Item 1. Business
Certain statements in this Annual Report on Form 10-K are “forward-looking statements”. These statements involve a number of risks, uncertainties and other factors that could cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors which could materially affect such forward-looking statements are incorporated herein by reference. Investors are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements made herein are only made as of the date hereof and we will undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.
References in this Annual Report on Form 10-K to “Global Energy,” the “Company,” “we,” “us” or “our” are to Global Energy Inc., a Nevada corporation, and its subsidiaries.
Description of the Business
Historical Information
Our business address is 16 Menachem Begin Street, Gama Building, 5th floor, Ramat Gan, 52681, Israel, and our telephone number is 972-077-202-5444. Our registered agent is Rite, Inc., 1905 South Eastern Ave., Las Vegas, NV 89104. We maintain a website located at http://www.global-nrg.biz. The information contained in this website is not incorporated by reference into this annual report.
We are a Nevada corporation that was incorporated on February 16, 1999 as Global Smartcards Inc. We originally planned to market plastic cards with embedded microprocessors. However, we were unable to complete negotiations to market these cards and did not proceed with this business plan.
In early 2003, we decided to engage in the business of acquiring, exploring and developing crude oil and natural gas properties in the United States. On April 28, 2003, we changed our name to Global Energy Inc., and on June 5, 2003, we purchased certain petroleum and natural gas producing properties and commenced oil and gas operations.
During April 2005, our management decided to seek alternative business opportunities. Effective July 1, 2005, we entered into and subsequently effected an agreement with Roxbury Capital Group Ltd. and Qwest Capital Inc. pursuant to which we sold substantially all of our assets, then comprising oil and gas lease interests, for the sum of $50,000. After the completion of that sale, we continued to look for alternative business opportunities.
On April 30, 2007, in connection with a private placement of our securities with one foreign investor, Asi Shalgi joined as our President and Chief Executive Officer and we began to build our current business, focusing on the production of alternative fuels.
We are currently a development stage company that intends to acquire build and operate facilities in various locations around the world that will use a proprietary technology to produce alternative fuels known as the KDV process, which is described below beginning on page 2.
Company Strategy
Since June 2007, we have observed efforts in the United States and the European Community to develop facilities for the production of renewable, alternative fuels - primarily biofuels based on corn and other feedstocks. Interest world-wide has recently focused on second and third generation of cellulosic ethanol, which is biofuel produced from wood, grasses, and the non-edible parts of plants, as well as different technologies utilizing gasification of biomass to liquid. Today, the production of both ethanol and biodiesel has been constrained by price increases for their respective primary feedstocks, corn and rapeseed (Canola). Recent interest in the U.S. market has focused on Renewable Drop-In Fuel ("RDIF"), an area well-suited to KDV technology.
Against this background, the emerging alternative fuels industry has placed a high priority on developing and deploying new technologies capable of utilizing abundant waste streams instead of corn and other feedstocks for the production of alternative fuels. While we have noted that much attention has been focused on high profile waste streams such as municipal solid waste (“MSW”) and biomass waste derived from agriculture and forestry, we believe that there are many other high volume industrial waste streams available to be converted into alternative fuels. We have also determined that unlike traditional biofuels based on corn and other food-based feedstocks, which must be purchased in order to be converted into ethanol or biofuel, the utilization of waste streams as feedstocks to produce alternative fuels also offers the potential of earning additional revenues from garbage tipping fees and through the recycling of waste.
With the above factors in mind, we developed our business plan to take advantage of these potential dual revenue streams through the utilization of the patented technology known as the KDV process. The KDV process has been developed during the past thirty years by a German scientist, Dr. Christian Koch. The KDV process, which Dr. Koch describes as a catalytic de-polymerization, utilizes hydrocarbon-based feedstocks such as biomass, wood and paper as well as plastic, rubber and waste oils, to produce high quality synthetic diesel fuel, similar to diesel fuel publicly available at refueling stations today.
Our strategy is to build, own and operate, independently or with strategic partners, industrial scale facilities that will utilize this technology to produce synthetic diesel fuel from different types of hydrocarbon-based waste. In each project, we plan to partner with local companies, generally operators of landfill sites and recycling facilities, that have the ability under long-term contracts to supply large, consistent quantities of appropriate waste feedstock as well as arrange agreements with large fuel distributers to buy the diesel fuel on a long term basis. We also expect that such local partners will have the requisite regulatory and technical expertise to obtain necessary governmental approvals for the diesel fuel producing facilities based on this technology.
Based on the production capabilities demonstrated by pilot projects utilizing this technology, we believe that a single KDV500 unit is capable of producing approximately 500 liters of synthetic diesel fuel per hour, or approximately 4,000,000 liters (approximately 1,000,000 gallons) of synthetic diesel fuel per year.
We are currently negotiating with potential local partners to build plants in the United States, China, and Romania. We anticipate that each plant should initially begin operations with one or more KDV500 units with plans to subsequently expand to industrial scale facilities with the capacity to produce approximately 15-20 million gallons per year of diesel fuel. We believe that at optimal capacity, these facilities should be capable of producing synthetic diesel fuel at a net cost of approximately $1.20 per gallon given a zero feedstock cost. In addition, we believe that we will be able to negotiate agreements under which we will collect tipping fees for taking and processing MSW. When these tipping fees are factored in, the net cost should be significantly lower.
Description of the KDV Technology
KDV Process
The KDV process, which we believe represents a major breakthrough in the quest for renewable energy sources, utilizes proprietary technology developed by Dr. Koch, which he has licensed to his German company, Alphakat GmbH. Dr. Koch is a distinguished scientist who during his long-standing career at Siemens Corporation held several senior positions.
The KDV process falls under the category of second generation renewable fuels, which are fuels derived from biomass residues and non-food crop feedstocks, as distinguished from first generation renewable fuels such as corn and sugar cane ethanol and soy or rapeseed biodiesel.
There are two general categories of technology being developed for scond generation fuels: (i) biochemical, which involves enzymes and other micro-organisms to convert cellulose and hemicellulose into sugar which is fermented into ethanol, and (ii) thermo-chemical, which utilizes pyrolysis, a form of incineration that decomposes organic materials, as well as gasification technologies to produce synthesis gas from which a wide range of fuels can be produced.
Unlike the biochemical and thermo-chemical processes, the KDV process is a chemical/mechanical process that uses a single catalyst instead of a combination of enzymes and living organisms, and operates at less than 300 degrees Celsius which is much lower than the extreme temperatures of the high energy consuming thermo-chemical processes. As a result, the benefits of the KDV process are lower capital cost and operating expenses, superior energy balance, broader choice of feedstocks, minimal harmful emissions, easier permitting profile and a 100% substitute transportation fuel.
The KDV process equipment has been developed as modular units, which allow for smaller initial facilities or scaling up with multiple units, presenting a significant advantage over competing technologies.
The core elements of the KDV process are a catalyst and a patented turbine. Known technically as catalytic de-polymerization, the KDV process takes long carbon chains (polymers) and breaks them into the shorter carbon chains that comprise a high quality diesel fuel.
Catalysts are chemical compounds that facilitate chemical reactions but, because they are not consumed in the process, can be recovered and used again. In layman terms, Dr. Koch describes the KDV process catalyst as a mixture of substances found in nature, which over millions of years converted organic matter such as plants and micro-organisms into the primary fossil fuels such as oil, gas and coal. The catalyst’s primary ingredients are silicon, alumina and sodium, which are among the world’s most prevalent substances, and we therefore believe that the catalyst will not be subject to any supply risks.
The patented turbine, which Dr. Koch designed, is critical to the KDV process. According to Dr. Koch, the turbine creates the conditions required for the catalyst to work efficiently. Each KDV500 unit has two turbines, Conceptually, the turbine is like a blender spinning at high speed. The spinning of the turbine creates friction and raises the temperature of the catalyst and feedstock, which are suspended in a host oil at less than 300 degrees Celsius. At this temperature, vapor is created and vented into a standard distillation column where it is condensed into synthetic diesel fuel and water. We have observed that the only by-product or waste associated with the process is a small amount of cake comprised of inorganic material or ash, and no emissions are released to the atmosphere except for carbon dioxide with small amount of volatility organic compound and water vapor.
We believe that the KDV process is an improvement over gasification and pyrolysis, which are the two main types of processes currently being developed by other companies as part of their efforts to find commercially successful waste-to-fuel solutions. We believe that while different, both of these processes share certain traits that make them less efficient and hence less economically attractive than the KDV process. According to industry standards, these processes operate at temperatures ranging from 800 to 1,800 degrees Fahrenheit, considerably higher than the KDV process. As a result, the basic cost to build and operate these types of facilities is greater than with the KDV process due to design issues, high energy consumption, and environmentally hazardous by-products, which require special disposal, treatment or further refining.
When describing alternative fuels, an important measure of efficiency is “net energy balance”, which measures energy input versus output. We believe that the KDV process is more efficient compared to other technologies.
Feedstocks
According to Dr. Koch, the KDV process is capable of utilizing virtually any hydrocarbon-based waste stream to produce synthetic diesel fuel. Depending on the particular feedstock, one KDV500 unit requires approximately 5,760 to 13,200 tons of feedstock per year to produce approximately one million gallons of synthetic diesel fuel. We believe that the key commercial issue is sourcing a reliable, consistent, long-term supply of waste feedstock for each project.
We have determined that MSW is in abundant supply. Broadly defined, MSW may include plastic, rubber, paper, cardboard and various food wastes. It requires major financial and logistical resources to collect recycle and arrange disposal. Population growth and landfill constraints are placing greater financial and logistical pressure on the waste management resources of municipalities. Therefore, environmentally and fiscally acceptable waste-management practices are increasingly essential in order to avoid damaging consequences, such as those due to toxic/hazardous waste, greenhouse-gas emissions, water pollution, air pollution and noise/visual impact of recycling/waste disposal facilities.
We are aware of three primary types of municipal waste treatment technologies that are currently used today: (i) incineration/gasification, (ii) chemical decomposition, and (iii) landfill burying. These technologies have substantial negative economic and environmental impacts, particularly from production of hazardous byproducts such as toxic ash, toxic water, and noxious air emissions. Due to the harm they pose to the environment, it is expensive to dispose of these hazardous by-products. We believe that until now efforts to produce energy or fuel from MSW and landfills has been limited to two options: (i) burning MSW in waste-to-energy plants to produce steam to generate electricity or heat for buildings; and (ii) capturing methane from landfills. The KDV process offers another option, which we believe avoids the by-products of existing treatment technologies and as a result should be more cost effective.
In addition to MSW, we believe the KDV process can be applied to:
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refinery residuals, such as petroleum coke, tar and paraffin, which cannot be used today, are environmentally harmful and very expensive to neutralize.
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used oil from engines, organic wastes, sewerage sludge and animal manures; and
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all types of waste biomass such as corn stover, sugar cane bagasse and other types of plant stalks and parts such as peal and husks that are left over after harvesting edible grains, juices and oils.
While we believe that the KDV process can utilize a broad range of feedstocks, as outlined above, we plan to focus on projects where we are able to sign long term contracts for waste feedstocks for which we will be paid a tipping fee. We have estimated that average tipping fees for MSW and non-hazardous waste are about $35 per ton in the U.S. and $60 per ton in Europe.
Strategic Agreements
Alphakat GmbH Agreements
Our current plan is to set up a series of worldwide waste-to-diesel production facilities, as reflected by the terms of four agreements we have with Dr. Koch’s company Alphakat GmbH:
(1)
“Terms of agreement” between us and Alphakat GmbH, dated May 2, 2007, agreeing to incorporate an equally-owned subsidiary which would be granted certain exclusive rights with respect to the KDV technology;
(2)
“Shareholders’ Agreement” between us and Alphakat GmbH, dated July 10, 2007, agreeing on the terms of operation of Alphakat-Global Energy GmbH, the equally-owned subsidiary referenced in (1), above, and the scope of the rights with respect to the KDV technology granted to it; and
(3)
Incorporators’ agreement and articles of Alphakat-Global Energy GmbH, dated November 22, 2007, by which we and Alphakat GmbH incorporate Alphakat-Global Energy GmbH as equal shareholders, and by which Alphakat granted Alphakat-Global Energy GmbH certain rights with respect to the KDV technology.
(4)
License agreement between Alphakat-Global Energy GmbH and Alphakat GmbH, dated March 11, 2010 and effective as of February 6 2008, by which Alphakat GmbH granted to Alphakat-Global Energy GmbH a license to commercialize, market, offer for sale, use and practice and make improvements to Alphakat GmbH's proprietary renewable diesel technology (the "Technology") on a world-wide basis other than in Mexico, Spain, Bulgaria and Italy.
Under these four agreements, Alphakat GmbH has granted Alphakat-Global Energy GmbH, the equally-owned subsidiary of Alphakat GmbH and ourselves, the following rights:
(1)
The right to sell and market KDV technology units worldwide, subject to rights previously granted to third parties to sell the KDV units in Bulgaria, Spain, Italy, Mexico,
(2)
The exclusive right to sell and market KDV technology in the United States and China.
Business Development Agreements
On February 6, 2008, each of Dr. Koch, Alphakat GmbH, and Alphakat-Global Energy GmbH entered into agreements with Covanta Energy Corp., a wholly-owned subsidiary of Covanta Holding Corporation ("Covanta") (the "February 6, 2008 License Agreement between GmbH and Covanta"). We consolidated the financial results of Alphakat-Global Energy GmbH, a company equally owned by Alphakat GmbH and us, in accordance with ASC Topic 810. Covanta is an internationally recognized owner/operator of energy-from-waste facilities and renewable energy projects. Covanta’s energy-from-waste facilities convert municipal solid waste and other types of waste material into renewable energy (primarily electricity and steam) for numerous communities, predominantly in the U.S. Covanta’s facilities convert municipal solid waste into renewable energy for numerous communities, predominately in the United States. Under the terms of these agreements, Covanta Energy Corp. has the exclusive right to purchase, use and make improvements to the KDV technology in the United States for household waste feedstock, and non-exclusive rights to use the technology in China, United Kingdom and the Republic of Ireland. In accordance with the terms of this agreement, to preserve these rights, Covanta Energy Corp. purchased a KDV500 unit through Alphakat-Global Energy GmbH on July 8, 2008. in June 2010 Covanta started to test the KDV500 If Covanta Energy Corp.‘s tests are positive, and it wishes to proceed further with its deployment of the KDV technology, then it must order five additional KDV500 units within twelve months of the acceptance date of the first KDV500 unit. Over a ten-year period, which begins on the commissioning date of the first unit, Covanta Energy Corp is obligated to order a total of 600 KDV500 units or equivalent units in terms of production capacity.
Covanta has also granted us the right to fund and own up to 35% of each of Covanta‘s KDV-based projects. In addition, Covanta has agreed to pay us an amount equal to 10% of the gross revenue of each of Covanta‘s KDV-based projects, regardless of whether we invest in these projects or not.
On November 23, 2010, the parties signed the Second Amendment to the February 6, 2008 License Agreement between Alphakat-Global Energy GmbH and Covanta, which incorporated changes from an earlier amendment. Pursuant to the Second Amendment, the license rights of Covanta were amended to provide that Covanta, with certain limited exceptions for “Carve-Out Projects”, would have the exclusive right to use the Technology in the United States throughout the term of the original agreement subject to meeting its minimum purchase requirements.
As a result of this Second Amendment, permissible feedstock now includes all materials capable of being processed by the Technology. In addition, the term of the original agreement was extended to July 1, 2030.
On February 6, 2008, Alphakat-Global Energy GmbH and American Renewable Diesel executed an agreement granting to American Renewable Diesel the exclusive right to sell and use the KDV technology in five U.S. states: Texas, California, New York, New Jersey and Florida (the “Exclusive Territory”). American Renewable Diesel is a special purpose company owned and managed by Trianon Partners. Trianon Partners has extensive international project development experience, has worked with Covanta Energy Corp. in connection with various power projects, and has facilitated the negotiation of the agreements between Alphakat-Global Energy GmbH, us, and Covanta Energy Corp.
On November 23, 2010, the parties signed the Second Amendment to the agreement with American Renewable Diesel, which incorporated changes from an earlier amendment, according to which American Renewable Diesel no longer has exclusive rights in the Exclusive Territory, and American Renewable Diesel is no longer required to secure a minimum number of orders for the KDV technology. In addition, the term of the Agreement was extended to July 1, 2030.
Similar to the business arrangement with Covanta Energy Corp., we have the right to fund and own up to 51% of each of American Renewable Diesel’s KDV-based projects. Furthermore, under the terms of our agreement with American Renewable Diesel, certain projects will be offered to Covanta Energy Corp. for development and we will have the opportunity to receive royalties from such projects in accordance with our agreement with Covanta Energy Corp.
On June 3, 2010, construction of the first KDV 500 waste to renewable diesel unit in the United States was completed. The unit is located on the site of the SEMASS energy-from-waste facility in Massachusetts owned and operated by Covanta Energy Corp.
Covanta installed the KDV 500 as provided by AlphaKat - Global Energy GmbH in order to verify the operability of the equipment and the process and to confirm the commercial viability of the technology. Covanta is currently working on start-up and commissioning activities and expects an extended start-up period which is consistent with the requirements for a new technology. Once the commissioning work is completed, Covanta plans to perform test runs on a variety of different waste feedstock over a six to 12 month period to determine whether the technology is commercially viable.
As part of this commissioning and testing process, the diesel produced by the KDV 500 will be tested as part of the required process for the registration of this renewable diesel fuel with the U.S. EPA. All fuels used in vehicles that operate on public roadways in the U.S. must first be registered with the EPA.
We expect Covanta’s efforts will confirm the commercial viability of the technology with a range of feedstock, although there is no guarantee.
Joint Venture Agreement with S.C. Supercom S.A.
On November 11, 2008, we entered into a Joint Venture Agreement with S.C. Supercom S.A. (“Supercom”), a Romanian company engaged in the business of collecting (and landfilling) municipal solid waste in and around the City of Bucharest, and S.C. Target Group S.R.L. (“Target Group”), a Romanian company. Our company and Supercom have agreed to incorporate a legal entity in Romania under the name “Super Energy S.A.”, to engage in converting municipal solid waste into synthetic diesel fuel in Romania using the KDV technology.
The initial share capital of Super Energy S.A. is to be 51% held by us and 49% held by Supercom, with each contributing 5% of their shares to Target Group upon incorporation of Super Energy S.A. so that the share capital of Super Energy S.A. would be held in the following manner: our company - 46%, Supercom - 44%, and Target Group -10%. Initially, the board of directors of Super Energy S.A. will be comprised of four board members, with each of Supercom and ourselves entitled to appoint two.
All projects undertaken under this agreement are to be financed by Supercom providing 100% of the required equity via a special purpose vehicle, and Super Energy S.A. reimbursing Supercom for investments made on its behalf.
As of the date of filing of this Form 10-K, no such KDV-based projects have been initiated.
Memorandum of Understanding with Shaanxi ShenMu SanJian Coal Chemical Co. Ltd.
On March 9, 2008, the Company entered into a Memorandum of Understanding (“MOU”) with Shaanxi ShenMu SanJian Coal Chemical Co. Ltd. (“Shaanxi”), a company located in the People’s Republic of China, to initiate a KDV project in that region. Completion of the transaction based on this MOU is subject to due diligence, further negotiation and testing.
Other Operations - Production of Crude Castor Oil in Ethiopia
Separate from our efforts to produce alternative fuels, in 2008 and 2009 we invested approximately $2,300,000 in the cultivation of castor plants in Southern Ethiopia for the production of castor oil. Our activities were based in Sodo, Ethiopia and in the regions of Waletia and Goma Gofa, Ethiopia. We engaged a large number of local independent farmers who use a portion of their existing land to cultivate the castor seeds, or clear additional land, and trained these farmers on new agricultural techniques. The local independent farmers seeded approximately 4,000 hectares of land commencing in April, 2008. In the fourth quarter of 2008, the farmers harvested several hundred tons of castor crop.
