UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2008
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number: 000-51449
INTERNATIONAL POWER GROUP, LTD.
(Exact name of registrant as specified in its charter)
Delaware | 20-1686022 | |
(State or other jurisdiction of incorporation) | (IRS Employer Identification No.) |
950 Celebration Blvd. Suite A, Celebration, FL. | 34747 | |
(Address of principal executive office) | (Zip Code) |
(407) 566-0318
(Issuer’s telephone number)
N/A | ||
(Former name, former address & former fiscal year, if changed since last report) | ||
Check whether the issuer (1) has filed all documents and reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filings for the past 90 days. YES [X] NO [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
|
|
| ||
Large accelerated filer | [ ] |
| Accelerated filer | [ ] |
Non-accelerated filer | [ ] |
| Smaller reporting company | [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [X]
As of April 24, 2008, the number of the Company's shares of par value $0.00001 common stock outstanding was 433,596,973.
Transitional Small Business Disclosure Format (check one) [ ] Yes [X] No
Page 1 of 18
International Power Group, Ltd.
Form 10-Q
Period Ended March 31, 2008
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
Item 2- Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
Item 4 - Controls and Procedures
Item 2 - Unregistered Sale of Equity Securities and Use of Proceeds
Item 3 - Defaults upon Senior Securities
Item 4 - Submission of Matters to a Vote of Security Holders
Page 2 of 18
PART I – FINANCIAL INFORMATION
Item 1 - Financial Statements
INTERNATIONAL POWER GROUP, LTD
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
Quarter Ended March 31, 2008 | Year Ended December 31, 2007 | ||
(unaudited) | (audited) | ||
ASSETS | |||
Current Assets | |||
Cash | $ 59,226 | $ - | |
Miscellaneous accounts receivable | 72,399 | 32,182 | |
Prepaid expenses | 133 | 133 | |
Total current assets | 131,758 | 32,315 | |
Other Assets | |||
Intangible asset - patents | 2,200,000 | 2,300,000 | |
Deposits | 19,429 | 16,766 | |
Other assets | 64,774 | 14,360 | |
Total other assets | 2,284,203 | 2,331,126 | |
Total Assets | $ 2,415,961 | $ 2,363,441 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||
Liabilities | |||
Accounts payable | $ 1,111,348 | $ 955,111 | |
Accrued expenses | 15,187 | 38,336 | |
Loans payable to related parties | 509,903 | 755,874 | |
Acquisition payable | 962,057 | 962,057 | |
Total current liabilities | 2,598,495 | 2,711,378 | |
Stockholder’s Deficit: | |||
Common stock: authorized, 750,000,000 shares of $.00001 par | |||
value; issued and outstanding, 415,246,973 and 373,441,971 | |||
shares, respectively | 4,152 | 3,734 | |
Capital in excess of par value | 21,145,345 | 17,434,713 | |
Additional paid in capital - Warrants | 2,078,053 | 1,568,702 | |
Additional paid in capital - Options | 3,680,000 | 3,653,000 | |
Accumulated other comprehensive (loss) income | (781) | 1,869 | |
Deficit accumulated during development stage | (27,089,303) | (23,009,955) | |
Total stockholders’ deficit | (182,534) | (347,937) | |
Total Liabilities and Stockholders’ Deficit | $ 2,415,961 | $ 2,363,441 |
The accompanying notes are integral part of these consolidated financial statements
Page 3 of 18
INTERNATIONAL POWER GROUP, LTD
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT ACCUMULATED DURING
DEVELOPMENT STAGE
(Unaudited)
21-Jan-98 | |||||
