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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 Form 10-KSB [X]
    
    Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934For the fiscal year ended December 31, 2003or[   ]
    
    Transition Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
 for the transition period from  to .
 Commission File No. 000-31505 Global Energy Group, Inc.  Delaware
    
    23-3020677(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)
 2346 Success Drive, Odessa, Florida 33556
(Address of principal executive offices)    (Zip Code) (727) 372-3939
(Issuers telephone number, including area code) Securities registered pursuant toSection 12(b)of the Act: None
Securities registered pursuant toSection 12(g)of the Act: Common Stock, $.001 par value per share Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. [X] Yes [   ] No Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [   ] State issuers revenues for its most recent fiscal year. $181,606. State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked price of such common equity, as
of a specified date within the past 60 days. (See definition of affiliate in
Rule 12b-2 of the Exchange Act.) As of April 12, 2004, the aggregate market value (based on the last sale price
on such date) of Common Stock held by non-affiliates of the registrant was
approximately $1,483,000. For purposes of this disclosure, we have considered
each officer and director, and each person known to us (by means of filings
with the SEC or through our stock transfer records) to own 10% or more of the
outstanding Common Stock, to be an affiliate. This determination of affiliate
status is not necessarily applicable for other purposes. State the number of shares outstanding of the issuers common equity, as of the
latest practicable date: 13,800,707 shares of Common Stock, par value $.001
per share, as of April 12, 2004. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Proxy Statement for the 2004 Annual Meeting of Stockholders to
be filed with the Securities and Exchange Commission not later than 120 days
after the end of the Registrants fiscal year ended December 31, 2003 are
incorporated by reference into Part III of this Form 10-KSB. Transitional Small Business Disclosure Format (Check one): Yes [   ] No [X]




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GLOBAL ENERGY GROUP, INC.
Annual Report on Form 10-KSB
For the Fiscal Year Ended
December 31, 2003
TABLE OF CONTENTS Item
    
    PagePART ICautionary Statement Regarding Forward-Looking Information
    
    
    1Item 1. Description of Business
    
    
    1Item 2. Description of Property
    
    
    13Item 3. Legal Proceedings
    
    
    13Item 4. Submission of Matters to a Vote of Security Holders
    
    
    13PART IIItem 5. Market for Common Equity and Related Stockholder Matters
    
    
    13Item 6. Managements Discussion and Analysis or Plan of Operation
    
    
    14Item 7. Financial Statements
    
    
    18Item 8. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    18PART IIIItem 9. Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act
    
    
    18Item 10. Executive Compensation
    
    
    18Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    19Item 12. Certain Relationships and Related Transactions
    
    
    19Item 13. Exhibits and Reports on Form 8-K
    
    
    19Item 14. Controls and Procedures
    
    
    21Certificate of Designation, Series ACertificate of Designation, Series BForm of Certificate for Common StockForm of Certificate for Series A Preferred StockForm of Certificate for Series B Preferred StockForm Common Stock Purchase Warrant - Series AForm Common Stock Purchase Warrant - Series BCommon Stock Purchase WarrantVoting Trust AgreementForm of Series A Purchase AgreementForm of Series B Purchase AgreementTurnaround Services AgreementDistribution AgreementLicense AgreementConsent to use of Report of Independent CPACertification of Chief Executive OfficerCertification of Chief Financial OfficerCertification of Chief Executive OfficerCertification of Chief Financial Officer




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PART I. 
 Cautionary Statement Regarding Forward-Looking Information Except where expressly indicated or the context otherwise requires, the
Company, Global, we, our or us when used in this annual report refers
to Global Energy Group, Inc., a Delaware corporation, and its predecessors and
consolidated subsidiaries. This Report contains forward-looking statements
within the meaning of the federal securities laws, including statement using
terminology such as may, will, expects, plans, intends,
anticipates, believes, estimates, potential, or continue, or a
similar negative phrase or other comparable terminology regarding beliefs,
hopes, plans, expectations or intentions for the future. Forward-looking
statements involve various risks and uncertainties. Our ability to predict
results or the actual effect of future plans or strategies is inherently
uncertain and the actual results and timing of certain events could differ
materially from our current expectations. Factors that could cause or
contribute to such a difference include, but are not limited to, the risks and
uncertainties appearing in this Report under the caption Risk Factors. 
 Item 1. Description of Business. Overview Global Energy Group, Inc. (the Company or Global) invents, develops
and commercializes new technologies that improve the energy efficiency of
existing products and processes. Our particular focus is on thermodynamics,
heat transfer and heat exchange, which are important to the heating,
ventilation, air conditioning, and refrigeration (HVACR) industries. We
currently hold the rights to seven U.S. patents and seven U.S. patent-pending
applications. Using these patents we have been able to develop products that
we believe are significantly more energy efficient than those typically
available. Our initial product strategy is to market a line of retrofit and
new equipment products to the commercial rooftop air conditioning market in the
U.S. Over the past several years we have sold our equipment for installation
in a number of locations in Florida, California, and Texas. Some of these
installations were retrofits to existing air conditioning equipment, while
others were entirely new air conditioning systems. These installations have
allowed us to refine our equipment design and have provided field verification
that our technologies will effectively increase capacity while reducing energy
consumption. Each of these initial installations resulted in energy efficiency
improvements of 25% or greater (meaning that the installation of our equipment
increased the cooling level achieved by at least 25% without increasing energy
consumption). Technology Global currently holds the exclusive rights to seven U.S. patents and
seven patent-pending applications pursuant to a series of agreements with the
inventors of the underlying technologies. Under the terms of these agreements,
the Company has the exclusive right to pursue commercial development of the
patented technologies. These agreements are with Mr. Thomas Hebert, an officer
and a shareholder of the Company. Mr. Hebert is entitled to royalty payments
from any sales of the products produced by the Company with the patented
technologies. These payments are scheduled to begin in 2004 and are tied to
the dollar amount of sales by the Company of products incorporating the
patented technologies. The agreements also establish minimum royalty amounts,
regardless of the level of sales, if any, required to be paid beginning in
2004. Minimum royalties under the Companys patent agreements as in effect on
the date of this Report total $123,000 in 2004 and increase each year until
reaching $700,000 in 2010 and following years. These royalties are included in
the costs of our products. No royalty payments are required after the
underlying patents expire. In addition to making royalty payments, the Company
must use reasonable efforts to generate income on each patent. Failure to
comply with a patent assignment or license agreement could result in the loss
of the Companys right to manufacture and sell products incorporating the
patented technology. Many of these patents are essential to the Companys
business plan, and loss of the rights to exploit these patents would seriously
jeopardize the Companys existence. Each of the other patents expire at
various times in 2018 through 2020. A brief summary of each patent follows: U.S. Patent No
    
    Description of Patent5,970,728
    
    Utilization of multiple staged common circuit compressors to provide
for higher heat output from a heat pump at low outside ambient conditions.
Heat output is maintained, or even increased, as outside temperatures
fall.6,070,423
    
    A system to provide first, liquid refrigerant subcooling by means of
evaporative cooling utilizing the condensate water, and second, a system
for providing hot gas discharge refrigerant precooling by means of
evaporative cooling. Both combining to give greater capacity without
requiring an increase in input power, and even possibly decreasing the
required input power.6,116,048
    
    An evaporator design that provides counterflow temperature conditions
to the direction of air flow by sectionalizing the various temperature
gradients found in evaporators and arranging the sections to provide a
temperature gradient that places the warmest section in front of colder
and subsequently colder sections. Provides for optimized heat exchange as
well as improved dehumidification.