We also implemented a research and development program to develop a new species of castor to improve future yields. Pursuant to the amending and restating agreement with our senior secured lender dated September 22, 2008, described in detail in the “Financing Agreement with YA Global” section below, we agreed to pay our senior secured lender, towards the repayment of our debt, 50% of all cash flows generated by our Ethiopian operations in excess of the first $700,000 of cash flow.
On March 18, 2009, our subsidiary, Global N.R.G. Pacific Ltd., or Pacific, sold to Presaco Investments Ltd., or Presaco, a company registered in Cyprus, all the stock capital of Pacific’s subsidiary, Global Energy Ethiopia Ltd. as well as all of Pacific’s right, title, and interest in and to all its property and assets in connection with the business of community castor farming for oil and the development of governmental lands for castor oil in Ethiopia.
Pursuant to the purchase agreement, Presaco paid an aggregate consideration of $700,000 in cash, of which the initial payment of $595,000 was paid at closing and deposited in escrow. The entire amount has since been released from escrow and the second payment of $105,000 was deposited at closing in escrow and is subject to release to Pacific on March 1, 2010. On March 23, 2010, the amount of approximately $103,000 after reduction for escrow fees was released from the escrow to Pacific.
For the five years following the closing, Pacific and our company have agreed not to carry on or hold an interest in any company, venture, entity or other business (other than a minority interest in a publicly traded company) which competes with Presaco’s business of castor operation (including, without limitation, as a shareholder).
Pacific was formed as a joint venture with Yanai Man Projects Ltd., a company owned by Yanai Man. On April 5, 2009, Yanai Man Projects Ltd. transferred its remaining 5% interest in Pacific to the Company, and after such time the Company has held 100% of the issued and outstanding shares of Pacific.
Joint Venture Agreement with Waste 2 Oil GmbH
On May 8, 2009, Alphakat-Global Energy GmbH entered into an agreement for service operation of a KDV 500 unit with Waste 2 Oil GmbH (“W2O”), a German company, by which W2O provided plant operations and testing services in Hoyerswerda, Germany, to Alphakat-Global Energy GmbH for three months. W2O was to be responsible for operating the KDV 500 unit, hiring and paying the qualified workers involved with its operation and paying all required taxes. The aim of this agreement was to produce and sell diesel fuel. All income from the sale of the product was to be equally divided between Alphakat-Global Energy GmbH and W2O. Alphakat-Global Energy GmbH agreed to pay W2O a monthly fee for covering the costs for operating the KDV 500 unit as follows: (a) a monthly fee of 5,000 Euro, and (b) a fee of 1,000 Euro for each day of actual operation, plus VAT. The agreement was to commence five days after W2O notifies AKGE that the system is operational and will have a three month term.
Following the end of the three months, the agreement was not renewed.
Financing Agreement with YA Global
Initial Agreement with YA Global
On July 10, 2007, October 23, 2007, and December 27, 2007, we issued 10% secured convertible debentures to YA Global Investments, L.P., our senior secured lender, for gross proceeds of $3,000,000, as a part of a private placement of up to $4,000,000 of debentures. These debentures are secured against all of our assets. Prior to the amendment to the securities purchase agreement on March 20, 2008, described below, these debentures were convertible by the lender into shares of our common stock at a fixed conversion price of $2.20 per share. In conjunction with the placement of these debentures with YA Global Investments, L.P., on July 10, 2007, we also issued to the lender warrants to purchase 300,000 shares of common stock exercisable for five years at an exercise price of $2.35 and warrants to purchase additional 300,000 shares of our common stock exercisable for five years at an exercise price of $2.50.
March 2008 Amendment to YA Agreement
On March 20, 2008, we entered into an amendment to the securities purchase agreement with our senior secured lender that amended the terms of the convertible debentures issued July 10, 2007, October 23, 2007, and December 5, 2007, as follows:
(1)
the amount of convertible debentures we agreed to issue prior to a registration statement registering the shares of our common stock to be issued on conversion of the convertible debentures becoming effective was changed from $3,000,000 to $3,500,000;
(2)
conversion price was changed from $2.20 to $1.25 for all debentures held by the lender; and
(3)
exercise price was changed from $2.50 and $2.35 to $1.25 for all warrants issued to the lender.
On March 20, 2008 and May 13, 2008, we issued two more 10% secured convertible debentures to YA Global Investments, L.P. for gross proceeds of $1,000,000. These debentures were to mature on October 31, 2010 and, prior to the amending and restating agreement dated September 22, 2008, described below, were convertible by the lender into shares of our common stock at a fixed conversion price of $1.25 per share, subject to further adjustment as set out in the debenture. These debentures, like the three previously issued to the lender, were secured against all of our assets.
Under the terms of the debenture issued on May 13, 2008, amortizing payments of the outstanding principal amount of the debenture and accrued interest at an annual rate equal to 10% were to commence on the first business day on or after July 31, 2008, and were to continue on the first business day of each successive calendar month thereafter until the principal amount has been repaid in full, whether by the payment of cash or by the conversion of the principal amount and interest into Common Stock. Other terms of this debenture were the same as in the three debentures previously issued to YA Global Investments, L.P.
July 2008 Amendment to YA Agreement
Effective July 15, 2008, we entered into an amending agreement with YA Global Investments, L.P. with respect to outstanding secured convertible debentures in the aggregate principal amount of $4,000,000, and warrants to purchase 600,000 shares of our common stock issued by our company to the lender. The amendment allowed us to immediately defer certain principal and interest payments due under these debentures. Specifically, under the terms of the July 15, 2008 amending agreement, interest payments accrued and due during the first three quarters of the 2008 calendar year (approximately $267,000 as of July 31, 2008) were deferred until approximately September 30, 2008. In addition, principal installments that were due July 31, 2008 and August 31, 2008 were deferred until September 30, 2008, subject to further deferment if certain conditions were met. In consideration of the amendment, we agreed to issue to the lender 200,000 restricted shares of our common stock.
September 2008 Amending and Restating Agreement with YA Global
On September 22, 2008, prior to the due date of the deferred principal and interest payments under the July 15, 2008 amending agreement, which had not been paid to that date, we entered into an amending and restating agreement with YA Global Investments, L.P. on the following terms:
(1)
the lender agreed to defer payment of interest that had accrued on the $4,000,000 aggregate principal balance represented by the five secured convertible debentures held by it to a date as late as October 31, 2008, subject to further deferment, but only if we completed an offering of at least $1,500,000 in gross proceeds on or before October 31, 2008;
(2)
the lender agreed to defer payment of the principal installments that were due on July 31, August 31, and September 30, 2008 until October 31, 2008, subject to further deferment, but only if we completed an offering of at least $1,500,000 in gross proceeds on or before October 31, 2008;
(3)
the rate of interest to be charged on the aggregate principal amount of $4,000,000 pursuant to the convertible debentures was increased from 10% to 12%; and
(4)
we agreed to issue 1,000,000 restricted shares of our common stock to the lender (in addition to the 200,000 shares issued under the July 15, 2008 amending agreement).
In addition, the amending and restating agreement provides for the following, but only if (and when) we completed an offering of at least $1,500,000 in gross proceeds on or before October 31, 2008:
(1)
we would make a payment in the amount of $180,000 for interest accrued and unpaid on the aggregate principal amount of $4,000,000, to be paid directly from the gross proceeds of the offering, and a payment of an additional amount equal to 10% of the gross proceeds from the offering if we raised gross proceeds of between $2,200,000 and $3,900,000;
(2)
we would make payments on account of the indebtedness represented by the convertible debentures in an amount equal to 50% of all cash flows generated by our Ethiopian subsidiary, Global Energy Ethiopia , in excess of the first $700,000 in cash flow, to be paid on each installment payment date set out on the revised installment payment schedule described in paragraph (5) below;
(3)
we would reduce the conversion price of all secured convertible debentures issued and outstanding to the lender from $1.25 to $0.10 per share, in each case as already required by the terms of those secured convertible debentures;
(4)
we would reduce the exercise price of all warrants held by the lender from $1.25 to $0.10 per share, and an increase in the number of shares of our common stock to be issued upon exercise of those warrants from 600,000 to 7,500,000 shares of our common stock, in each case as already required by the terms of those warrants; and
(5)
we would revise the repayment schedule for the debentures issued to the lender, and the Company Redemption Amount became dependent on the amount by which the total gross proceeds raised in the fall of 2008 private placement exceeded $2,200,000.
On September 30, 2008, we closed the first stage of a private placement, selling 30 units at a price of $50,000 per unit, raising an aggregate of $1,500,000 in gross proceeds. Each unit consisted of 500,000 shares of our common stock and 500,000 share purchase warrants with an exercise price of $0.10 per share, exercisable for a period of five years.
As a result of our closing the first stage of the private placement on September 30, 2008, the provisions of this amending and restating agreement conditional on raising at least $1,500,000 in the private placement, as set out above, became effective, including the reduction of the exercise price and conversion price of the warrants and convertible debentures held by our senior secured lender, respectively, to $0.10, and the increase of the number of shares of our common stock to be issued upon exercise of those warrants from 600,000 to 7,500,000.
On November 4, 2008, we closed the second stage of our private placement, selling four units at a price of $50,000 per unit, raising an aggregate of $200,000 in gross proceeds. Under the terms of this amending and restating agreement, based on the total gross proceeds of $1,700,000 raised in the private placement, we became obligated to pay the following amounts:
(1)
$180,000 for interest accrued and unpaid on the aggregate principal amount of $4,000,000, to be paid directly from the gross proceeds of the private placement;
(2)
on account of the indebtedness represented by the debentures held by the lender, an amount equal to 50% of all cash flows generated by our Ethiopian operations in excess of the first $700,000 in cash flow, to be paid on each installment payment date set out above;
(3)
monthly installment payments as follows:
(1) Because the total gross proceeds raised in the private placement were $1,700,000, the variable redemption amount, which under the terms of the amending and restating agreement equals 4% of the amount of gross proceeds raised in the private placement that exceed $2,200,000, is $0.
(2) This amount may be paid at our discretion as a combination of the company redemption and company conversion amounts in accordance with the terms of the debentures held by the lender.
August 2009 Amending Agreement with YA Agreement
On August 7, 2009, the Company agreed to modifications to the Securities Agreement, existing Debentures, which as of the such date were in the aggregate amount of $4,386,965, and related documents and instruments. The modifications were to become effective subject to the completion by the Company of minimum private placements in the amount of $650,000, among other conditions. The parties agreed that upon completion of the private placement(s), payment in cash by the Company of $50,000 of the amounts outstanding under the debentures since April 1, 2009 ($20,000 of which had already been paid) and satisfaction of other conditions, the following would become effective:
·
The Existing Debentures terms would be modified as follows:
o
Payments. All payments of principal and interest by the Company under the existing Debentures were to be deferred for a period of one year from the Effective Date. Commencing the month preceding the one year anniversary of the Effective Date, the monthly payments to YA Global in the amount of $225,000 each were to resume.
o
Redemption. The Company would have the option to redeem up to $3,000,000 of the outstanding principal and unpaid interest owing under the existing Debentures at any time with 15 days’ prior written notice to the Buyer at a redemption price equal to 115% of the amount being redeemed in accordance with the Amended and Restated Debenture.
o
Conversion Price. The Conversion Price of the existing Debentures was to be reduced to the effective price of the Common Stock issued in connection with the Offering.
·
Warrants. The exercise price of the Warrants was to be reduced to the effective price of the Common Stock issued in connection with the Offering. The number of shares underlying the Warrants shall not be changed, provided that warrants or other Common Stock purchase rights are not issued in connection with the Offering. If any warrants or other Common Stock purchase rights are issued in connection with the Offering then the Company shall issue new warrants to the Buyer such that the proportion of warrant shares to the amount of the Buyer’s initial investment is equal to proportion of warrant shares to the amount of the new investment in the Offering. Any such new warrants shall have an exercise price equal to the price of the Common Stock issued in connection with the Offering
·
Buyer’s Lock up Provision. During any calendar month beginning with the month in which the Effective Date occurs and ending with the calendar month preceding the month in which the one-year anniversary of the Effective Date occurs, except for Excluded Sales (as defined below), the Buyer shall not sell shares of Common Stock for gross proceeds (measured by the quantity of shares sold multiplied by the sales price) of greater than (a) $50,000, or (b) 20% of the aggregate dollar traded volume traded during the preceding calendar month (as measured by multiplying the total volume traded in such month by the average price during such month according to Bloomberg LP). For the purposes hereof the term “Excluded Sales” shall mean any sales by the Buyer at a price of five cents ($0.05) or more.
March 2010 Amending Agreement with YA Global
On March 8, 2010, we entered into a letter agreement (the "Amendment") with YA Global with respect to outstanding secured convertible debentures, which as of such date were in the aggregate amount of $4,675,116, and warrants to purchase 7,500,000 shares of our company’s common stock ( “Warrants”), updating and superseding the amending agreement between us and YA Global dated August 7, 2009 and referred to above (the " April 2009 Agreement").
The April 2009 Agreement allowed us to, among others, defer certain principal and interest payments due under the Debentures so long as we raise at least $650,000 in private offerings and other conditions are met.
We entered into an investment transaction ("Transaction") with Mr. Yuval Ganot and Noam Elimelech Ltd., an Israeli private company fully owned by Mr. Ganot, for an aggregate offering amount of up to $1,500,000 over the course of sixteen months. This Transaction did not meet the terms and conditions of an Offering under the April 2009 Agreement; however, we entered into the Amendment with YA Global pursuant to which YA Global has agreed to consent to the Transaction on the terms and condition set forth in the Amendment.
In connection with YA Global’s consent to the Transaction, the Amendment provided, among others, for the following:
Covenants by Global Energy:
●
Global Energy provided a cash flow projection budget in a form acceptable to the YA Global, demonstrating that the Global Energy will have sufficient cash flows to fund its operations for a period of at least 12 months.
●
Global Energy made a cash payment under the existing debentures of $30,000.
Issuance of Amended Debenture and Warrant Amendments:
●
Debentures. Global Energy issued to YA Global two Secured Convertible Debentures (the “Amendedand Restated Debentures”) in exchange for the existing debentures. The total principal amount of the Amended and Restated Debentures together is equal to the total amounts outstanding under the existing debentures.
-
Debenture I is in a principal amount of $3.17 million, bears interest at 8% per annum and has a maturity date of 36 months from issuance, with an extension to 48 months if a "second financing milestone" is reached. No payments are due for first 18 months (24 months if the "first financing milestone" is reached, and 36 months if the "second financing milestone" is reached), with $150,000 per month thereafter. Payments can be made in cash or stock at a 5% discount to market price, provided shares can be resold. This debenture is convertible into common stock at $.05 per share, and 80,000,000 shares have initially been reserved for this debenture. Global Energy can redeem this debenture at anytime with a 15% redemption premium.
-
Debenture II is in a principal amount of $1.5 million, bears interest at 8% per annum (6% if the "first financing milestone" is reached, and 4% if the "second financing milestone" is reached) and has a maturity date of 36 months from issuance. No payments are due until maturity. This debenture is convertible into common stock at $.01 per share, and 190,000,000 shares have initially been reserved for this debenture. Global Energy cannot redeem this debenture prior to maturity without YA Global's consent.
●
Warrants. The exercise price of the Warrants was reduced to $0.01 per share and the number of shares underlying the Warrants remains unchanged.
●
YA Global’s Lock up. Beginning on date of Agreement and ending on the earlier of (i) February 1, 2012 or (ii) upon an event of default, on any particular Trading Day, except for any sales by the YA Global at a price of seven and one half cents ($0.075) or more, YA Global may not sell such number of shares of Common Stock that would exceed 20% of the volume traded during such Trading Day, unless waived by Global Energy.
●
"First Financing Milestone" means the raising of at least $1.5 million in gross proceeds from (i) the Transaction or (ii) any financing transaction resulting in cash proceeds to Global Energy (provided that (a) such transaction does not violate any provisions of the YA Global financing documents or (b) YA Global consents to such transaction) (an "Approved Transaction"), and "Second Financing Milestone" means the raising of at least $2 million in gross proceeds from (i) the Transaction or (ii) any other Approved Offering on or before March 1, 2012.
As of December 31, 2010, we were not in material breach of any of our obligations under this amending and restating agreement.
Transfer of Debentures to U-Trend Ltd.
The Company was informed that on December 30, 2010, YA Global transferred to U-Trend Ltd., an Israeli company, a majority of the Debentures and Warrants as follows: (i) debentures in the amount (principal and interest) of US $3,200,000, and YA Global retained debentures in the amount (principal and interest) of US $1,624,395, and (ii) warrants to purchase an aggregate of 4,974,718 shares of the Company, and YA Global retained warrants to purchase an aggregate of 2,525,282 shares of the Company.
Competition
The market for the manufacture, marketing and sale of renewable diesel (mineral and synthetic) and other alternative fuels is highly competitive. Competition could be intense and may result in an increase in the costs of feedstock, plant construction and operating expenses, as well as to make it more difficult to attract and retain qualified engineers, chemists and other employees whose services could be key to our operations. Larger companies that are already engaged in this business may have access to greater financial and other resources, making it difficult to compete with them in recruiting and retaining qualified employees as well as in acquiring attractive locations for the construction and operation of alternative fuel plants.
Moreover, if production capacity in the industry increases faster than demand for alternative fuels (including synthetic diesel fuel), sale prices could be depressed. Falling oil prices may have a negative effect on demand for alternative fuels such as the synthetic diesel fuel that we propose to produce. In addition to competition from other companies engaged in producing alternative fuel, we will compete with producers of petroleum fuels.
Intellectual Property
We do not own any intellectual property. Our subsidiary, Alphakat-Global Energy GmbH, is a party to a license agreement with Alphakat GmbH by which Alphakat GmbH granted to our subsidiary, Alphakat-Global Energy GmbH, a license to commercialize, market, offer for sale, use and practice and make improvements to Alphakat GmbH's proprietary renewable diesel technology on a world-wide basis other than in Mexico, Spain, Bulgaria and Italy. See - "Description of the Business - Strategic Agreements."
Governmental Regulations
Our business will be conducted in various countries, which have varying degrees of regulation. The following is a discussion of some U.S. regulations which may or may not apply to our operations.
There are no readily apparent U.S. Environmental Protection Agency, or EPA, regulatory fuel certification requirements applicable to using the renewable diesel in a stationary source, such as industrial applications or home heating fuel, or in certain marine applications. There may, however, be requirements applicable to emissions from individual furnaces, boilers, etc. As a practical matter, market acceptance of the bio-fuel may be limited until we can demonstrate that (i) the renewable diesel is comparable to conventional fuels, from an energy content and emissions perspective, as well as handling and storage perspectives, and (ii) that the renewable diesel is compatible with existing heating systems or power generation systems and other combustion systems. To date, we have not demonstrated any of the foregoing in such commercially available systems. However, initial testing done on the renewable-diesel in a laboratory indicated that the renewable diesel is high quality diesel fuel.
We have evaluated whether the renewable diesel can be formulated to comply with the standards of the EPA to be classified as “diesel.” EPA standards mandate that the “diesel” comply with the specifications that the American Society for Testing and Materials (“ASTM”) requires that the fuel be comprised of. However, we are currently evaluating whether the ASTM standard can be broadened to include our fuel.
