (“WTE”) to process solid and hazardous wastes by incineration on our own and through collaboration with strategic partners and others. We expect that this processing will produce marketable electricity, potable water and components in construction materials including cement and road beds.
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 potable 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 us coupled with increasing awareness of our target markets in the financial, ecological and tactical advantages of WTE technology.
We have access to 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 potable 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 potable water, with little or no loss of efficiency or environmental friendliness.
We believe we have technology and contractors available to us to build WTE disposal facilities that reduce solid waste output to approximately 16% of input, which we expect will break 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 road beds, and 15% is discarded.
We believe our WTE facilities will generate revenues for ourselves, waste generators and collectors, and governments charged with disposal. We expect that our facilities will reduce the potential liabilities of waste generators and
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collectors for land-fill clean-up and reduce the need for governments to create land-fills. We anticipate three primary income streams: (i) waste disposal (tipping fees), (ii) the sale of electricity and (iii) the sale of potable water. We also expect to augment revenues by selling up to 70% of the ash produced from the processes as construction material, thereby also reducing our disposal costs.
We plan to build plants that are comprised of lines or modules. Initially, each plant will have two to six lines that will cost in the range of $30 million to $50 million per line to construct, depending on the type of waste we are to receive. Each line is estimated to consume approximately 100 tons of waste per day per line. These estimated costs do not include land acquisition costs, legal fees or management time. We therefore need substantial additional capital to undertake plant development and construction and sales efforts. If we cannot obtain such financing, we will not be able to execute our business plan or continue to operate.
We recently purchased proprietary patented technologies, including AddPower, a low temperature turbine (LTT), and ScrubPower, a special emission-to-energy system, from three Swedish entities - Anovo AB Angelholm, AddPower AB Angelholm, and SUPE Ltd - for a total consideration of $2.8 million. We plan to use these technologies to increase the efficiency of our own planned WTE facilities. We also believe that we will be able to sell these technologies to other companies in the energy space in order to help these companies increase their output of electricity.
We believe that the acquisition of these technologies will allow us to convert greater quantities of heat, produced from boilers and turbines, and potentially increase the output of salable electricity by 20% to 30% over technologies that are currently available. We also believe that the LTT technology will provide us with an efficient “low-temp turbine” which is powered by a proprietary fluid to drive the turbine and produce electricity at approximately 200° F, whereas most conventional boilers and turbines can only produce electricity at temperatures between 600° - 800° F.
During the last fiscal year we developed contacts in several countries that we believe may lead to the construction of WTE facilities. These contacts are located, and WTE facilities are proposed, in the Kingdom of Saudi Arabia, Mexico, Egypt 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 we expect will enable us to establish WTE 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. In November 2006, we entered into a Joint Venture Agreement with Sistemas Ecologicas Para La Protecion Ambiental S.A. (“SEPA”) and Mr. Mario Salguero Rossainzz. The agreement provides that the joint venture will build and operate a WTE plant in the City of Mexicali, North Baja California, Mexico. We have not realized any WTE related revenues to date.
Competition
Competition for disposal of solid waste is high. This competition comes from public and private commercial trash haulers, commercial and industrial companies that handle their own waste collection and disposal, public and private WTE companies and municipalities and regional government authorities. We have developed a business plan that we believe will maximize our know-how and limited financial assets in a manner that will best enable us to compete in this very competitive environment.
We believe that the WTE 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 planned 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 sales of electricity and potable water. As to the production of saleable by-products, i.e. electricity, potable 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.
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Governmental agencies may be able to offer lower direct charges to waste producers for waste removal and potentially WTE 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 WTE 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 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 potential financial sources 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 volume and weight, type of waste, treatment requirements, risk of handling or disposal, and labor costs.
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 WTE plants that we expect to build. We believe the worldwide need for WTE 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 planned 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 waste, which will be processed through our planned 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 potable water sales (or availability of insurance to augment the creditworthiness of such contracting parties), to securitize the cash flow from such agreements.
Intellectual Property
We own certain proprietary patented technologies through AddPower. We otherwise do not own any patents, trademarks or licenses. We expect this AddPower patented technology will benefit our business of developing WTE facilities and expanding into other alternative energy businesses. We continue to negotiate with parties who provide adequate technologies to execute our business plan.
Our business plan relies upon the use of existing technology available and commonly applied in various non-US countries, as well as proprietary technologies that we hope to purchase or license. We intend 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, including other industrialized nations such as Japan that 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.
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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. We believe that our proposed WTE facilities’ regulated emissions will be less than permissible limits although no assurance can be given that the proposed WTE facilities will perform as specified or that applicable regulations will not be strengthened. Additionally, we will
Number of Employees
We currently have 12 employees (seven officers and five 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 administrative employees work fulltime for us.
Item 1a.
Risk Factors
In addition to the other information included in this Report, the following factors should be considered in evaluating our business and future prospects. Any of the following risks, either alone or taken together, could materially and adversely affect our business, financial position or results of operation. If one or more of these or other risks or uncertainties materialize or if our underlying assumptions prove to be incorrect, our actual results may vary materially from what we projected. There may be additional risks that we do not presently know or that we currently believe are immaterial which could also impair our business or financial position.
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 inhibit our ability to implement our business plan.
To date, we have met our working capital requirements through the private placement of our securities and through loans. We believe that we will need an additional $11.7 million to fund the plant design and development and operations that we plan to do over the next 12 months. Since entering the WTE field in November 2004, we have not generated any revenue from WTE facilities operations and have experienced substantial losses. As of December 31, 2006, we had a cash balance of $1.7 million and negative working capital of $0.5 million. At May 15, 2007, our cash balance has been reduced to approximately $50,000.
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, 2006, we had an accumulated deficit of approximately $16.1 million. For the year ended December 31, 2006, we reported a loss of approximately $12.8 million.
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, 2006, other than the process by which we plan to assemble the described WTE facilities and our AddPower patented technology, 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 facilities operations, do not have any operational WTE facilities, and no revenues are expected to be realized from WTE facilities until 2008, if at all. There can be no assurance that our efforts will lead to the construction of WTE facilities, or revenues or profits from such facilities if built.
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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. We plan to build plants that are comprised of lines or modules. Initially, each plant will have two to six lines that will cost in the range of $30 million to $50 million per line to construct, depending on the type of waste we are to receive. Each line is estimated to consume approximately 100 tons of waste per day per line. These estimated costs do not include land acquisition costs, legal fees or management time. We therefore need substantial additional capital to undertake plant development and construction and sales efforts. If we cannot obtain such financing, we will not be able to execute our business plan or continue to operate.
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 a limited operating history. We are therefore 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 undertake plant development and construction and sales efforts. Our current resources are insufficient to fund operations. We believe that we will need an additional $11.7 million to fund the plant design and development and operations that we plan to do 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 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 of our employees.
Development of our business depends to a significant degree on the continuing contributions of our key management and technical personnel on whom we rely to assist in the design, development, construction and operation of our proposed WTE facilities. We cannot assure you that they will remain with us, especially because we do not have any employment contracts with these persons.
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
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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.
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;
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composting of solid waste;
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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 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.
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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 potable 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 which will require substantial funding. We cannot assure you that we will obtain the necessary financing or environmental permits to build and operate these facilities, or retain the permits that are required to operate the facilities 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.
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.
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-à-vis other alternatives
§
the ability to establish the feasibility and reliability of WTE technology
§
public perception of the product
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 is successful, the need for our technology could be reduced or eliminated.
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Confidentiality agreements may not adequately protect our business information which could result in unauthorized disclosure or unfair competition.
We consider our business relationships and process for assembling commercially available equipment to construct WTE 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 cannot assure you that we will be able to retain or 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 of 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 62% 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 out ability to operate profitably or decrease the value of your investment.
We will be highly dependent upon third parties to design and 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.
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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 will base our cost estimates for construction of any WTE facilities on certain assumptions after discussions and negotiations with parties with design-build experience. 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 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 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
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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 obtaining 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. 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 or 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 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 to 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.
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Applicable SEC rules governing the trading of “Penny Stocks” Limits the trading and liquidity of our common stock.
The bid and ask quotations of our common stock have been reflected on the Over-the-Counter Bulletin Board under the symbol “IPWG” since March 9, 2007. Prior thereto, the quotations were reflected on the Unsolicited Pink Sheets. Since our common stock continues to be quoted 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. 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 prospectus 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 66,018,700 of our 350,089,096 shares outstanding as of May 15, 2007 are in the “publicly trading float.” Public sale of those shares, as well as the registration and subsequent public sale of the remaining 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 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 March 31, 2007, we have outstanding vested options to purchase 22,900,000 shares of common stock at a weighted-average exercise price of $0.46 and vested warrants to purchase 9,807,498 shares of common stock with a weighted-average price of $0.53
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 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 December 31, 2006, had a low of $0.30 and high of $1.18. 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.
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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 certain 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 and our operating results may suffer.
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.
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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. 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.
Item 1b.
Unresolved Staff Comments
None.
