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 June 30, 2007
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 offices) | (Zip Code) |
(407) 566-0318
(Registrant's telephone number, including area code)
N/A | ||
(Former name, former address & former fiscal year, if changed since last report) | ||
Indicate by check mark whether the registrant (1) has filed all 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, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] | Accelerated filer [ ] | Non-accelerated filer [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]
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of July 31, 2007: 352,657846 shares of Common Stock, $.00001 par value.
International Power Group, Ltd.
Form 10-Q
Period Ended June 30, 2007
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Quantitative and Qualitative Disclosures About Market Risk.
Unregistered Sale of Equity Securities and Use of Proceeds.
Defaults Upon Senior Securities.
Submission of Matters to a Vote of Security Holders.
Page 2 of 19
PART I – FINANCIAL INFORMATION
Item 1.
Financial Statements
INTERNATIONAL POWER GROUP, LTD
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS | June 30, 2007 | December 31, 2006 | |||
Current Assets | |||||
Cash | $ 59,718 | $1,652,940 | |||
Prepaid expenses | 20.273 | 5,161 | |||
Other current assets | 31,304 | 7,200 | |||
Total current assets | 111,295 | 1,665,301 | |||
Equipment – Work-in-progress | 70,774 | - | |||
Intangible asset – patents | 2,500,000 | 2,700,000 | |||
Other Assets | 13,693 | 23,408 | |||
TOTAL ASSETS | $2,695,762 | $4,388,709 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||
Current Liabilities |
|
|
| ||
Accounts payable | $ 608,293 | $ 524,593 | |||
Accrued expenses | 63,553 | 33,006 | |||
Other payables | 8,872 | - | |||
Shareholder loans | 160,000 | 21,205 | |||
Amount due for acquisition | 962,057 | 1,564,329 | |||
Total current liabilities | 1,802,775 | 2,143,133 | |||
|
|
| |||
Stockholders’ Equity |
|
|
| ||
Common stock – authorized, 750,000,000 shares of $.00001 par value; | |||||
issued and outstanding, 352,657,846 and 345,509,096 shares, | |||||
respectively | 3,527 | 3,455 | |||
Capital in excess of par value | 20,738,292 | 18,378,114 | |||
Accumulated other comprehensive income | 2,274 | 670 | |||
Deficit accumulated during development stage | (19,851,106) | (16,136,663) | |||
Total stockholders’ equity | 892,987 | 2,245,576 | |||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ 2,695,762 | $ 4,388,709 | |||
The accompanying notes are integral part of these consolidated financial statements.
Page 3 of 19
INTERNATIONAL POWER GROUP, LTD
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT ACCUMULATED DURING
DEVELOPMENT STAGE
(Unaudited)
Three Months Ended June 30, 2007 | Three Months Ended June 30, 2006 | April 15, 2002 (Date of Inception of Development Stage) to June 30, 2007 | |||
REVENUE | $ - | $ - | $ - | ||
OPERATING EXPENSES | 1,486,471 | 1,098,316 | 19,849,531 | ||
OPERATING LOSS | (1,486,471) | (1,098,316) | (19,849,531) | ||
OTHER INCOME (EXPENSE) | |||||
Interest Income | 10 | 2,441 | 4,651 | ||
Interest Expense | (24) | - | (6,226) | ||
LOSS ACCUMULATED DURING DEVELOPMENT | |||||
STAGE | $(1,486,485) | $(1,095,875) | $(19,851,106) | ||
NET LOSS PER SHARE – basic and diluted | $ - | $ - | |||
WEIGHTED AVERAGE SHARES OUTSTANDING | 350,648,341 | 314,422,122 |
The accompanying notes are integral part of these consolidated financial statements.
Page 4 of 19
INTERNATIONAL POWER GROUP, LTD
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT ACCUMULATED DURING
DEVELOPMENT STAGE
(Unaudited)
Six Months Ended June 30, 2007 | Six Months Ended June 30, 2006 | April 15, 2002 (Date of Inception of Development Stage) to June 30, 2007 | |||
REVENUE | $ - | $ - | $ - | ||
OPERATING EXPENSES | 3,714,409 | 3,262,656 | 19,849,531 | ||
OPERATING LOSS | (3,714,409) | (3,262,656) | (19,849,531) | ||
OTHER INCOME (EXPENSE) | |||||
Interest Income | 14 | 2,441 | 4,651 | ||
Interest Expense | (48) | - | (6,226) | ||
LOSS ACCUMULATED DURING DEVELOPMENT | |||||
STAGE | $(3,714,443) | $(3,260,215) | $(19,851,106) | ||
NET LOSS PER SHARE – basic and diluted | $ (0.01) | $ - | |||
WEIGHTED AVERAGE SHARES OUTSTANDING | 349,108,592 | 313,392,731 |
The accompanying notes are integral part of these consolidated financial statements.