In order to be legally marketable as a fuel for on-road motor applications, the bio-fuel must be registered with the EPA and comply with the EPA’s health effects regulations. Under these regulations, a company registering a fuel must either complete a literature review and possibly health effects testing, or submit an application together with a group of other companies manufacturing similar fuels. The National Biodiesel Board (“NBB”) has completed the required health effects testing on behalf of the bio-diesel industry, and provides the testing data to companies seeking to register their bio-diesel with the EPA. To fit under the NBB umbrella, and to be considered “bio-diesel” for marketing purposes, the bio-fuel must meet ATSM's specification 6751 for bio-diesel . European countries use similar standards. ASTM 6751 compliant bio-diesel is already registered with the EPA and also meets the clean diesel standards established by the California Air Resources Board (“CARB”) and certain other states. As of the date of this report, the current formulation of the Diesel produced by the KDV process does not comply with ASTM 6751. Because water is a component used in the manufacture of our bio-fuel, it is unlikely that we will be able to reformulate our fuel to meet this ASTM standard; accordingly, we would need to seek separate EPA approval as described above for our fuel to be used on on-road motor vehicle applications.
We are evaluating the regulatory requirements for using our fuel in motor vehicle applications in territory outside the U.S.
Environmental permitting of renewable diesel manufacturing facilities varies with the characteristics of individual plants. Our renewable diesel is manufactured using a process that is believed to yield little, if any, wastes, emissions or discharges, although there may be some air emissions that could require us to obtain air emission permits to construct and operate any plants we may build or acquire.
The KDV process produces a renewable fuel and therefore is eligible for tax benefits in certain countries.
Employees
As of December 31, 2010, we had one full-time employee and two part-time employees. We believe our relationships with our employees are good.
Item 1A.
Item 1A. Risk Factors
Not Applicable.
Item 1B.
Item 1B. Unresolved Staff Comments
Not Applicable.
Item 2.
Item 2. Properties
We have no properties in Israel, and we currently lease approximately 10 square meters of office space from our director ,Yuval Ganot, in Tel Aviv, Israel.
Item 3.
Item 3. Legal Proceedings
In August 2010, a former employee of the Company filed a lawsuit against the Company claiming that salary, expenses, and debts aggregating $55,000 are owed to him. While it is not feasible to predict or determine the outcome of this claim, such amount was accrued in the financial statements.
Item 4.
Item 4. [Removed and Reserved].
PART II
Item 5.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuers Purchases of Equity Securities
Market for Common Equity
Our common stock is quoted on the OTC Bulletin Board under the symbol “GEYI”. Trading in our common stock has occurred on a relatively inconsistent basis and the volume of shares traded has been limited.
The following table shows the quarterly high and low reported bid prices per share for our common stock over the fiscal quarters for the last two fiscal years as quoted on the OTC Bulletin Board. The bid prices represent quotations by dealers without adjustments for retail mark-ups, mark-downs or commissions and may not represent actual transactions. Investors should not rely on historical prices of our common stock as an indication of its future price performance. The last sale price of our common stock on March 21, 2011, was $0.038 per share.
Holders
As of March 30, 2011, there were 314,420,239 shares of our common stock issued and outstanding held by 133 stockholders of record.
Dividends
We have not paid any cash dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future. We currently intend to retain future earnings, if any, to fund the development and growth of our business. Any future determination to pay cash dividends will be at the discretion of our Board of Directors and will be dependent upon our financial condition, operating results, capital requirements, applicable contractual restrictions and other factors the Board of Directors deems relevant.
Recent Sales of Unregistered Securities
Throughout the 2010 fiscal year, we authorized the issuance of options to our directors and officers to acquire in the aggregate 13,800,000 shares of our common stock. For more information, see Item. 11 entitled “Executive Compensation”.
On March 20, 2008, August 7, 2009 and March 8, 2010, we entered into amendments to the securities purchase agreement with YA Global Investments, L.P. that amended the terms of the convertible debentures issued July 10, 2007, October 23, 2007 and December 5, 2007. For more information, see Item 1. entitled “ Business - Financing Agreement with YA Global”.
On March 20, 2008, we issued YA Global Investments, L.P. a fourth 10% secured convertible debenture for gross proceeds of $500,000. The debenture matures on October 31, 2010 and is convertible by the debenture holder into common shares at a fixed conversion price of $1.25 per share, subject to further adjustment as further set out in the debenture. The debenture is secured against all of our assets. We paid a commission of $35,000 to Yorkville Advisors, LLC, the investment manager of YA Global Investments, L.P., in connection with this issuance. The debenture was issued pursuant to the exemption from registration under the Securities Act of 1933, as amended, provided by Section 4(2), Section 4(6) and/or Rule 506 of Regulation D promulgated under the Securities Act of 1933, as amended, to the investors and brokers who are “accredited investors” as defined in Rule 501(a) promulgated under the Securities Act of 1933, as amended.
On May 13, 2008, we sold a 10% Secured Convertible Debenture to YA Global Investments, L.P., for gross proceeds of $500,000. The debenture matures on October 31, 2010 and is convertible by the holder into common shares at a fixed conversion price of $1.25 per share subject to further adjustment as further set out in the debenture. The debenture is secured against all our assets. Amortizing payments of the outstanding principal amount of the debenture and accrued interest at an annual rate equal to 10% was to commence on the first business day on or after July 31, 2008, and continuing on the first business day of each successive calendar month thereafter until the principal amount has been repaid in full, whether by the payment of cash or by the conversion of the principal amount and interest into common stock. Other terms are the same as in prior debentures held by YA Global Investments, L.P. We paid a commission of $35,000 to Yorkville Advisors, LLC, the investment manager of YA Global Investments, L.P., in connection with this issuance. The debenture was issued pursuant to the exemption from registration under the Securities Act of 1933, as amended, provided by Section 4(2), Section 4(6) and/or Rule 506 of Regulation D promulgated under the Securities Act of 1933, as amended, to the investors and brokers who are “accredited investors” as defined in Rule 501(a) promulgated under the Securities Act of 1933, as amended.
On July 25, 2008, we issued 200,000 shares of our common stock pursuant to our amending agreement dated July 15, 2008 with YA Global Investments, L.P. We issued the securities to one U.S. person pursuant to the exemption from registration provided for under Rule 506 of Regulation D, promulgated under the Securities Act of 1933, as amended.
On September 22, 2008, we entered into an amending and restating agreement with YA Global Investments, L.P. with respect to outstanding secured convertible debentures in the aggregate principal amount of $4,000,000, and warrants to purchase 600,000 shares of our company’s common stock owned by YA Global Investments, L.P. Pursuant to this agreement, we issued 1,000,000 restricted shares of our common stock to YA Global Investments, L.P. We issued the securities to a U.S. person pursuant to the exemption from registration provided for under Rule 506 of Regulation D, promulgated under the Securities Act of 1933, as amended. For more information, see Item 1. titled “ Business - Financing Agreements”.
On September 30, 2008, we sold 30 units to 27 investors in a brokered private placement at a purchase price of $50,000 per unit, raising gross proceeds of $1,500,000. Each unit comprised 500,000 shares of our common stock and 500,000 share purchase warrants exercisable at $0.10 for a period of five years. All the investors were accredited investors, and in selling these units we relied on the exemption from the registration requirements of the Securities Act of 1933, as amended, provided by Rule 506 of Regulation D promulgated thereunder. In connection with this private placement, we paid a registered broker-dealer that acted as our agent in the sale of these securities aggregate cash placement agent compensation of $150,000 and issued such broker-dealer placement agent warrants to purchase an aggregate of 1,500,000 shares of common stock. Each placement agent warrant entitles the holder to purchase one share of common stock of our company at an exercise price of $0.10 for a period of five years on terms which are identical to the warrants included in the units. In addition, we paid the broker-dealer non-accountable expense allowances of $45,000 and $82,750 towards the fees and expenses of its attorneys. The broker-dealer is licensed with Financial Industry Regulatory Authority and a U.S. person and, in issuing it the placement agent warrants, we relied on the exemption from the registration requirements of the Securities Act of 1933, as amended, provided by Rule 506 of Regulation D promulgated thereunder. Pursuant to the terms of a registration rights agreement between our company and each investor in this private placement, we have agreed to register for resale by the investors and the agent all of the shares of our common stock issuable upon exercise of the warrants and the agent’s warrants that we issued in this private placement.
On November 4, 2008, we sold four more units to four investors as part of the brokered private placement described above. We realized gross proceeds of $200,000. All the investors were accredited investors, and in selling these units we relied on the exemption from the registration requirements of the Securities Act of 1933, as amended, provided by Rule 506 of Regulation D promulgated thereunder. In connection with this private placement, we paid a registered broker-dealer that acted as our agent in the sale of these securities aggregate cash placement agent compensation of $20,000 and issued such broker-dealer placement agent warrants to purchase an aggregate of 200,000 shares of common stock. Each placement agent warrant entitles the holder to purchase one share of common stock of our company at an exercise price of $0.10 for a period of five years on terms which are identical to the warrants included in the units. In addition, we paid the broker-dealer non-accountable expense allowances of $6,000 and $5,583 towards the fees and expenses of its attorneys. The broker-dealer is licensed with Financial Industry Regulatory Authority and a U.S. person and, in issuing it the placement agent warrants, we relied on the exemption from the registration requirements of the Securities Act of 1933, as amended, provided by Rule 506 of Regulation D promulgated thereunder. Pursuant to the terms of a registration rights agreement between our company and each investor in this private placement, we have agreed to register for resale by the investors and the agent all of the shares of common stock issuable upon exercise of the warrants and the agent’s warrants that we issued in this private placement.
On January 5, 2009, we issued 1,228,070 shares of the Company to YA Global Investments, L.P. upon the conversion of $35,000 of the principal amount of the Debenture (a conversion price of $0.0285 per share). On March 5, 2009, we issued 1,052,632 shares of the Company to YA Global upon the conversion of $10,000 of the principal amount of the Debenture (a conversion price of $0.0095 per share). On July 6, 2009, we issued 884,956 shares of the Company to YA Global upon the conversion of $10,000 of the principal amount of the Debenture (a conversion price of $0.0113 per share). On September 6, 2009, we issued an additional 675,676 shares of the Company to YA Global upon the conversion of $10,000 of the principal amount of the Debenture (a conversion price of $0.0148 per share).
On September 10, 2009, we entered into a Securities Purchase Agreement with Yuval Ganot, or a company on his behalf, an accredited investor. Subject to the terms of the Agreement, on the closing date and on the 15th day of each calendar month subsequent to the Closing Date, for a period of sixteen months (each such day, a “Subsequent Closing”), Mr. Ganot agreed to purchase a total aggregate amount of up to 150,000,000 but not less than 100,000,000 of our shares of Common Stock in exchange for an aggregate purchase price of up to $1,500,000. The effective purchase price under the Agreement is $0.01 per share. Pursuant to the terms of the Agreement, Mr. Ganot may, at his sole and absolute discretion, elect not to purchase all or a part of the portion of the shares scheduled to be purchased on the final Subsequent Closing (50,000,000 Shares).
We also undertook to endeavor that Mr. Ganot (or his representative) is appointed to our Board of Directors. We further granted Mr. Ganot a right of first offer to participate in any subsequent equity financing that shall expire on the earliest of the first anniversary of the Securities Purchase Agreement or the expiration of the right of first offer period. Mr. Ganot was further granted, subject to applicable law, a right to participate in any equity financing pursued by us in the two year period following the Closing Date, on the same terms and in such manner that will maintain its ownership in us.
On December 23, 2009, we entered into an Amendment to the Securities Purchase Agreement with Yuval Ganot, pursuant to which the closing date of the investment contemplated by the Securities Purchase Agreement would be December 23, 2009, and Noam Elimelech Ltd., an Israeli private company fully owned by Mr. Ganot, would be the investor. The Amendment provided that until the fulfillment of certain conditions set forth in the amendment, Noam Elimelech Ltd. would have the right to terminate the Agreement with written notice to us. It further provided that we would reimburse Noam Elimelech Ltd. for all legal fees borne by Noam Elimelech Ltd. in connection with the investment.
Pursuant to the terms of the Securities Purchase Agreement and the Amendment, on December 23, 2009 (the “Closing Date”), the transaction was completed. We issued 15,263,700 shares in the aggregate to the Inventor during the fourth quarter of 2009 for payments of $152,637 in the aggregate. On each subsequent closing (which is to occur on the 15th day of each calendar month subsequent to the Closing Date), Noam Elimelech Ltd. is to pay the applicable installment of the purchase price ($60,000) directly to us, and the escrow agent is to release to the Investor 5,400,000 shares subject to such payment, as contemplated by the Securities Purchase Agreement. During the year ended December 31, 2010, we issued 65,981,532 shares for payment of $659,815. Noam Elimelech Ltd. completed the purchase of 100,000,000 shares under the Securities Purchase Agreement during the first three months of 2011. In addition, on March 30, 2011 Noam Elimelech Ltd. elected to pay $500,000 to purchase on the final Subsequent Closing all of the remaining 50,000,000 shares it was eligible to purchase under the Agreement.
On April 13, 2010, we signed an agreement with Messrs. Ori Ackerman and Amnon Dradik and Intarpina Ltd. providing for the terms of payment to the brokers who introduced Mr. Ganot to us. Under the terms of the agreement, we are to pay them an aggregate of $60,000 payable over 10 months and issue them options to acquire an aggregate of 5,000,000 shares at an exercise price of $.01 per share. On August 20, 2010, 1,666,666 of such options were exercised for total consideration of $16,667.
Debt Settlements
Pursuant to an agreement with Diesenhaus Ramat Hasharon (1982) Ltd., dated April 13, 2010, an agreement with Agropeace-Bio Ltd. dated May, 3, 2010, and an agreement with Ori Ackerman, dated May 3, 2010, the company concluded a set of arrangements with a portion of its debtors to pay a portion of the outstanding debt of $183,000 due to them and cancel the remaining portion of the debt due to them (the "Agreements"). Pursuant to the Agreements, the company agreed to pay an aggregate sum of $73,000 and the balance of the aggregate debt owed of $110,000 was cancelled. As part of agreement with Ori Ackerman, the company also agreed to issue 1.2 million shares of Global Energy, Inc. In addition, a guarantor of such loan, Mr. Aviram Malik, agreed to pay Ori Ackerman the sum of $10,000 and to transfer to him 400,000 shares of the Company.
On June 1, 2010, the Company issued to current and former members of its Board of Directors 5,160,000 shares of common stock in lieu of accrued director fees in the amount of $51,600 that were owed to them - 1,320,000 shares each to Messrs. Amir Elbaz, Avner Raanan and Nissan Caspi, and 1,200,000 shares to Mr. Hezy Ram.
On June 1, 2010, the Company issued to Mr. Asi Shalgi, our President and CEO, a total of 11,425,000 shares of common stock in lieu of unpaid salary and expenses in the amount of $114,250 accrued from April 2009 under his employment agreement with Global Energy.
On June 1, 2010, the Company issued to a consultant, Mr. Amir Elbaz, 5,000,000 shares of common stock in lieu of cash fees in the amount of $50,000 owed to him in connection with his services in the YA Global investment in Global Energy under the Consulting Services, Compensation Agreement and Non Circumvent Agreement with the Company, dated May 22, 2008, and 6,600,000 shares in lieu of cash fees in the amount of $66,000 owed to him under his Consulting Agreement with Global Energy, dated January 1, 2009.
On June 1, 2010 the Company issued to a consultant, Mr. Doron Latzer, 1,000,000 shares of common stock for his services to Global Energy in connection with the September 10, 2009 investment in Global Energy made by Yuval Ganot and Noam Elimelech Ltd.
On June 1, 2010, the Company issued to Yuval Ganot a total of 3,152,500 shares of common stock in lieu of unpaid salary and expenses in the amount of $31,525 owed to Mr. Ganot under his employment agreement with the Company.
We issued the securities to these individuals pursuant to the exemption from registration provided for under Regulation S and/or Section 4(2) under the Securities Act of 1933, as amended.
Use of Proceeds from Registered Securities
None.
Issuer Purchases of Equity Securities
None.
Equity Compensation Plan Information
On May 15, 2007, our Board of Directors adopted an equity compensation plan, the 2007 Share Option Plan, under which a total of 8,500,000 shares of our common stock were authorized for issuance. On March 31, 2009, our Board of Directors approved an increase in the number of shares reserved for issuance under the plan from 8,500,000 shares to 12,150,000 shares. In April 2010, effective January 31, 2010, the Company increased the total number of shares reserved for issuance under the plan to 27,000,000 shares.
The following summary information is presented for stock options authorized for issuance on an aggregate basis as of December 31, 2010.
(1)
On January 31, 2010, the Board of Directors approved the grant of 4,800,000 options to board members (not including options granted to Mr. Asi Shalgi), at an exercise price of US $0.0243 per share to US $0.0365. The options immediately vested. In addition, on the same date, the Board of Directors approved the grant of 9,000,000 options to Mr. Asi Shalgi, our CEO, at an exercise price of US $0.0243 per share to US $0.0365. 3,000,000 of such options were immediately vested, 3,000,000 vest on the first anniversary of grant and, 3,000,000 vest on the second anniversary of grant.
(2)
Options remaining available for future issuance under the share option plan, excluding securities reflected in column (a).
The share option plan is administered by either our Board of Directors or a committee, consisting of such number of members (but no less than two) as may be determined by our Board of Directors, to which the Board of Directors shall have delegated power to act on its behalf with respect to the share option plan. The administrator of the share option plan has full power and authority to select the individuals to whom awards will be granted, to make any combination of awards to participants, to accelerate the exercisability or vesting of any award, to provide substitute awards and to determine the specific terms and conditions of each award, subject to the provisions of the share option plan, our Articles of Association and any applicable law.
The share option plan permits us to make grants of stock options to officers, employees, directors, consultants and other key persons. Stock options granted under the share option plan shall have an exercise price as determined by the administrator of the share option plan.
In the event of a merger or sale of all or substantially all assets or shares of capital stock, the administrator at its sole discretion shall decide the treatment of the options.
Item 6.
Item 6. Selected Consolidated Financial Data
Not applicable.
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion in conjunction with our consolidated financial statements and related notes thereto. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations. Factors that could cause such differences include those incorporated herein by reference. See “Risk Factors” in Item 1A in this Annual Report on Form 10-K.
Critical Accounting Policies
Going concern considerations
As of December 31, 2010, we had negative working capital of approximately $5,490,000 and an accumulated capital deficiency of approximately $4,613,000. Our ability to continue to operate as a going concern is dependent on our ability to generate sufficient cash flows to meet our obligations on a timely basis, to obtain additional financing and to ultimately attain profitability. As of December 31, 2010, we have had no revenues and have incurred losses and an accumulated deficit resulting from our activity as a development stage company and have a negative cash flow from operating activities. In the event we are unable to successfully raise capital and generate revenues, it is unlikely that we will have sufficient cash flows and liquidity to finance our business operations as currently contemplated.
There can be no assurance that additional funds will be available on terms acceptable to us, or at all. These conditions raise substantial doubt about our ability to continue to operate as a going concern. The audited financial statements attached to this annual report do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. We are also currently committed to loans repayment of approximately $18,000 during the period between December 31, 2010 and December 31, 2011, as described in detail in Item. 1 entitled “Business” under “Transactions with our stockholders”.
Liquidity and Capital Resources
In the private placement offering of our common stock that closed on September 30, 2008 and November 4, 2008, we sold 34 units for an aggregate purchase price of $1,700,000, each unit comprising 500,000 shares of our common stock and 500,000 share purchase warrants. In addition, pursuant to a Securities Purchase Agreement with Yuval Ganot, as of December 31, 2010, we had sold an aggregate of 81,245,232 of our shares of common stock for an aggregate purchase price of $812,452. As of December 31, 2010, our cash and cash equivalents were $128,000 compared to $100,000 as of December 31, 2009, and we had a negative working capital of $5,490,000.