Item 2.
Description of Property
Our executive offices are located at 950 Celebration Blvd., Suite A, Celebration, Florida 34747. We lease 2,950 square feet at these premises for approximately $7,000 per month. The lease expires in January 2011. We do not currently own any substantial real or personal property. We also maintain satellite (all under 1,000 square feet) offices as follows: (i) Mexican Office: Culiacan No. 17-105, Colonia Hipodromo Condesa, Delegacion Cuauhtémoc, Mexico City. Z. C., Mexico, month-to-month rental at $747.50 (USD) per month; (ii) London Office: 1 Threadneedle Street, London EC2R8AW, England, month-to-month arrangement requiring 60 days’ notice; monthly rent: $1,304.17 (USD); (iii) Northeast England Office: Royal Albert House, Sheet Street, Windsor Royal Berkshire, England, month-to-month arrangement requiring 60 days’ notice; monthly rent: $1,130.28 (USD); and (iv) Sweden Office: Florettgatan 29B. 25467 Helsingborg, Sweden; one year lease with option to renew monthly rent: $1,455.00 (USD).
The Company believes that its facilities are adequate to maintain its existing business activities.
Item 3.
Legal Proceedings
None.
Item 4.
Submission of Matters to a Vote of Security Holders
No matters were submitted for a vote of the stockholders during the fourth quarter of the fiscal year covered by this Report.
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PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our shares of common stock have been quoted on the Over-the-Counter Bulletin Board operated by the National Association of Securities Dealers, Inc. under the symbol “IPWG” beginning on March 9, 2007. Prior thereto, bid and ask quotations for our common stock were reflected on the Unsolicited Pink Sheets under the symbol “IPWG.” A summary of the quotations by quarter for our 2006 and 2005 fiscal year is as follows:
High | Low | |
Fiscal Year 2006 | ||
Quarter ended March 31, 2006 | $1.18 | $1.00 |
Quarter ended June 30, 2006 | 0.88 | 0.81 |
Quarter ended September 30, 2006 | 0.92 | 0.50 |
Quarter ended December 31, 2006 | 0.70 | 0.30 |
Fiscal Year 2005 | ||
Quarter ended March 31, 2005 | $0.07 | $0.03 |
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 |
Source:
Inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual
Transactions
Beneficial Owners
As of May 15, 2007, there were approximately 276 holders of record of our common stock, not including holders who hold their shares in street name.
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 December 31, 2006, there are outstanding warrants to purchase 11,695,498 shares of our common stock, and options to purchase 22,900,000 shares of our common stock.
Sales of Unregistered Securities
During March through December 2006, we sold 64.3 units to 32 investors for $1,928,998 in gross proceeds. Each unit consisted of 50,000 shares of common stock and a warrant to purchase 25,000 shares of common stock. The purchase price of each unit was $30,000 ($0.60 per share of common stock with no value attributed to the warrant). The warrants are exercisable at $1.00 per full share of common stock and expire eighteen months from date of issuance. The offering and sale qualified for exemption under Section 4(2) of the Securities Act of 1933 since the issuance did not involve a public offering. The offering was not a public offering as defined in Section 4(2) because the offer and sale was made to an insubstantial number of persons and because of the manner of the offering. This offering was done with no general solicitation or advertising by the Registrant. Each investor made representations regarding his or her financial sophistication
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and had an opportunity to ask questions of our management. In addition, these investors had the necessary investment intent as required by Section 4(2) since they agreed to, and received, share certificates bearing a legend stating that such shares are restricted. This restriction ensures that these shares will not be immediately redistributed into the market and therefore not be part of a public offering. Based on an analysis of the above factors, the Registrant has met the requirements to qualify for exemption under Section 4(2) of the Securities Act of 1933 for this transaction.
In December 2006, we sold 11.7 million shares of our common stock at $0.20 per share to Armada Partners, L.P. and five individual investors and issued those same investors 5.4 million warrants exercisable at $0.40 per share. In December 2006, we granted 10 million shares of our common stock to Armada Partners, L.P. in exchange for services provided by such investment fund or the principal of its investment advisor for services rendered to the Company. In both instances, the offering and sale qualified for exemption under Section 4(2) of the Securities Act of 1933 since the issuance did not involve a public offering. The offering was not a public offering as defined in Section 4(2) because the offer and sale was made to an insubstantial number of persons and because of the manner of the offering. This offering was done with no general solicitation or advertising by the Registrant. Each investor made representations regarding his or her financial sophistication and had an opportunity to ask questions of our management. In addition, these investors had the necessary investment intent as required by Section 4(2) since they agreed to, and received, share certificates bearing a legend stating that such shares are restricted. This restriction ensures that these shares will not be immediately redistributed into the market and therefore not be part of a public offering. Based on an analysis of the above factors, the Registrant has met the requirements to qualify for exemption under Section 4(2) of the Securities Act of 1933 for this transaction.
Item 6.
Selected Financial Data.
The table below summarizes our selected historical financial information for each of the last three. The company did not have any financial results for the fiscal years ended December 31, 2003 and 2002. The summary of operations for the years ended December 31, 2006, 2005 and 2004, and the balance sheet data as of December 31, 2006 and 2005, has been derived from our audited Consolidated Financial Statements included in Part II, Item 8, Financial Statements and Supplementary Data. The balance sheet data as of December 31, 2004, has been derived from our audited Consolidated Financial Statements not included in this report. The historical selected financial information may not be indicative of our future performance, and should read in conjunction with the information contained in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the Consolidated Financial Statements and the accompanying Notes to the Consolidate Financial Statements in this Form 10-K/A2.
Year ended December 31,
2004 | 2005 | 2006 | |||||
Results of Operations | |||||||
Revenue | - | - | - | ||||
Operating Expenses | 37,637 | 3,267,710 | 12,829,775 | ||||
Net Loss | (37,637) | (3,267,710) | (12,831,316) | ||||
Net loss per share | (0.00) | (0.01) | (0.04) | ||||
As of December 31,
Balance Sheet Data | 2004 | 2005 | 2006 | ||||
Working Capital | 18,863 | 937,722 | (477,832) | ||||
Total assets | 27,147 | 1,022,621 | 4,388,709 | ||||
Total stockholders equity | 23,363 | 939,722 | 2,245,576 |
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Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
We commenced our development stage on April 15, 2002. The Company has spent approximately the last two years initiating and developing our WTE technology business plan. Initial steps in that process were negotiation for the opportunity to construct WTE Plants in Mexico and Saudi Arabia. In July 2006, the Kingdom of Saudi Arabia’s Presidency of Metrology and Environment issued to us an environmental license which will enable us to establish WTE plants in the country. The second step in developing our business plan was to find sources that could assist us to raise the capital required to build and begin operating WTE facilities. IPWG has not had any revenues and cumulative losses of $16.1 million since inception. 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.
We expect to begin realizing operating revenues in the fourth quarter of 2007 from the receipt of tipping fees associated with one or more of our WTE facilities. We are expecting to store waste on our property during the construction of a facility. We are expecting revenue from our first WTE energy plant to commence in 2009 after the completion of the construction of the first plant.
In October 2006, we purchased proprietary patented technologies, AddPower, a low temperature turbine (LTT), and ScrubPower, a special emission-to-energy system from three Swedish entities, Anovo AB Angelholm, AddPower AB Angelholm, and SUPE Ltd for a total consideration of $2.8 million.
We believe that we will be able to sell these technologies to other companies in the energy space in order to help these companies increase their output of clean electricity. The Company also plans to use these technologies to increase the efficiency of its own planned WTE facilities.
We believe that the acquisition of these technologies will allow us to convert greater quantities of heat, produced from boilers and turbines, and potentially increase the output of salable electricity by 20 to 30% or more over technologies that are currently available. We also believe that the LTT technology will provide us with an extremely efficient “low-temp turbine” which is powered by a proprietary fluid to drive the turbine and produce electricity at approximately 200°F, whereas most conventional boilers and turbines can only produce electricity at temperatures between 600° - 800°F.
We believe that we will be able to sell these technologies to other companies in the energy space in order to help these companies increase their output of electricity. The Company also plans to use these technologies to increase the efficiency of its own planned WTE facilities. We believe we will begin to receive orders for our AddPower units by the beginning of 2008.
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 Terra Mar Environmental Systems, Inc. (TMES) 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 complete pending negotiations to initiate construction of WTE projects in Mexicali, Mexico, Saudi Arabia and Egypt, (2) complete the research and development of our AddPower electrical generating unit to make it a commercially viable product, and (3) 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:
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PROJECTED DATE
Goal | Projected Date | |
1. Processing of site permits in Mexico | Present through July 2007 | |
2. Complete R&D of AddPower | Present through September 2007 | |
3. Introduction of WTE technology in the Kingdom of Saudi Arabia and | Present through October 2007 | |
Egypt beginning of WTE site location negotiations | ||
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.
The development and construction of each proposed WTE facility will be dependent on: (i) locating appropriate land and obtaining permits for a WTE facility, (ii) obtaining significant external 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 necessary to 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.