Quarter Ended | Quarter Ended | Date of Inception | |||
March 31, 2008 | March 31, 2007 | To March 31, 2008 | |||
Revenues | $ - | $ - | $ - | ||
Expenses | 4,076,766 | 2,227,938 | 27,086,722 | ||
Operating Loss | (4,076,766) | (2,227,938) | (27,086,722) | ||
Other Income (Expense): | |||||
Interest income | 503 | 4 | 5,182 | ||
Interest expense | (3,085) | (24) | (7,763) | ||
Loss accumulated during | |||||
development stage | (4,079,348) | (2,227,958) | $ (27,089,303) | ||
Other Comprehensive Income: | |||||
Foreign currency translation loss | (2,650) | - | |||
Total Comprehensive Loss | $ (4,081,998) | $ (2,227,958) | |||
Net Loss per Share | |||||
Basic and Diluted | $ (0.01) | $ (0.01) | |||
Weighted Average Number | |||||
of Shares Outstanding - | |||||
Basic and Diluted | 393,745,560 | 347,551,735 |
The accompanying notes are integral part of these consolidated financial statements
Page 4 of 18
INTERNATIONAL POWER GROUP, LTD.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
April 15, 2002 | |||||
Quarter Ended March 31, 2008 | Quarter Ended March 31, 2007 | (Date of Inception of Development Stage) to March 31, 2008 | |||
Cash Flows From Operating Activities: | |||||
Net loss from operations | $ (4,079,348) | $ ($2,227,958) | $ ($27,089,303) | ||
Adjustments to reconcile net loss to net cash used by | |||||
operating activities: | |||||
Charges not requiring cash outlay: | |||||
Value of options granted | 65,000 | 875,000 | 6,017,000 | ||
Common stock issued for services | 3,110,400 | 49,500 | 9,918,202 | ||
Options exercised for services | - | - | 335,000 | ||
Amortization | 100,000 | 100,000 | 600,000 | ||
Impairment charges | - | - | 123,000 | ||
Changes in assets and liabilities: | |||||
Decrease in prepaid expenses | - | (62,835) | (19,954) | ||
Increase (decrease) in accounts payable | 156,237 | (221,916) | 1,111,402 | ||
(Decrease) Increase in accrued expenses | (23,147) | 2,246 | (17,818) | ||
(Increase) decrease in deposits | (2,663) | 313 | (4,295) | ||
(Increase) decrease in misc. receivable | (40,217) | - | (40,217) | ||
(Increase) decrease in other assets | (50,414) | (6,365) | (59,317) | ||
Net cash consumed by operating activities | (764,153) | (1,492,015) | (9,126,300) | ||
Cash Flows From Investing Activities: | |||||
Acquisition of Add-Power | - | (602,272) | (1,037,943) | ||
Investment in Mexican company | - | - | (2,500) | ||
Note receivable | - | - | (65,000) | ||
Proceeds from note receivable | - | - | 65,000 | ||
Capital uses | - | - | - | ||
Net cash consumed by investing activities | - | (602,272) | (1,040,443) | ||
| |||||
Cash Flows From Financing Activities: | |||||
Proceeds from loans | 16,529 | - | 1,312,079 | ||
Repayments of loans | (12,500) | (21,205) | (552,178) | ||
Proceeds of sales of stock units | 822,000 | 600,000 | 7,656,348 | ||
Proceeds from exercise of options | - | - | 375,000 | ||
Proceed from exercise of warrants | - | 287,500 | 1,435,500 | ||
Net cash provided by financing activities | 826,029 | 866,295 | 10,226,749 | ||
Effect of foreign currency exchange rate | |||||
on cash | (2,650) | 33 | (781) | ||
Net increase in cash | 59,226 | (1,227,926) | 59,226 | ||
Cash balance, beginning of period | - | 1,652,940 | - | ||
Cash balance, end of period | $ 59,226 | $ 425,014 | $ 59,226 | ||
The accompanying notes are integral part of these consolidated financial statements
Page 5 of 18
INTERNATIONAL POWER GROUP, LTD.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008
(Unaudited)
Note 1.