We have committed to an installment payment schedule that requires us to make monthly payments in cash and shares on our outstanding debt to our senior secured lender. See "Financing Agreement with YA Global" in Item 1. under the "Description of the Business" for more information.
Furthermore, we are expecting to continue to expend cash in our activities through payments of salaries, business development activities, payments for services and other costs. We also plan to continue to finance our operations through a combination of private placements, stock issuances, debt issuances, mutual development agreements with possible milestone license payments and research and development programs. We cannot assure, however, that we will be successful in obtaining the adequate level of financing required for the long-term development and commercialization of our planned products.
Results of Operations for the Year ended December 31, 2010
We initiated our activities during the last six months of 2007, focusing our effort on building an infrastructure that would support our future activities in the alternative energy field. We did not generate any revenues in the fiscal year ended December 31, 2010 and incurred a cumulative loss of $10,487,000 from July 7, 2005 through December 31, 2010.
Off-Balance Sheet Arrangements
We do not currently have off-balance sheet arrangements.
Plan of Operation
For the 12 months ending in December 2011, we estimate expending a total of approximately $600,000 for our proposed business activities. This amount includes the funds required to finance our marketing activities, pay salaries of over employees, office and maintenance costs, among others, in order to execute our plan of operations. The following table provides our current estimate of the break down of costs for the upcoming year of operations:
Newly Issued Accounting Pronouncements
1)
Effective June 30, 2010, the Company adopted the amended guidance in ASC Topic 715, Compensation - Retirement Benefits, which expands disclosure requirements and requires entities to disclose investment policies and strategies, major categories of plan assets, fair value measurements for each major category of plan assets segregated by fair value hierarchy level as defined in ASC Topic 820, the effect of fair value measurements using Level 3 inputs on changes in plan assets for the period, and significant concentrations of risk within plan assets. The adoption of this amended guidance required expanded disclosure in the notes to the Company’s consolidated financial statements but did not impact financial results.
2)
Effective July 1, 2010, the Company adopted the amended guidance in ASC Topic 810, Consolidations , which will change how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting or similar rights (known as variable interest entities or VIEs) should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance. This amended guidance will require a number of new disclosures including disclosures about the reporting entity’s involvement with VIEs, how its involvement with VIEs affects the reporting entity’s financial statements, and any significant changes in risk exposure due to that involvement. The Company expects that the adoption of this amended guidance will not have significant impact on the Company's consolidated financial statements.
3)
Effective July 1, 2010, the Company adopted the second phase of the amended guidance in ASC Topic 820, Fair Value Measurements and Disclosures, which requires the Company to disclose information in the reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements on a gross basis, separately for assets and liabilities. The Company expects that the adoption of this amended guidance will not have any impact on the Company's consolidated financial statements.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 8.
Item 8. Financial Statements and Supplementary Data
GLOBAL ENERGY INC.
(A development stage company)
CONSOLIDATED FINANCIAL STATEMENTS
2010 ANNUAL REPORT
GLOBAL ENERGY INC.
(A development stage company)
2010 ANNUAL REPORT
Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CONSOLIDATED FINANCIAL STATEMENTS IN U.S. DOLLARS:
Balance Sheets - December 31, 2009 and 2010
Statements of operations - Years ended December 31, 2009 and 2010
Statements of changes in shareholders' equity (capital deficiency) - Years ended December 31, 2008, 2009 and 2010
-7
Statements of cash flows - Years ended December 31, 2009 and 2010
-9
Notes to financial statements
-38
F - 2
REPORT OF REGISTERED INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
of Global Energy, Inc.:
We have audited the accompanying balance sheets of Global Energy, Inc. and subsidiaries (a development stage company) as of December 31, 2010 and 2009, and the related statements of operations, stockholders’ equity, and cash flows for the years ended December 31, 2010 and 2009, and from inception (July 7, 2005) through December 31, 2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we 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. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Global Energy, Inc. and subsidiaries as of December 31, 2010 and 2009, and the results of its operations and its cash flows for the years ended December 31, 2010 and 2009, and from inception (July 7, 2005) through December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company is in the development stage, and has not established any source of revenue to cover its operating costs. As such, it has incurred an operating loss since inception. Further, as of as December 31, 2010, the cash resources of the Company were insufficient to meet its planned business objectives. These and other factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plan regarding these matters is also described in Note 1 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Respectfully submitted,
Weinberg & Baer LLC
Baltimore, Maryland
March 28, 2011
F - 3
GLOBAL ENERGY INC.
(A development stage company)
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of the consolidated financial statements.
F - 4
GLOBAL ENERGY INC.
(A development stage company)
CONSOLIDATED STATEMENTS OF OPERATIONS
* In the year ended December 31, 2010 - includes $1,745 thousand share-based compensation, of which 309 was accrued as of December 31, 2009 (31.12.2009 - $165 thousand).
The accompanying notes are an integral part of the consolidated financial statements.
F - 5
GLOBAL ENERGY INC.
(A development stage company)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (CAPITAL DEFICIENCY)
(U.S. dollars in thousands, except share and per share data)
The accompanying notes are an integral part of the consolidated financial statements.
F - 6
GLOBAL ENERGY INC.
(A development stage company)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (CAPITAL DEFICIENCY)
(U.S. dollars in thousands, except share and per share data)
*After giving retroactive effect to the adoption of FASB ASC 470-20, as further described in note 8.
The accompanying notes are an integral part of the consolidated financial statements.
F - 7
GLOBAL ENERGY INC.
(A development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of the consolidated financial statements.
F - 8
GLOBAL ENERGY INC.
(A development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
F - 9
GLOBAL ENERGY INC.
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES:
a.
Going concern considerations
The accompanying financial statements have been prepared assuming that Global Energy Inc. ("the Company") will continue as a going concern. As of December 31, 2010, the Company had approximately $128 thousand in cash and cash equivalents, approximately $5,490 thousand in negative working capital, a shareholders’ deficit of approximately $4,613 thousand and an accumulated deficit during development stage of approximately $10,487 thousand. Management anticipates that the Company will continue to generate significant losses from operations for the foreseeable future, and that their business will require substantial additional investment that has not yet been secured. Management is continuing in the process of fundraising in the private equity markets as the Company will need to finance future activities and general and administrative expenses. These conditions raise substantial doubt about the Company's ability to continue as a going concern.
These financial statements do not include any adjustments that may be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent on its ability to obtain additional financing as may be required and ultimately to attain profitability.
b.
General
The Company was incorporated under the laws of the State of Nevada on February 16, 1999.
The Company has been considered a development stage enterprise since July 7, 2005, as defined by the ASC Topic 915. The accompanying financial statements have disclosed cumulative amounts in the statements of operations and cash flows since the July 7, 2005 inception of becoming a development stage company until December 31, 2010.
During May 2007, the Company established two subsidiaries in Israel: Global Fuel Israel Ltd. (“Fuel”), a fully owned subsidiary, and Global N.R.G. Pacific Ltd. (“Pacific”), of which the Company owns a 50.1% interest. In October, 2007, Pacific established a subsidiary in Ethiopia named Global Energy Ethiopia PLC (“Global Ethiopia”). Pacific and its consolidated company act as the agricultural arm of the Company's activities in the Bio-Diesel field.
On October 8, 2008 the Company entered into an agreement with a related party, Yanai Man Projects Ltd. (“YMP”), with respect to the shares held by YMP in Pacific. The sole shareholder of YMP is also the CEO of Pacific. Pursuant to the agreement, the parties agreed that the Company would have the right at any time to purchase from YMP 44.9% of the share capital, for consideration of $150 thousand. The Company exercised this right of purchase on October 8, 2008 and therefore as of March 31, 2009 the Company held 95% of Pacific's share capital.
F - 10
GLOBAL ENERGY INC.
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
b.
General (continued):
On March 3, 2009 this agreement with YMP was amended and it was agreed that the 95% of the shares of Pacific will remain the Company's but the sum of $150 thousand will not be paid. According to this amendment the $150 thousand was not presented in these financial statements as a liability.
On March 18, 2009, Global Ethiopia was sold in consideration of $700 thousand. Immediately after the sale, Pacific's CEO resigned and YMP agreed to sell the remaining 5% of the share capital of Pacific to the Company in consideration for $12 thousand.
On May 2, 2007, the Company entered into an agreement with AlphaKat GmbH (“AlphaKat”) in order to cooperate in commercialization of AlphaKat's technology of producing mineral diesel oil from municipal waste using machines that converts hydrocarbon waste into diesel oil invented for that purpose by AlphaKat ("KDV machines"). As of December 31, 2010 the Company paid AlphaKat an amount of $931 thousand on account of a KDV500 plant that has yet to be ordered. This amount is presented in the financial statements as an advance on account of acquisition of machinery as part of property plant and equipment. The total amount that the Company will have to pay for the KDV500 plant will be at least Euro 2.5 million (approximately $3.4 million).The final amount depends on the final configuration of the KDV500 and additional features that will be ordered.
On July 10, 2007, the Company entered into an agreement with AlphaKat to incorporate and operate a company, named AlphaKat - Global Energy GmbH (“AGEI”). Each party holds 50% of the shares of AGEI. AGEI is to provide worldwide marketing and sales services of KDV machines in consideration of 10% sale commission.
The Company is responsible to finance AGEI if such financing is required; AlphaKat has the right to object to any sale of KDV machines.
The Company has consolidated AGEI.
On February 6, 2008, AlphaKat and its President, Dr. Koch and AGEI, entered into agreements, which were amended on July 8, 2008, with Covanta Energy Corporation, a wholly owned subsidiary of Covanta Holding Corporation (“Covanta”), owner and operator of waste-to-energy and power generation projects. Under the terms of these agreements, Covanta has the exclusive right to purchase, use and make improvements to the KDV technology in the United States for household waste feedstock, and non-exclusive rights to use the KDV process in China, UK and the Republic of Ireland.
F - 11
GLOBAL ENERGY INC.
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
b.
General (continued):
If Covanta's tests on its first unit are positive and it wishes to proceed further with its deployment of the KDV process it must begin by ordering five additional KDV500 units within twelve months of the commissioning date of the first KDV500 unit. Over a ten-year period, which begins on the commissioning date of its first unit, Covanta must order a total of 600 KDV 500 units or the equivalent in terms of production capacity.
Covanta also granted the Company the right to fund and own up to 35% of each of Covanta’s KDV-based projects. In addition, Covanta has agreed to pay the Company an amount equal to 10% of the gross revenue of each of Covanta’s KDV-based projects, regardless of whether the Company invests in these projects or not.
On July 8, 2008, Covanta purchased a KDV500 unit through AGEI. Until December 31, 2010 Covanta had paid $3,725 thousand on account of the purchased KDV 500 unit, according to the payment schedule. This amount was advanced by AGEI to Alphakat and is presented in these financial statements as a liability to Covanta ("Advance from third party") and as an asset ("Advance to related party").
On November 23, 2010, the parties signed the Second Amendment to the February 6, 2008 License Agreement between Alphakat-Global Energy GmbH and Covanta, which incorporated changes from an earlier amendment. Pursuant to the Second Amendment, the license rights of Covanta were amended to provide that Covanta, with certain limited exceptions for “Carve-Out Projects”, would have the exclusive right to use the Technology in the United States throughout the term of the original agreement subject to meeting its minimum purchase requirements.
As a result of this Second Amendment, permissible feedstock now includes all materials capable of being processed by the Technology. In addition, the term of the original agreement was extended to July 1, 2030.
American Renewable Diesel ("American") is a special purpose company owned and managed by Trianon Partners. On February 6, 2008, AGEI and American executed an agreement granting to American the right to sell and use the KDV technology for all types of feedstocks, except for household waste in five states in the U.S.: Texas, California, New York, New Jersey and Florida. Similar to the business arrangement with Covanta, the Company has the right to fund and own up to 51% of each of American’s KDV-based projects.
As of December 31, 2010, no such KDV-based projects were initiated.
F - 12
GLOBAL ENERGY INC.
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
b.
General (continued):
On November 11, 2008, the Company entered into a joint venture agreement with S.C. Supercom S.A. ("Supercom"), a Romanian company engaged in the business of collecting (and landfilling) municipal solid waste in and around the City of Bucharest, and S.C. Target Group S.R.L. ("Target"), a Romanian company. The Company and Supercom agreed to incorporate a legal entity in Romania under the name Super Energy S.A. ("Super Energy"), to engage in converting municipal solid waste into synthetic diesel fuel in Romania using the KDV technology.
The initial share capital of Super Energy S.A. is to be 51% held by us and 49% held by Supercom, with each contributing 5% of their shares to Target Group upon incorporation of Super Energy S.A. so that the share capital of Super Energy S.A. would be held in the following manner: our company - 46%, Supercom - 44%, and Target Group 10%. Initially, the board of directors of Super Energy S.A. will be comprised of four board members, with each of Supercom and the Company entitled to appoint two.
All projects undertaken under this agreement are to be financed by Supercom providing 100% of the required equity via a special purpose vehicle, and Super Energy S.A. reimbursing Supercom for investments made on its behalf.
As of December 31, 2010 and as of the date of the approval of these financial statements, no such KDV-based projects were initiated.
On March 9, 2008, the Company entered into a Memorandum of Understanding ("MOU") with Shaanxi ShenMu SanJian Coal Chemical Co. Ltd. ("Shaanxi"), a company located in the People's Republic of China, to initiate the KDV project in that region. Completion of the transaction based on this MOU is subject to due diligence, further negotiation and testing.
c.
Functional Currency
The financial statements of foreign subsidiaries have been prepared in U.S. dollars, as the dollar is their functional currency. A substantial portion of the foreign subsidiaries financing and costs are incurred in dollars. The Company’s management believes that the dollar is the primary currency of the economic environment in which the foreign subsidiaries operate.
Accordingly, monetary accounts maintained in currencies other than the dollar are remeasured into U.S. dollars in accordance with ASC Topic 830 “Foreign Currency Matters”. All transaction gains and losses of the remeasured, monetary balance sheet items are reflected in the statement of operations as financial income or expense, as appropriate and were immaterial to date.
F - 13
GLOBAL ENERGY INC.
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
d.
Principles of consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries mentioned above, and the accounts of the 50% owned entity (AGEI) which is a variable interest entity and the Company is the primary beneficiary.
All significant intercompany transactions and balances have been eliminated in consolidation.
e.
Cash equivalents
Cash equivalents are short-term highly liquid investments which include short term bank deposit (up to three months from date of deposit), that are not restricted as to withdrawals or use that are readily convertible to cash with maturities of three months or less as of the date acquired.
f.
Property, plant and equipment
Property, plant and equipment are stated at cost, less accumulated depreciation. Assets are depreciated using the straight-line method over their estimated useful lives.
The annual depreciation is as follows: leasehold improvements are amortized over the term of the lease which is shorter than the estimated useful life of the improvements. Computers, software and electronic equipment are depreciated over three years. Tools and equipment are depreciated over five years. Furniture is depreciated over fourteen years.
g.
long-lived assets
The Company's long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired,
The impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds their fair value. During the years ended December 31, 2010, 2009 and 2008, no impairment losses have been identified.
h.
Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Significant estimates and assumptions are utilized in the calculation of valuation of derivatives, convertible senior notes, valuation of investments, other than temporary impairment of investments and valuation allowances on deferred tax assets. Actual results may differ from those estimates.
F - 14
GLOBAL ENERGY INC.
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
i.
Derivative financial instruments (“derivatives”)
All derivatives are recognized on the balance sheet at their fair value. On the date that the Company enters into a derivative contract, it designates the derivative, for accounting purposes, as: (1) hedging instrument, or (2) non-hedging instrument. Any changes in fair value are to be reflected as current gains or losses or other comprehensive gains or losses, depending upon whether the derivative is designated as a hedge and what type of hedging relationship exists. Changes in fair value of non-hedging instruments are carried to “financial expenses-net” on a current basis. To date, the Company did not have any contracts that qualify for hedge accounting.
The Company entered into convertible debentures agreement in which a derivative instrument is “embedded”. Embedded derivative is separated from the host contract and carried at fair value when (1) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract and (2) a separate, stand-alone instrument with the same terms would qualify as a derivative instrument.
j.
Fair Value of Financial Instruments
FASB ASC 820 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined under FASB ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under FASB ASC 820-10-55 must maximize the use of observable inputs and minimize the use of unobservable inputs. In accordance with ASC 820, the carrying value of cash, cash equivalents and accounts payable approximates fair value due to the short-term maturity of these instruments. The standard also describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:
Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other then quoted prices that are observable, and inputs derived from or corroborated by observable market data.
Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.
F - 15
GLOBAL ENERGY INC.
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
j.
Fair Value of Financial Instruments (continue)
The following table represents the fair value hierarchy for those financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2010:
k.
Share-based payments
The Company accounts for awards classified as equity awards using the grant-date fair value method. The fair value of share-based payment transactions is recognized as expense over the requisite service period, net of estimated forfeitures. The Company recognizes compensation cost for an award with only service conditions that has a graded vesting schedule using the graded vesting attribution method.
The fair value of share-based payments was estimated on the date of grant using the Black-Scholes option pricing model based on the following weighted average assumptions:
The risk-free interest rate that the Company uses in the option pricing model is based on the U.S. Treasury zero-coupon issues with remaining terms similar to the expected terms of the options. The Company does not anticipate paying dividends in the foreseeable future and therefore uses an expected dividend yield of zero in the option pricing model. The Company is required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates.
F - 16
GLOBAL ENERGY INC.
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):
k.
Share-based payments (continue)
Historical data is used to estimate pre-vesting option forfeitures and record stock-based compensation expense only on those awards that are expected to vest.
The Company uses its own historical exercise activity and extrapolates the life cycle of options outstanding to arrive at its estimated expected term for new option grants. The Company uses its own volatility history based on its stock’s trading history .
The Company accounts for equity instruments issued to third party service providers (non-employees) in accordance with the fair value using the Black-Scholes option-pricing model. The fair value of the options granted is revalued over the related service periods and recognized over the vesting period.
l.
Net Loss Per Share
Net loss per share, basic and diluted, is computed on the basis of the net loss for the period divided by the weighted average number of common shares outstanding during the period. Diluted net loss per share is based upon the weighted average number of common shares and of common shares equivalents outstanding when dilutive. Common shares equivalents include: (i) outstanding stock options under the Company’s Long-Term Incentive Plan and warrants which are included under the treasury share method when dilutive, and (ii) Common shares to be issued under the assumed conversion of the Company’s outstanding convertible debentures, which are included under the if-converted method when dilutive. The computation of diluted net loss per share for the years ended December 31, 2010, and 2009, does not include common share equivalents, since such inclusion would be anti-dilutive.
m.
Deferred income taxes
Deferred taxes are determined utilizing the asset and liability method based on the estimated future tax effects of differences between the financial accounting and tax bases of assets and liabilities under the applicable tax laws. Deferred tax balances are computed using the tax rates expected to be in effect when those differences reverse. A valuation allowance in respect of deferred tax assets is provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company has provided a full valuation allowance with respect to its deferred tax assets.
n.
Comprehensive loss
The Company has no component of comprehensive income loss other than net loss.
F - 17
GLOBAL ENERGY INC.
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
o.
Segments
All of the Company’s producing operations which expected to generate revenues are located in the United States and its only business is the development of the KDV process. As of the date of these financial statements no revenues have been generated. As a result, management views all of the Company’s business and operations to be one segment.
p.
Newly issued accounting pronouncements:
a.