Page 5 of 19
INTERNATIONAL POWER GROUP, LTD.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30, 2007 |
| Six Months Ended June 30, 2006 | April 15, 2002 (Date of Inception of Development Stage) to June 30, 2007 | |||
Cash Flows From Operating Activities: |
|
|
| |||
Net loss from operations | $(3,714,443) |
| $(3,260,215) | $(19,851,106) | ||
Adjustments to reconcile net loss to net cash used by operating activities: |
| |||||
Charges not requiring cash outlay: |
| |||||
Value of options granted | 875,000 |
| 1,050,000 | 5,659,500 | ||
Common stock issued for |
| |||||
services | 253,000 |
| 376,250 | 5,564,569 | ||
Options exercised for services | - |
| 70,000 | 335,000 | ||
Amortization | 200,000 |
| - | 300,000 | ||
Impairment charges | - |
| - | 123,000 | ||
| ||||||
Changes in assets and liabilities: |
| |||||
Increase in prepaid expenses | (15,112) |
| - | (20,273) | ||
Increase in other current assets | (24,104) |
| (7,191) | (31,304) | ||
Increase in accounts |
| |||||
payable | 83,700 |
| (52,455) | 608,293 | ||
Increase in accrued expenses | 30,547 |
| - | 63,553 | ||
Increase in other payables | 8,872 |
| - | 8,872 | ||
Decrease (increase) in other assets | 9,715 |
| - | (13,693) | ||
Net cash consumed by operating |
| |||||
activities | (2,292,825) |
| (1,823,611) | (7,253,589) | ||
| ||||||
Cash Flows From Investing Activities: |
| |||||
Acquisition of Addpower | (602,272) |
| - | (1,037,943) | ||
Acquisition of equipment | (70,774) |
| - | (70,774) | ||
Investment in Mexican company | - |
| - | (2,500) | ||
Investment in note receivable | - |
| - | (65,000) | ||
Proceeds from note receivable | - |
| 65,000 | 65,000 | ||
Net cash provided (consumed) by investing activities | (673,046) | 65,000 | (1,111,217) | |||
| ||||||
Cash Flows From Financing Activities: |
| |||||
Proceeds from loans shareholders |
| |||||
loans | 160,000 |
| - | 681,205 | ||
Repayments of loans | (21,205) |
| - | (521,205) | ||
Proceeds of sales of stock units | 944,750 |
| 905,000 | 6,451,750 | ||
Proceeds from exercise of options | - |
| 170,000 | 375,000 | ||
Proceed from exercise of warrants | 287,500 | 338,000 | 1,435,500 | |||
Net cash provided by financing | ||||||
activities | 1,371,045 | 1,413,000 | 8,422,250 | |||
Effect on cash of foreign currency |
| |||||
exchange rate | 1,604 | - | 2,274 | |||
Net (decrease) increase in cash | (1,593,222) |
| (345,611) | 59,718 | ||
Cash balance, beginning of period | 1,652,940 | 955,621 | - | |||
Cash balance, end of period | $ 59,718 |
| $ 610,010 | $ 59,718 | ||
The accompanying notes are integral part of these consolidated financial statements
Page 6 of 19
INTERNATIONAL POWER GROUP, LTD.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2007
(Unaudited)
Note 1.
BASIS OF PRESENTATION
The unaudited interim consolidated financial statements of International Power Group, Ltd. as of June 30, 2007 and December 31, 2006 and for the three and six-month periods ended June 30, 2007 and June 30, 2006 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 for such periods. The results for the three and six months ended June 30, 2007 are not necessarily indicative of the results to be expected for the full year ending December 31, 2007.
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, 2006 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 half of 2007. A total of 5,323,750 shares of common stock were sold in the six-month period ended June 30, 2007. These sales resulted in net proceeds to the Company of $944,750. These shares were sold as part of “stock units,” with each unit consisting of one share of stock and one half of a warrant to purchase one share of stock. For each two shares of stock purchased. For the six- month period ended June 30, 2007, warrants to purchase 2,061,875 shares of stock were issued, exercisable at $0.40 per share for a period of twelve months and warrants to purchase 600,000 shares of stock were issued, exercisable at $0.25 per share, for a period of twelve months.