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U.S. Patent No
    
    Description of Patent6,167,715 B1
    
    A direct refrigerant to ground (geothermal) heat exchange system
for subcooling and desuperheating (or postheating in the heat mode of a
heat pump) the refrigerant of an air-cooled air conditioner, refrigeration
system or heat pump. No secondary fluid or pumping system required.
Provides near full geothermal system efficiency.6,237,359 B1
    
    Provides liquid refrigerant subcooling by utilizing the cold
harvest water and/or meltwater discharging from the ice machine to
increase ice production capacity of the ice machine.6,442,903 B1
    
    The structural construction methodology for a greenhouse
inflatable insulative covering to be used to reduce heat losses and
overheating of greenhouses.6,460,358 B1
    
    A heat exchanger that reduces an evaporators flash gas loss
region and reduces the superheat region, allowing for improved heat
exchange by the evaporator itself, thereby allowing for increased
refrigeration mass flow and therefore increased system refrigeration
capacity.
 The patents described above apply only in the United States. The Company
has applied for and, in some cases, been granted patent protection on select
technologies in foreign countries. Products To date, the Company has completed development of four products, two of
which have been commercialized. Currently, our principal products are our
EER(+)Plus and Inventor Series 1400 units, which we expect to be the primary
sources of our sales revenues during the coming year. The EER(+)Plus is a
retrofit unit, designed to be added to existing air conditioning units to boost
their performance very cost effectively. The Inventor Series 1400 is a
complete unitary packaged air conditioning unit, with our patented technologies
incorporated into it. Both of these products utilize generally wasted
condensate water and exhaust air produced by all standard air conditioning
systems to provide increased capacity and to reduce power consumption. Current
plans call for the Company to offer both the EER+ product and the Inventor
Series 1400 units in several cooling sizes ranging from 6 to 50 tons.
Typically, a commercial building installation requires a ton of air
conditioning for every 300-400 square feet. Large buildings would utilize
multiple units. Our testing of these products has consistently produced improvements in
energy efficiency of at least 25% compared to typical other new equipment. If
our products replace a customers older, worn equipment, we believe the
efficiency gains would likely be much higher than 25%. This efficiency
improvement reduces energy consumption for air conditioning while maintaining
the same cooling level. A sample Inventor Series 1400 unit was certified in
May 2002 by the Air Conditioning and Refrigeration Institute (ARI), the
independent industry group which certifies the energy efficiency ratings of air
conditioning units. The Companys 7.5-ton unit was rated 13.5 EER. Energy
Efficiency Ratio, or EER, is a term generally used to define the cooling
efficiency of unitary air-conditioning and heat pump systems. EER is defined as
the ratio of net cooling capacity (measured by the amount of heat removed in
Btu/h) to the total input rate of electric energy applied (measured in watt
hours). This efficiency term typically includes the energy requirement of
auxiliary systems, such as the indoor and outdoor fans. The higher the EER the
more efficient is the system. For products currently marketed in the
commercial market EER currently ranges generally from 9.0 to 12.0 according to
information obtained from ARI. We are currently developing additional products that target the
residential and commercial markets, and in the future we plan to expand our
product line to include more energy-efficient heat pumps, ice machines and
water heaters. However, there is no assurance that we will complete the
development or introduction of any new products, and the timing of the
introduction of any additional products is not certain. Competition and Markets The Company competes in sale of unitary air conditioning and heat pump
equipment in the new construction and replacement markets. While Globals
products will work in many countries around the world, the United States market
is currently the Companys primary focus. According to ARI, 6.80 million and
6.75 million unitary air conditioning units and air-cooled heat pumps were sold
in the United States in 2003 and 2002, respectively. Additionally, between 60
million and 70 million air conditioning units and air-cooled heat pumps are
currently in service in the United States according to ARI. There are numerous
manufacturers of such equipment, and the Company competes with all other
manufacturers of HVACR equipment. Almost all of these companies are more
established and many are substantially larger than Global and have greater
resources. Economies of scale are important in reducing unit production costs,
and we are currently is at a disadvantage in this area due to our lack of sales
volume. While actual pricing will vary based on market conditions and other
factors, the Company anticipates that its units generally will be priced higher
than competitors products. For Global to be successful our products must have
a higher value to our customers. Specifically, we believe that the higher price
of the product initially must be more than offset by the lower operating
expenses the customer incurs while the equipment is in use. 2




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We provide a warranty on our products covering parts for a period of one
year from the date of operation. Compressors are warranted for an additional
four years. Global has not incurred material warranty costs to date. Production In the past, Global produced all EER+ Units at their facility in Odessa,
Florida. Under an agreement with the Company, Matthews Industries Inc.
currently manufactures EER+ Units for Global. Under this agreement, Matthews
Industries is responsible for all purchasing, manufacturing, assemble,
packaging, warehousing and shipping. Since this agreement has been in place,
Matthews Industries has produced approximately 150 units with accessories of
various sizes and has the ability to produce the projected number of EER+ Units
for the foreseeable future. The Inventor Series 1400 units are considerably more complex and more
expensive to build than the EER+ units, and Global has arranged to have
Matthews Industries manufacture these units. An agreement with Matthews was
reached in November 2002, and the production of the first batch of units has
been completed. Global believes that Matthews has production capacity
available to meet the planned needs of the Company for the foreseeable future. In the future, the Company expects to continue to produce its products
under its agreement with Matthews Industries. The Company may seek additional
arrangements with other contract manufacturers, which Global believes to be
readily available. Global believes that all materials and components for the
Companys products are readily available from vendors who sell to the HVAC/R
industry generally. Distribution and Customers In connection with loans made to the Company described below under the
heading 2004 Financing Transaction, Global Energy Acquisition Group, L.L.C.
(GEAG) required that the Company enter into a product distribution agreement
with Global Energy Distribution Group, L.L.C. (GEDG), an affiliate of GEAG.
This agreement grants to GEDC non-exclusive product distribution rights (and,
under certain circumstances, manufacturing rights). However, the agreement
provides that if aggregate financing provided by GEAG reaches $500,000 GEDGs
distribution rights become exclusive, except for any distribution rights held
at the time by other parties. Financing provided by GEAG reached $500,000 in
January 2004. Accordingly, GEDGs distributorship is now an exclusive one,
except for any certain distribution rights held by other parties that are
described in the next paragraph. Other than GEDG, Global currently has four energy service companies, or
ESCOs, as distributors, each of which has entered into a distribution
agreement with Global. Each distribution agreement has a term of one-year, and
the term automatically renews for additional one-year terms unless the ESCO or
Global exercises its right to terminate the agreement. Each ESCO may terminate
its agreement with Global by delivering notice of termination at least 30 days
before the end of the term in effect at the time. Global may terminate each
distribution agreement by delivering to the applicable ESCO notice of
termination at least 30 days before the end of the term in effect at the time,
unless the ESCO has met certain minimum sales quotas. In 2000, Global entered into discussions with two individuals, Mr. Roger
Rendall and Mr. Rudolph Hiensch, regarding the sale and distribution of its
products in Europe. While a transaction relating to the distribution of the
Companys products in the UK was completed in 2000, to date only nominal sales
have occurred. The transaction relating to the distribution of the Companys
products in the remainder of Europe is the subject of a dispute among the
Company and Mr. Hiensch. Mr. Heinsch formed a company, GEER B.V. Relying upon
a two-page document executed by the parties very early in the discussion
period, GEER, B.V. claims that it has the right to sell Global technology
within Europe. This document is now the source of the dispute. GEER, B.V. is
selling products, which it manufactures, that contain Globals proprietary
technology. The Company has notified Hiensch that this is a violation of the
Companys patents. The parties are in discussions to resolve this matter. Over the last several years, our major customers have been a single ESCO,
a large direct customer, and a independent sales representatives. The products
that have been sold and installed over the past few years have primarily been
sold to customers seeking to reduce their overall energy consumption. To
combat our lack of resources and brand identity, our marketing and sales
strategy focuses on using distributors that have established customer bases. Environmental Matters Our operations are subject to evolving and often increasingly stringent
federal, state, local and international laws and regulations concerning the
environment. Environmental laws that affect or could affect the Companys
domestic operations include, among others: the Clean Air Act, the Clean Water
Act, the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response, Compensation and Liability Act, the Occupational Safety
and Health Act, the National Environmental Policy Act, the Toxic Substances
Control Act, and any regulations promulgated under these acts and various other
federal, state and local laws and regulations governing environmental matters.
The Company believes it is in compliance in all material respects with all
existing environmental laws and regulations. 3