Effective June 30, 2010, the Company adopted the amended guidance in ASC Topic 715, Compensation- Retirement Benefits, which expands disclosure requirements and requires entities to disclose investment policies and strategies, major categories of plan assets, fair value measurements for each major category of plan assets segregated by fair value hierarchy level as defined in ASC Topic 820, the effect of fair value measurements using Level 3 inputs on changes in plan assets for the period, and significant concentrations of risk within plan assets. The adoption of this amended guidance required expanded disclosure in the notes to the Company’s consolidated financial statements but did not impact financial results
b.
Effective July 1, 2010, the Company adopted the amended guidance in ASC Topic 810, Consolidations , which will change how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting or similar rights (known as variable interest entities or VIEs) should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance. This amended guidance will require a number of new disclosures including disclosures about the reporting entity’s involvement with VIEs, how its involvement with VIEs affects the reporting entity’s financial statements, and any significant changes in risk exposure due to that involvement. The Company expects that the adoption of this amended guidance will not have significant impact on the Company's consolidated financial statements.
c.
Effective July 1, 2010, the Company adopted the second phase of the amended guidance in ASC Topic 820, Fair Value Measurements and Disclosures, which requires the Company to disclose information in the reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements on a gross basis, separately for assets and liabilities. The Company expects that the adoption of this amended guidance will not have any impact on the Company's consolidated financial statements.
F - 18
GLOBAL ENERGY INC.
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 2 - OTHER ACCOUNTS RECEIVABLE:
NOTE 3 - PROPERTY AND EQUIPMENT:
NOTE 4 - ACCRUED EXPENSES:
F - 19
GLOBAL ENERGY INC.
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 5 - SHORT TERM LOANS
(a)
On October 26, 2008, Pacific entered into a Loan Agreement (the “Agreement”) with a third party ("the Lender"). The lender is the brother of one of the controlling shareholders of Carrigain Investment Ltd, which is the controlling shareholder of the Company. It was agreed that the Lender shall loan Pacific an aggregate of $400 thousand, with $300 thousand being transferred to Pacific in three equal installments during October and November 2008 and $100 thousand will remain on-call. The loan bears no interest. On May 2009 an amount of $128 thousand was repaid by Pacific. On April 8, 2010 the Lender and Mr. Yuval Ganot signed an agreement for the assignment of the loan to Mr. Ganot. Based on the agreement Mr. Ganot would pay the Lender the amount of 120 NIS thousands (USD 32 thousands) for the assignment of the remaining loan's balance and the remaining balance of the loan (USD 56 thousands) was extinguished and was recorded as an income from extinguishment of debt.
(b)
On July 9, 2008, Pacific entered into a term sheet for a loan with another third party ("term sheet"). It was agreed in the term sheet that the third party will loan Pacific an amount of $400 thousand in consideration for an ownership interest in the share capital of Pacific and collaborations in projects in Ethiopia and non competition understandings in some parts of Ethiopia. On July, 2008, the third party loaned Pacific an amount of $100 thousand to be repaid no later than November 30, 2008 and entitled the third party to 1% of the share capital of Pacific. Since it was not repaid, according to the term sheet, this amount bears a weekly interest rate of 1% from the repayment date until the actual date of repayment and entitles the third party to 2% of the share capital of Pacific. On May 3, 2010 the Company and the third party agreed on terms for settlement of the remaining balance of the loan as of such date (USD 63 thousands). According to the settlement agreement the Company would pay USD 23 thousands and the remaining balance of the loan would be extinguish. Accordingly the Company recorded an income from extinguishment of debt in the amount of USD 40 thousands.
F - 20
GLOBAL ENERGY INC.
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 6 - SHORT TERM LOANS FROM RELATED PARTIES:
(a)
Loans to Pacific from a shareholder and a related party bear interest at an annual rate of 4% and were due on January 1, 2009. According to the terms of the agreement with the shareholder, since the loan was not repaid on January 1, 2009, the remaining loan bears interest at a monthly rate of 3% from that date. On May 3, 2010 the Company and the related party agreed on terms for settlement of the remaining balance of the loan as of such date (USD 83 thousands). According to the settlement agreement the Company would pay USD 30 thousands and would issue 1,200,000 shares of the Company and the remaining balance of the loan would be extinguish. The shares issued were valued based on the price of the share as of the settlement date and accordingly the Company recorded an income from extinguishment of debt in the amount of USD 15 thousands.
(b)
The Company borrowed $18 thousand from four shareholders of the Company on May 4, 2006. The loans are unsecured, non-interest bearing and due on demand.
NOTE 7 - ADVANCE TO MINORITY INTEREST SHAREHOLDER:
On July 10, 2007, the Company entered into an agreement with AlphaKat to incorporate and operate AGEI, see note 1b. According to the agreement the Company has provided a loan to the shareholders of AlphaKat. The terms of the loan has not yet been set.
F - 21
GLOBAL ENERGY INC.
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 8 - CONVERTIBLE DEBENTURES AND WARRANTS
In July 2007, the Company entered into an agreement to issue in four different installments, as set in the agreement, $4 million aggregate principal amount of convertible debentures (“Debentures”) in a private placement. The last installment was received after a registration statement for the underlying shares was declared effective by the Securities and Exchange Commission ("SEC"). The Debentures bear interest at 10% per annum, the payments of the principals and interest were due to commence on July 31, 2008 and continue on each successive month thereafter until October 2010. The Debentures are convertible, at the option of the investor at any time, into shares of the Company’s common Shares at a conversion price which is defined as the lower of an applicable conversion price of $2.2 per share or 95% of the lowest volume weighted average price during the 15 prior trading days. The Company has the right to redeem a portion or all amounts outstanding prior to maturity date, provided that (1) the closing bid price is less than the conversion price,(2) the underlying shares registration statement is effective and (3) no event of default has occurred.
If any event of default occurred, the full unpaid principal amount of these Debentures, together with interest shall become at the investor's election, immediately due and payable in cash. In conjunction with this financing, the Company issued to the private investor 300,000 warrants to purchase 300,000 common shares of the Company, exercisable for five years at an exercise price of $2.35 and 300,000 warrants to purchase 300,000 common shares of the Company, exercisable for five years at an exercise price of $2.50. The conversion of the Debentures and the exercise of the warrants are subject to further adjustments and conditions as further set out in the Debentures Agreement.
On March 20, 2008, the Company signed an amendment to the Debentures Agreement. The Company agreed to amend certain sections of the agreement dated July 2007 as follows:
●
The private investor agreed to purchase the fourth installment of $1 million in two equal installments, the first installment was on the date of the amendment and the last $0.5 million was due after a registration statement for the underlying shares is declared effective by the SEC. On May 13, 2008, the registration statement was declared effective and the investor purchased the last installment;
●
The applicable conversion price was reduced from $2.20 to $1.25 for all debentures outstanding;
●
The exercise prices of the warrants were reduced from $2.50 and $2.35 to $1.25.
F - 22
GLOBAL ENERGY INC.
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 8 - CONVERTIBLE DEBENTURES AND WARRANTS (continued):
On July 15, 2008, while the Company was seeking to raise additional financing by selling units of common stocks and warrants ("offering"), the Company entered into amended agreement with the Investor. The agreement amends the agreement dated July 6, 2007 between the Company and the Investor. The amendment allows the Company to immediately defer certain principal and interest payments due under the Debentures Agreement in consideration of:
●
The Company issued the Investor 200,000 restricted shares of its common stock (the restriction is on their trade-ability for the first 180 days after registration):
●
The applicable conversion price was reduced from $1.25 to the price of shares that were to be issued in the offering, for all Debentures outstanding (since the offering ultimately did not take place, the applicable conversion price was not reduced);
●
The exercise price of the warrants was reduced from $1.25 to the same exercise price of warrants that were to be issued in the offering. The amount of warrants was also adjusted (increased) according to the proportion between the exercise price before the offering and the exercise price afterwards (since the offering ultimately did not take place, the exercise price and number of warrants was not changed).
On September 22, 2008, while the Company was seeking to raise additional financing by selling units of common stocks and warrants ("offering"), the Company entered into a third amendment with the Investor in order to defer certain principal and interest payments. The amendment became effective September 30, 2008. The Amendment allows the Company the following:
●
The applicable conversion price was further reduced to the price of shares that were to be issued in the offering, for all Debentures outstanding (since the shares were eventually sold in the offering at the price of $0.1 per share, the new applicable conversion price is $0.1);
●
The exercise price of the warrants was further reduced to the same exercise price of warrants that were to be issued in the offering. The amount of warrants were also adjusted (increased) according to the proportion between the exercise price before the offering and the exercise price after (since the shares were eventually sold in the offering at the price of $0.1 per share, the new exercise price is $0.1 and the warrants increased from 600,000 to 7,500,000);
F - 23
GLOBAL ENERGY INC.
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 8 - CONVERTIBLE DEBENTURES AND WARRANTS (continued):
●
The Company issued the Investor 1,000,000 restricted shares of its common stock (the restriction is on their tradeability for the first 180 days after registration);
●
The interest rate on the Debentures was increased from 10% to 12% as of that date;
●
The Company paid an amount of $180 thousand as interest directly from the proceeds of the offering (see Note 12a) to the debenture investors;
●
The repayment schedule of the Debentures was revised and commenced in November 2008.
In addition, it was also agreed in the third amendment that the Company has to comply with an approved budget. Any violation of this covenant shall be deemed an event of default, and the full unpaid principal amount of this Debenture, together with interest shall become at the Investor's election, immediately due and payable in cash.
In 2008 the Company analyzed the difference between the value of the Debentures using the original terms compared to the value of the Debentures using the new terms under EITF Issue No. 96-19, "Debtor's Accounting for a Modification or Exchange of Debt Instruments", and found this difference is greater than 10%, therefore it was determined to account this transaction as debt extinguishment. Accordingly the Company recorded a gain from extinguishment of $867 thousand.
If any event of default occurred, the full unpaid principal amount of these Debentures, together with interest shall become at the Investor's election, immediately due and payable in cash. The conversion option included within each of the Company’s Debentures does not meet all the conditions related to equity classification and therefore should be bifurcated from the debt host contract. In addition the put option and call option are considered as embedded derivatives that require bifurcation, therefore these instruments are evaluated each reporting period and the difference in fair value is recorded as financial income or expense.
On December 5, 2008, $25 thousand of the principal amount of Debentures were converted into 314,070 shares of the Company (at a conversion price of $0.0796 per share).
On January 5, 2009, $35 thousand of the Principal amount of Debenture were converted into 1,228,070 shares of the Company (a conversion price of $0.0285 per share).
On March 5, 2009, $10 thousand of the Principal amount of Debenture were converted into 1,052,632 shares of the Company (a conversion price of $0.0095 per share).
On July 6, 2009, $10 thousand of the Principal amount of Debenture were converted into 884,956 shares of the Company (a conversion price of $0.0113 per share).
The notes are secured by a pledge on all of the Company's assets.
On September 6, 2009, an additional $10,000 of the principal amount of these debentures was converted into 675,676 shares of the Common stock of our company (a conversion price of $0.0148 per share).
F - 24
GLOBAL ENERGY INC.
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 8 - CONVERTIBLE DEBENTURES AND WARRANTS (continued):
On August 7, 2009 the Company and YA Global Investment L.P. (YA) entered into an agreement whereby subject to our satisfaction of certain condition, YA has consented to our completion of a capital raise of at least $650,000 on or before September 3, 2009. In connection with this consent, the following agreements will become effective upon completion of the capital raise:
a.
All outstanding debentures with YA will be consolidated into a single debenture.
b.
The Company will make initial payment of $50,000 to YA, of which $20,000 has already been paid.
c.
Interest and principal payments to YA under the current Debentures will be deferred for one year.
d.
The Company will have the option to redeem up to $3 million of the debenture at 115% of the amount being redeemed with 5 days prior notice.
e.
After the first year, the monthly payment will be $225,000.
f.
Conversion price of the debentures and the exercise price of the warrants will be reduced to be equal to the price of stock issued in the capital raise.
g.
There will be a partial lockup for one year limiting the number of shares of the Company’s common stock that YA can sell at prices less than 5 cents in any particular month.
The notes are secured by a pledge on all of the Company's assets.
Effective January 1, 2009, the Company adopted FASB Staff Position No. APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” codified in FASB ASC 470-20. The standard requires issuers to account separately for the liability and equity components of convertible debt instruments that may be settled in cash (including partial cash settlement), in a manner that reflects the issuer’s nonconvertible debt (unsecured debt) borrowing rate when interest cost is recognized. The standard requires bifurcation of a component of the debt, classification of that component in equity and accretion of the resulting discount on the debt to be recognized as part of interest expense in the consolidated statement of operations. The standard requires retroactive application to the terms of instruments as they existed for all periods presented. The retroactive application of this standard to the Company's convertible debentures and warrants resulted in an increase in the opening balance in 2009 of accumulated deficit during the development stage of $252 thousand and resulted in an increase of $252 thousand in the financial expenses for the year ended December 31, 2008.
F - 25
GLOBAL ENERGY INC.
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 8 - CONVERTIBLE DEBENTURES AND WARRANTS (continued):
On March 8, 2010, we entered into a letter agreement (the "Amendment") with YA Global with respect to outstanding secured convertible debentures, which are in the aggregate amount of $4,675,116, and warrants to purchase 7,500,000 shares of our company’s common stock ( “Warrants” ), updating and superseding the previously existing agreement between us and YA Global (the " Original Agreement ").
The Original Agreement allowed us to defer certain principal and interest payments due under the debenture on condition that we raise at least $650,000 in private offerings and other conditions are satisfied.
We entered into an investment transaction ("Transaction") with Mr. Yuval Ganot and Noam Elimelech Ltd., an Israeli private company fully owned by Mr. Ganot, for an aggregate offering amount of up to $1,500,000 over the course of sixteen months .YA Global has agreed to consent to the Transaction on the terms and conditions set forth in the Amendment.
In connection with YA Global’s consent to the Transaction, the Amendment has been further amended to provided, among others, for the following:
Covenants by Global Energy:
·
Global Energy provided a cash flow projection budget in a form acceptable to YA Global, demonstrating that the Global Energy will have sufficient cash flows to fund its operations for a period of at least 12 months.
·
Global Energy made a cash payment under the existing debentures of $30,000.
Issuance of Amended Debenture and Warrant Amendments:
·
Debentures. Global Energy issued to YA Global two Secured Convertible Debentures (the “Amended and Restated Debentures”) in exchange for the existing debentures. The total principal amount of the Amended and Restated Debentures together is equal to the total amounts outstanding under the existing debentures.
-
Debenture I is in a principal amount of $3.17 million, bears interest at 8% per annum and has a maturity date of 36 months from issuance, with an extension to 48 months if a "second financing milestone" is reached. No payments are due for first 18 months (24 months if the "first financing milestone" is reached, and 36 months if the "second financing milestone" is reached), with $150,000 per month thereafter. Payments can be made in cash or stock at a 5% discount to market price, provided shares can be resold. This debenture is convertible into common stock at $.05 per share, and 80,000,000 shares have initially been reserved for this debenture. Global Energy can redeem this debenture at anytime with a 15% redemption premium.
F - 26
GLOBAL ENERGY INC.
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 8 - CONVERTIBLE DEBENTURES AND WARRANTS (continued):
-
Debenture II is in a principal amount of $1.5 million, bears interest at 8% per annum (6% if the "first financing milestone" is reached, and 4% if the "second financing milestone" is reached) and has a maturity date of 36 months from issuance. No payments are due until maturity. This debenture is convertible into common stock at $.01 per share, and 190,000,000 shares have initially been reserved for this debenture. Global Energy cannot redeem this debenture prior to maturity without YA Global's consent.
·
Warrants. The exercise price of the Warrants was reduced to $0.01 per share and the number of shares underlying the Warrants remains unchanged.
·
YA Global’s Lock up. Beginning on date of Agreement and ending on the earlier of (i) February 1, 2012 or (ii) upon an event of default, on any particular Trading Day, except for any sales by the YA Global at a price of seven and one half cents ($0.075) or more, YA Global may not sell such number of shares of Common Stock that would exceed 20% of the volume traded during such Trading Day, unless waived by Global Energy.
·
"First Financing Milestone" means the raising of at least $1.5 million in gross proceeds from (i) the Transaction or (ii) any financing transaction resulting in cash proceeds to Global Energy (provided that (a) such transaction does not violate any provisions of the YA Global financing documents or (b) YA Global consents to such transaction) (an " Approved Transaction "), and " Second Financing Milestone " means the raising of at least $2 million in gross proceeds from (i) the Transaction or (ii) any other Approved Offering on or before March 1, 2012.
During the nine month ended September 30, 2010 the Company paid $30,000 on account of the August 7, 2009 agreement as detailed above.
On January 7, 2010, $10 thousand of the Principal amount of Debenture were converted into 1,000,000 shares of the Company (a conversion price of $0.01 per share).
On April 4, 2010, $4 thousand of the Principal amount of Debenture were converted into 400,000 shares of the Company (a conversion price of $0.01 per share).
On May 4, 2010, $65 thousand of the Principal amount of Debenture were converted into 6,531,400 shares of the Company (a conversion price of $0.01 per share).
As of December 31, 2010, we were not in material breach of any of our obligations under this amending and restating agreement.
On December 30, 2010, YA Global transferred to U-Trend Ltd., an Israeli company, a majority of the Debentures and Warrants, for additional information see note 16 below.
F - 27
GLOBAL ENERGY INC.
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 8 - CONVERTIBLE DEBENTURES AND WARRANTS (continued):
The following is a summary of the Company’s warrants that are outstanding and exercisable at December 31, 2010 and 2009:
F - 28
GLOBAL ENERGY INC.
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 9 - COMMITMENTS AND CONTINGENCIES (continued):
a.
Fuel leases office in Tel Aviv, Israel, from Mr. Yuval Ganot under operating lease agreement, which expires at September 2011. The monthly rent is approximately $1 thousand.
b.
Under the agreement signed with AlphaKat (see Note 1b) with regard to commercialization of AlphaKat technology of producing mineral diesel oil from municipal waste, the Company agreed to: 1) Provide financial support for the project, 2) Purchase up to three KDV 500 turbines for implementation in Poland, the United States and Israel, 3) Start a regulatory process, including filing of permit applications and 4) Monthly payments of €10 thousand to AlphaKat for consulting (until December 31, 2010, the Company paid AlphaKat an amount of $931 thousand on account of the first KDV500 turbine).
c.
Under a joint venture agreement signed with Supercom to engage in converting municipal solid waste into synthetic diesel fuel in Romania using the KDV technology, the Company is obligated to submit to Super Energy a detailed contract for the purchase of the KDV system ("the First System") which shall detail the price, payment terms, timetable and manufacturer guaranties. In addition, the Company will guaranty the supply of the necessary catalizator in connection with the First System for a period of at least ten years and AGEI will guarantee together with the producer of the equipment the good function of the installation to the established parameters, respectively processing municipal solid waste and producing 500 liters of diesel per hour.
d.
On June 15, 2009 The Company entered into an agreement with Cypress Partners LLC whereby Cypress was retained as the Company's financial advisor, placement agent, and arranger for debt and equity financing and business combinations. The Company paid Cypress a retainer of 500,000 shares of the Company's stock. The Company is required to pay Cypress a milestone fee of 1,500,000 shares of the Company's stock upon receipt of a term sheet from a potential purchaser and a fee of 8% of the transaction at closing and warrants to purchase Company stock with a value equal to the 8% fee. The agreement can be terminated after 15 days notice. The fee arrangement continues for 12 months after termination.
F - 29
GLOBAL ENERGY INC.
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 10 - SHARE CAPITAL:
a.
Common shares
The Company's shares are traded on the Over-The-Counter Bulletin Board.