BASIS OF PRESENTATION
The unaudited interim consolidated financial statements of International Power Group, Ltd. as of March 31, 2008 and December 31, 2007 and for the three-month periods ended March 31, 2008 and March 31, 2007 have been prepared in accordance with accounting principals generally accepted in the United States of America. In the opinion of management, such information contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of such periods. The results for the three months ended March 31, 2008 are not necessarily indicative of the results to be expected for the full year ending December 31, 2008.
Certain information and disclosures normally included in the notes to consolidated financial statements have been condensed or omitted as permitted by the rules and regulations of the Securities and Exchange Commission, although the Company believes the disclosure is adequate to make the information presented not misleading. The accompanying unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the year ended December 31, 2007 filed in the Company’s report on Form 10-K.
Note 2.
COMMON STOCK AND WARRANTS
The Company issued stock in private placements in the first fiscal quarter of 2008. A total of 16,440,002 shares of common stock were sold for cash in the three month period ended March 31, 2008. These sales resulted in net proceeds to the Company of $822,000. These shares were sold as part of “stock units,” with each unit consisting of one share of stock and a warrant to purchase one share of stock for each two shares of stock purchased. For the three-month period, ended March 31, 2008, warrants to purchase 8,630,001 shares of stock were issued, exercisable at $0.25 per share for a period of twelve months.
During the same quarter, the Company issued 5,000,000 shares of common stock to Mr. Peter N. Toscano, Chief Executive Officer, in exchange for $250,000 advanced to the company during 2007. The issuance included 2,500,000 warrants, exercisable for a period of up to one-year from the date of issuance at $0.25 exercise price with an expiration date of one year.
Warrant activity during the quarter ended March 31, 2008 is shown as follows:
2008 | |
Balance December 31, 2007 | 11,737,123 |
Warrants granted during the first three months of 2008 | 11,130,001 |
Warrants exercised during the first three months of 2008 | - |
Warrants expired during the first three months of 2008 | (2,807,498) |
Balance March 31, 2008 | 20,059,626 |
Relevant information about the warrants outstanding at March 31, 2007 is presented below:
Exercise | Weighted-Average | Outstanding as of |
Price | Months Remaining | 31-Mar-08 |
$0.40 | 24.72 | 6,411,875 |
$1.00 | 2.27 | 12,500 |
$0.25 | 8.52 | 13,635,251 |
$0.30 | 35.51 | 20,059,626 |
The total potential proceeds of the warrants as of March 31, 2008 would have been $5,986,063 if exercised as of that date. The exercise of such warrants depends on market conditions and other factors, which provides no assurance that they will be exercised in the future.
Page 6 of 18
INTERNATIONAL POWER GROUP, LTD.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008
(Unaudited)
Note 3.
STOCK OPTIONS
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 three month period ended March 31, 2008.
2008 | |||
Shares in Millions | Weighted-Average Price | ||
Outstanding at the beginning of the year | 26,825 | $ 0.42 | |
Granted (all at market price) | 500 | 0.22 | |
Options exercised cash free | (1,900) | 0.10 | |
Outstanding at the end of the period | 25,425 | $ 0.44 | |
The weighted-average remaining contractual life of the options outstanding as of March 31, 2008 was 3.2 years. The aggregate intrinsic value of the options outstanding as of March 31, 2007 was $1.5 million. The aggregate intrinsic value represents the difference between the closing price of the Company’s common stock on March 31, 2007 and the exercise price, multiplied by the number of in-the-money stock options as of March 31, 2007. This represents the amount that would have been received by the stock option holders if they had all exercised their stock options on March 31, 2007. In future periods, this amount will change depending on fluctuations in the Company’s stock price.