WTE Facility Finance.
Our plan to build one or more WTE facilities will require significant capital which we do not currently have. 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 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.
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.
Trends.
We believe that the 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.
We also believe the trend of global warming will affect our business. The trend to reduce the output of greenhouse gases has caused a trend to find ways of generating cleaner electricity from cleaner renewable energy sources. We believe the trend will generate a demand for our technology and services we offer although no assurance can be given.
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Results of Operations
Year ended December 31, 2006 compared to the year ended December 31, 2005
We had an increase in net (cash and non-cash) losses from operations from $3,267,710 for the year ended December 31, 2005 to $12,831,316 for the year ended December 31, 2006, or a total increase in net losses of $9,563,606. The net non-cash losses increased from $2,354,319 for the year ended December 31, 2005 to $8,288,250 for the year ended December 31, 2006, or a total increase in net non-cash losses of $5,933,931 This increase in net non-cash losses is primarily attributable to the issuance of common stock for services performed ($5,281,250) and permitting option exercises without charging the strike price in exchange for services ($262,500), and the value of options ($2,644,500) granted to officers, directors and consultants and finders. The net cash losses increased from $913,391 for the year ended December 31, 2005 to $4,543,066 for the year ended December 31, 2006, or a total increase in net cash losses of $3,629,675. This increase in net cash losses is primarily attributable to fees paid to professionals service firms and consultants and employee related costs (i.e., salaries and travel). We hired 9 new employees in 2006.
Year ended December 31, 2005 compared to the year ended December 31, 2004
We had an increase in net (cash and non-cash) losses from operations from $37,637 for the year ended December 31, 2004 to $3,267,710 for the year ended December 31, 2005, or a total increase in net losses of $3,239,073. The net non-cash losses increased from $11,500 for the year ended December 31, 2004 to $2,354,319 for the year ended December 31, 2005, or a total increase in net non-cash losses of $2,342,819. This increase in net non-cash losses is primarily attributable to the issuance of common stock for services performed ($20,319) and permitting option exercises without charging the strike price in return for services ($72,500), and the value of options ($2,140,000) granted to officers, directors and consultants and finders. The net cash losses increased from $26,137 for the year ended December 31, 2004 to $913,391 for the year ended December 31, 2005, or a total increase in net cash losses of $887,254. This increase in net cash losses is primarily attributable to fees paid to professionals and consultants.
Financial Condition
Ability to Meet Cash Requirements.
We are considered to be in the development stage as defined in the Statement of Financial Accounting Standards (“FASB”) No. 7. To date, we have received no income from our business operations. We have incurred substantial losses since our inception. As of December 31, 2006, we had an accumulated loss of $16.1 million during the development stage. The expenses that produced this operating loss included stock based compensation expenses in the sum of $10.4 million and other expenses, including cash expenses, of approximately $5.7 million. Notwithstanding this loss figure, the Company’s cash position improved from approximately $1.0 million at December 31, 2005 to $1.7 million at December 31, 2006 as the result of the receipt of $5.1 million from the sale of securities. At May 15, 2007, our cash balance has been reduced to approximately $50,000 as a result of normal operating expenses and the payment obligations for the purchase of AddPower.
Without additional equity or debt financing, we will not be able to satisfy our cash requirements for the next twelve months.
Two Year Cash Forecast.
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.
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We are in the process of attempting to raise capital to address approximately $26.4 million of financing needs for the next twenty-four months, outside of construction/project financing for specific waste to energy projects. Uses of the capital we are attempting to raise include:
1)
Working capital to cover overhead and execution costs during construction of waste to energy plants (approximately $16.0 million), 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 $1.6 million.
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 ($8.8 million).
A detailed schedule of our capital needs for the next two years is as follows:
2007 | 2008 | Total | |||||
Employee Costs | $2,463,000 | $3,687,000 | $6,150,000 | ||||
Travel | 1,040,000 | 1,040,000 | 2,080,000 | ||||
Construction/Project Management | 300,000 | 720,000 | 1,020,000 | ||||
Legal Fees | 852,000 | 840,000 | 1,692,000 | ||||
Outsourced Engineering | 275,000 | 600,000 | 875,000 | ||||
Contractors/Consultants | 826,000 | 818,000 | 1,644,000 | ||||
External & Internal Audit | 124,000 | 300,000 | 424,000 | ||||
Corporate Insurance | 250,000 | 450,000 | 700,000 | ||||
Accounting Services (Outsourced) | 75,000 | 300,000 | 375,000 | ||||
Marketing | 155,000 | 300,000 | 455,000 | ||||
Rental /Office Expenses | 279,000 | 300,000 | 579,000 | ||||
Total Operating Costs | 6,639,000 | 9,355,000 | 15,994,000 | ||||
Additional Investment/Commercialization | |||||||
Other Proprietary Technology | |||||||
Acquisition (Cash) for AddPower | |||||||
Acquisition | 1,564,000 | - | 1,564,000 | ||||
Commercialization/Working Capital for | |||||||
AddPower Unit for Immediate Sale | 3,500,000 | - | 3,500,000 | ||||
R&D of Solar/AddPower for | |||||||
Commercialization Small Scale Solar | - | 5,300,000 | 5,300,000 | ||||
Total Forecasted Cash Usage Excluding | |||||||
Project Specific Financing | $11,703,000 | $14,655,000 | $26,358,000 |
In addition to the above, we plan to develop and execute contracts for our WTE facilities in Saudi Arabia, Egypt, Mexico and elsewhere (these contracts may include long term, ie.7-10 year, commitments for waste disposal, electric and water sales). We expect to use these contracts, and the expected revenue sources they represent, to secure project specific financing. We expect to have multiple financing sources for project/construction financing on a project by project basis outside of this specific equity raise.
Page 22 of 54
Payments Due under Contractual Obligations
We have future commitments at December 31, 2006 consisting of office lease obligations as follows:
Year Ending December 31, | Office Lease Obligations | |
2007 | $ 100,497 | |
2008 | 89,959 | |
2009 | 91,603 | |
2010 | 91,443 | |
2011 | 7,639 | |
Total | 381,141 |
In addition, we are obligated to pay during 2007 the remaining $1,564,329 for the purchase of AddPower. We will not be able to meet this obligation without proceeds of external financing, of which we provide no assurance.
Item 7a.
Quantitative and Qualitative Disclosures About Market Risk.
Market Risk.
The Company’s exposure to market risk is principally confined to cash in the bank and notes payable, which have short maturities and, therefore, minimal and immaterial market risk.
Interest Rate Risk.
The Company has cash in checking accounts. Because of the short maturities of these instruments, a sudden change in market interest rates would not have a material impact on the fair value of these assets. Furthermore, the Company’s borrowings are at fixed interest rates, limiting the Company’s exposure to interest rate risk.
Foreign Currency Exchange Risk.
The Company does not have any material foreign currency exposure at the present time. As our planned business plan develops and we expect to build WTE facilities in various foreign countries which will increase the risk of foreign currency exchange will increase.
Item 8.
Financial Statements and Supplementary Data.
CONTENTS
Page | ||
Report of Independent Registered Public Accounting Firm | 24 | |
Consolidated Balance Sheets | 25 | |
Consolidated Statements of Operations | 26 | |
Consolidated Statements of Changes in Stockholders’ Equity | 27 | |
Consolidated Statements of Cash Flows | 28 | |
Notes to Consolidated Financial Statements | 29 | |
Page 23 of 54
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The Board of Directors
International Power Group, Ltd.
I have audited the accompanying consolidated balance sheets of International Power Group, Ltd. and its subsidiary (the "Company") as of December 31, 2006, and December 31, 2005 and the related consolidated statements of operations, changes in shareholders' deficit and cash flows for the years ended December 31, 2006, 2005 and 2004 and for the period April 15, 2002 (date of inception of development stage) to December 31, 2006. These consolidated financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these consolidated financial statements based on my audits.
I conducted the audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that I plan and perform the audits 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 audits 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 audits provide a reasonable basis for my opinion.
In my opinion, based on the audits, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of International Power Group, Ltd. and its subsidiary as of December 31, 2006 and 2005, and the results of their operations and cash flows for the years ended December 31, 2006, 2005 and 2004 and for the period April 15, 2002 (date of inception of development stage) to December 31, 2006 in accordance with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying consolidated financial statements, at December 31, 2006, the Company had a working capital deficiency of $477,832 as well as an accumulated deficit of $16,136,663. In addition, the Company has had a continuing record of losses. These factors among other things, also discussed in Note 15 to the financial statements, raise substantial doubt about the ability of the Company to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts or classification of liabilities that might be necessary should the Company be unable to continue in operation.