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In the past decade, there has been increasing regulatory and political
pressure to phase out the use of certain ozone depleting substances, including
halons, chlorofluorocarbons (CFCs), and hydrochlorofluorocarbons (HCFCs),
some of which are utilized in air conditioning and refrigeration equipment.
Like most of its competitors, the Companys products utilize HCFCs as
refrigerants. Federal and international law currently caps production of HCFCs
at 1996 levels and contemplates a complete phase-out of HCFC production by
2030. The Company does not believe the current phase out schedule for HCFCs
will have any adverse effect on its financial position or results of
operations. The Company believes that there will likely be continued pressure
by the international environmental community for the United States and other
countries to accelerate the HCFC phase out schedule. However, the Companys
products are being designed to utilize the next generation of refrigerants
without substantial modification, and the Company believes it is well
positioned to react to any changes in the regulatory landscape for HCFCs. Employees The Company currently employs 5 full-time and 4 part-time employees. It
is anticipated that additional personnel will be required if the Company
expands its operations. Corporate Information The Companys principal operations office is at 2346 Success Drive,
Odessa, Florida 33556, and the Companys telephone number at that office is
(727) 372-3939. 2001 Restructuring Global Energy & Environmental Research, Inc. (GEER), a Florida
corporation and the original operator of our business, was organized in
1998. In October 1999, an individual not related to GEER formed
1stopsale.com Holdings, Inc., a Delaware corporation, which conducted an
initial public offering in 2000. Although 1stopsale.com Holdings, Inc.
originally was intended to operate an Internet-oriented retail business, it
never began that operation. In October 2001, GEER and 1stopsale.com entered into a Securities Exchange
Agreement. Pursuant to that agreement, (i) shares of 1stopsale.com Holdings,
Inc. were issued in exchange for all outstanding shares of GEER, making GEER a
wholly owned subsidiary of 1stopsale.com Holdings, Inc., (ii) 1stopsale.com
Holdings, Inc. assumed the business operations of GEER, keeping GEER as a
subsidiary, and (iii) 1stopsale.com Holdings, Inc. changed its name to Global
Energy Group, Inc. , its current name, thereby becoming the Company. This
transaction (the 2001 Restructuring) resulted in the previous owners of GEER
giving up their ownership of GEER, which then became a subsidiary of
1stopsale.com Holdings, Inc. In exchange, those individuals gained control of
1stopsale.com Holdings, Inc., which then became the Company. From a corporate law standpoint, 1stopsale.com Holdings, Inc. (now known
as Global Energy Group, Inc.) acquired all the outstanding common stock of
GEER. However, from an accounting perspective, the 2001 Restructuring is
treated as a reverse merger, or as if GEER acquired 1stopsale.com Holdings,
Inc. Also as part of the 2001 Restructuring, the Company effectuated a
1-for-20 reverse stock split which changed the par value of its common stock
and the number of authorized shares to 50,000,000 shares of $.001 par value per
share common stock. In the 2001 Restructuring, 9,375,000 shares of common
stock were issued to the former GEER stockholders in exchange for their GEER
common stock. Although GEER is now a subsidiary of the Company, prior to
October 2001 there was no affiliation between GEER and the Company. 2004 Financing Transaction In January 2004, Globals board of directors approved and Global
completed a financing transaction (the Financing Transaction), which is
described in greater detail in the following sections of this Report. Under
the Financing Transaction, Global carried out the following actions:  
    
    The creation of two new series of preferred stock, referred to as
Series A Preferred Stock and Series B Preferred Stock.
    
    The issuance of, or the agreement to issue, up to 2.5 million shares
of Series B Preferred Stock at a price of $1.00 per share:  
    
    approximately 563,000 shares of Series B Preferred Stock were
issued in January 2004 at a price of $1.00 per share. These shares
were issued to GEAG in exchange for promissory notes previously
issued to GEAG for bridge loan financing provided by GEAG in the
latter part of 2003 and early 2004. For each dollar of principal owed
under such notes, GEAG also received warrants to purchase 2 shares of
the Companys common stock at a price of $0.10 per share.
    
    approximately 724,000 of these shares have been issued or are
issuable in exchange for cash invested in the Company by GEAG through
March 2004. For each dollar of cash invested in Series B Preferred
Stock, GEAG is entitled to receive warrants to purchase 10 shares of the Companys
common stock at a price of $0.10 per share.
    
    up to 1.2 million shares will be issued in exchange for cash
invested by GEAG over the eighteen months following the closing of
the Financing Transaction. For each dollar of cash invested in
Series B Preferred Stock, GEAG will receive warrants to purchase 10
shares of the Companys common stock at a price of $0.10 per share. 4




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
    
    The agreement to issue, for cash, of up to 2,000,000 shares of Series
B Preferred Stock at a price of $1.00 per share, at the option of GEAG.
These shares, if issued, will be issued in exchange for cash to be
invested in the Company by GEAG at any time prior to September 15,
2008. For each dollar of cash invested in Series B Preferred Stock,
GEAG also will receive warrants to purchase 10 shares of the Companys
Common Stock at a price of $0.10 per share.
    
    The issuance, in exchange for amounts payable by the Company, of
2.45 million shares of Series A Preferred Stock at a price of $1.00 per
share. These shares were issued to several creditors of the Company in
exchange for promissory notes issued for advances previously made by
such creditors to the Company, as well as warrants for the Companys
common stock held by those creditors. For each dollar of principal owed
under such notes, such creditors also received warrants to purchase 10
shares of the Companys common stock at a price of $0.30 per share.
    
    The entering into of a Turnaround Services Agreement with Turnaround
Specialists, L.L.C., which is helping to establish and implement
operational, financial, marketing and other policies and procedures.
The Company is paying Turnaround Specialists $45,000 per month during
the term of the agreement, and Global has delivered to Turnaround
Specialists a warrant to purchase up to 700,000 shares of the Companys
common stock for $0.10 per share. Turnaround Specialists is owned by
Carlos J. Coe and John R. Bailey, both of whom serve as directors and
officers of the Company. Background In 2003 and the early part of 2004, the Company was in an extremely tight
cash situation. All funds previously advanced to or borrowed by the Company
already had been used or committed to pay corporate expenses and to make
payments to vendors. The Company was unable to pay compensation and other
amounts owed to its senior management, and during this period Joseph Richardson
(former President, Chief Executive Officer and director) and Peter Toomey
(former Executive Vice President, Chief Financial Officer and director)
resigned their positions to pursue other opportunities. Without the Financing
Transaction the Company would not have been able to continue operations unless
additional financing was obtained in the immediate future. In connection with
its loans to the Company, GEAG required that Carlos J. Coe be appointed as a
director and as Chief Executive Officer of the Company and that John R. Bailey
be appointed as a director and as Chief Financial Officer of the Company,
taking the places of Mr. Richardson and Mr. Toomey. Currently, Mr. Coe serves
as a director and as the Companys Chief Executive Officer, and Mr. Bailey
serves as a director and as the Companys President, Chief Financial Officer,
Chief Operating Officer and Secretary. The Companys board of directors is
currently comprised of Mr. Bailey and Mr. Coe, as well as David E. Webb, Henry
M. Burkhalter and Steven Fox. In connection with its loans to the Company, GEAG also required that the
Company enter into a product distribution arrangement with Global Energy
Distribution Group, L.L.C., an affiliate of GEAG, which is described further
above under the heading Distribution. Series B Purchase Agreement GEAGs investment obligation is set forth in the Series B Purchase
Agreement, the material terms of which are as follows: Amount Of Investment. In the first eighteen months after the closing of the Financing Transaction GEAG must purchase at
least 2.5 million shares of Series B Preferred Stock in amounts that correspond
to the ongoing operational expenses of Global during that period of time. These
shares will be purchased for cash and for outstanding 90-day bridge notes
issued with respect to loans previously made to the Company. In addition, GEAG
has the option to invest an additional $2.0 million, at its discretion, at any
time on or before September 15, 2008. Through March 2004, approximately 1.3
million shares of Series B Preferred Stock and warrants for approximately 12.9
million shares of common stock have been issued or are issuable to GEAG. Series B Warrants. As additional consideration and as an inducement to
make its investment in the Company, stock purchase warrants (Series B
Warrants) have been and will be issued to GEAG in connection with issuing the
Series B Preferred Stock. The Series B Warrants give GEAG the right to purchase
shares of common stock at $0.10 per share and are exercisable for seven years
from the date of issuance. The Series B Warrants cover ten shares of common
stock for each share of Series B Preferred Stock issued for cash and two shares
of common stock for each share of Series B Preferred Stock issued in exchange
for outstanding 90-day bridge notes of the Company (warrants were issued only
with respect to the principal portion of such notes and not the interest
portion). Use Of Proceeds. GEAGs investment has been and will be applied to ongoing
financial obligations, including dividend and redemption payments on preferred
stock and obligations under the Turnaround Services Agreement. Limit On GEAGs Obligation. GEAG will be relieved of its investment
obligation at GEAGs discretion if the Company breaches its obligations under
the Series B Purchase Agreement or suffers a material adverse change. 5