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 three months ended March 31, 2008 and 2007.
| 2008 | 2007 | |
Dividend yield | 0% | 0% | |
Expected volatility | 189.13% | 192.95% | |
Risk-free interest rate | 1.55% | 4.83% | |
Expected term (in years) | 3.6 | 2.72 | |
Weighted-average fair value of stock options granted | $ 0.44 | $ 0.25 |
Page 7 of 18
Note 4. INTANGIBLE ASSET - PATENTS
Information regarding the intangible asset – patents is as follows:
December 31, 2008 | ||
Intangible asset - patents | $2,800,000 | |
Accumulated amortization | (600,000) | |
Intangible asset – patents, net | $2,200,000 |
Accumulated amortization was $100,000 for the three-month period ended March 31, 2008. The remaining amortization period for the patents is 4.5 years. The estimated future accumulated amortization of this asset is as follows:
Year | Amortization Expense | |
2008 | 400,000 | |
2009 | 400,000 | |
2010 | 400,000 | |
2011 | 400,000 | |
Thereafter | 600,000 |
Note 5.
RELATED PARTY TRANSACTIONS
During 2007, the company loaned money from USPM, a non-affiliated company whose officers are also part of the board of International Power Group, Ltd. The loan was for $40,000, bearing a 6% interest rate and due in June 2008.
The company issued 5,000,000 shares of stock to Mr. Peter Toscano, Chief Executive Officer. The shares were valued at $250,000 and were issued as a payment for amounts advanced to the company during year 2007. These shares include 2,500,000 warrants exercisable in one year at a price of $0.25 cents.
Page 8 of 18
Note 6.
OPERATING EXPENSES
Major categories of operating expenses are presented below.
Detail of Expenses by Category | Quarter Ended March 31, 2008 | Quarter Ended March 31, 2007 | April 15, 2002 (Date of Inception of Development Stage) to March 31, 2008 | ||
Stock based compensation | $ - | $ 875,000 | $ 6,017,000 | ||
Consulting expense | 3,361,665 | 339,243 | 12,771,698 | ||
Professional fees | 195,322 | 184,959 | 2,115,719 | ||
Research and development | 24,005 | - | 149,853 | ||
Impairment | - | - | 123,000 | ||
Office expenses | 27,423 | 16,122 | 304,173 | ||
Travel and meals | 65,704 | 211,308 | 1,381,032 | ||
Public relations | 7,543 | 31,004 | 469,704 | ||
Salaries and other employee expenses | 233,603 | 379,881 | 2,164,018 | ||
Insurance | - | 1,414 | 59,767 | ||
Automobile expenses | 11,592 | 15,131 | 130,409 | ||
Telecommunications | 809 | 19,680 | 195,393 | ||
Rent | 36,049 | 45,219 | 335,473 | ||
Amortization | 100,000 | 100,000 | 600,000 | ||
Other expenses | 13,051 | 8,977 | 269,483 | ||
$ 4,076,766 | $ 2,227,938 | $27,086,722 |
Note 7.
SUPPLEMENTAL CASH FLOWS
There was no cash paid for income taxes during any of the periods presented. The company paid $3,085 on interest during the three month period ended March 31, 2008. The following non-cash activities took place during the periods presented:
The Company issued 20,365,000 shares of common stock to 12 individuals for services valued at $3,110,400 in the first quarter of 2008, and 150,000 shares of common stock for services valued at $49,500 in the first quarter of 2007.
The Company granted one option holder the right to exercise, without payment, options to purchase 1,900,000 shares of common stock in the first quarter of 2008. The value of this additional benefit was $190,000.
Note 8. 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 has experienced continuing losses that resulted in a material working capital deficiency, and an accumulated deficit of $ 27.1 million as of March 31, 2008. 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.
Page 9 of 18
Note 9. CONTINGENCY
A Company stockholder has asserted that she suffered losses of $240,000 because of alleged misrepresentation as and omissions made by the Company at the time she purchased her stock. The Company, through its attorneys, has rejected her claim.
Note 10. SUBSEQUENT EVENTS
During the first quarter of 2008, the company initiated negotiations with various investment companies conducive to obtaining additional financing to execute its plan of operations. As of April 24, 2008, the company received proceeds from an $800,000 bridge loan. In addition, a $30 million financing is being worked out and will be eventually used to invest in planned projects.