/s/ Robert G. Jeffrey,
Certified Public Accountant
Wayne, NJ
May 18, 2007
Page 24 of 54
INTERNATIONAL POWER GROUP, LTD
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
ASSETS | December 31, 2006 | December 31, 2005 | |
Current Assets | |||
Cash | $1,652,940 | $955,621 | |
Note receivable | - | 65,000 | |
Prepaid expenses | 12,361 | - | |
Total current assets | 1,665,301 | 1,020,621 | |
Other Assets | |||
Intangible asset - patents | 2,700,000 | - | |
Deposit | 17,134 | 2,000 | |
Other assets | 6,274 | - | |
Total other assets | 2,723,408 | 2,000 | |
TOTAL ASSETS | $4,388,709 | $1,022,621 |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||
Liabilities |
|
|
|
Accounts payable | $ 524,593 | $ 82,899 | |
Accrued expenses | 33,006 | - | |
Loan payable | 21,205 | - | |
Acquisition payable | 1,564,329 | - | |
Total current liabilities | 2,143,133 | 82,899 | |
|
|
| |
Stockholders’ Equity |
|
|
|
Common stock – authorized, 750,000,000 shares of $.00001 par | |||
value; issued and outstanding, 345,509,096 and 310,407,100 shares, | |||
respectively | 3,455 | 3,104 | |
Capital in excess of par value | 18,378,114 | 4,241,965 | |
Other comprehensive income - foreign currency translation | 670 | - | |
Deficit accumulated during development stage | (16,136,663) | (3,305,347) | |
Total stockholders’ equity | 2,245,576 | 939,722 | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ 4,388,709 | $ 1,022,621 |
The accompanying notes are integral part of these consolidated financial statements.
Page 25 of 54
INTERNATIONAL POWER GROUP, LTD
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT ACCUMULATED DURING
DEVELOPMENT STAGE
Year 2006 | Year 2005 | Year 2004 | April 15, 2002 (Date of Inception of Development Stage) to December 31, 2006 | ||||
REVENUE | $ - | $ - | $ - | $ - | |||
OPERATING EXPENSES | 12,829,775 | 3,267,710 | 37,637 | 16,135,122 | |||
OPERATING LOSS | (12,829,775) | (3,267,710) | (37,637) | (16,135,122) | |||
OTHER INCOME (EXPENSE) | |||||||
Interest Income | 4,637 | - | - | 4,637 | |||
Interest Expense | (6,178) | - | - | (6,178) | |||
LOSS ACCUMULATED DURING DEVELOPMENT STAGE | $(12,831,316) | $(3,267,710) | $(37,637) | $(16,136,663) | |||
NET LOSS PER SHARE – basic and diluted | $ (0.04) | $ (0.01) | $ (0.00 ) | - | |||
WEIGHTED AVERAGE SHARES OUTSTANDING | 316,165,397 | 297,465,012 | 203,023,760 | - |
The accompanying notes are integral part of these consolidated financial statements.
Page 26 of 54
INTERNATIONAL POWER GROUP, LTD
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For the Years Ended December 31, 2006, 2005 and 2004
Common Stock | Capital in Excess of Par Value | Other Comprehensive Income | Deficit Accumulated During Development Stage | Total | |||
Shares | Amount | ||||||
Balance, January 1, 2004 | 150,000,000 | $ 1,500 | $ - | $ - | $ - | $ 1,500 | |
Shares issued for cash | 1,980,000 | 20 | 49,480 | - | 49,500 | ||
Shares issued for services | 100,000,000 | 1,000 | 9,000 | - | 10,000 | ||
Shares for acquisition | 33,000,00 | 330 | (330) | - | - | ||
Net loss for the year | - | - | - | - | (37,637) | (37,637) | |
Balance, January 1, 2004 | 284,980,000 | 2,850 | 58,150 | - | (37,637) | 23,363 | |
Shares issued for cash | 18,065,000 | 181 | 1,188,319 | - | - | 1,188,500 | |
Shares issued for services | 52,100 | 1 | 20,318 | - | - | 20,319 | |
Shares for acquisition | 3,400,000 | 34 | 118,966 | - | - | 119,000 | |
Shares for warrants exercised | 2,135,000 | 21 | 538,729 | - | - | 538,750 | |
Options granted for services | - | - | 2,140,000 | - | - | 2,140,000 | |
Options exercised for services rendered | 725,000 | 7 | 72,493 | - | - | 72,500 | |
Proceeds from option exercises | 1,050,000 | 10 | 104,990 | - | - | 105,000 | |
Net loss for the year | - | - | - | - | (3,267,710) | (3,267,710) | |
Balance, December 31, 2005 | 310,407,100 | 3,104 | 4,241,965 | - | (3,305,347) | 939,722 | |
Shares issued for cash | 14,889,996 | 149 | 4,268,851 | - | - | 4,269,000 | |
Shares issued for services | 11,800,000 | 118 | 5,281,132 | - | - | 5,281,250 | |
Shares cancelled for acquisition | (1,350,000) | (13) | 13 | - | - | - | |
Shares for acquisition | 2,000,000 | 20 | 799,980 | - | - | 800,000 | |
Shares for warrants exercised | 2,437,000 | 24 | 609,226 | - | - | 609,250 | |
Options granted for services | - | - | 2,644,500 | - | - | 2,644,500 | |
Proceeds from option exercises | 2,700,000 | 27 | 269,973 | - | - | 270,000 | |
Options exercised for services rendered | 2,625,000 | 26 | 262,474 | - | - | 262,500 | |
Foreign currency translation | - | - | - | 670 | - | 670 | |
Net loss for the year | - | - | - | - | (12,831,316) | (12,831,316) | |
Balance, December 31, 2006 | 345,509,096 | $ 3,455 | $ 18,378,114 | $ 670 | $ (16,136,663) | $ 2,245,576 | |
The accompanying notes are integral part of these consolidated financial statements.
Page 27 of 54
INTERNATIONAL POWER GROUP, LTD.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year 2006 |
| Year 2005 |
| Year 2004 | April 15, 2002 (Date of Inception of Development Stage) to December 31, 2006 | ||
Cash Flows From Operating Activities: |
|
|
|
| |||
Net loss from operations | $(12,831,316) |
| $(3,267,710) |
| $(37,637) | $(16,136,663) | |
Adjustments to reconcile net loss to net cash used by operating activities: |
|
| |||||
Charges not requiring cash outlay: |
|
| |||||
Value of options granted | 2,644,500 |
| 2,140,000 |
| - | 4,784,500 | |
Common stock issued for services | 5,281,250 |
| 22,928 |
| 10,000 | 5,311,569 | |
Options exercised for services | 262,500 |
| 72,500 |
| - | 335,000 | |
Amortization | 100,000 |
| - |
| - | 100,000 | |
Impairment charges | - |
| 121,500 |
| 1,500 | 123,000 | |
|
| ||||||
Changes in assets and liabilities: |
|
| |||||
(Increase) decrease in prepaid expenses | (12,361) |
| - | (2,609) | (12,361) | ||
Increase in accounts payable | 441,694 |
| 79,115 |
| 3,784 | 524,593 | |
Increase in accrued expenses | 33,006 |
| - |
| (2,000) | 33,006 | |
Increase in deposits | (15,134) |
| - | - | (17,134) | ||
Increase in other assets | (6,274) |
| - | - | (6,274) | ||
Net cash consumed by operating activities | (4,102,135) |
| (831,667) | (26,962) | (4,960,764) | ||
|
| ||||||
Cash Flows From Investing Activities: |
|
| |||||
Acquisition of AddPower | (435,671) |
| - | - | (435,671) | ||
Investment in Mexican company | - |
| - |
| (2,500) | (2,500) | |
Note receivable | - |
| (65,000) | - | (65,000) | ||
Proceeds from note receivable | 65,000 |
| - | - | 65,000 | ||
Net cash consumed by investing |
| ||||||
activities | (370,671) |
| (65,000) | (2,500) | (438,171) | ||
|
| ||||||
Cash Flows From Financing Activities: |
|
| |||||
Proceeds from loans | 521,205 |
| - | - | 521,205 | ||
Repayments of loans | (500,000) |
| - | - | (500,000) | ||
Proceeds of sales of stock units | 4,269,000 |
| 1,188,500 |
| 49,500 | 5,507,000 | |
Proceeds from exercise of options | 270,000 |
| 105,000 |
| - | 375,000 | |
Proceed from exercise of warrants | 609,250 |
| 538,750 | - | 1,148,000 | ||
Net cash provided by financing | |||||||
activities | 5,169,455 | 1,832,250 | 49,500 | 7,051,205 | |||
Effect of foreign currency exchange rate |
| ||||||
on cash | 670 |
| - | - | 670 | ||
Net increase in cash | 697,319 |
| 935,583 |
| 20,038 | 1,652,940 | |
Cash balance, beginning of period | 955,621 | 20,038 | - | - | |||
Cash balance, end of period | $ 1,652,940 |
| $ 955,621 | $ 20,038 | $ 1,652,940 |
The accompanying notes are integral part of these consolidated financial statements.
Page 28 of 54
INTERNATIONAL POWER GROUP, LTD.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
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, 2006, 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.