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Distribution Arrangements In connection with its loans to the Company, GEAG also required that the
Company enter into a product distribution arrangement with Global Energy
Distribution Group, L.L.C., an affiliate of GEAG, which is described further
above under the heading Distribution. Turnaround Services Arrangement As a condition to its entering into the Financing Transaction, GEAG
required that the Company enter into a Turnaround Services Agreement with
Turnaround Specialists, L.L.C. Turnaround Specialists is helping to establish
and implement operational, financial, marketing and other policies and
procedures. Mr. Coe and Mr. Bailey own and are employed by Turnaround
Specialists, which provides the services of those individuals. Currently, Mr.
Coe serves as the Companys Chief Executive Officer, and Mr. Bailey serves as
the Companys President, Chief Financial Officer, Chief Operating Officer and
Secretary. Those individuals are compensated only by Turnaround Specialists.
They have not received compensation for their services directly from the
Company, except that they do participate in Globals employee benefit plans.
They are not expected to receive any such compensation unless Global agrees
otherwise. Under the Turnaround Services Agreement, the Company pays Turnaround
Specialists $45,000 per month. Global also delivered to Turnaround Specialists
a warrant to purchase up to 700,000 shares of the Companys common stock for
$0.10 per share. For services rendered prior to the effectiveness of the
Turnaround Services Agreement, the Company paid Turnaround Specialists
$100,000, plus $45,000 per month (prorated for partial months) from December 1,
2003 through the effective date of the agreement. Under the Turnaround Services
Agreement, Turnaround Specialists will receive a success fee of $1 million
upon a sale or merger of the Company or its business or any similar
transaction. A substantial portion (and, under certain circumstances, possibly all) of the
financing provided by GEAG may be used to pay Turnaround Specialists. The
Turnaround Services Agreement has a term of three years. The Company may not
terminate the agreement for at least two years unless Turnaround Specialists
breaches the agreement and the breach continues for a period of time. Under
some circumstances, if the Company terminates the Turnaround Services Agreement
then the Company will be required to pay a termination fee equal to $45,000
multiplied by the number of months remaining in the original term of the
agreement. Series A Purchase Agreements As a condition to its entering into the Financing Transaction, GEAG
required that the Companys four principal lenders amount at the time (other
than GEAG) exchange loans payable to them (totaling approximately $2.45
million), as well as warrants to purchase up to 5.4 million shares of Companys
common stock, for shares of Series A Preferred Stock. The terms of the
transactions with these persons (referred to as the Series A Holders) are set
forth in four separate documents, each referred to as a Series A Purchase
Agreement, the material terms of which are as follows: The Series A Holders. Amounts owed to the Series A Holders were secured by
a pledge of the Companys assets. The Series A Holders and the amounts that
were owed to them (as well as the warrants held by them) before the closing of
the Financing Transaction are as follows:  
    
    Quest Capital Alliance, L.L.C., a Missouri limited liability company,
was owed approximately $571,000 by the Company and held warrants to
purchase 2.1 million shares of the Companys common stock. Steven Fox,
who has been appointed to the Companys Board of Directors, is General
Manager and a Principal of Quest. Accordingly, every action or
transaction that benefits Quest directly or indirectly benefits Mr. Fox.
    
    Robert Smith, an individual, was owed approximately $1.3 million by
the Company and held warrants to purchase 2.1 million shares of the
Companys common stock.
    
    Joseph H. Richardson, an individual who is a former director and
former officer of the Company, was owed approximately $324,000 by the
Company and for compensation and reimbursements not yet paid and held
warrants to purchase 679,000 shares of the Companys common stock.
    
    Peter E. Toomey, an individual who is a former director and former
officer of the Company, was owed approximately $255,000 by the Company
and for compensation and reimbursements not yet paid and held warrants
to purchase 500,000 shares of the Companys common stock. Investment in Series A Preferred Stock. The amounts (including both
principal and interest) and the warrants referred to above were exchanged for
shares of Series A Preferred Stock at a purchase price of one share of Series A
Preferred Stock for every $1.00 owing by the Company to such person. 6




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Series A Warrants. As additional consideration and as an inducement to the
Series A Holders for Series A Preferred Stock, stock purchase warrants (Series
A Warrants) were issued to the Series A Holders in connection with issuing the
Series A Preferred Stock. The Series A Warrants give the Series A Holders the
right to purchase shares of the Companys common stock at $0.30 per share and
are exercisable for seven years from the date of issuance. The Series A
Warrants cover ten shares of common stock for each dollar owed (including both
principal and interest) by Global to such person before at the time the debt
was exchanged for Preferred Stock. Voting Trust Agreement. The Series A Holders, the Company and GEAG have
entered into a Voting Trust Agreement that, subject to certain exceptions,
grants all voting rights in the Series A Preferred Stock to GEAG. Accordingly,
GEAG has the right to determine how the shares of Series A Preferred Stock will
be voted in elections for directors and other matters brought before a vote of
stockholders. The Series A Holders retain the right to direct the voting of the
Series A Preferred Stock in certain matters, including in particular any change
in the rights of holders of Series A Preferred Stock, any incurrence of
additional indebtedness by the Company, and any authorization of any additional
class or series of capital stock or any increase in the authorized capital of
the Company. Transfer Restrictions. The Series A Purchase Agreements generally prohibit
any transfer of the Series A Preferred Stock for a period of three years. Investment in GEDG. GEDG has offered Quest Capital and Robert Smith an
opportunity to purchase an 8% interest in GEDG for $8,000 in cash. Terms of the Preferred Stock The terms of the Series A Preferred Stock and the Series B Preferred Stock
were established under two Certificates of Designation which were filed with
the Delaware Secretary of State and, upon filing, became part of the Companys
Certificate of Incorporation. The material terms of the Series A Preferred
Stock and the Series B Preferred Stock (both series together being referred to
as the Preferred Stock) are described below. Except as otherwise indicated,
the terms of both series of Preferred Stock are substantially identical. Voting. The Preferred Stock are entitled to 10 votes per share. Dividends. The Preferred Stock earns dividends at 6% per annum, accrued
quarterly, calculated on a 360 day per year basis. Dividends accrue and become
an obligation of the Company each quarter, regardless of whether declared and
regardless of whether the Company has funds available to pay such dividends.
Dividends are not to be paid except to the extent the Company has funds legally
available for such purpose, and any accrued dividends remain an obligation of
the Company until paid. Mandatory Redemption. The Company is required to redeem all shares of
Preferred Stock during the three years following issuance of the shares.
One-third of the shares will be called for redemption on each of the first
three anniversary dates of issuance. The redemption price will be the original
investment amount plus all accrued but unpaid dividends. In its discretion, the
Company may accelerate redemption of the shares. If the Company and the holders
of the shares agree, redemption may be deferred. In any event, shares may not
be redeemed except to the extent the Company has funds legally available for
such purpose. Liquidation And Dividend Preference. The Preferred Stock is entitled to a
liquidation preference, prior to any payment or distribution with respect to
common stock, equal to the amount originally paid for the Preferred Stock plus
accrued dividends. No dividends may be paid on the common stock if there are
any accrued but unpaid dividends on the Preferred Stock, and no amount may be
distributed with respect to common stock in connection with a liquidation of
Global until the Preferred Stock liquidation preference is paid. Rank. The Preferred Stock ranks senior to the common stock, and the
Series B Preferred Stock ranks senior to the Series A Preferred Stock as to
liquidation preference and dividends. Voting Control by GEAG As a result of the Financing Transaction, GEAG controls a majority of the
Companys outstanding voting power. Consequently, GEAG has the power to select
all of the Companys directors. The board of directors has the power to, among
other matters, to (i) authorize the Company to enter into, modify and/or
perform any agreement, (ii) authorize the issuance of additional shares of the
Companys capital stock, subject to applicable law and their duties to the
Company, to such persons and on such terms as they deem appropriate, and (iii)
amend the Companys bylaws. 7