So far, the company has been able to meet short-term cash requirements, however, we cannot assure that we will continue receiving funding from investors and therefore, make no assurance that we will be able to meet our short-term cash requirements for the next twelve months.
Item 2- Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “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, which relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “intends”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” in our Annual Report on Form 10-K/A for our fiscal year ended December 31, 2007 filed with the United States Securities and Exchange Commission , that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. Except as required by applicable law, including the securities laws of the United States, we undertake no obligation to update any of the forward-looking statements whether as a result of new information, future events or otherwise.
Page 10 of 18
Overview
We commenced our development stage on April 15, 2002. The Company has spent approximately the last two years initiating and developing our Waste to Energy (“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 $27.1 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 2008 from waste disposal fees to be collected from municipalities and other waste management related companies in the areas were our projects are located. This is the first phase of our plan before we begin the construction of WTE facilities. We anticipate commencing the storage of waste in landfills during the construction phase. Although we believe that it is reasonable to expect revenue from our first WTE energy plant to commence by year 2010 (after the completion of the construction of the first plant), many factors exist that are beyond our control that could delay or even prevent this from happening. These factors include but are not limited to: construction delays, political unrest and severe economic turn downs.
In October 2006, we purchased proprietary patented technologies, Add-Power, a low temperature turbine (LTT), and Scrub Power, a special emission-to-energy system from three Swedish entities, Anovo AB Angelholm, Add-Power AB Angelholm, and SUPE Ltd for a total consideration of $2.8 million. The prototype has been substantially upgraded through the incurrence of additional research and development costs. We spent around $125,847 during year 2007 and are looking to patent new technology that will make the product more competitive and efficient. It has been tested and results have been drawn from its operating capacity at a Steel Mill in Sweden under a contract arrangement.
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 Add-Power units by the beginning of 2009. Other applications are being explored to expand its use and expand our market opportunities for alternate energy sources.
It should be noted that our independent auditors have concluded that there are many factors regarding our company and its operations that raise substantial doubt about the ability of the Company to continue as a going concern.
Plan of Operation
Because we did not have sufficient financing (debt and/or equity) during the last fiscal year, our Plan of Operation has not significantly changed from our plan indicated in our 10K Report for the year ended December 31, 2007.
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 negotiations to begin a Land field operation and the construction of WTE project in Egypt, (2) complete the research and development of our Add-Power electrical generating unit to make it a commercially viable product, and to manufacture and sell twelve units, 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:
Page 11 of 18
Research and Development
PROJECTED DATE
Goal | Projected Date | |
|
| |
1. Processing of site permits in Mexico and start waste collection | Present through July 2008 | |
2. Complete R&D of Add-Power and manufacture first unit | Present through September 2008 | |
3. Introduction of WTE technology in the Kingdom of Saudi Arabia and | ||
generate revenue from Egypt landfill operation | Present through October 2008 | |
4. Negotiations for WTE sites in several foreign countries now identified | Foreseeable future | |
form subsidiaries as may be required in other countries |
Since we did not raise a sufficient amount of capital in the quarter covered by this quarterly report (i.e. gross proceeds of $822,000), we have not implemented our previously established operating plan and it remains the same as the plan indicated in our Form 10K for the year ended December 31, 2007.
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.
Page 12 of 18
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.
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 March 31, 2008, we had an accumulated loss of $27.1 million during the development stage.
Net cash consumed by operating activities during development stage total almost $9 million comprised of the cumulative loss of $27.1 Million, $16.3 million used in non cash transactions such as issuance of shares of stock for services, stock options exercised for free and value of options granted under our stock option plan. In addition to that $0.7 million was charged for amortization and impairment charges and the remaining $1.4 million used to pay vendors, employee salaries and other operating expenses.
The company invested nearly $1.1 million in asset acquisition, with $1.0 million used to acquire the Add-Power technology and the remaining $0.1 million was invested in other assets.