Common stock confers on its investors the right to receive notice to participate and vote in general meetings of the Company, the right to a share in the excess of assets upon liquidation of the Company, and the right to receive dividends, if declared.
On July 15, 2008, the Company issued 200,000 restricted shares to the Debenture investors, see also Note 9.
On September 22, 2008, the Company issued an additional 1,000,000 restricted shares to the Debenture investors, see also Note 9.
On September 30, 2008, the Company entered into a Securities Purchase Agreement with twenty-seven accredited investors for the sale of 30 units at a purchase price of $50 thousand per unit for total consideration of $1,500 thousand. Each unit consists of 500,000 shares of common shares and 500,000 share purchase warrants exercisable at $0.10 for a period of five years. As finders fee, in connection with the securities purchase agreement, the Company paid $389 thousand, as well as issued 1,500,000 share purchase warrants fully vested exercisable at $0.10 to the placement agent.
The net consideration was allocated to the shares and warrants issued based on relative fair value. The value allocated to all warrants estimated by using the Black-Scholes option-pricing model is $744 thousand and was based on the following assumptions: dividend yield of 0%; expected volatility of 206%; risk-free interest rate of 3.91%; and expected term of 5 years.
On November 4, 2008, as part of the brokered private placement that took place on September 30, 2008 (see above), the Company sold an additional 4 units at a purchase price of $50 thousand per unit for total consideration of $200 thousand. Each unit consists of 500,000 shares of common shares and 500,000 share purchase warrants exercisable at $0.10 for a period of five years. As finders fee, in connection with the securities purchase agreement, the Company paid $47 thousand, as well as issued 200,000 share purchase warrants fully vested exercisable at $0.10 to the placement agent.
The net consideration was allocated to the shares and warrants issued based on relative fair value. The value allocated to all warrants estimated by using the Black-Scholes option-pricing model is $99 thousand and was based on the following assumptions: dividend yield of 0%; expected volatility of 209%; risk-free interest rate of 3.51%; and expected term of 5 years.
On December 5, 2008, $25 thousand of the principal amount of Debentures were converted into 314,070 shares of the Company
F - 30
GLOBAL ENERGY INC.
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 10 - SHARE CAPITAL (continued):
a.
Common shares (continued):
On January 5, 2009, $35 thousand of the Principal amount of Debenture were converted into 1,228,070 shares of the Company (a conversion price of $0.0285 per share).
On March 5, 2009, $10 thousand of the Principal amount of Debenture were converted into 1,052,632 shares of the Company (a conversion price of $0.0095 per share).
On July 6, 2009, $10 thousand of the Principal amount of Debenture were converted into
884,956 shares of the Company (a conversion price of $0.0113 per share).
On September 6, 2009, $10 thousand of the principal amount of debentures were converted into 675,676 shares of our common stock of the Company (a conversion price of $0.0148 per share).
As to the issuance of warrants, see Note 8.
As to issuance of shares after the balance sheet date, see Note 16.
On September 22, 2009, $247,415 of the principal amount of loans were converted into 24,741,505 shares of our common stock of the Company (at a conversion price of $0.01 per share).
On June 25, 2009, the Company entered into an agreement under which it issued 500,000 shares valued at $0.012 per share reflecting an aggregate value of $6,000 for consideration of financial advisor services provided.
On June 25, 2009, the Company issued 500,000 shares valued at $0.012 per share reflecting an aggregate value of $6,000 as a fee relating to a loan.
On September 10, 2009, the Company entered into a Securities Purchase Agreement (the “Agreement”) with Yuval Ganot, an accredited investor and Noam Elimelech Ltd. (the “Investor”). Subject to the terms of the Agreement, on the closing date (the “Closing Date”) and on the 15th day of each calendar month subsequent to the Closing Date, for a period of sixteen months (each such day, a “Subsequent Closing”), the Investor shall purchase a total aggregate amount of up to 150,000,000 but not less than 100,000,000 of the Registrant’s shares of Common Stock (the “Shares”) in exchange for an aggregate purchase price of up to $1,500,000. The effective purchase price is $0.01 per share. The proceeds from the Agreement shall be used for general working capital. Pursuant to the terms of the Agreement, the Investor may, at his sole and absolute discretion, elect not to purchase all or a part of the portion of the shares scheduled to be purchased on the final Subsequent Closing (50,000,000 Shares).
F - 31
GLOBAL ENERGY INC.
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 10 - SHARE CAPITAL (continued):
a.
Common shares (continued):
The agreement with the Investor was amended on March 15, 2010, 150,000,000 shares have been placed in escrow pending receipt of the investment. During the year ended December 31, 2010 and 2009 the investor invested $659,815 and $152,637, respectively which entitled the investor to 65,981,532 and 15,263,700 shares, respectively, from the shares held in escrow. Accordingly these 65,981,532 and 15,263,700 shares were reported as issued and outstanding as of December 31, 2010 and December 31, 2009, respectively. After the balance sheet date, the investor completed the Subsequent Closing by purchasing an additional 50,000,000 Shares for total consideration of $500,000. See note 16 for further information.
As detailed in note 6 above, pursuant to an agreement with a related party, dated May 3, 2010, in respect of the outstanding debt of $83 thousands due to him, the company agreed to pay an aggregate sum of $30 thousands and issue 1.2 million shares of Global Energy Inc. These shares were issued on June 1, 2010 and were valued at $38,400 based on the closing price of the Company’s stock on the date of grant.
On June 1, 2010, the Company issued to current and former members of its Board of Directors 5,160,000 shares of common stock for director fees valued at $165,120. The fair value of the shares was determined based on the closing price of the Company’s stock on the date of grant.
On June 1, 2010 the Company issued to Mr. Asi Shalgi a total of 11,425,000 shares of common stock for salary and expenses in the amount of $365,600. The fair value of the shares was determined based on the closing price of the Company’s stock on the date of grant.
On June 1, 2010 the Company issued to a consultant 5,000,000 shares in lieu of cash fees owed to him in connection with his services in the YA Global investment in Global Energy under the Consulting Services, Compensation Agreement and Non Circumvent Agreement with the Company, dated May 22, 2008, and 6,600,000 shares in lieu of cash fees owed to him under his Consulting Agreement with Global Energy, dated January 1, 2009. These shares were valued at $371,200 based on the closing price of the Company’s stock on the date of grant.
On June 1, 2010 the Company issued to a consultant 1,000,000 shares for his services to Global Energy in connection with the investment in Global Energy made by Yuval Ganot and Noam Elimelech Ltd. These shares were valued at $32,000 based on the closing price of the Company’s stock on the date of grant.
On June 1, 2010, the Company issued to Yuval Ganot a total of 3,152,500 shares for salary and expenses owed to Mr. Ganot under his employment agreement with the Company. These shares were valued at $100,880 based on the closing price of the Company’s stock on the date of grant.
F - 32
GLOBAL ENERGY INC.
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 10 - SHARE CAPITAL (continued):
b.
Stock option plan
In 2007, the Company established the 2007 share option plan, which provides for the issuance of up to 8,500,000 of the Company's common shares.
In March 2009, the Company increased the total number of shares reserved for issuance under the share option plan to 12,150,000 shares.
In April 2010, effective January 31, 2010, the Company increased the total number of shares reserved for issuance under the share option plan to 27,000,000 shares.
Grant of stock-based awards is administrated by the compensation committee of the board of directors of the Company which also establishes the terms of the awards.
The following table presents the Company’s stock option and warrants activity for employees, officers and directors of the Company for the years ended December 31, 2007 through 2010:
F - 33
GLOBAL ENERGY INC.
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 10 - SHARE CAPITAL (continued):
The following table summarizes information about options and warrants to employees, officers and directors outstanding at December 31, 2010 under the plans:
The weighted-average grant-date fair value of options granted during the year ended December 31, 2010 was $0.039 per share. The aggregate intrinsic value of options outstanding and options exercisable as of December 31, 2010 and 2009, was $303 thousands and $212 thousands, respectively. The intrinsic value is calculated as the difference between the market value as of December 31, 2010 and the exercise price of shares. The market value as of December 31, 2010 was $0.041 per share as reported by NASDAQ. As of December 31, 2010 the total number of options vested and expected to vest was 20,905,021 with a weighted average exercise price of $0.04 per share, aggregate intrinsic value of $303 and weighted average remaining contractual life of 3.6 years.
The weighted average grant date fair value of options granted in the year ended December 31, 2008 was $0.07.
Costs incurred in respect of stock based compensation for employees and directors, for the years ended December 31, 2010, 2009 and 2008 were $572 thousands, $149 thousand and $150 thousand, respectively.
As of December 31, 2010, there were $114 thousand of total unrecognized compensation expenses related to unvested share based compensation arrangement granted under the plan.
F - 34
GLOBAL ENERGY INC.
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 10 - SHARE CAPITAL (continued):
c.
Options to service providers:
On April 13, 2010, the Company signed an agreement with Messrs. Ori Ackerman and Amnon Dradik and Intarpina Ltd. the brokers who introduced Noam Elimelech Ltd to the Company. Under the terms of the agreement, the Company agreed to pay an aggregate of $60,000 payable over 10 months and to issue options to acquire an aggregate of 5,000,000 shares at an exercise price of $.01 per share. Such options vest in full upon the grant date of which, 2,500,000 expire after one year and the remaining 2,500,000 options expire after 18 month. Using the Black-Scholes option pricing model assuming a 1.37% risk free interest rate, 0% dividend yield, expected term of 1-1.5 years and 261% volatility, the Company has estimated the fair value of such options to be approximately $138,000.
On August 20, 2010, 1,666,666 of such options were exercised into Company shares for total consideration of $16,667.
A summary of the status of the stock options granted to non-employees as of December 31, 2009 and 2008, and changes during the year ended on those dates, is presented below:
The Company recorded stock compensation of $138 thousands, $15 thousand and $85 thousand during the years ended December 31, 2010, 2009 and 2008, respectively, related to consulting services.
F - 35
GLOBAL ENERGY INC.
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 11 - INCOME TAXES
US resident companies are taxed on their worldwide income for corporate income tax purposes at a statutory rate of 35%. No further taxes are payable on this profit unless that profit is distributed. If certain conditions are met, income derived from foreign subsidiaries is tax exempt in the US under applicable tax treaties to avoid double taxation.
The income of the company's Israeli subsidiaries is taxed through 2009 at the rate of 26%. The corporate tax rates for 2010 and thereafter are as follows: 2010 - 25%, in the 2011 tax year - 24%, in the 2012 tax year - 23%, in the 2013 tax year - 22%, in the 2014 tax year - 21%, in the 2015 tax year - 20% and in the 2016 tax year and thereafter the applicable Companies Tax rate will be 18%.
For subsidiaries, local commercial and tax legislation contains provisions that may imply more than one treatment for a transaction. Thus, management’s judgment of the companies’ business activities and transactions may not coincide with the interpretation of the tax authorities. In the event that a particular transaction is challenged by the tax authorities the subsidiaries may incur penalties and taxes on present and past transactions. Management believes that the financial statements adequately reflect the activities of the subsidiaries.
Deferred income taxes reflect the net effects of temporary differences between the amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The breakdown of the deferred tax asset as of December 31, 2010, 2009 and 2008 is as follows:
A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. Management has determined, based on its recurring net losses, lack of a commercially viable product and limitations under current tax rules, that a full valuation allowance is appropriate.
At December 31, 2010, the Company had net operating loss carry forwards for United States Federal income tax purposes of approximately $1,877 thousand. Current United States Federal tax law limits the use of net operating loss carry forwards after there has been a substantial change in ownership, as defined in Internal Revenue code Section 382, during a three year period. Due to changes in ownership between 2006 and 2007, there exists substantial risk that the Company’s use of net operating losses for United States be severely limited under the Internal Revenue Code for losses incurred prior to 2007.Carryforward losses of the Company's Israeli subsidiaries aggregate $524 thousand at December 31, 2010.
Global Energy Inc. has filed income tax returns in the United States. All tax years are closed by expiration of the statute of limitations.
F - 36
GLOBAL ENERGY INC.
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 12 - NET LOSS PER SHARE DATA
The shares issuable upon the exercise of options, and conversion of convertible debentures and warrants, which have been excluded from the diluted per share amounts because their effect would have been anti-dilutive, include the following:
NOTE 13- RELATED PARTY TRANSACTIONS
On January 1, 2009 the Company entered into a financial advisory services agreement with one of the directors. As compensation for the services the Company is required to pay the consultant $6,000 for prior services and a monthly consulting fee of $5,000. The agreement terminates December 31, 2010.
On September 10, 2009 the Company entered into an employment agreement with the Investor, According to the said agreement the Investor would serve in a role of Company's Vice President of Business Development & strategy. Based on the agreement the Investor would be entitled for a monthly salary calculated as 85% of the CEO's salary in addition to social insurance and other benefits.
On January 31, 2010, the Board of Directors approved the grant of 4,800,000 options to board members, at an exercise price of US $0.0243 per share to US $0.0365. The options were immediately vested. In addition, on the same date, the Board of Directors approved the grant of 9,000,000 options to the CEO at an exercise price of US $0.0243 per share to US $0.0365. 3,000,000 of such options were immediately vested, 3,000,000 vest on the first anniversary of grant and, 3,000,000 vest on the second anniversary of grant.
For addition information for shares issued to current and former members of the Board of Directors, Mr. Asi Shalgi and Mr. Yuval Ganot, see note 10a.
F - 37
GLOBAL ENERGY INC.
(A development stage company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 14 - LITIGATION
In August 2010, a former employee of the Company filed a lawsuit against the Company claiming that salary, expenses, and debts aggregating $55,000 are owed to him. While it is not feasible to predict or determine the outcome of this claim, such amount was accrued in the financial statements.
NOTE 15 - OTHER INCOME
Pursuant to an agreement with Diesenhaus Ramat Hasharon (1982) Ltd. ("Diesenhaus"), dated April 13, 2010, an agreement with Agropeace-Bio Ltd. ("Agropeace") dated May, 3, 2010, and an agreement with Ori Ackerman, dated May 3, 2010, the company concluded a set of arrangements with the above debtors according to which the Company paid a portion of the outstanding debt of $233,978 due to them and cancel the remaining portion of the debt aggregating to an amount of $110,136.
As part of agreement with Ori Ackerman, the company also agreed to issue 1.2 million shares of Global Energy Inc - see note 10 above.
NOTE 16- SUBSEQUENT EVENTS:
On December 30, 2010, YA Global transferred to U-Trend Ltd., an Israeli company, a majority of the Debentures and Warrants as follows: (i) debentures in the amount (principal and interest) of US $3,200,000, and retained debentures in the amount (principal and interest) of US $1,624,395, and (ii) warrants to purchase an aggregate of 4,974,718 shares of the Company, and retained warrants to purchase an aggregate of 2,525,282 shares of the Company. On January 10, 2011 U-Trend converted $100 thousand of the Principal amount of Debenture into 10,000,000 shares of the Company (a conversion price of $0.01 per share).
On March 30, 2011, Noam Elimelech Ltd. completed the final Subsequent Closing under the December 23, 2009 Amendment to its Securities Purchase Agreement with the Company by purchasing an additional 50,000,000 Shares for total consideration of $500,000.
F - 38
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Item 9A. Controls and Procedures
(a) Our management, including our chief executive officer and chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2010. Based on such review, our chief executive officer and chief financial officer have determined that in light of their conclusion with respect to the effectiveness of our internal control over our financial reporting as of such date, we did not have in place effective controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure, and is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms.
(b) Our management, under the supervision of our chief executive officer and chief financial officer, is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended. The Company’s internal control over financial reporting is defined as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that:
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pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and asset dispositions;
-
provide reasonable assurance that transactions are recorded as necessary to permit the preparation of our financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
-
provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of our internal control over financial reporting as of December 31, 2010 based on the framework for Internal Control-Integrated Framework set forth by The Committee of Sponsoring Organizations of the Treadway Commission. Due to the inherent limitations of our company, derived from our small size and the small number of employees, management’s evaluation concluded that there is a material weakness with respect to segregation of duties that may not provide reasonable assurance regarding the reliability of internal control over financial reporting and may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Based on this evaluation, our management concluded that the Company’s internal controls over financial reporting were not effective as of December 31, 2010.
This management report on internal control over financial reporting shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended or otherwise subject to the liabilities of that Section.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Commission that permit us to provide only management’s report in this Annual report.
(c) There were no changes in our internal controls over financial reporting identified with the evaluation thereof that occurred during the quarter ended December 31, 2010, that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
Item 9B.
Item 9B. Other Information
None.
PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance
Executive Officers, Directors and Key Employees
The following table sets forth information regarding our directors, executive officers and key employees, including their ages as of March 24, 2011.
(1) Member of the Audit Committee.
(2) Chairman of the Compensation Committee and member of the Audit Committee.
(3) Chairman of the Audit Committee.
(4) Member of the Compensation Committee.
Asi Shalgi. Mr. Shalgi has served as our President, Chief Executive Officer and director since April 2007. He has more than 20 years of experience and involvement in the private and public sector. He has served as general manager and director for industrial and agriculture companies with significant export activities. He was the director general of the Israeli Ministry of Energy and Infrastructure. During his term with the Ministry he was involved in the peace treaty negotiations with Jordan on the energy annex. He was responsible for new legislation regarding electricity in Israel that allowed the involvement of Independent Power Producers and the implementation of the Public Utility Authority that regulates the energy sector and prices in Israel. He has been involved in the power and water sector mainly in developing and financing Independent Power Producers projects. This has included developing, financing, building and operating the first private power plant in Israel, and the first private water desalination plant in Israel. He served in the Israeli Defense Forces and retired as a Lieutenant Colonel. Mr. Shalgi received an Engineering degree for Industry and Management from Tel Aviv University.
Shlomo Zakai. Mr. Zakai has served as our Treasurer and Chief Financial Officer since May 1, 2010. Mr. Zakai has his own accounting firm, which he established in 2004 and which provides a range of services to publicly traded companies as well as private companies, and he has served as controller and Chief Financial Officer of a number of private companies. Mr. Zakai worked as an accountant for nine years in the hi-tech department of Kost, Forer, Gabbay & Kasierer, an independent registered public accounting firm and a member firm of Ernst & Young Global, where he last served as a senior manager and worked with companies publicly traded on Nasdaq and in Israel. Mr. Zakai has been a Certified Public Accountant since 1998 and he holds a B.A. in Accounting from the College of Management in Rishom Le'Zion.
Avner Raanan. Mr. Raanan has served as our director since December 2007. He has vast technical and managerial experience in venture capital investments, business consulting, managing multi-million dollar projects, developing airborne electronic warfare systems and air to air missiles. Mr. Raanan founded Avnan Enterprises Ltd., an investment company that invests in early stage start up companies. Mr. Raanan is currently a Ph.D. candidate at Bar-Ilan University, Israel. He received an M.Sc. in Business Administration and a B.Sc. in Electronic and Computer Engineering from Ben-Gurion University in Israel.
Amir Elbaz. Mr. Elbaz has served as our director since September 22, 2008. He specializes in corporate financing and strategic planning for private and public companies. Mr. Elbaz is currently serving as a director on the audit committee of Smart Online Inc., and he is currently employed by Yorkville Advisors as Senior VP in the Special Situations Group. Prior to joining Yorkville Advisors, he advised several renewable energy companies (Solar PV, Wind and Waste-to-Energy) on matters related to financing, corporate strategy and business development. Amir has served as the Executive Vice President, Chief Financial Officer and Board Member of Lithium Technology Corporation between 2005 and 2008. At Lithium Technology Corporation, he oversaw its finances, reporting and the planning of its business ventures. Prior to that, he served as a senior associate at Arch Hill Capital, NV, a Dutch venture firm, where he played an active role in the management and business development of two of its portfolio companies. Prior to jointing Yorkville Advisors, he served for several years as an analyst with the Economic Department in the Procurement Mission of the Israeli Ministry of Defense in New York. In that capacity, Mr. Elbaz co-headed multi-million dollar negotiations with first tier technology companies and was in charge of the financial aspects of the day-to-day operations. Amir holds a B.A. from the University of Haifa, Israel, and an MBA in Finance & Investments from Bernard Baruch College, CUNY, New York.