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Interests of Directors And Officers in the Financing Transaction A majority of the ownership of GEAG also constitutes a majority of the
ownership of GEDG. Every action or transaction that benefits GEAG and/or its
owners will directly or indirectly benefit GEDG and/or its owners, and vice
versa. Two members of the Companys board of directors, David Webb and Henry M.
Burkhalter, are owners and controlling persons of GEAG and GEDG. As a condition to the Financing Transaction, the Company entered into the
Turnaround Services Agreement with Turnaround Specialists, as described above.
Turnaround Specialists is owned by Carlos J. Coe and John R. Bailey. All
compensation and other consideration paid by the Company to Turnaround
Specialists will directly benefit Messrs. Coe and Bailey, who together own 100%
of Turnaround Specialists. Mr. Coe and Mr. Bailey does not have any interest
in, and is not otherwise affiliated with, GEAG or GEDG. The financing provided by GEAG enabled the Company to pay amounts owed to
the Series A Holders (Quest Capital Alliance and Messrs. Smith, Richardson and
Toomey). Without the financing to be provided by GEAG the Company would have
been unable to pay the indebtedness owed to Series A Holders. But for the
Financing Transaction, the Series A Holders might receive little if any of the
amounts owed them by the Company. Risks Factors An investment in our common stock is speculative and involves a
substantial degree of risk. Investors should carefully consider, along with
other information in this Report, the following considerations and risks in
evaluating an investment in our common stock. You should not purchase any
common stock unless you can afford to lose your entire investment. We have accumulated a deficit and anticipate future losses, and we may be
unable to continue as a going concern. From inception through December 31, 2003, our revenues have been sporadic
and as of December 31, 2003 we had an accumulated deficit of $8.7 million. Many of our products are in
the early stages of commercialization, while others are still under
development. The products scheduled for manufacturing and distribution will
require significant production, sales and marketing expenditures that, together
with projected general and administrative expenses along with continuing
expenses to develop and patent additional technologies, will cause anticipated
additional operating losses for the near future. We cannot predict when we
will become profitable. If we cannot achieve profitability, we will be unable
to continue as a going concern and investors in our common stock will likely
lose their entire investment. Our performance may prevent Global from obtaining additional capital. While Global does have a commitment for financing as provided under the
Financing Transaction, as a result of our continuing losses and our low market
price of our common stock, we believe that it will be very difficult, if not
impossible, for Global to raise additional capital in the future. If Global
cannot raise new funds, Global may exhaust its cash resources and be unable to
continue in business. We are a small company with limited resources compared to some of our current
and potential competitors. The markets in which we offer our products are competitive. Many of our
current and potential competitors have longer operating histories,
significantly greater resources, broader name recognition and a larger customer
base than we have. As a result, these competitors may have greater credibility
with our existing and potential customers. They also may be able to adopt more
aggressive pricing policies and devote greater resources to the development,
promotion and sale of their products than we can to ours, which would allow
them to respond more quickly than us to new or emerging technologies or changes
in customer requirements. In addition, some of our current and potential
competitors have established supplier relationships with our current or
potential customers. These competitors may be able to leverage their existing
relationships to discourage these customers from purchasing products from us or
to persuade them to replace our products with their products. Increased
competition could decrease our prices, reduce our sales, lower our margins, or
decrease our market share. These and other competitive pressures could result
in a material adverse effect on our business, operating results and financial
condition. We have limited experience in marketing and selling our products and our
marketing strategy is untested. We are now marketing our two primary products to the commercial unitary
air conditioning market. Our initial sales strategy relies on selling our
products through a limited number of distributors or ESCOs. We expect that
our products will be marketed to the federal government and various state and
local governments, as these customers have historically been willing to pay
more upfront for products that will save energy. These government entities
priorities may change, their funding may be insufficient to allow them to
purchase our products, they may defer their plans to purchase products, or they
may discontinue buying appliances that reduce their energy consumption. Our
planned marketing strategy is untested and we do not know whether it will be
successful. If we are unable to market and sell our products in commercial
quantities we may not be able to generate sufficient revenue to survive. 8




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While actual pricing will vary based on market conditions and other
factors, we anticipate that our products generally will be priced higher than
competitors products. We typically will be unable to sell our products at
higher prices than our competitors unless our customers consider our higher
prices to be more than offset by the increased operational efficiency and lower
operating expenses of our equipment when compared to the products available
from other manufacturers. Customers may be unwilling to pay the established
prices for our products if our equipment does not achieve such operational
efficiencies or lower operating expenses, if we do not effectively communicate
such factors to customers, or for other reasons. If we are unable to market
and sell our products in commercial quantities we may not be able to generate
sufficient revenue to survive. We have a limited product line and our future success depends on our ability to
develop technologies and products to meet the needs of our current and future
customers. Global currently depends entirely on the sales of a limited product line
to generate revenues. Global may develop other products in the future that may
or may not be similar to our current products. Global cannot assure that our
current or future products will prove to be commercially viable. Our success
depends on our ability to develop leading technologies, enhance our existing
products and develop and introduce new products. In particular, our
technologies products must meet the needs of our current and prospective
customers. They also must continue to meet the demands of technological
advances and emerging industry standards and practices on a timely and
cost-effective basis. Future technology advances may not complement or be
compatible with our products. In addition, we may be unable to economically and
timely incorporate technology changes and advances into our business. We may be
unsuccessful in effectively using new technologies, adapting our products to
emerging industry standards or developing, introducing and marketing product
enhancements or new products. We may also experience difficulties that could
delay or prevent the successful development, introduction or marketing of these
products. If we are unable to develop and commercialize products or enhance
existing products on a timely and cost-effective basis or if new products do
not achieve market acceptance, it could have a material adverse effect on our
business, operating results and financial condition. Loss of our arrangements with key customers and suppliers could adversely
affect our business. Our business is dependent upon our customer arrangements with distributors and
ESCOs. In the future, we may be unable to continue or renew these
arrangements on favorable terms or initiate new arrangements. If we are unable
to renew or continue our customer arrangements on a favorable basis, it could
result in a significant reduction in our customer base and revenue sources. We
also rely on third parties to manufacture our products and to provide certain
other services to continue our operations. If we are unable to renew, extend or
enter into contracts with these third parties on favorable terms, it could have
a material adverse effect on our business, operating results and financial
condition. If we are unable to protect our intellectual property, we may be unable to
compete. Our products rely on our proprietary technology, and we expect that future
technological advancements made by us will be critical to sustain market
acceptance of our products. Therefore, we believe that the protection of our
intellectual property rights is, and will continue to be, important to the
success of our business. Patent and trade secret laws and other restrictions
on disclosure and use of our intellectual property rights may not prevent
unauthorized parties from copying or otherwise obtaining and using our products
or technology. Monitoring unauthorized use of our products is difficult, and
we cannot be certain that the steps we have taken will prevent unauthorized use
of our technology, particularly in foreign countries some sources of dispute
already exist (as described above in this Item 1) and where applicable laws may
not protect our proprietary rights as fully as in the United States and our
limited financial resources may prevent us from exercising any of our rights.
In addition, the measures we undertake may not be sufficient to adequately
protect our proprietary technology and may not preclude competitors from
independently developing products with functionality or features similar to
those of our products. Our inability to protect our proprietary technology
could have a material adverse effect on our business, operating results and
financial condition. Our patent rights are subject to royalty fees and to the risk of loss. Our products incorporate the proprietary technology covered by the
Companys patents, which were assigned and/or licensed to the Company by the
inventors of the underlying technology. Information regarding those
arrangements is set forth under Technology above in this Item 1. The Company
is required to make royalty payments to the inventors with respect to sales of
products incorporating the patented technology, and also to actively
commercialize the technology. If the Company fails to pay the required
royalties or fails to use reasonable efforts to generate income on products
covered by a patent, the inventors have the right to terminate the related
agreement. Minimum royalties under the Companys patent agreements as in
effect on the date of this Report total $123,000 in 2004 and increase each year
until reaching $700,000 in 2010 and following years. The Company also has a
note payable to TRDA under which the company repays TRDA based on the level of
sales of certain products, and TRDA has a priority claim to proceeds from the
sale of certain of the companys products. Loss of the rights to use these
patents and technology could have a material adverse effect on our business,
operating results and financial condition.. 9




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Our efforts to protect our intellectual property may involve us in costly and
lengthy litigation than could seriously harm our business. We may become involved in litigation in the future to protect our
intellectual property or defend allegations of infringement asserted by others.
Legal proceedings could subject us to significant liability for damages or
invalidate our intellectual property rights. Any litigation, regardless of its
outcome, would likely be time consuming and expensive to resolve and would
divert managements time and attention. Any potential intellectual property
litigation also could force us to take specific actions, including:  
    
    cease selling our products that use the challenged intellectual
property;
    
    obtain from the owner of the infringed intellectual property right
a license to sell or use the relevant technology or trademark, which
license may not be available on reasonable terms, or at all; or
    