In June 2006, the Company formed a wholly-owned subsidiary IPWG-Sweden AB. In October 2006, IPWG-Sweden AB purchased proprietary patented technologies, which include WTE, AddPower, a low temperature turbine (LTT), and ScrubPower, a special emission-to-energy system from three Swedish entities, Anovo AB Angelholm, AddPower AB Angelholm, and SUPE Ltd for a total consideration of $2.8 million.
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. On May 23, 2006, the principal of TAT returned to IPWG 1,200,000 of the 3,400,000 shares paid as part of IPWG’s investment in TAT, and agreed to cancel an additional 900,000 of the 3,400,000 shares. 150,000 shares were cancelled in December 2006.
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;
Page 29 of 54
INTERNATIONAL POWER GROUP, LTD.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
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. 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.
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 of development stage.
Note 3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
·
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.
·
Income Taxes
The Company accounts for income taxes in accordance with SFAS 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.
·
Fixed Assets
Fixed assets are recorded at cost and depreciated over their useful lives using the straight-line method.
·
Intangible Assets
Intangible assets represent the estimated fair value at dates of acquisitions of acquired intangible assets used in our business. The patent asset represents the patented technology associated with our AddPower unit that was acquired in the fourth quarter of 2006. We amortize our patent on a straight-line basis over its life of 7 years. See Note 4 for additional information about our intangible asset.
·
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.
·
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.
·
Fair Value of Financial Instruments
The carrying amounts of the Company’s financial instruments, which include cash equivalents and accounts payable, approximate their values at December 31, 2006 and 2005.
Page 30 of 54
INTERNATIONAL POWER GROUP, LTD.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
·
Net Loss Per Share
The Company computes net 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 loss available to common stockholders 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 loss per share, is presented for basic and diluted calculations for all periods reflected in the accompanying financial statements.
·
Common Stock
Common stock of the Company is occasionally issued in return for services. Values are assigned to these issuances equal to the market value of the common stock.
·
Warrants Outstanding
Warrants to purchase common stock of the Company are valued at fair value using a Black-Scholes valuation model, in accordance with the provisions of SFAS No. 123R, “Shared-Based Payments” (“SFAS 123R”).
·
Stock Options
Stock options are valued at fair value on the date of issuance using a Black Scholes valuation model, in accordance with the provisions of SFAS No. 123R. Certain options are exercised for services and are valued at their exercise price.
·
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.
Note 4.
ASSET ACQUISITION
On October 3, 2006 the Company completed the asset acquisition of three Swedish companies (AddPower) for $2.8 million. The purchase price was as follows:
Cash | $ 2,000,000 | |
Stock | 800,000 | |
Total | $ 2,800,000 |
The Company paid approximately $436,000 upon execution of the contract and the remaining purchase price will be paid in nine monthly installments beginning January 2007. The Company also issued 2,000,000 shares of common stock to the owner of AddPower in October 2006. A patented turbine technology for the generation of electricity using low heat was the principal asset acquired. The purchase included all the assets of AddPower including the intellectual property and patents. Since the acquired entities did not have any customers or employees, it did not meet the definition of a business as defined by the Emerging Issues Task Force (“EITF”) in EITF 98-3, Determining Whether a Nonmonetary Transaction involves Receipt of Productive Assets or of a Business. Therefore, the entire $2.8 million purchase price was allocated to the patents.
Page 31 of 54
INTERNATIONAL POWER GROUP, LTD.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
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 rented facilities was negligible.
Shares of common stock were issued to Peter Toscano, CEO and President of the Company, and Jack Wagenti, Secretary, Treasurer and the former Chief Financial Officer of the Company, for their services during the period August 1, 2003 to June 30, 2005. These issuances totaled 100,000,000 shares (50,000,000 for each officer). They were valued at $10,000 which was 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 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.
During the year ended December 31, 2005, the Company loaned $65,000 to U.S. Precious Metals, Inc. (“USPM”). Peter Toscano, Jack Wagenti and Jose Garcia are officers of USPM and members of its board of directors. This loan had a 6% interest rate and was repaid in 2006. During the fourth quarter of 2006, USPM loaned the Company $250,000 with a 6% interest rate and the Company repaid this loan in the same quarter.
During the fourth quarter of 2006, Peter Toscano loaned the Company $50,000, without interest. This loan was repaid in December 2006.
In the fourth quarter of 2006, Lennart Strand, an employee of the Company, loaned the Company $21,205 for the office start-up costs in Sweden. This loan was repaid during the first quarter of 2007 with no interest.
Note 6.
INCOME TAXES
The Company experienced losses during 2006, 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, 2006, the Company had an NOL carry forward of $11,352,163 available for Federal 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 | 2024 | $ 37,637 |
|
2025 | 2025 | 1,127,710 |
|
2026 | 2026 | 10,186,816 |
|
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. The Company has recorded none current deferred tax assets as follows:
Deferred tax assets | 3,859,735 | ||
Valuation allowance | (3,859,735) | ||
Balance | $ - |
Page 32 of 54
INTERNATIONAL POWER GROUP, LTD.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
The amount of the valuation allowance increased by $3,463,517 during the past year.
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 were exercisable within an eighteen month period of the dates of issuance. A total of 1,980,000 shares and 990,000 warrants were sold, yielding proceeds of $49,500.
During 2005, the Company sold stock units. Certain of these units were comprised of 400,000 shares of stock and 200,000 warrants, exercisable at $0.25 per shares for periods of 18 months. Other units were comprised of 80,000 shares and 40,000 warrants, exercisable at $0.75 per share for a period of 18 months. A total of 18,065,000 shares and 9,032,500 warrants were sold yielding proceeds of $ 1,188,500.
During 2006, the Company sold stock units comprised of 50,000 shares of stock and 25,000 warrants, exercisable at $1.00 per share for periods of eighteen months, and units that were comprised of 250,000 shares and 125,000 warrants, exercisable at $0.40 per share for a period eighteen months. A total of 14,889,996 shares and 7,444,998 warrants were sold, yielding proceeds of $4,269,000.
Warrant activity for the three years ended December 31, 2006 is as follows:
Balance January 1, 2004 | |
Warrants granted during 2004 | 990,000 |
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 |
Warrants granted during 2006 | 7,444,998 |
Warrants exercised during 2006 | (2,437,000) |
Warrants expired during 2006 | (1,200,000) |
Balance December 31, 2006 | 11,695,498 |
Relevant information about the warrants outstanding at December 31, 2006 is presented below:
Exercise Price | Weighted-Average Remaining Contractual Term (months) |
Warrants |
$0.25 | 0.4 | 2,788,000 |
$0.40 | 42.3 | 5,850,000 |
$0.75 | 2.7 | 1,450,000 |
$1.00 | 13.5 | 1,607,498 |
Total exercisable |
| 11,695,498 |
Page 33 of 54
INTERNATIONAL POWER GROUP, LTD.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
Note 8.
STOCK OPTIONS
On January 1, 2005, we adopted SFAS No. 123R, “Share-Based Payment,” (“SFAS 123R”), which replaced SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), and superseded APB Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). SFAS 123R requires that the cost relating to share-based payment transactions in which an entity exchanges its equity instruments for goods or services from either employees or non-employees be recognized in the financial statements as the goods are received or services are rendered. That cost is measured based on the fair value of the equity or liability instruments issued.
During 2005, the Company adopted and the stockholders approved a stock option plan (the 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. All options are vested upon issuance and are immediately exercisable. The Plan has a term that runs through June 15, 2010. Under the terms of the plan, the exercise price shall not be less than the market value as determined at date of grant. The following table summarizes changes in outstanding stock options during the twelve month periods ended December 31, 2006 and 2005:
| December 31, |
| |||||||||||||
|
| 2006 |
| 2005 |
| ||||||||||
Weighted- | Weighted- | ||||||||||||||
|
| Shares |
| Average Price |
| Shares |
| Average Price |
| ||||||
|
| (Shares in thousands) |
| ||||||||||||
Outstanding at the beginning of the year | 17,225 | $ | 0.13 | - | $ | - | |||||||||
Granted (all at market price) | 13,000 | 0.74 | 19,000 | 0.13 | |||||||||||
Cancelled | (2,000) | 0.40 | - | - | |||||||||||
Exercised | (5,325) | 0.10 | (1,775) | 0.10 | |||||||||||
Outstanding at the end of the year | 22,900 | $ | 0.46 | 17,225 | $ | 0.13 | |||||||||
The weighted-average remaining contractual life of the options outstanding as of December 31, 2006 was 2.9 years. The aggregate intrinsic value of the options outstanding as of December 31, 2006 was $4.2 million. The aggregate intrinsic value represents the difference between the closing price of the Company’s common stock on December 31, 2006 and the exercise price, multiplied by the number of in-the-money stock options as of December 31, 2006. This represents the amount that would have been received by the stock option holders if they had all exercised their stock options on December 31, 2006. In future periods, this amount will change depending on fluctuations in the Company’s stock price. The total intrinsic value of stock options exercised during the years ending December 31, 2006 and 2005 was $5.0 million and $1.7 million, respectively.