Warrant activity for the six months ended June 30, 2007 is as follows:
Balance December 31, 2006 | 11,695,498 |
Warrants granted during the first six months of 2007 | 2,661,875 |
Warrants exercised during the first six months of 2007 | (1,150,000) |
Warrants expired during the first six months of 2007 | (3,088,000) |
Balance June 30, 2007 | 10,119,373 |
Relevant information about the warrants outstanding at June 30, 2007 is presented below:
Exercise Price | Weighted-Average Remaining Contractual Term (months) |
Warrants |
$0.25 | 12.0 | 600,000 |
$0.40 | 26.8 | 7,911,875 |
$1.00 | 7.5 | 1,607,498 |
Total exercisable |
| 10,119,373 |
Page 7 of 19
INTERNATIONAL POWER GROUP, LTD.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2007
(Unaudited)
Note 3.
RELATED PARTY TRANSACTIONS
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.
In the second quarter of 2007, Peter Toscano, President and CEO, loaned the Company a non-interesting bearing note in the amount of $30,000.
Also in the second quarter of 2007, Jerry Pane, shareholder, loaned the Company $90,000 with a six percent interest rate
In addition, US Precious Metals, Inc., loaned the Company $40,000 with a six percent interest rate in the second quarter of 2007,. US Precious Metals, Inc. is a Company that is also managed by Peter Toscano, Jack Wagenti and Jose Garcia.
Note 4.
OPERATING EXPENSES
Major categories of operating expenses are presented below.
Six Months Ended June 30,2007 | Six Months Ended June 30,2006 | April 15, 2002 (Date of Inception of Development Stage) to June 30, 2007 | |||
Stock based compensation | $ 875,000 |
| $1,050,000 |
| $5,659,500 |
Consulting expense | 715,594 |
| 779,434 |
| 7,592,335 |
Professional fees | 396,233 |
| 493,728 |
| 1,830,739 |
Impairment | - |
| - |
| 123,000 |
Office expenses | 33,322 |
| 108,636 |
| 255,102 |
Travel and meals | 326,136 |
| 449,427 |
| 1,330,104 |
Public relations | 197,631 |
| 25,148 |
| 470,954 |
Salaries and other employee expenses | 744,371 |
| 237,387 |
| 1,586,858 |
Insurance | 9,354 |
| 17,003 |
| 65,080 |
Automobile expenses | 28,654 |
| 17,982 |
| 91,864 |
Telecommunications | 46,814 |
| - |
| 155,682 |
Rent | 91,409 |
| 36,609 |
| 229,411 |
Amortization | 200,000 |
| - |
| 300,000 |
Other expenses | 49,890 |
| 43,569 |
| 158,901 |
$3,714,409 |
| $3,262,656 |
| $19,849,531 |
Page 8 of 19
INTERNATIONAL POWER GROUP, LTD.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2007
(Unaudited)
Note 5.
COMPREHENSIVE LOSS
Comprehensive loss is as follows:.
Three Months Ended June 30, 2007 | Three Months Ended June 30, 2006 | ||||
Net loss | $(1,486,485) |
| $(1,095,875) |
| |
Foreign currency translation | 1,570 |
| - |
| |
Comprehensive loss | $(1,484,915) |
| $(1,095,875) |
|
Six Months Ended June 30, 2007 | Six Months Ended June 30, 2006 | April 15, 2002 (Date of Inception of Development Stage) to June 30, 2007 | |||
Net loss | $(3,714,443) |
| $(3,262,656) |
| $(19,773,606) |
Foreign currency translation | 1,604 |
| - |
| 2,274 |
Comprehensive loss | $(3,712,839) |
| $(3,262,656) |
| $(19,771,332) |
Note 6.
SUPPLEMENTAL CASH FLOWS
There was no interest paid for either interest or income taxes during the six months periods ended June 30, 2007 or June 30, 2006
The Company issued 675,000 shares of common stock for services valued at $253,000 in the first six months of 2007 and 375,000 shares of common stock for services valued at $376,250 in the first six months of 2006.
The Company granted option holders the right to exercise, without payment, options to purchase 700,000 shares of common stock in the first quarter of 2006. The value of this additional benefit was $70,000.
Note 7.
ONGOING 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 a working capital deficit and an accumulated deficit as of June 30, 2007 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.
Note 8. 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
Page 9 of 19
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.
Page 10 of 19
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, 2006 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.
Overview
We commenced our development stage on October, 2004 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 $19.9 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. The Management team believes it is on target with this forecast. 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. The Company has installed its first unit in Uddevalla, Sweden. Documentation is being gathered to verify the Company’s claims on the efficiency of this technology.