    redesign those products that use infringing intellectual property
or cease to use an infringing patent. Any of these actions may preclude us from selling our most valuable
products, and could have a material adverse effect on our business, operating
results and financial condition.. Certain legal risks and uncertainties relating to our products could subject us
to claims for damages. In the course of our business, we are exposed to legal risks and
uncertainties, including the possibility of product liability or warranty
claims by our customers or others. Any such claim could be time-consuming and
costly, could divert the attention of the Companys management from the
operation of the business, could exceed the amounts covered by our insurance or
involve a matter not covered by insurance, and could have a material adverse
effect on our business, operating results and financial condition.. Our common stock may experience extreme market price and volume fluctuations. The market price of our common stock has little trading history and has
historically experienced significant volatility and may continue to experience
such volatility in the future. We have few publicly traded shares and a
limited number of stockholders and our stock is currently thinly-traded.
Factors such as technological achievements by us and our competitors, the
establishment or development of strategic relationships with other companies,
our introduction of commercial products, and our financial performance may have
a significant effect on the market price of our common stock. In addition, the
stock market in general, and the stock of technology companies in particular,
have in recent years experienced extreme price and volume fluctuations, which
are often unrelated to the performance or condition of particular companies.
Such broad market fluctuations could adversely affect the market price of our
common stock. Following periods of volatility in the market price of a
particular companys securities, securities class action litigation has often
been brought against a company. If we become subject to this kind of
litigation in the future, it could result in substantial litigation costs, a
damages award against us, the diversion of our managements attention and a
material adverse effect on our business, operating results and financial
condition.. In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may be the target of similar litigation. Securities litigation
may result in substantial costs and divert managements attention and
resources, which could have a material adverse effect on our business,
operating results and financial condition.. Our common stock is thinly traded, and therefore it may be difficult to sell
your securities at a given time, and at any price, which could result in a loss
on your investment. As of the date of this Report there are few trades in the public market
for our common stock. There is no market maker for of our securities and there
may not be a market maker for our securities in the future. As a result of the
foregoing, investors may be unable to sell their shares to liquidate their
investment, which could cause a loss of their investment. The penny stock rules apply to broker-dealer sales of our common stock and
could have a negative effect on the liquidity and market price of our common
stock. Our common stock is listed on the OTC Bulletin Board. It is not quoted on
any exchange or on Nasdaq, and no other exemptions currently apply. Therefore,
the SEC penny stock rules govern the trading in our common stock. These
rules require, among other things, that any broker engaging in a transaction in
our securities provide its customers with the following:  
    
    a risk disclosure document;
    
    disclosure of market quotations, if any; 10




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
    
    disclosure of the compensation of the broker and its salespersons in the transaction; and
    
    monthly account statements showing the market values of our securities held in the customers accounts. The broker must provide the bid and offer quotations and compensation
information before effecting the transaction. This information must be
contained on the customers confirmation. Generally, when proposed stock
trades are subject to the penny stock rules transactions, brokers may be more
reluctant to effect the trade. This reluctance may make it more difficult for
investors to dispose of our common stock. In addition, the broker prepares the
information provided to the brokers customer. Because we do not prepare the
information, we cannot assure you that such information is accurate, complete
or current. Global depends on our officers and key personnel for our success. The prospects of Global depend on the personal efforts of John R. Bailey,
our President, Chief Operating Officer and Chief Financial Officer, and Thomas
Hebert, our Chief Technology Officer, and other key personnel to implement our
operating and growth strategies. We cannot guarantee that we will be able to
retain our officers and key personnel or to recruit new personnel. The loss of
the services of these executives could have a material adverse effect on our
business and prospects because of their experience and knowledge in the
industry. Provisions in our charter and bylaws may deter potential acquisition bids,
including bids which may be beneficial to our stockholders. Provisions in our certificate of incorporation and bylaws could make it more
difficult for a third party to acquire us, even if doing so would be beneficial
to our stockholders. Our certificate of incorporation and bylaws provide for a
classified board of directors serving staggered terms of three years and
prevent stockholders from calling a special meeting of stockholders. Our
certificate of incorporation also authorizes only the board of directors to
fill director vacancies, including newly created directorships, and states that
directors may be removed only for cause and only by the affirmative vote of
holders of at least 50% of the outstanding shares of the voting stock voting
together as a single class. These provisions could discourage potential
acquisition proposals and could delay or prevent a change in control
transaction. They could also discourage others from making tender offers for
our shares. As a result, these provisions may prevent the market price of our
common stock from reflecting the effects of actual or rumored takeover
attempts. These provisions may also prevent significant changes in our board of
directors and our management. Delaware law may deter potential acquisition bids for our business, including
bids that may be beneficial to our stockholders. We are subject to the provisions of Delaware law which restrict certain
business combinations with interested stockholders even if such a combination
would be beneficial to stockholders. These provisions may inhibit a
non-negotiated merger or other business combination. The anti-takeover
provisions of the Delaware General Corporation Law prevent us from engaging in
a business combination with any interested stockholder for three years
following the date that the stockholder became an interested stockholder. For
purposes of Delaware law, a business combination includes a merger or
consolidation involving Global and the interested stockholder and the sale of
more that 10% of our assets. In general, Delaware law defines an interested
stockholder as any entity or person beneficially owning more than 15% of the
outstanding voting stock of a corporation and any entity or person affiliated
with or controlling or controlled by such entity or person. Under Delaware law,
a Delaware corporation may opt out of the anti-takeover provisions. We do not
intend to opt out of these anti-takeover provisions. 
 Item 2. Description of Property. The Company occupies and leases approximately 20,540 square feet of
office/manufacturing space in Odessa, Florida, which is in good condition and
is adequate for the Companys needs at this time. It is not our policy to acquire assets primarily for possible capital gain
or primarily for income. We do not have, and do not expect to have in the
foreseeable future, any material investments in real estate, interests in real
estate, real estate mortgages, or securities of or interests in persons
primarily engaged in real estate activities. However, we do not have any
policies regarding such investments, there are no limitations on the amount
that the Company is permitted to invest in any one investment or type of
investment, and no vote of our security holders is required to adopt or change
any policy regarding the foregoing. 
 Item 3. Legal Proceedings. We are not a party to any material legal proceedings, and no material
legal proceedings have been threatened by or, to the best of our knowledge,
against us. 
 Item 4. Submission of Matters to a Vote of Security Holders. Not applicable 11




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PART II. 
 Item 5. Market for Common Equity and Related Stockholder Matters. Market for Common Equity. We are authorized to issue 50,000,000 shares of common stock, of which
13,800,707 shares were issued and outstanding as of April 12, 2004. Our common
stock is traded on the over-the-counter bulletin board (OTCBB) under the symbol
GENG. Our common stock was first publicly traded on July 2, 2001. From that
date until October 12, 2001 our common stock traded under the symbol OSSI.
The shares historically have not been eligible for listing on any securities
exchange or under the Nasdaq system. The following table sets forth the range of high and low bid information
for the periods indicated: Quarter Ended
    
    High
    
    LowMarch 31, 2002
    
    $
    5.00
    
    
    $
    1.97June 31, 2002
    
    
    4.00
    
    
    
    2.00September 30, 2002
    
    
    3.75
    
    
    
    1.40December 31, 2002
    
    
    3.00
    
    
    
    0.61March 31, 2003
    
    
    1.65
    
    
    
    0.55June 30, 2003
    
    
    0.75
    
    
    
    0.33September 30, 2003
    
    
    0.61
    
    
    
    0.10December 31, 2003
    
    
    0.26
    
    
    
    0.09
 These quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not represent actual transactions. At April 12, 2004, the last reported high bid price of the common was
$0.24 per share. At April 12, 2004, there were 123 holders of record of our
common stock. Global believes that there are significantly more beneficial
holders of our common stock. We intend to retain any future earnings for use in our business and do not
intend to pay cash dividends in the foreseeable future. The payment of future
dividends, if any, will be at the discretion of our board of directors and will
depend, among other things, upon future earnings, operations, capital
requirements, restrictions in future financing agreements, our general
financial condition and general business conditions. Recent Sales of Unregistered Securities. During July 2003, Global sold 52,632 shares of its common stock to an
individual for an aggregate price of $20,000. Additionally, Global sold to a separate
individual 39,474 shares of Globals common stock for an aggregate purchase
price of $15,000 in July 2003 and 93,750 shares of Globals common stock for an
aggregate price of $15,000 in August 2003. No underwriters were involved in
these transactions. These securities were issued under an exemption from
registration contained in Section 4(2) of the Securities Act of 1933, as
amended. In January 2004, the Company completed the Financing Transaction, which
consisted, among other commercial terms, of the issuance of shares of Series A
Preferred Stock, Series B Preferred Stock and warrants to purchase the
Companys common stock. This transaction, including the persons to whom the
securities were issued, the total offering price for the securities and the
terms of exercise of the warrants, is further described in Item 1 of this
Report under the heading 2004 Financing Transaction. No underwriters were
involved in this transaction. These securities were issued under an exemption
from registration contained in Section 4(2) of the Securities Act of 1933, as
amended. 
 Item 6. Managements Discussion and Analysis or Plan of Operation The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto included as Item 7 of this Report on
Form 10-KSB. This discussion and analysis contains forward-looking statements
including statements using terminology such as may, will, expects,
plans, intends, anticipates, believes, estimates, potential, or
continue, or a similar negative phrase or other comparable terminology
regarding beliefs, hopes, plans, expectations or intentions for the future.
This discussion and analysis contains forward-looking statements that involve
various risks and uncertainties. Our ability to predict results or the actual
effect of future plans or strategies is inherently uncertain and the actual
results and timing of certain events could differ materially from our current
expectations. Factors that could cause or contribute to such a difference
include, but are not limited to, those appearing under the caption Risk
Factors set forth under Item 1 of this Report on Form 10-KSB. 12