The fair value of option grants are estimated using a Black-Sholes option pricing model. The following weighted-average assumptions were used for options granted during the years ended December 31, 2006 and 2005:
| 2006 | 2005 | |||||||||
Dividend yield | 0.0 | % | 0.0 | % | |||||||
Expected volatility | 100.85 | % | 156.24 | % | |||||||
Risk-free interest rate | 4.96 | % | 3.75 | % | |||||||
Expected term (in years) | 1.39 | 0.75 | |||||||||
Weighted-average fair value of stock options granted | $ | 0.20 | $ | 0.11 | |||||||
Page 34 of 54
INTERNATIONAL POWER GROUP, LTD.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
Note 9.
INTANGIBLE ASSET - PATENTS
Information regarding the intangible asset – patents is as follows:
December 31, 2006 | ||||
Intangible asset - patents |
| $2,800,000 |
| |
Accumulated amortization |
| (100,000) |
| |
Intangible asset – patents, net |
| $2,700,000 |
|
Amortization expense was $100,000 for the year ended December 31, 2006. There was no amortization expense in 2005 or 2004. The remaining amortization period for the patents is 6.75 years. The estimated future amortization expense of this asset is as follows:
Year |
| Amortization Expense |
2007 |
| $400,000 |
2008 |
| 400,000 |
2009 |
| 400,000 |
2010 |
| 400,000 |
2011 |
| 400,000 |
Thereafter |
| 700,000 |
Note 10.
OPERATING EXPENSES
Major categories of operating expenses are presented below.
2006 | 2005 | 2004 | April 15, 2002 (Date of Inception of Development Stage) to December 31, 2005 | ||||
Stock based compensation | $2,644,500 |
| $2,140,000 |
| $ - | $4,784,500 | |
Consulting expense | 6,437,147 |
| 439,594 |
| - | 6,876,741 | |
Professional fees | 1,325,888 |
| 108,618 |
| - | 1,434,506 | |
Impairment | - |
| 121,500 |
| 1,500 | 123,000 | |
Office expenses | 136,308 |
| 74,069 |
| 11,403 | 221,780 | |
Travel and meals | 793,716 |
| 203,804 |
| 6,448 | 1,003,968 | |
Public relations | 243,363 |
| 29,960 |
| - | 273,323 | |
Salaries and other employee expenses | 776,296 |
| 58,801 |
| 7,391 | 842,488 | |
Insurance | 42,248 |
| 13,478 |
| - | 55,726 | |
Automobile expenses | 45,615 |
| 17,595 |
| - | 63,210 | |
Telecommunications | 89,368 |
| 19,500 |
| - | 108,868 | |
Rent | 127,455 |
| 10,547 |
| - | 138,002 | |
Depreciation and amortization | 100,000 |
| - |
| - | 100,000 | |
Other expenses | 67,871 |
| 30,244 |
| 10,895 | 109,010 | |
$12,829,775 |
| $3,267,710 |
| $37,637 | $16,135,122 |
Page 35 of 54
INTERNATIONAL POWER GROUP, LTD.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
Note 11.
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, ($121,500) was written off during 2005.
Note 12.
RENTS UNDER OPERATING LEASES
Rent expense for the years ended December 31, 2006 and 2005 was $127,455 and $10,547, respectively. The Company did not incur any rent expense in 2004. At December 31, 2006, the company had the following minimum lease commitments for the next 5 years:
Year |
| Commitment |
2007 |
| 100,497 |
2008 |
| 89,959 |
2009 |
| 91,603 |
2010 |
| 91,443 |
2011 |
| 7,639 |
|
|
|
|
| |
|
|
Note 13.
COMPREHENSIVE LOSS
Comprehensive loss is as follows:
2006 | 2005 | 2004 | April 15, 2002 (Date of Inception of Development Stage) to December 31, 2006 | |||
Net loss | $(12,831,316) | $(3,267,710) |
| $(37,637) |
| $(16,136,663) |
Foreign currency translation | 670 | - |
| - |
| 670 |
Comprehensive loss | $(12,830,646) | $(3,267,710) |
| $(37,637) |
| $(16,135,993) |
Page 36 of 54
INTERNATIONAL POWER GROUP, LTD.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
Note 14.
SUPPLEMENTAL CASH FLOWS
There was no cash paid for interest or income taxes during the years ended December 31, 2006, 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. The remaining shares of Power were acquired by officers of the Company and contributed to the Company. Power was later dissolved.
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 (see Note 5).
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:
a.
The Company issued 3,400,000 shares of its common stock for its equity interest in (TAT). Of these shares, 1,350,000 were cancelled during 2005.
b
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 value of this additional benefit was $72,500.
The following non-cash investing and financing activity took place during 2006:
a. The Company issued 2,000,000 shares of common stock as partial compensation for the acquisition of AddPower. These shares were valued at $800,000.
b. The Company issued 11,800,000 shares of common stock for services valued at $5,281,250. For additional services, it granted option holders the right to exercise without payment options to purchase 2,625,000 shares of common stock. The value of this additional benefit was $262,500.
Note 15.
GOING CONCERN
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the financial statements, the Company had a material working capital deficiency and an accumulated deficit as of December 31, 2006 and has experienced continuing losses. These factors raise substantial doubt about the ability of the Company to continue as a going concern. The financial statements do not include adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue in operation. The Company’s present plans, the realization of which cannot be assured, to overcome these difficulties include but are not limited to the continuing effort to raise capital in the public and private markets.
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INTERNATIONAL POWER GROUP, LTD.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2006
Note 16
CONTINGENCIES
Naanovo Energy USA, Inc. (Naanovo), has made a claim that the assets, techniques, and technologies of the three Swedish companies acquired by the Company in October 2006 are “proprietary technologies” owned by Naanovo. This claim is based on a Naanovo claim of a “former working relationship” that the chief executive of the three acquired companies allegedly once had with Naanovo. The Company, through its attorneys, has responded that Naanovo does not have any ownership interest in the three companies or in their assets and technologies, and that there was no ongoing relationship between Naanovo and the chief executive of the three acquired companies. Although Naanovo has indicated that it will pursue legal action to protect its rights, as of April 30, 2007 no legal action had been commenced. Management believes that this claim is without merit and that it will not adversely affect the financial position or results of operations of the Company.
A Company shareholder has asserted that she suffered substantial paper losses, and actual losses of $80,000, because of alleged misrepresentations and omissions made by the Company at the time she purchased her stock. The Company, through its attorneys, has rejected her claim. There has been no further communication from this shareholder and management does not believe there will be any further contact from the shareholder.
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Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None
Item 9a.
Conclusion Regarding the Effectiveness of Disclosure 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.
Changes in Internal Control over Financial Reporting
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.
Item 9b.
Other Information.
None.
PART III
Item 10.
Directors, Executive Officers and Corporate Governance.
Our directors and executive officers, their ages, and the positions they hold are set forth below. Our directors hold office until our next annual meeting of stockholders and until their successors in office are elected and qualified. All officers serve at the discretion of our Board of Directors.
(A)
Directors and Executive Officers
Name | Age | Title |
Peter Toscano | 57 | Chairman of the Board, Chief Executive Officer/President |
Jack Wagenti | 69 | Vice President, Secretary, and Director |
Jose Garcia | 50 | Vice President and Director |
Louis D. Garcia | 55 | Vice President, Finance |
James W. FitzGibbons | 38 | Controller and Chief Accounting Officer |
Sheik Hani A. Z. Yamani | 45 | Director |
Georgi Grechko | 74 | Director |
Salvatore Arnone | 45 | Director |
Robert Astore | 69 | Director |
Walter J. Salvadore | 50 | Director |
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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 involved in materials reprocessing, export, and importation in Mexico. In addition, Mr. Toscano has had 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 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. He has also served as Chief Financial Officer of the Company from its inception to October 2006. 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. Louis D. Garcia. Mr. Garcia has been the Company’s Vice President, Finance since May 15, 2006. 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.
James W. FitzGibbons. Mr. FitzGibbons has served as Controller and Chief Accounting Officer of the Company since October 2006. He previously served as Vice President – Finance and Chief Accounting Officer of NDC-Health Corporation, a NYSE traded healthcare services company from January 2004 through January 2006. Prior to NDCHealth, beginning in January 1999, Mr. FitzGibbons was Vice President – Controller of McKesson Corporation’s Information Solutions business unit. Mr. FitzGibbons received his Bachelor of Science degree in accounting from the University of Alabama. He is a certified public accountant in the State of Georgia.
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
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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 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. 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 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.
Mr. Thomas J. Mitchell resigned as a director of the Company on February 3, 2007. He had served as a director of the Company since January 2006.
Our officers are not full time employees and are involved in other business endeavors. We do not have a formal conflicts of interest policy governing its officers and directors. We do not have written employment agreements with any of our officers. Our officers intend to devote sufficient business time and attention to the our affairs to develop our business in a prudent and business-like manner.