Total cash provided by financing activities amounted $10.2 million from which $7.7 million came from sales of stock, $1.8 million was provided by exercise of options and warrants and $1.3 came from loans from officers and other borrowing. An offset of nearly $0.5 million was used to repay loan obligations.
Based on the above data, we believe that 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 are in the process of raising the funds required to fund our operations for the next 24 months. Our first priority will be the development of the Add-Power unit, which has been already tested and operating at a steel mill in Sweden. Our investment in the manufacturing of the first couple of units should provide us with the foundation to seek contracts from interested customers, some of which have already seen the unit operational and have expressed interest in the Add-Power unit.
We will also pursue WTE projects, specifically those we already have started in Egypt, Saudi Arabia and Mexicali, Mexico. However, our approach will be that of pursuing the landfill permits and construction to be able to operate with revenues from waste collection, until the time we estimate that our first WTE facility will come online. At that Point, we will be in a better financial position to seek additional financing for the development and construction of WTE facilities, all of which will be equipped with the Add-Power unit for a more efficient and low cost energy production.
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.
We are in the process of attempting to raise capital to address approximately $30.3 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 $18.4 million), additional details provided in the chart below.
2)
Working capital to cover the recently completed acquisition of Add-Power AB and the commercialization of Add-Power units (a patented low temperature turbine used for converting waste heat into electricity) of approximately $1.8 million.
3)
Additional development funding to apply Add-Power technology to low cost solar power generation, as well as to test the feasibility of integrating the Add-Power technology into small scale solar units for office parks, malls, and residential projects ($10.1 million).
Page 13 of 18
A detailed schedule of our capital needs for the two years ended December 31, 2009 is as follows:
2008 | 2009 | Total | ||||
| ||||||
Employee Costs | $ 2,832,450 | $4,240,050 | $ 7,072,500 | |||
Travel | 1,196,000 | 1,196,000 | 2,392,000 | |||
Construction/Project Management | 345,000 | 828,000 | 1,173,000 | |||
Legal Fees | 979,800 | 966,000 | 1,945,800 | |||
Outsourced Engineering | 316,250 | 690,000 | 1,006,250 | |||
Contractors/Consultants | 949,900 | 940,700 | 1,890,600 | |||
External & Internal Audit | 142,600 | 345,000 | 487,600 | |||
Corporate Insurance | 287,500 | 517,500 | 805,000 | |||
Accounting Services (Outsourced) | 86,250 | 345,000 | 431,250 | |||
Marketing | 178,250 | 345,000 | 523,250 | |||
Rental /Office Expenses | 320,850 | 345,000 | 665,850 | |||
Total Operating Costs | $7,634,850 | $10,758,250 | $18,393,100 | |||
Additional Investment/Commercialization of | ||||||
other Proprietary Technology | ||||||
Cash for Add-Power Acquisition | 1,798,600 | - | 1,798,600 | |||
R&D of Add-Power unit for commercialization | 4,025,000 | - | 4,025,000 | |||
R&D of Add-Power unit for potential solar | - | |||||
commercialization | 6,095,000 | 6,095,000 | ||||
Total Forecasted Cash Usage Excluding | ||||||
Project Specific Financing | $13,458,450 | $16,853,250 | $ 30,311,700 |
In addition to the above, we plan to develop and execute contracts for our WTE facilities in 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.
Payments Due under Contractual Obligations
We have future commitments at March 31, 2007 consisting of office lease obligations as follows:
Year Ending December 31, | Office Lease Obligations | |
2008 |
| 89,959 |
2009 |
| 91,603 |
2010 |
| 91,443 |
2011 |
| 7,639 |
Total |
| $280,644 |
In addition, we have a contractual obligation to pay during 2008 the remaining $962,057 for the purchase of Add-Power. We will not be able to meet this obligation without proceeds of external financing, of which we provide no assurance.