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Overview Global invents, develops and commercializes new technologies that improve the
energy efficiency of existing products and processes. Our particular focus is
on thermodynamics, heat transfer and heat exchange, which are important to the
heating, ventilation, air conditioning, and refrigeration industries. Global
markets its products to energy service companies who provide technologies,
services and products to federal, state and municipal governments as well as
many private corporations. Global also intends to provide its products and
services to the traditional residential and commercial heating, air
conditioning, refrigeration and ice machine markets. The majority of our cost of sales is contributed to Globals fixed operating
costs, which includes salaries, rental expense, services provided under the
Turnaround Services Agreement with Turnaround Specialists, L.L.C. and other
overhead costs. Global believes that significantly higher sales levels are
needed before it may be able to generate profits. Recent Developments In January 2004, Globals board of directors approved and Global
completed a financing transaction (the Financing Transaction), which is
described in greater detail in the following sections of this Report. Under
the Financing Transaction, Global carried out the following actions:  
    
    The creation of two new series of preferred stock, referred to as
Series A Preferred Stock and Series B Preferred Stock.
    
    The issuance of, or the agreement to issue, up to 2.5 million shares
of Series B Preferred Stock at a price of $1.00 per share:  
    
    approximately 563,000 shares of Series B Preferred Stock were
issued in January 2004 at a price of $1.00 per share. These shares
were issued to GEAG in exchange for promissory notes previously
issued to GEAG for bridge loan financing provided by GEAG in the
latter part of 2003 and early 2004. For each dollar of principal owed
under such notes, GEAG also received warrants to purchase 2 shares of
the Companys common stock at a price of $0.10 per share.
    
    approximately 724,000 of these shares have been issued or are
issuable in exchange for cash invested in the Company by Global
Energy Acquisition Group, L.L.C. (GEAG) through March 2004. For
each dollar of cash invested in Series B Preferred Stock, GEAG is entitled to
receive warrants to purchase 10 shares of the Companys common stock
at a price of $0.10 per share.
    
    up to 1.2 million shares will be issued in exchange for cash
invested by GEAG over the eighteen months following the closing of
the Financing Transaction. For each dollar of cash invested in Series
B Preferred Stock, GEAG will receive warrants to purchase 10 shares
of the Companys common stock at a price of $0.10 per share.  
    
    The agreement to issue, for cash, of up to 2,000,000 shares of Series
B Preferred Stock at a price of $1.00 per share, at the option of GEAG.
These shares, if issued, will be issued in exchange for cash to be
invested in the Company by GEAG at any time prior to September 15,
2008. For each dollar of cash invested in Series B Preferred Stock,
GEAG also will receive warrants to purchase 10 shares of the Companys
Common Stock at a price of $0.10 per share.  
    
    The issuance, in exchange for amounts payable by the Company, of
2.45 million shares of Series A Preferred Stock at a price of $1.00 per
share. These shares were issued to several creditors of the Company in
exchange for promissory notes issued for advances previously made by
such creditors to the Company, as well as warrants for the Companys
common stock held by those creditors. For each dollar of principal owed
under such notes, such creditors also received warrants to purchase 10
shares of the Companys common stock at a price of $0.30 per share.  
    
    The entering into of a Turnaround Services Agreement with Turnaround
Specialists, L.L.C., which is helping to establish and implement
operational, financial, marketing and other policies and procedures.
The Company is paying Turnaround Specialists $45,000 per month, plus a
warrant to purchase up to 700,000 shares of the Companys common stock
for $0.10 per share. Turnaround Specialists is owned by Carlos J. Coe
and John R. Bailey, both of whom serve as directors and officers of the
Company. 13




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##### Table of Contents



Results Of Operations  Year ended December 31, 2003 compared year ended
December 31, 2002 Revenues.Revenues increased $18,000 or 11.0% to $182,000 from $164,000. The
increase is primarily due to a marginal increase in sales of the Companys EER+
and Inventor Series products during the 2003 period. Cost of Goods Sold.Cost of Goods Sold increased $18,000 or 11.4% to $176,000
from $158,000. The increase is primarily attributed to a corresponding
increase in revenues as discussed above. The gross profit margin percentage
was lower than standard in both 2003 and 2002 due to higher cost of goods sold
due to limited production levels. It is anticipated that margins will improve
in 2004 as economies of scale are achieved with higher production levels. Consulting expenses.Consulting expenses decreased $367,000 or 87.4% to
$53,000 from $420,000. The decrease is primarily due to a concerted effort on
the Companys part to minimize its cash spending on operating expenses in the
current year. Salaries and benefits expenses.Salaries and benefit expenses decreased
$79,000 or 7.0% to $1.0 million from $1.1 million. The decrease is primarily
due to a decrease in compensation and benefits of $111,000 offset by an
increase of non-cash compensation of $32,000, relating to stock options issued
to employees. The decrease in salaries and benefits is due to the Company
minimizing employee headcount during 2003. Legal and accounting expenses.Legal and accounting expenses decreased
$129,000 or 48.5% to $137,000 from $266,000. The decrease in legal and
accounting expenses was due to significant legal and accounting expenses
associated with the filing of a registration statement on Form SB-2 and several
amendments during 2002. Research and development expenses.Research and development expenses decreased
$90,000 or 71.6% to $36,000 from $126,000. The decrease is primarily due to
Global transitioning from the research and development stage to the
commercialization stage. Sales and marketing expenses.Sales and marketing expenses decreased $45,000
or 71.4% to $18,000 from $63,000. The decrease is primarily due the Company
minimizing its cash spending on operating expenses and decreasing the number of
its employees. General and administrative expenses.General and administrative expenses
increased $87,000 or 20.4% to $514,000 from $427,000. The increase is
primarily attributed to increased corporate costs attributed to the Financing
Transaction in 2003 including $145,000 of costs relating to the Turnaround
Service Agreement. The increase was partially off-set by a reduction in other
administrative costs as the Company focused on minimizing costs. Amortization of discount on notes payable.Amortization of discount on notes
payable increased $165,000 or 32.5% to $672,000 from $507,000. The increase in
amortization of discount on notes payable is due to the discounts on an
increased amount of notes payable being amortized over the lives of the notes.
The increase is primarily due to the increasing level of debt issued with
warrants and longer amortization period in 2003. Interest expense.Interest expense increased $122,000 or 244% to $172,000 from
$50,000. The increase is due to debt levels increasing by $1.3 million during
2003. Commitments In connection with the funding arrangement from the Technical Research and
Development Authority of the State of Florida (TRDA), the Company is
obligated to TRDA for royalty payments equal to three times the amount funded
by TRDA. The total obligation to TRDA at December 31, 2003 is $613,783, which
consisted of the unpaid funded liability of $204,327 and related royalty
expense of $409,456. The estimated future maturities of this payable are shown
in the table below. In connection with the Companys rights to use the patents as described in
Technology above under Item 1 of this Report, there are associated minimum
royalties due for each patent. If the Company decided not to continue to
pursue any individual patent, it would be relieved of the minimum royalty
payments associated with that patent. The table below presents the minimum
royalties due based on the patents the Company has the rights to pursue as of
the end of 2003. The Company has a current material commitment with its landlord. Global
leases a 20,540 square foot facility in an industrial park in Odessa, Florida.
The lease is for a period of five years with an automatic renewal clause for
each additional year. The current lease amount is $4.87 per square foot
annually ($8,329 monthly, including rent, insurance, taxes and other pass
through items), increasing each year on the anniversary of the lease. The
company has a small lease for computer equipment. The payment amounts are
included in the table below, under the heading operating leases. The Company is obligated under the Turnaround Services Agreement, which is
described further under Item 1 of this Report. The Company is obligated under
agreements with two individuals to pay consulting expenses totaling $10,000 per
month for the following twelve months. The table below shows the amount
remaining of three months, as of the end of the 2003. 14