(B) Other Officers (non-executive) 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
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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.
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 this committee 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 16(a) forms they file. During the fiscal year ended December 31, 2006 there were 10 such individuals who were subject to the reporting requirements of the Exchange Act. To the best of the Company’s knowledge, all our executive officers, directors and persons who beneficially own more than ten percent of our common stock are current in their Section 16 filings.
(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,
Page 42 of 54
accurate and understandable disclosure, and compliance with applicable laws. The Board anticipates it will adopt the Code of Ethics during the current fiscal year.
CORPORATE GOVERNANCE
Director Independence
The board of directors is responsible for directing the management of the business and affairs of the Company. The board holds regular meetings each year and holds additional special meetings as required. Directors are expected to attend board meetings and to spend the time needed and meet s frequently as necessary to properly discharge their responsibilities. Although participation by conference telephone or other communications equipment is allowed, personal attendance is encouraged.
Our board has affirmatively determined, after considering all of the relevant facts and circumstances, that all of the directors other than Peter Toscano, Jack Wagenti, Jose Garcia, and Robert Astore are independent from our management under the standards set forth in the listing standards of the NASDAQ Stock Market. This means that none of the independent directors have any direct or indirect material relationship with the Company that will interfere with their exercise of independent judgment in carrying out their responsibilities as a director.
Board meetings and Committees; Annual Meeting Attendance
The board does not have a separately designated nominating, compensation or audit committee, which functions are handled by the board of directors. The board of directors held 51 meetings during the fiscal year ended December 31, 2006. Each of the directors attended at least 75% of the meetings of the board of directors held during the 2006 fiscal year while he was a member of the board.
Item 11.
Executive Compensation.
The Company’s Executive Compensation Program Philosophy
The Company strives to attract, motivate and retain high-quality executives with the requisite skills and abilities to enable the Company to achieve superior results. Accordingly, the Company’s compensation programs are designed to provide compensation commensurate with performance and to reward above average performance and provide incentive opportunity to be competitive for talent in the labor markets in which the Company participates. The board of directors assumes the duties of a compensation committee. The board of directors sets executive compensation and its own compensation using industry standards as a guideline. The Company does not currently have any compensation consultants assisting the Company with executive and/or director compensation matters.
The key elements of the Company’s compensation programs are base salaries, performance cash bonuses for contributions to short and long-term goals, and the grant of stock options. Base salaries and cash bonuses are the core elements of the Company’s compensation programs. Base salaries are a necessary element to enable the Company to compete and are determined following negotiations with the individual and are based on competitive market conditions. To date, the Company awards cash bonuses based on a subjective evaluation of performance by the board of directors. The board of directors believe that base salaries, along with cash bonuses and stock options enable the Company to meet its objectives of attracting, motivating and retaining the right mix of employees needed to achieve the Company’s business objectives. The board of directors also believes that its compensation structure is both fair and competitive and allows the Company to reward extraordinary accomplishments.
While the Company rewards performance that contributes to business developments that meet the Company’s long-term goals, the Company does not have any long-term compensation plans in place, pursuant to which performance will be measured over a period of more than one year and compensation will be paid out after a period of more than a year.
Page 43 of 54
The Company has used utilized market data in making compensation decisions but the Company has not targeted any of its compensation decisions to any specific benchmarks or peer groups. The Company does not have any formal equity ownership requirements.
The Company reviews and considers the deductibility of executive compensation under Section 162(m) of the Internal Revenue Code, which provides that the Company may not deduct compensation of more than $1 million in any taxable year that is paid to certain individuals unless the compensation is performance based. The Company believes that the compensation paid under its compensation programs is generally fully deductible for federal income tax purposes.
Compensation Committee Report
The following report of the board of directors does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other Company filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates this report by reference therein.
The board of directors has reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K. Based on such review and discussion, the board of directors approved the inclusion of the Compensation Discussion and Analysis in this report on Form 10-K/A2.
§
Peter Toscano
§
Jack Wagenti
§
Jose Garcia
§
Salvatore Arnone
§
Robert Astore
§
Walter J. Salvadore
§
Sheik Hani A.Z. Yamani
§
Georgi Grechko
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The following table sets forth certain information regarding the compensation of our Chief Executive Officer and our four next most highly compensated executive officers for the fiscal years ended December 31, 2006, 2005 and 2004. Except as set forth below, no other compensation was paid to these individuals during the years indicated.
Annual Compensation Name and Principal Position | Year | Salary | Bonus | Stock Awards | Option Awards | Non-Equity Incentive Plans Compensation | Non-Qualified Deferred Compensation | All Other Compensation | Total |
Peter Toscano | 2006 | $46,231 | $ - | - | $ - | - | - | $39,379(5) | $85,610 |
President, Chief Executive | 2005 | 19,558 | - | - | 20,000(1) | - | - | 2,991 | 42,549 |
Officer and Director | 2004 | - | - | 5,000(6) | - | - | - | 5,000 | |
Jack Wagenti | 2006 | 46,231 | - | - | - | - | - | 18,386(5) | 64,617 |
Vice President and Director | 2005 | 17,058 | - | - | 20,000(1) | - | - | 2,949 | 40,007 |
2004 | - | - | 5,000(6) | - | - | - | - | 5,000 | |
Jose Garcia | 2006 | 84,583 | - | - | - | - | - | - | 84,583 |
Vice President and Director | 2005 | 17,058 | - | - | 20,000(1) | - | - | - | 37,058 |
2004 | - | - | - | - | - | - | - | - | |
- | - | - | |||||||
Chris Duncan (2) | 2006 | 130,769 | - | - | 307,000(3) | - | - | - | 437,769 |
Former Chief Operating Officer | 2005 | - | - | - | - | - | - | - | - |
2004 | - | - | - | - | - | - | |||
John Mack (4) | 2006 | 80,769 | - | - | - | - | - | - | 80,769 |
Former Chief Financial Officer | 2005 | - | - | - | - | - | - | - | - |
2004 | - | - | - | - | - | - | - | - | |
1)
The financial value of each option is estimated on the date of grant using the Black-Scholes option-pricing model. The weighted average assumptions used for the valuation of these option awards are as follows: Expected dividends 0%; Expected volatility 156.24%; Risk free interest rate 3.75%; expected life of options 75 years. The assumptions are also disclosed in Note 8 in the Notes to the Consolidated Financial Statements included in this prospectus.
2)
Mr. Duncan resigned as the Company’s Chief Operating Officer on January 2, 2007.
3)
The financial value of each option is estimated on the date of grant using the Black-Scholes option-pricing model. The weighted average assumptions used for the valuation of these option awards are as follows: Expected dividends 0%; Expected volatility 100.85%; Risk free interest rate 4.96%; expected life of options 1.39 years. The assumptions are also disclosed in Note 8 in the Notes to the Consolidated Financial Statements included in this prospectus.
4)
Mr. Mack resigned as the Company’s Chief Financial Officer on January 5, 2007.
We have no employment contracts with any our officers.
5)
These amounts include car allowance for Messrs Toscano and Wagenti for $12,979 and $18,386, respectively. In addition, Mr. Toscano received a housing allowance in the amount of$26,400.
6)
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 $0.0001 per share.
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2006 GRANTS OF PLAN-BASED AWARDS
The table below sets forth information regarding grants of plan-based awards made to each of the named executive officers during 2006:
Name | Grant Date | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock or Units (#) | All Other Option Awards: Number of Securities Underlying Options (1) (#) | Exercise or Base Price of Option Awards ($/Sh) | Grant Date Fair Value of Stock and Stock Options ($)(2) | ||||
Threshold | Target | Maximum | Threshold | Target | Maximum | ||||||
Peter Toscano | - | - | - | - | - | - | - | - | - | - | - |
Jack Wagenti | - | - | - | - | - | - | - | - | - | - | - |
Jose Garcia | - | - | - | - | - | - | - | - | - | - | - |
Chris Duncan | 03/14/2006 | 1,000,000 | $0.83 | $210,000 | |||||||
07/18/2006 | 200,000 | $0.67 | $240,000 | ||||||||
11/21/2006 | 300,000 | $0.67 | $ 57,000 | ||||||||
John Mack | - | - | - | - | - | - | - | - | - | - | - |
(1) Reflects options granted during 2006 pursuant to our 2005 Stock Option Plan.
(2) The grant date fair value of each stock award and Chris Duncan’s option award is determined pursuant to SFAS 123(R).