Nissan Caspi. Mr. Caspi has served as our director since September 24, 2008. He has considerable experience in the public infrastructure projects sector and is an expert in the analysis and financing of infrastructure projects. Mr. Caspi owns his own accounting firm, Caspi Ben David and Co. CPA (Israel), and is currently Co-CEO of Eco Capital Ltd., an entity which he founded, and which develops independent power and water projects in Israel. Mr. Caspi was the Chief Financial Officer of Veolia Israel (formerly Vivendi), and also held a number of positions in various projects and companies owned by Veolia. In 2001-2002, he led the financing of VID Desalination Ltd., the largest Israeli sea water desalination project, which produces 100,000,000 cubic meters of fresh water per year. In 2005, this project received an award for the most successful BOT project in the world from the Association for Infrastructure Projects. Mr. Caspi was also formerly Chairman of INFRA (Insurance Fund for Natural Risks in Agriculture), an Israeli government-backed entity. Mr. Caspi was also a former head of the accounting department and accounting lecturer at the Hebrew University of Jerusalem. Mr. Caspi holds an MBA from the Hebrew University of Jerusalem, a B.A. degree in accounting and economics from the Hebrew University of Jerusalem, and he is a CPA (Israel).
Yuval Ganot. Mr. Ganot joined the company’s Board of Directors on October 7, 2009. The appointment of Mr. Ganot was in accordance with the Securities Purchase Agreement entered into by Mr. Ganot and the Company on September 10, 2009. Mr. Ganot holds a L.L.B (Bachelor of Law) from the IDC, Israel, and is a member of the Israeli Bar. His practice specializes in commercial law, mergers and acquisitions, real estate investments, business management and business rehabilitation. Among his clients are some of the largest companies in Israel, as well as academic institutions and charity funds. In addition, Mr. Ganot serves as money management and finance consultant to several investors and private companies.
Section 16(a) Beneficial Ownership Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities to file with the Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common stock and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by the Commission regulations to furnish us with copies of all Section 16(a) reports they file.
Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that all filing requirements applicable to our officers, directors and greater than ten percent beneficial owners were complied with, with the exception of the following:
Nominating Committee
Our company currently does not have a nominating committee nor does our company have a written nominating committee charter. Our Board of Directors does not believe that it is necessary to have such a committee because it believes that the functions of such a committee can be adequately performed by the Board of Directors.
Our company does not have any defined policy or procedure requirements for shareholders to submit recommendations or nominations for directors. The Board of Directors believes that, given the early stages of our development, a specific nominating policy would be premature and of little assistance until our business operations develop to a more advanced level. Our company does not currently have any specific or minimum criteria for the election of nominees to the Board of Directors and we do not have any specific process or procedure for evaluating such nominees. The Board of Directors assesses all candidates, whether submitted by management or shareholders, and makes recommendations for election or appointment.
A shareholder who wishes to communicate with our Board of Directors may do so by directing a written request addressed to our President at the address appearing under “ Business - Description of Business - Historical Information”.
Audit Committee
The audit committee is comprised of Nissan Caspi (chairman), Amir Elbaz and Avner Raanan. The audit committee assists the Board of Directors in discharging its responsibility relating to the accounting, reporting and financial practices of the Company and its subsidiaries, and has general responsibility for oversight of internal controls, accounting and audit activities and the legal compliance of the Company and its subsidiaries. The audit committee operates under a charter adopted by the Board of Directors.
Compensation Committee
The compensation committee is comprised of Amir Elbaz (chairman) and Avner Raanan. The compensation committee assists the Board of Directors in discharging its responsibilities relating to compensation of the Company’s directors and executives. The primary objective of the committee is to develop and implement compensation policies and plans that are appropriate for the Company in light of all relevant circumstances, its level of operations and which provide incentives that further the Company’s long-term strategic plans and are consistent with the culture of the Company and the overall goal of enhancing enduring shareholder value. The compensation committee operates under a charter adopted by the Board of Directors.
Code of Ethics
We have not yet adopted a corporate code of ethics. Given our current operations, management does not believe a code of ethics is necessary at this stage of our development.
Audit Committee Financial Expert
Our Board of Directors determined that Mr. Nissan Caspi qualifies as an “audit committee financial expert” as defined by Item 407(d) of Regulation S-K. Mr. Nissan Caspi is an “independent director” as defined in NASDAQ Marketplace Rule 4200(a)(15).
Item 11.
Item 11. Executive Compensation
The table set forth below summarizes the annual and long-term compensation for services payable to our executive officers during the fiscal years ended December 31, 2010 and 2009.
Summary Compensation
(1)
Mr. Shalgi did not receive any compensation as a director of our company.
(2)
Actual compensation was paid in NIS. The conversion between NIS and Dollar was made pursuant to the official representative rate of exchange of the US$ as published by the Bank of Israel on the payment date
(3)
On June 1, 2010, the Company issued to Mr. Asi Shalgi, our President and CEO, a total of 11,425,000 shares of common stock in lieu of unpaid salary and expenses in the amount of $114,250 accrued from April 2009 under his employment agreement with Global Energy.
(4)
On January 31, 2010, we granted to Mr. Shalgi, up to nine million stock options, with three million granted at an exercise price of $0.0243 per share to be vested immediately, three million granted at an exercise price of $0.0304 per share to be vested on January 1, 2011, and three million granted at an exercise price of $0.0365 per share to be vested on January 1, 2012. 5,055,021 options were issued to Mr. Shalgi on April 30, 2007. These options began vesting on April 30, 2008. The monetary value of these options is computed in accordance with U.S. Generally Accepted Accounting Principles. An amount of $4,564 relates to option awards granted in 2007 and the remaining $258,572 relates to the option awards granted in 2010.
(5)
On April 15, 2010, Mr. Alex Werber resigned from his position as CFO of the Company.
(6)
750,000 options were issued to Mr. Alex Werber on January, 2009. The monetary value of these options is computed in accordance with U.S. Generally Accepted Accounting Principles.
(7)
On June 1, 2010, the Company issued to Yuval Ganot a total of 3,152,500 shares of common stock in lieu of unpaid salary and expenses in the amount of $31,525 owed to Mr. Ganot under his employment agreement with the Company.
(8)
On January 31, 2010, the Board of Directors approved the grant of 600,000 options to Yuval Ganot at an exercise price of US $0.0243 to US $0.0365 per share. The options were granted for his service on the Board and immediately vested. The monetary value of these options is computed in accordance with U.S. Generally Accepted Accounting Principles.
Effective May 6, 2007, we appointed Alex Werber as our new Treasurer and Chief Financial Officer and entered into an employment agreement, pursuant to which it was agreed Mr. Weber should be employed on a part-time basis and paid a monthly salary, payable immediately upon receipt of his invoice, at a gross monthly rate of $2,500, to be paid in NIS translated pursuant to the official representative rate of exchange of the US$ as published by the Bank of Israel on the payment date. Under the employment agreement, Mr. Werber and the Company agreed to open and maintain a study fund. We agreed to contribute to the fund an amount equal to 7.5% of each monthly salary payment up to the maximum amount recognized for tax benefits pursuant to the Income Tax Ordinance, and Mr. Werber agreed to contribute to the fund an amount equal to 2.5% of each monthly salary payment up to the maximum amount recognized for tax purposes pursuant to the Income Tax Ordinance. In addition, we agreed to provide Mr. Werber (including his heirs, executors and administrators) with coverage under a standard directors’ and officers’ liability insurance policy at our expense.
On December 1, 2007, Mr. Werber’s employment agreement was amended, pursuant to which his salary was increased to a gross monthly salary of US $5,000. All other terms of the employment agreement remain unchanged and in full force and effect. On March 1, 2009, Mr. Werber's employment agreement was amended, pursuant to which his salary was decreased to a gross monthly salary of US $1,500 in cash and additional $1,000 when the Company will be financially able. Mr. Werber served as Treasurer and Chief Financial Officer until his resignation effective April 15, 2010.
On May 1, 2010, Shlomo Zakai was appointed Treasurer and Chief Financial Officer. Although the Company currently has no employment agreement with Mr. Zakai, he receives $1,500 a month (plus value-added tax) in compensation for his services.
On April 30, 2007, we appointed Asi Shalgi as our new President and Chief Executive Officer and entered into an employment agreement. Under the terms of the agreement, Asi Shalgi is being paid a monthly base salary of $10,000. In addition, on April 30, 2007, we granted 5,055,021 stock options exercisable for ten years at an exercise price of $0.01 per share to Asi Shalgi. Mr. Shalgi has also been appointed to our Board of Directors (for more details regarding his compensation as director see below, “Director Compensation Policy”). On January 31, 2010, we granted Mr. Shalgi up to nine million stock options, with three million granted at an exercise price of $0.0243 per share to be vested immediately, three million granted at an exercise price of $0.0304 per share to be vested on January 1, 2011, and three million granted at an exercise price of $0.0365 per share to be vested on January 1, 2012 (the option agreement related to this option grant was signed on March 29, 2011).
On January 31, 2010, the Board of Directors approved the grant of 600,000 options to Yuval Ganot at an exercise price of US $0.0243 to US $0.0365 per share. The options were granted for his service on the Board and immediately vested. The option agreement related to this option grant was signed on March 29, 2011.
Outstanding Equity Awards at Fiscal Year-End
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
Director Compensation Policy
We currently pay our directors $1,000 per month for their service to us and grant options to our directors on an annual basis at the discretion of the Board of Directors
On January 31, 2010, we granted to each of board members Amir Elbaz and Nissan Caspi, 1,200,000 stock options, with one third of the options granted at an exercise price of $0.0243, one third at an exercise price of $0.0304 and one third at an exercise price of $0.0365. In addition, our board member Avner Ra'anan was granted an aggregate of 1,800,000 stock options, a third of which will be exercisable at each of these exercise prices indicated above, and our board member Yuval Ganot was granted an aggregate of 600,000 stock options, a third of which will be exercisable at each of these exercise prices indicated above. All of the foregoing options will vest immediately and shall expire three years after the grant date. The option agreements related to these option grants were signed on March 29, 2011.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table provides certain information with respect to the beneficial ownership of our common stock as of March 28, 2011 for:
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each beneficial owner of more than 5% of our outstanding common stock;
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each of our executive officers;
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each of our directors; and
-
all of our executive officers and directors as a group.
In the following table, we have determined the number and percentage of shares beneficially owned in accordance with Rule 13d-3 of the Exchange Act based on information provided to us by our controlling shareholder, executive officers and directors, and this information does not necessarily indicate beneficial ownership for any other purpose. In determining the number of shares of our common stock beneficially owned by a person and the percentage ownership of that person, we include any shares as to which the person has sole or shared voting power or investment power, as well as any shares subject to warrants or options held by that person that are currently exercisable or exercisable within 60 days after March 30, 2011. Applicable percentages are based on shares of common stock outstanding on March 30, 2011.
* Less than 1%.
(1)
Except as otherwise indicated, addresses are 16 Menachem Begin Street, Gama Building, 5th Floor, Ramat Gan, 52681, Israel.
(2)
Based on 314,420,239 shares of our common stock issued and outstanding as of March 30, 2011. Beneficial ownership is determined in accordance with the rules of the Commission and generally includes voting or investment power with respect to securities. Except as otherwise indicated, we believe that the beneficial owners of shares of our common stock listed above, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable.
(3)
Consists of 10,000,000 shares owned directly and 103,712,718 shares underlying certain convertible debentures and warrants purchased by U-Trend Ltd. from YA Global Investments, L.P. in a securities purchase agreement dated November 10, 2010 (the "SPA"), according to a Schedule 13D filed February 17, 2011. Mr. Mendelovits is sole shareholder, sole director, and CEO of U-Trend Ltd., his address is Chief Executive Officer, U-Trend Ltd., 94 Em Ha'Moshavot St., Petach Tikva 49130, Israel, and he and U-Trend Ltd. disclaim group membership with Tomer Katz, according to that 13D.
(4)
Consists of shares underlying certain convertible debentures received by Mr. Katz as compensation for certain entrepreneurial and brokerage services for U-Trend Ltd. in connection with the SPA, according to a Schedule 13D filed February 17, 2011. Mr. Katz's address is Esslinggasse 13 top 10, 1010 Vienna, Austria, and he disclaims group membership with Mr. Mendelovitz and U-Trend Ltd., according to that 13D.
(5)
To the company knowledge, Carrigain Investment Ltd. is controlled jointly by Ariel Malik and Zeev Bronfeld each holding 50% of its common shares. Effectively, therefore, each of Mr. Malik and Mr. Bronfeld beneficially owns 6.4% of our common stock. Carrigain Investment Ltd.‘s address is Jasmine Court, Regent Street, Belize City, Belize.
(6)
All investment decisions of, and control of, YA Global Investments, L.P. are held by its investment advisor, Yorkville Advisors, LLC. Mark Angelo, the portfolio manager of Yorkville Advisors, makes the investment decisions on behalf of Yorkville Advisors, LLC. The address for YA Global Investments, L.P. is 101 Hudson Street, Suite 3700, Jersey City, NJ 07302.
(8)
Consists of (i) 18,122,168 shares held directly; (ii) 3,791,266 options which Mr. Shalgi may exercise within 60 days, as follows: Mr. Shalgi was granted 5,055,021 options on April 30, 2007, to be vested to him at a rate of 25% per year beginning on April 30, 2008. 3,791,266 of these options are exercisable within 60 days of March 28, 2011; (iii) An additional 3,000,000 options which Mr. Shalgi may exercise within 60 days as follows: on January 31, 2010, the Board of Directors approved the grant of 9,000,000 options to Mr. Shalgi at an exercise price of US $0.0243 per share to US $0.0365. 3,000,000 of such options 3,000,000 immediately vested; and (iv) 52,529,045 shares owned by others who have agreed to grant Mr. Shalgi the right to vote such shares, as follows: 27,075,000 shares of Carrigain Investment Ltd., 4,048,322 shares of Ariel Malik, 12,920,000 shares of Amir Elbaz, 1,320,000 shares of Avner Raanan, and 7,165,723 shares of Yanai Man.
(9)
350,000 options were granted on December 6, 2007 and began vesting on December 6, 2008. The options have an exercise price of $2.20 per share and expire on December 6, 2017. The grant date fair value of the common shares underlying the options was $0.55 per common share. On December 29, 2008 the exercise price was changed as follows: (i) 1/3 of the options are exercisable at a price of $0.15 per share; (ii) 1/3 of the options are exercisable at a price of $0.175 per share; and (iii) 1/3 of the options are exercisable at a price of $0.20 per share, providing an average exercisable price of $0.178 This reprising is subject to receipt of a pre-ruling from the Israeli Tax Authority. On December 29, 2008 400,000 additional options were granted to be vested on January 1, 2011 with the following exercise price: (i) 1/3 of the options are exercisable at a price of $0.15 per share; (ii) 1/3 of the options are exercisable at a price of $0.175 per share; and (iii) 1/3 of the options are exercisable at a price of $0.20 per share, providing an average exercisable price of $0.178. On January 31, 2010, the Board of Directors approved the grant of 1,800,000 options at an exercise price of US $0.0243 per share to US $0.0365. The options immediately vested.
(10)
650,000 of the options granted to Mr. Elbaz on December 29, 2008 are exercisable within 60 days of March 28, 2011. On January 31, 2010, the Board of Directors approved the grant of 1,200,000 options at an exercise price of US $0.0243 per share to US $0.0365. The options immediately vested.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Transactions with Related Persons, Promoters and Certain Control Persons
Transactions with YA Global
YA Global Investments, L.P. is a related party of our company. We have entered into a number of transactions with YA Global, which are described in detail in Item 1. entitled “ Business - Financing Agreement with YA Global ”.
Letter agreement with Yanai Man Projects Ltd.
On October 8, 2008, we entered into a Letter Agreement (the “Letter Agreement”) with Yanai Man Projects Ltd., or YMP, a company owned by Yanai Man, with respect to the shares held by YMP in Pacific Ltd. Pacific’s first project was to work with an Ethiopian entity to farm castor seeds for castor oil in Ethiopia. Pursuant to the Letter Agreement, the parties agreed that we would have the right at any time to purchase from YMP 449 ordinary shares in Pacific, constituting 90% of YMP’s holdings in Pacific, for a consideration of $150,000, payable by us over a period of one year through the payment of ten installments of $15,000 each starting January 30, 2009. We exercised this right of purchase on October 8, 2008, and subsequently YMP transferred 449 shares to us. Additionally, during the first two years following the effective date of the Letter Agreement, YMP had the right to require us to purchase an additional 25 ordinary shares in Pacific held by YMP per year, for an additional consideration of $ 50,000, and that at all times (including during at the time of YMP’s right mentioned above), we had the right to purchase all remaining shares in Pacific held by YMP (i.e., 50 ordinary shares in Pacific) for an additional consideration of $ 100,000. On March 3, 2009 this agreement with YMP was amended and it was agreed that the 449 of the shares of Pacific will remain the Company’s but the sum of $150,000 will not be paid. On April 1, 2009, YMP sold its remaining 50 shares in Pacific to us, for a consideration of $12.
Loan Agreement with Mr. Aviram Malik
On October 26, 2008, we entered into a Loan Agreement (for the purposes of this paragraph, the “Agreement”) with Mr. Aviram Malik (the “ Lender ”), which is the brother of Ariel Malik, and our subsidiary, Global NRG Pacific Ltd. Ariel Malik is one of the controllers of Carrigain Investment Ltd, which is our controlling shareholder. Among the provisions of the Agreement, it was agreed that the Lender shall loan Global NRG Pacific Ltd. an aggregate of US$ 400,000, with US$ 300,000 being transferred to Pacific in three equal installments of US$ 100,000 on October 27, 2008, November 3, 2008 and November 10, 2008, respectively. The loan is to be fully repaid to the Lender by May 1, 2009 and will not bear interest. In the case of a default, the debt shall be transferred to us, and the Lender shall be entitled to 1,000,000 shares in our company at no cost. In addition, we agreed to give a corporate guarantee for the repayment of the loan. Additionally, upon the transfer of the loan amount by the Lender, Global NRG Pacific Ltd. will issue to the Lender shares in Global NRG Pacific Ltd. constituting 44% of the outstanding shares of Global NRG Pacific Ltd. Also, we agreed that upon the exercise of the Call/Put Option by us for 5% of the shares in Global NRG Pacific Ltd. held by YMP, we would transfer said 5% shares to the Lender, but no later than November 1, 2010. It was also agreed that upon achievement of milestones of annual castor seeds production of 30,000, 40,000, 50,000, 60,000 or 70,000 tons of castor seeds, respectively, during any calendar year, then we will be entitled to a share of 55%, 60%, 65% 70%, 75%, respectively, of all dividends distributed by Global NRG Pacific Ltd. with respect to such year.
Issuing shares of common stock to Mr. Asi Shalgi, Mr. Ariel Malik and Mr. Yanai Man
On September 22, 2009, we issued an aggregate number of 19,941,505 shares of common stock to Mr. Asi Shalgi, our CEO, Mr. Ariel Malik, our controlling shareholder, and Mr. Yanai Man, the former CEO of Global NRG Pacific Ltd., in connection with the conversion to Company common stock of their loan to the Company in the aggregate amount of NIS 750,000 ($199,415) originally made by such individuals in July 2008. The share value in the transaction was $0.01 per share. In addition, we issued an aggregate number of 4,800,000 shares of common stock to Mr. Yanai Man in exchange for the cancellation of the remaining balance of a loan from Mr. Man in the amount of $48,000.