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
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own planned WTE facilities. We believe we will begin to receive orders for our AddPower units by the beginning of 2008.
Presently the Company has Letters of Intent to purchase AddPower units. We believe these LOI’s will be turned into full contracts within the first quarter 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:
PROJECTED DATE
Goal | Projected Date | |
1. Processing of site permits in Mexico | Present through October 2007 | |
2. Complete R&D of AddPower | Present through November 2007 | |
3. Introduction of WTE technology in the Kingdom of Saudi Arabia and Egypt beginning of WTE site location negotiations | Present through October 2007 | |
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
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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.
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 June 30, 2007, we had an accumulated loss of $19.9 million during the development stage. The expenses that produced this operating loss included stock based compensation expenses in the sum of $11.6 million and other expenses, including cash expenses, of approximately $8.3 million. At June 30, 2007, our cash balance was approximately $60,000. During the first six months of 2007 the company cash balance decreased by $1.6 million. We used approximately $2.3 million for our operating activities and made $0.7 million in payments for the acquisition of AddPower and equipment. These uses of cash were offset by $0.9 million in stock sales, $0.3 million in cash from the exercise of stock warrants, $0.2 million of loans.
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.
Page 13 of 19
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 Add-PowerAB 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 two years ended December 31, 2008 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 of Other Proprietary Technology | |||||||
Cash for AddPower Acquisition | 602,000 | 962,000 | 1,564,000 | ||||
R&D of AddPower unit for commercialization | 3,500,000 | - | 3,500,000 | ||||
R&D of AddPower unit for potential solar commercialization | - | 5,300,000 | 5,300,000 | ||||
Total Forecasted Cash Usage Excluding | |||||||
Project Specific Financing | $10,741,000 | $15,617,000 | $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.
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Payments Due under Contractual Obligations
We have future commitments at June 30, 2007 consisting of office lease obligations as follows:
Year Ending December 31, | Office Lease Obligations | |
2007 | $ 44,665 | |
2008 | 89,959 | |
2009 | 91,603 | |
2010 | 91,443 | |
2011 | 7,639 | |
Total | $335,309 |
In addition, we are obligated to pay during 2007 the remaining $962,057 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.
Results of Operations.
Quarter ended June 30, 2007 compared to the quarter ended June 30, 2006
Our net losses increased by $391,000 for the quarter ended June 30, 2007 as compared to the quarter ended June 30, 2006. This increase in net losses is primarily attributable to employee related costs (i.e., salaries and travel), which was approximately $180,000. We hired 9 new employees in 2006. We also recorded $100,000 of amortization expense that was associated with our intangible asset – patents that was acquired in the fourth quarter of 2006. Lastly, our consulting and public relations costs increased by approximately $98,000 related to the business development efforts in Mexico, Saudi Arabia and Egypt.
Six months ended June 30, 2007 compared to the six months ended June 30, 2006
Our net losses increased by $454,000 for the six months ended June 30, 2007 as compared to the six months ended June 30, 2006. This increase in net losses is primarily attributable to employee related costs (i.e., salaries and travel), which was approximately $507,000. We hired 9 new employees in 2006. We also recorded $200,000 of amortization expense that was associated with our intangible asset – patents that was acquired in the fourth quarter of 2006. These increases in costs were offset by a reduction in the stock based compensation of $175,000 period over period.
Item 3.
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 business plan develops and we begin building as we expect WTE facilities in various foreign countries, the risk of foreign currency exchange will increase.
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Item 4.
Controls and Procedures.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
The Company’s Chief Executive Officer has reviewed the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon this review, this officer believes that the Company’s disclosure, controls and procedures are effective (i) in timely alerting him 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.
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PART II - OTHER INFORMATION
Item 1.
Legal Proceedings.
None
Item 1A. Risk Factors.
Please consider the risk factors discussed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K/A for the annual period ended December 31, 2006, which could materially affect our business, financial condition or future results. The risks described therein are not the only risks facing the Company. Additional risks and uncertainties not currently know to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results.
Item 2.
Unregistered Sale of Equity Securities and Use of Proceeds.
None
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 Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (“SOX”)
Exhibit 32.1 - Certification pursuant to Section 906 of SOX
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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)
August 20, 2007 | /s/ Peter Toscano |
Date | Peter Toscano |
President and Chief Executive Officer and | |
Principal Executive Officer | |
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INDEX TO ATTACHED EXHIBITS
Exhibit 31.1 - Certification Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (“SOX”)
Exhibit 32.1 - Certification pursuant to Section 906 of SOX
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