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The following table discloses information regarding outstanding equity awards as of December 31, 2006 for each of our senior executive officers.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
Name and Principal Position |
| Number of Securities Underlying Unexercised Options/Exercisable (1) |
| Number of Securities Underlying Unexercised Options/Un-exercisable (1) | Option Exercise Price |
| Option Expiration date | ||||||||
Peter Toscano, President, CEO |
| ||||||||||||||
and Director | 1,000,000 | - | $ | 0.10 | 6/14/2010 | ||||||||||
Jack Wagenti | |||||||||||||||
Vice President and Director |
| 1,000,000 | - | 0.10 | 6/14/2010 | ||||||||||
Jose Garcia | |||||||||||||||
Vice President and Director | 1,000,000 | - | 0.10 | 6/14/2010 | |||||||||||
Chris Duncan(1) | 1,000,000 | - | 0.83 | 6/14/2010 | |||||||||||
Former Chief Operating | 200,000 | - | 0.67 | 7/17/2010 | |||||||||||
Officer | 300,000 | - | 0.67 | 6/14/2010 | |||||||||||
John Mack(2) | |||||||||||||||
Former Chief Financial Officer | - | - | - | - | |||||||||||
(1) Mr. Duncan resigned as the Company’s Chief Operating Officer on January 2, 2007.
(2) Mr. Mack resigned as the Company’s Chief Financial Officer on January 5, 2007.
Option Exercises and stock vested: No stock options, SARs and similar instruments were exercised and no stock, including restricted stock, restricted stock units or similar instruments vested during our fiscal year ended December 31, 2006.
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.
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The following table documents the compensation of our directors for the fiscal years ended December 31, 2006. | |||||||||||||||||||||||||||||||
Name | Fees Earned or Paid in Cash | Stock Awards | Option Awards (1) | Non-Equity Incentive Plan Compensation | Nonqualified Deferred Compensation | All Other Compensation | Total | ||||||||||||||||||||||||
Salvatore Arnone | $ - | $ - | $ - | $ - | $ - | $ - | $ - | ||||||||||||||||||||||||
Robert Astore | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Jose Garcia | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Georgi Grecko | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Thomas Mitchell | - | - | 210,000 | - | - | - | 210,000 | ||||||||||||||||||||||||
Walter Salvatore | - | - | 210,000 | - | - | - | 210,000 | ||||||||||||||||||||||||
Hani A. Z. Yamani | - | - | 1,210,000 | - | - | 1,210,000 | |||||||||||||||||||||||||
(1) The financial value of each option was estimated using the Black-Scholes option-pricing model and the assumptions disclosed in Note 8 in the Notes to the Consolidated Financial Statements included in this Form 10-K/A2. The following is a list of the outstanding option held by each director as of December 31, 2006: | |||||||||||||||||||||||||||||||
Salvatore Arnone | (1,000,000) | ||||||||||||||||||||||||||||||
Robert Astore | (1,000,000) | ||||||||||||||||||||||||||||||
Jose Garcia | (1,000,000) | ||||||||||||||||||||||||||||||
Georgi Crechko | (1,000,000) | ||||||||||||||||||||||||||||||
Thomas Mitchell | (1,000,000) | ||||||||||||||||||||||||||||||
Walter Salvatore | (1,000,000) | ||||||||||||||||||||||||||||||
Sheik Hani A. Z. Yamani | (1,000,000) | ||||||||||||||||||||||||||||||
(2) Mr. Mitchell resigned as a director of the Company on February 3, 2007.
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.
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, 2006, options to purchase 30,000,000 shares of common stock had been granted pursuant to this plan to individuals at an exercise prices ranging from $0.10 to $0.83 per share. The options vested upon grant, including options to purchase 11,800,000 shares of common stock that were granted to directors 7,100,000 options have been exercised. The options issued pursuant to this plan have been deemed by the Company to have a value ranging from $0.11 to $0.20 per share.
Item 12.
Security Ownership of Certain Beneficial Owners, Management And Related Stockholder
Matters.
Security Ownership of Certain Beneficial Owners and Management
The following table indicates the number of shares of our common stock that were beneficially owned as of April 25, 2007, by (1) each person known by us to be the owner of more than 5% of our outstanding shares of common stock, (2) our directors, (3) our executive officers, and (4) our directors and executive officers as a group. In general, “beneficial ownership” includes those shares a director or executive officer has sole or shared power to vote or transfer (whether or not owned directly) and rights to acquire common stock through the exercise of stock options or warrants that are exercisable currently or become exercisable within 60 days. Except as indicated otherwise, the persons name in the table below have sole voting and investment power with respect to all shares shown as beneficially owned by them. We based our calculation of the percentage owned on 349,684,096 beneficially owned shares outstanding on April 25, 2007. The address of each director and executive officer listed below is c/o International Power Group, Ltd., 950 Celebration Boulevard, Celebration, Florida, 34747.
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* Represents less than 1%
_____________________________
(1) Includes 1 million shares issuable upon presently exercisable stock options.
(2) Includes 200,000 shares issuable upon presently exercisable stock options.
(3) Includes 1 million shares issuable upon presently exercisable stock options.
(4) Includes 1.3 million shares issuable upon presently exercisable stock options.
(5) Includes 1.5 million shares issuable upon presently exercisable stock options.
(6) Includes 6 million shares issuable upon presently exercisable stock options.
(7) The address for Armada Partners, L.P. is 650 5th Avenue, New York, NY 10199.
Voting control and dispositive power over these shares is held by Mr. Armando Ruiz.
(8) Includes 5 million shares issuable upon presently exercisable warrants.
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Securities Authorized for Issuance under Equity Compensation Plans
The following table provides information as of December 31, 2006, regarding compensation plans (including individual compensation arrangements) under which our equity securities are authorized for issuance.
Item 13.
Certain Relationships and Related Party Transactions, and Director Independence.
Related Party Transactions
Neither our directors and executive officers, any person who beneficially owns, directly or indirectly, shares representing more than 5% of our common stock, any other related person as defined in Item 404 of Regulation S-K promulgated under the Securities Act of 1933, nor any members of the immediate family (including spouse, parents, children, siblings, and in-laws) of any of the foregoing persons, has any material interest, direct or indirect, in any transaction that we have entered since the beginning of our last fiscal year, or any proposed transaction in which the amount involved exceeds $120,000 except that during the fourth quarter of our fiscal year ended December 31, 2006, U.S. Precious Metals, Inc. (“USPM”), a company of which Peter Toscano, Jack Wagenti and Jose Garcia are officers and directors, loaned to us $250,000 at a 6% interest rate and we repaid this loan in the same quarter.
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Director Independence
The board of directors is responsible for directing the management of the business and affairs of the Company. The board holds regular meetings each year and holds additional special meetings as required. Directors are expected to attend board meetings and to spend the time needed and meet s frequently as necessary to properly discharge their responsibilities. Although participation by conference telephone or other communications equipment is allowed, personal attendance is encouraged.
Our board has affirmatively determined, after considering all of the relevant facts and circumstances, that all of the directors other than Peter Toscano, Jack Wagenti, Jose Garcia, and Robert Astore are independent from our management under the standards set forth in the listing standards of the NASDAQ Stock Market. This means that none of the independent directors have any direct or indirect material relationship with the Company that will interfere with their exercise of independent judgment in carrying out their responsibilities as a director.
Item 14.
Principal Accounting 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 December 31, 2006 and 2005:
Fee Category | Fiscal 2005 Fees | Fiscal 2006 Fees |
Audit Fees | $5,850 | $12,225 |
Audit Related Fees | - | - |
Tax Fees | - | $ 1,120 |
All Other Fees | - | - |
Total Fees | $5,850 | $13,325 |
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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PART IV
Item 15.
Exhibits, Financial Statement Schedules.
The following documents are filed as part of this Report:
a.
Financial Statements: The financial statements listed in the Table of Contents to the Consolidated Financial Statements are filed as part of this report.
b.
Financial Statement Schedules – All schedules have been included in the Consolidated Financial Statements or Notes thereto.
c.
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) |
10.9 | Joint Venture Agreement among the Company, Sistemas Ecologicos Para La Proteccion Ambiental S.A. DE C.V. and Mario Salguero Rossainzz dated as of November 9, 2006 (7) |
31.1 | |
31.2 | |
32.1 | |
32.2 |
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(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) Incorporated by reference to Exhibit 10.1 in the Company Form 8-K filed with the Securities and Exchange Commission on November 17, 2006.
(8) Filed herewith
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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 on the 24th. day of May 2007.
International Power Group, Ltd.
/s/ Peter Toscano | |
Name: Peter Toscano | |
Title: Chief Executive Officer | |
Name | Date |
/s/ Peter Toscano | May 24 2007 |
Name: Peter Toscano | |
Title: Chairman and Chief Executive Officer (Principal Executive Officer) | |
/s/ James W. FitzGibbons | May 24 2007 |
Name: James W. FitzGibbons | |
Title: (Controller and Chief Accounting Officer and Principal Financial Officer) | |
/s/ Jack Wagenti | May 24 2007 |
Name: Jack Wagenti | |
Title: (Director) | |
/s/ Jose Garcia | May 24 2007 |
Name: Jose Garcia | |
Title: (Director) | |
/s/ Salvatore Arnone | May 24 2007 |
Name: Salvatore Arnone | |
Title: (Director) | |
/s/ Robert Astore | May 24 2007 |
Name: Robert Astore | |
Title: (Director) | |
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