Securities Purchase Agreement with Yuval Ganot
On September 10, 2009, we entered into a Securities Purchase Agreement (the “Agreement”) with Yuval Ganot, an accredited investor (the “Investor”), which is described in detail in Item 5. entitled “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuers Purchases of Equity Securities ” under “ Recent Sales of Unregistered Securities ”.
Consulting agreement Amir Elbaz
On May 26, 2009, we entered into consulting agreement, dated as of January 1, 2009, with our director, Amir Elbaz, to provide us with financial advice, advice in connection with acquisition and/or merger with other companies, divestiture of assets or other similar transactions or financings as well such other financial advisory services as we may agree with Mr. Elbaz from time to time. This agreement is in addition to the agreement with Mr. Elbaz, dated May 22, 2008.
We will pay fees to Mr. Elbaz as follows:
-
$5,000 per month. Such fee shall be paid monthly. Mr. Elbaz agreed to defer up to 80% of the monthly fees due to him to a later date in which we could afford paying him his earned fees.
-
Lump sum of $6,000 for services rendered during November and December 2008.
-
We will issue Mr. Elbaz 150,000 shares of our common stock as part of additional consideration. Such shares shall be issued on or before August 1, 2009.
The consulting services agreement with Mr. Elbaz terminated on December 31, 2010.
Certain debt we owed to related persons was paid in 2010 in common stock of the Company, as described elsewhere in this Form 10-K under "Recent Sales of Unregistered Securities - Debt Settlements".
Transaction with Our Stockholders.
During the year ended December 31, 2006, we borrowed $18,000 from four of our significant shareholders. The loans do not bear interest and are repayable upon demand by the respective creditors. As of December 31, 2010, the loans are still outstanding.
Director Independence
We currently act with five directors, consisting of Asi Shalgi, Avner Raanan, Nissan Caspi, Amir Elbaz and Yuval Ganot. We have determined that Avner Raanan and Nissan Caspi are “independent directors” as defined in NASDAQ Marketplace Rule 4200(a)(15).
Item 14.
Item 14. Principal Accountant Fees and Services
Pre-Approval Policy and Procedures
Our Board of Directors approved the engagement of our accountants and all services provided to us by our accountants in fiscal year 2010 prior to the services being performed.
Accountant Fees
The following table shows the aggregate fees for professional services rendered by our accountants for the fiscal years ended December 31, 2010 and December 31, 2009:
Audit Fees
Audit fees for both years consist of fees for professional services associated with the annual audit of our consolidated financial statements, review of the interim consolidated financial statements and services that are normally provided by our accountants in connection with statutory audits required in regulatory filings.
Tax Fees
Tax Fees consist of fees for professional services rendered for assistance with federal and state tax compliance.
PART IV
Item 15.
Item 15. Exhibits and Financial Statements
(a) (1) Financial Statements: Reference is made to the Index to Financial Statements and Financial Statement Schedule in the section entitled “Financial Statements and Supplementary Data” in Item 8 of this annual report.
(2) Financial Statement Schedule: None
(3) Exhibits: Exhibits are as set forth in the section entitled “Exhibit Index” which follows the section entitled “Signatures” in this annual report on Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
GLOBAL ENERGY INC.
(Registrant)
By: /s/ Asi Shalgi
--------------
Asi Shalgi
President, Chief Executive Officer
and Director
Date: March 31, 2011
/s/ Shlomo Zakai
--------------
Shlomo Zakai
Treasurer and
Chief Financial Officer
Date: March 31, 2011
KNOWN ALL MEN BY THESE PRESENTS that each individual whose signature appears below constitutes and appoints each of Asi Shalgi and Shlomo Zakai such person's true and lawful attorney-in-fact and agent with full power of substitution and resubstitution, for such person and in such person's name, place and stead, in any and all capacities, to sign any and all amendments to this annual report on Form 10-K, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Commission, granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that any said attorney-in-fact and agent, or any substitute or substitutes of any of them, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities and Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Asi Shalgi
--------------
Asi Shalgi
President, Chief Executive Officer & Director
(principal executive officer)
March 31, 2011
/s/ Shlomo Zakai
--------------
Shlomo Zakai
Treasurer & Chief Financial Officer (principal
financial officer and principal accounting officer)
March 31, 2011
/s/ Avner Raanan
--------------
Avner Raanan
Director
March 31, 2011
/s/ Nissan Caspi
--------------
Nissan Caspi
Director
March 31, 2011
/s/ Amir Elbaz
--------------
Amir Elbaz
Director
March 31, 2011
/s/ Yuval Ganot
--------------
Yuvul Ganot
Director
March 31, 2011
EXHIBIT INDEX
Exhibit Number
Description
3.1
Articles of Incorporation, as amended (incorporated by reference to Exhibit 3.1 to the Registrant’s to the Registrant’s current report on Form 8-K filed with the Commission on January 1, 2009).
3.2
Bylaws (incorporated by reference to Exhibit 3.(II) to the Registrant’s Form 10-SB12G as filed with the Commission on November 10, 1999, file number 000-28025).
4.1
Specimen Certificate for shares of Common Stock (incorporated by reference to exhibit 4.1 to the registrants registration statement on Form SB-2 filed with the Commission on December 5, 2007).
10.1
Shareholder Agreement with Alphakat GMBH (incorporated by reference to Exhibit 10.1 to the Registrant’s current report on Form 8-K field with the Commission on July 13, 2007).
10.2
Term sheet with Alphakat GMBH (incorporated by reference to Exhibit 10.1 to the Registrant’s current report on Form 8-K field with the Commission on July 13, 2007).
10.3
Securities Purchase Agreement between the Registrant and the Buyer listed on Schedule I attached thereto (incorporated by reference to Exhibit 10.1 to the Registrant’s current report on Form 8-K filed with the Commission on July 12, 2007).
10.4
Warrants GEYI-1-1 and GEYI-1-2 (incorporated by reference to Exhibits 10.2 and 10.3 to the Registrant’s current report on Form 8-K filed with the Commission on July 12, 2007).
10.5
Registration Rights Agreement between the Registrant and the Buyer listed on Schedule I attached thereto (incorporated by reference to Exhibit 10.4 to the Registrant’s current report on Form 8-K filed with the Commission on July 12, 2007).
10.6
Securities Purchase Agreement between the Registrant and Cornell Capital Partners, LP (incorporated by reference to Exhibit 10.5 to the Registrant’s current report on Form 8-K filed with the Commission on July 12, 2007).
10.7
Stock Option Plan (incorporated by reference to Exhibit 99 to the Registrant’s current report on Form 8-K filed with the Commission on May 21, 2007).
10.8
Employment Agreement with Alex Werber (incorporated by reference to Exhibit 99.1 to the Registrant’s current report filed on Form 8-K on May 15, 2007).
10.9
Employment Agreement with Asi Shalgi (incorporated by reference to Exhibit 10.1 to the Registrant’s current report on Form 8-K filed with the Commission on May 2, 2007).
10.10
Promissory Note dated September 1, 2006 to the order of Emerdale Enterprises Ltd. (incorporated by reference to Exhibit 10.1 the Registrant’s current report on Form 8-K filed with the Commission on September 11, 2006).
10.11
Amended and Restated Secured Convertible Debenture No. GEYI-1-1 (incorporated by reference to Exhibit 10.1 the Registrant's current report on Form 8-K filed with the Commission on October 26, 2007).
10.12
Secured Convertible Debenture No. GEYI-1-2 (incorporated by reference to Exhibit 10.2 the Registrant's current report on Form 8-K filed with the Commission on October 26, 2007).
10.13
Secured Convertible Debenture No. GEYI-1-3 (incorporated by reference to Exhibit 10.8 to the Registrant's current report on Form 8-K filed with the Commission on December 7, 2007).
10.14
Business and Royalty Agreement, dated as February 6, 2008, between Global Energy Inc. and Covanta Energy Corporation (portions omitted pursuant to a request for confidential treatment). (incorporated by reference to Exhibit 10.1 to the Registrant’s current report on Form 8-K filed on February 12, 2008).
10.15
License Agreement, dated as of February 6, 2008, between AlphaKat - Global Energy GmbH and Covanta Energy Corporation (portions omitted pursuant to a request for confidential treatment). (incorporated by reference to Exhibit 10.2 to the Registrant’s current report on Form 8-K filed on February 12, 2008).
10.16
Business and Development Agreement, dated as February 6, 2008, between Global Energy Inc. and Renewable Diesel, LLC. (incorporated by reference to Exhibit 10.3 to the Registrant’s exhibit to our current report on Form 8-K filed on February 12, 2008).
10.17
License Agreement, dated as of February 6, 2008, between AlphaKat - Global Energy GmbH and American Renewable Diesel, LLC (portions omitted pursuant to a request for confidential treatment). (incorporated by reference to Exhibit 10.4 to the Registrant’s our current report on Form 8-K filed on February 12, 2008).
10.18
Business and Royalty Agreement with Covanta Energy Corporation (incorporated by reference to Exhibit 10.24 to the Registrant’s annual report on Form 10-K filed on March 31, 2008)
10.19
License Agreement between AlphaKat-Global Energy GmbH and Covanta Energy Corporation (incorporated by reference to Exhibit 10.25 to the Registrant’s annual report on Form 10-K filed on March 31, 2008)
10.20
Business and Development Agreement with Renewable Diesel, LLC (incorporated by reference to Exhibit 10.26 to the Registrant’s annual report on Form 10-K filed on March 31, 2008)
10.21
License Agreement between AlphaKat-Global Energy GmbH and American Renewable Diesel, LLC (incorporated by reference to Exhibit 10.27 to the Registrant’s annual report on Form 10-K filed on March 31, 2008)
10.22
Irrevocable Transfer Agent Instructions - Exhibit D to Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s current report on Form 8-K/A filed on February 26, 2008).
10.23
Amended and Restated Irrevocable Transfer Agent Instructions dated March 20, 2008. (incorporated by reference to Exhibit 10.34 to the Registrant's registration statement on Form S-1/A filed on April 14, 2008).
10.24
Amended and Restated Irrevocable Transfer Agent Instructions dated March 20, 2008. (incorporated by reference to Exhibit 10.34 to the Registrant's registration statement on Form S-1 filed on May 1, 2008).
10.25
Business and Royalty Agreement with Covanta Energy Corporation (incorporated by reference to Exhibit 10.1 to the Registrant’s current report on Form 8-K/A filed with the Commission on April 8, 2008; note that portions of the agreement have been omitted pursuant to a request for confidential treatment).
10.26
First Amendment to February 6, 2008 Business and Royalty Agreement with Covanta Energy Corporation, dated November 23, 2010 (incorporated by reference to Exhibit 10.3 to the Registrant’s current report on Form 8-K filed with the Commission on November 29, 2010).
10.27
License Agreement between AlphaKat-Global Energy GmbH and Covanta Energy Corporation (incorporated by reference to Exhibit 10.2 to the Registrant’s current report on Form 8-K/A filed with the Commission on April 8, 2008; note that portions of the agreement have been omitted pursuant to a request for confidential treatment).
10.28
Second Amendment to February 6, 2008 License Agreement between AlphaKat-Global Energy GmbH and Covanta Energy Corporation, dated November 23, 2010 (incorporated by reference to Exhibit 10.1 to the Registrant’s current report on Form 8-K filed with the Commission on November 29, 2010; note that portions of the agreement have been omitted pursuant to a request for confidential treatment).
10.29
Business and Development Agreement with Renewable Diesel, LLC (incorporated by reference to Exhibit 10.3 to the Registrant’s current report on Form 8-K/A filed with the Commission on April 8, 2008).
10.30
First Amendment to February 6, 2008 Business and Development Agreement between Global Energy Inc. and Renewable Diesel, LLC, dated November 23, 2010 (incorporated by reference to Exhibit 10.4 to the Registrant’s current report on Form 8-K filed with the Commission on November 29, 2010).
10.31
License Agreement between AlphaKat-Global Energy GmbH and American Renewable Diesel, LLC (incorporated by reference to Exhibit 10.4 to the Registrant’s current report on Form 8-K/A filed with the Commission on April 8, 2008; note that portions of the agreement have been omitted pursuant to a request for confidential treatment).
10.32
Second Amendment to February 6, 2008 License Agreement between AlphaKat-Global Energy GmbH and American Renewable Diesel, LLC, dated November 23, 2010 (incorporated by reference to Exhibit 10.2 to the Registrant’s current report on Form 8-K filed with the Commission on November 29, 2010).
10.33
Secured Convertible Debenture No. GEYI-1-4 (incorporated by reference to Exhibit 10.9 to the Registrant's current report on Form 8-K filed with the Commission on March 26, 2007).
10.34
Amendment to the Securities Purchase Agreement, dated March 20, 2008 (incorporated by reference to Exhibit 10.10 to the Registrant’s current report on Form 8-K filed with the Commission on March 26, 2007).
10.35
Amendment no. 1 to Amended and Restated Secured Convertible Debenture No. GEYI-1-1 and Amendment No. 1 to Warrant (incorporated by reference to Exhibit 10.11 to the Registrant’s current report on Form 8-K filed with the Commission on March 26, 2008).
10.36
Amendment no. 1 to Secured Convertible Debenture No. GEYI-1-2 1 and Amendment No. 1 to Warrant (incorporated by reference to Exhibit 10.12 to the Registrant’s current report on Form 8-K filed with the Commission on March 26, 2007).
10.37
Amendment no. 1 to Secured Convertible Debenture No. GEYI-1-3 (incorporated by reference to Exhibit 10.13 to the Registrant's current report on Form 8-K filed with the Commission on March 26, 2007).
10.38
Secured Convertible Debenture No. GEYI-1-5 (incorporated by reference to Exhibit 10.14 to the Registrant's current report on Form 8-K filed with the Commission on May 15, 2008).
10.39
Consulting Services, Compensation Agreement and Non-Circumvent Agreement with Amir Elbaz dated May 22, 2008 (incorporated by reference to Exhibit 10.14 to the Registrant’s current report on Form 8-K filed with the Commission on May 30, 2008).
10.40
Terms of Agreement dated June 2, 2008 between the Registrant and S.C. Supercom S.A. (incorporated by reference to Exhibit 10.1 to the Registrant’s current report on Form 8-K filed with the Commission on June 19, 2008).
10.41
Letter Agreement dated July 15, 2008, by and between the Registrant and YA Global Investments, L.P. (incorporated by reference to Exhibit 10.1 to the Registrant’s quarterly report for the quarterly period ended September 30, 2008 on Form 10-Q filed with the Commission on November 19, 2008).
10.42
Letter Agreement dated September 22, 2008, by and between the Registrant and YA Global Investments, L.P. (incorporated by reference to Exhibit 10.2 to the Registrant’s quarterly report for the quarterly period ended September 30, 2008 on Form 10-Q filed with the Commission on November 19, 2008).
10.43
Consent Letter Agreement dated August 7, 2009, by YA Global Investments, L.P. (incorporated by reference to Exhibit 10.1 to the Registrant’s current report on Form 8-K filed with the Commission on August 13, 2009).
10.44
Letter from YA Global Investments, L.P., dated September 2, 2009 (incorporated by reference to Exhibit 10.1 to the Registrant’s current report on Form 8-K filed with the Commission on September 10, 2009).
10.45
Consent Letter Agreement dated March 8, 2010, by and between the Registrant and YA Global Investments, L.P. (incorporated by reference to Exhibit 10.1 to the Registrant’s current report on Form 8-K filed with the Commission on March 15, 2010).
10.46
Amended and Restated Debenture, dated March 8, 2010, from Global Energy to YA Global in the original principle amount of $3,175,116. (incorporated by reference to Exhibit 10.2 to the Registrant’s current report on Form 8-K filed with the Commission on March 15, 2010).
10.47
Amended and Restated Debenture, dated March 8, 2010, from Global Energy to YA Global in the original principle amount of $1.5 million. (incorporated by reference to Exhibit 10.3 to the Registrant’s current report on Form 8-K filed with the Commission on March 15, 2010).
10.48
Terms of Loan Agreement dated October 26, 2008, by and between the Registrant, Mr. Aviram Malik and Global N.R.G. Pacific Ltd. (incorporated by reference to Exhibit 10.1 to the Registrant’s current report on Form 8-K filed with the Commission on October 30, 2008).
10.49
Joint Venture Agreement dated November 12, 2008, by and between the Registrant, S.C. Supercom S.A. and S.C. Target Group S.R.L. (incorporated by reference to Exhibit 10.1 to the Registrant’s current report on Form 8-K filed with the Commission on November 20, 2008).
10.50
Form of Securities Purchase Agreement used in connection with the private placement offering of Global Energy Inc. that closed in two tranches on September 30, 2008 and October 4, 2008 (incorporated by reference to Exhibit 10.62 to the Registrant’s registration statement on Form S-1 filed on January 1, 2009)
10.51
Form of Registration Rights Agreement used in connection with the private placement offering of Global Energy Inc. that closed in two tranches on September 30, 2008 and October 4, 2008 (incorporated by reference to Exhibit 10.63 to the Registrant’s registration statement on Form S-1 filed on January 1, 2009)
10.52
Purchase Agreement, dated March 3, 2009 between Global Energy Inc., Global N.R.G. Pacific Ltd. and Presaco Investments Ltd. (incorporated by reference to Exhibit 10.1 to the Registrant's current report on Form 8-K filed with the Commission on March 10, 2009).
10.53
Agreement to Service Operation between Alphakat - Global Energy GmbH and Waste 2 Oil GmbH. (incorporated by reference to Exhibit 10.1 to the Registrant’s current report on Form 8-K filed with the Commission on May12, 2009).
10.54
Security Purchase Agreement dated September 10, 2009 between Global Energy, Inc. and Yuval Ganot (incorporated by reference to Exhibit 10.1 to the Registrant’s current report on Form 8-K filed with the Commission on September 15, 2009).
10.55
Amendment dated December 23, 2009 to a Security Purchase Agreement dated September 10, 2009 between Global Energy, Inc. and Yuval Ganot (incorporated by reference to Exhibit 10.1 to the Registrant’s current report on Form 8-K filed with the Commission on December 29, 2009).
10.56
Employment Agreement, dated as of September 10, 2009, by and between Yuval Ganot and Global Energy, Inc. (incorporated by reference to Exhibit 10.59 to the Registrant’s annual report on Form 10-K filed with the Commission on April 15, 2010).
10.57
Consulting Agreement, dated as of January 1, 2009, by and between Amir Elbaz and Global Energy, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s current report on Form 8-K filed with the Commission on May 27, 2009).
10.58
Agreement, dated as of April 13, 2010, between Global Energy, Inc. and Messrs. Ori Ackerman and Amnon Dradik and Intarpina Ltd. (unofficial translation into English) (incorporated by reference to Exhibit 10.60 to the Registrant’s annual report on Form 10-K filed with the Commission on April 15, 2010).
21.1
List of Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to the Registrant’s annual report on Form 10-K filed with the Commission on April 15, 2010).
24.1*
Power of Attorney (included on signature page).
31.1*
Rule 13a-14(a)/15d-14(a) Certification, executed by Asi Shalgi, Chief Executive Officer, President and Director.
31.2*
Rule 13a-14(a)/15d-14(a) Certification, executed by Shlomo Zakai, Treasurer and Chief Financial Officer.
32.1*
Section 1350 Certifications, executed by Asi Shalgi, Chief Executive Officer, President and Director, and Shlomo Zakai, Treasurer and Chief Financial Officer.
* Filed herewith