Page 14 of 18
RESULTS OF OPERATIONS
Quarter ended March 31, 2008 compared to the quarter ended March 31, 2007
The company has accumulated net losses during its development stage of $27.1 million. During the first quarter of 2008, the company had total expenses of $4,076,766 compared to $2,227,938 during same period in 2007. Net operating losses were $4,079,348 in 2008, and 2,227,958 for the same period in year 2007.
The main contributor for the 83% increase in expenses for the comparable period in 2008 and 2007 arises from additional issuance of stock for services and options exercised for free during the three month period ended March 31, 2008. This was due to additional services rendered by consultants and professionals during year 2007 for which the board approved payment with shares of stock. The effect during the quarter ended March 2008 was an increase of $3.0 million in shares for Services offset by a reduction in officer’s compensation of roughly $0.9 million since year 2007, or a net increase of $2.2 million in expenses. The Company has depended on issuance of additional shares of stock to pay some of its debt, to compensate for the cash insufficiency.
The financial position of the company as of March 31, 2008 and December 31, 2007 shows current assets of $131,758 and $32,315 respectively. The increase in current assets is due mainly to an increase of $59,288 and miscellaneous receivables of $131,758. Total assets increased from $2,363,441 in 2007 to $2,415,961 in 2008 due mainly to the effect in current assets and a $50,412 payment for a patent application for the Add-Power product.
Current liabilities totaled $2,598,494 in March 2008 and $2,711,378 in December 2007. The net impact of these balances is capital deficit of $182,534 in March 2008 vs. $347,937 in December 2007.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We have adopted various accounting policies that govern the application of accounting principles generally accepted in the United States of America in the preparation of our financial statements which requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.
Although these estimates are based on our knowledge of current events and actions we may undertake in the future, they may ultimately differ from actual results. Certain accounting policies involve significant judgments and assumptions by us, which have a material impact on our financial condition and results. Management believes its critical accounting policies reflect its most significant estimates and assumptions used in the presentation of our financial statements. Our critical accounting policies include debt management and accounting for stock-based compensation. We do not have off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as "special purpose entities".
Item 3 - Quantitative and Qualitative Disclosures about Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Item 4 - Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit to the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms, and that information is accumulated and communicated to our management, including our principal executive and principal financial officer (whom we refer to in this periodic report as our Certifying Officers), as appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our Certifying Officers, the effectiveness of our disclosure controls and procedures as of March 31, 2008, pursuant to Rule 13a-15(b) under the Securities Exchange Act. Based upon that evaluation, our Certifying Officer concluded that, as of March 31, 2008, our disclosure controls and procedures were effective.
Changes in Internal Controls
There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Page 15 of 18
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
None
Item 1A. Risk Factors
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Item 2 - Unregistered Sale of Equity Securities and Use of Proceeds
During the period covered by this report, we sold 38 units to 26 investors for $822,000 in gross proceeds. Each unit consisted of 500,000 shares of common stock and a warrant to purchase 250,000 shares of common stock. The purchase price of each unit was $50,000. The warrants are exercisable at $0.25 per full share of common stock and expire twelve 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 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 3 - Defaults upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
Item 6 - Exhibits
Exhibit 31.1 - Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (“SOX”)
Exhibit 31.2 - Certification of the Principal Financial Officer pursuant to Section 302 of SOX
Exhibit 32.1 - Certification of the Chief Executive Officer pursuant to Section 906 of SOX
Exhibit 32.2 - Certification of the Principal Financial Officer pursuant to Section 906 of SOX
Page 16 of 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
International Power Group, Ltd.
(Registrant)
| |
| |
/s/ Peter Toscano | |
Date: May 16, 2008 | Peter Toscano |
| Principal Executive Officer |
| |
|
|
|
|
/s/ Robert Astore | |
Date: May 16, 2008 | Robert Astore |
| Principal Financial Officer |
Page 17 of 18
INDEX TO ATTACHED EXHIBITS
Page 18 of 18