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##### Table of Contents



The following table presents a summary of the Companys contractual
obligations and other commercial commitments as of December 31, 2003: Payments due by period(In thousands)Less than 1
    
    
    
    
    
    
    
    
    
    More thanContractual obligations (in thousands)
    
    Total
    
    year
    
    1  3 years
    
    3  5 years
    
    5 yearsRoyalties payable to TRDA
    
    
    614
    
    
    
    153
    
    
    
    461
    
    
    
    
    
    
    
    Minimum royalties payable under
patent assignments
    
    
    9,049
    
    
    
    123
    
    
    
    1,098
    
    
    
    1,278
    
    
    
    6,550Notes payable(1)
    
    
    2,733
    
    
    
    2,733
    
    
    
    
    
    
    
    
    
    
    
    Operating leases
    
    
    323
    
    
    
    106
    
    
    
    217
    
    
    
    
    
    
    
    Other contractual obligations(2)
    
    
    1,605
    

    
    
    570
    
    
    
    1,035
    
    
    
    
    
    
    
    Total
    
    
    14,324
    
    
    
    3,685
    
    
    
    2,811
    
    
    
    1,278
    
    
    
    6,550
 (1) These notes were issued with detachable warrants to purchase shares of the
Companys common stock, which resulted in a discount on the notes payable. For
further information, see Note D to Notes to the Companys financial statements
included in this Report. (2) Other contractual obligations include $45,000 per month payable under the
Turnaround Services Agreement with Turnaround Specialists, L.L.C. Liquidity and Capital Resources Global historically has financed its operations primarily through the
borrowings and the sale of equity securities. Currently, the Companys capital
resources arise out of the obligations of GEAG under the Financing Transaction.
The Company has no bank lines of credit. On December 31, 2003, Global had cash and cash equivalents of $39,000 and
a working capital deficit of $3.2 million, as compared to cash and cash
equivalents of $8,000 and working capital deficit of $208,000 at December 31,
2002. Net cash used in operating activities in 2003 was $1.3 million. Also, in
2003 net cash used in investing activities was $59,000, and $1.4 million was
provided by financing activities. Net cash used in operating activities in 2002
was $1.7 million. Also, in 2002 net cash used in investing activities was
$50,000, and $1.5 million was provided by financing activities. In 2002 and 2003, the Company financed its activities in part through the
issuance of notes payable to two stockholders and two officers of the Company
in a series of transactions. During 2004, these instruments were exchanged in
the Financing Transaction and are no longer outstanding. In 2003, Global also
financed its activities in part through the issuance of notes payable and other
securities to GEAG, as described above in Item 1 of this Report. The liquidity needs of the Company in 2004 are expected to continue to
arise mostly from the Companys operating activities and in part from capital
expenditures for research and development, for patents and for some additional
lab equipment. The actual amount of financing that will be needed for the remainder of
2004 will depend upon the amount of cash needed for operations, which will be
impacted by cash generated from product sales. Although the Company is hopeful
that product sales will increase significantly in 2004, there can be no
assurance that the Company will achieve its product sales goals or that, even
if such product sales goals are achieved, that gross margins and operating
expenses will be within targeted levels. In addition to the funds from the Financing Transaction, the Company may
decide to satisfy its liquidity requirements through additional equity and debt
financing. There can be no assurance that any financing alternatives sought by
Global will be available or will be on terms that are attractive to Global.
Further, any debt financing may involve restrictive covenants, and any equity
financing may be dilutive to stockholders. To the extent that Global is unable
to obtain further debt or equity financing or to the extent that sales are
slower to develop than management is now expecting and the combined debt and
equity financing is insufficient to cover the shortfall, Global may not be able
to continue operations as currently conducted. Seasonality Globals business historically has not been seasonal. 15




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Critical Accounting Policies and Estimates Globals significant accounting policies are more fully described in Note
A to the Notes to Financial Statements. However, certain accounting policies are
particularly important to the portrayal of the Companys financial position and
results of operations and require the application of significant judgment by
our management; as a result they are subject to an inherent degree of
uncertainty. In applying these policies, Globals management uses their
judgment to determine the appropriate assumptions to be used in the
determination of certain estimates. Those estimates are based on our
historical operations, terms of existing contracts, our observance of trends in
the industry, information provided by our customers and information available
from other outside sources, as appropriate. Our significant accounting
policies include: Revenue Recognition. Global recognizes revenue principally from sales of
equipment and to a lesser degree, from contracts involving the combined sale
and installation of equipment. For equipment sales, the Company records
revenue on the accrual basis of accounting when title to the product is
transferred pursuant to shipping terms. The accrual basis of accounting
provides for matching of revenues with expenses. For contracts involving the
combined sale and installation of products, revenue is recognized on the
percentage-of-completion method. Contract revenues are accrued based generally
on the percentage that costs incurred to date bear to total estimated costs for
each contract. This method is used because management considers costs expended
to be the best available measure of progress on these contracts. The asset
Costs and estimated earnings in excess of billings on uncompleted contracts
represents revenue recognized in excess of amounts billed. Warranty reserve. A liability for the estimated cost of product warranty is
established by a charge against operations at the time that products are sold.
Effective January 1, 2003, management is recording a warranty reserve of 1% of
sales. This percentage is based on an analysis of the historical warranty cost
experience of other HVAC manufacturers that use the same or similar components
in their products, and it is supported by the limited experience of the Company
to date. The Companys estimated future warranty cost is subject to adjustment
from time to time depending on actual experience. Allowance for Uncollectible Accounts Receivable. We estimate and provide an
allowance for uncollectible accounts based on analysis and age of our open
accounts, our experience with the particular customer, our own historical
experience with bad debts, as well as other information obtained from outside
sources. Long-lived assets. We depreciate property and equipment and amortize patents
over the respective assets estimated useful life. We determine the useful
lives of each asset based of how long we determine the asset will generate
revenue or has a useful economic life. We review the remaining useful life of
our assets annually to ascertain that our estimate is still valid. If we
determine the useful lives have materially changed, we either change the useful
life of the assets or we may write the asset off completely if we determine the
asset has exhausted its useful life. Income Taxes. As part of the process of preparing our financial statements, we
are required to estimate our income taxes. This process involves estimating
our actual current tax exposure together with assessing temporary differences
resulting from differing treatment of specific items, such as depreciation,
allowance for uncollectible accounts receivable and others. These differences
result in deferred tax assets and liabilities. We then assess the likelihood
that our deferred tax assets will be recovered from future taxable income, and
to the extent we believe that recovery is not likely, we must establish a
valuation allowance. To the extent we establish a valuation allowance or
increase the allowance in a period, we must include an expense within the tax
provision in the statement of operations. To date, we have recorded a
valuation allowance of approximately $1.1 million for the entire amount of our
deferred tax assets due to the uncertainty of our ability to utilize them. In
the event that actual results differ from these estimates or we adjust these
estimates in future periods, we may need to establish or adjust an additional
valuation allowance that could materially impact our financial position and
results of operations. 16




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##### Table of Contents



Item 7. Financial Statements. INDEPENDENT AUDITORS REPORT To the Board of Directors and Stockholders
Global Energy Group, Inc.
Odessa, Florida We have audited the accompanying consolidated balance sheets of Global Energy
Group, Inc., as of December 31, 2003 and 2002 and the related consolidated
statements of operations, cash flows and stockholders equity (deficit) for the
years ended December 31, 2003 and 2002. 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 audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. 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
audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly in
all material respects, the consolidated financial position of Global Energy
Group, Inc. at December 31, 2003 and 2002 and the results of its operations,
and its cash flows for the years ended December 31, 2003 and 2002 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 shown in the financial statements,
the Company has an accumulated deficit of $8,685,090 as of December 31, 2003,
and must find alternative sources for capital. These conditions raise
substantial doubt about the Companys ability to continue as a going concern.
Managements plans regarding these matters are described more fully in Note M
to the financial statements. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty. /s/ Baumann, Raymondo & Company, P.A.
BAUMANN, RAYMONDO & COMPANY, P.A.
Tampa, Florida
March 26, 2004 17




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GLOBAL ENERGY GROUP, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2003 AND 2002 ASSETS 2003
    
    2002CURRENT ASSETSCash
    
    $
    39,283
    
    
    $
    7,613Accounts receivable
    
    
    9,773
    
    
    
    6,680Inventory
    
    
    172,081
    
    
    
    219,880Prepaid expenses
    
    
    30,162
    
    
    
    7,170Total current assets
    
    
    251,299
    
    
    
    241,343FURNITURE AND EQUIPMENT,Net of accumulated depreciation of $40,732
in 2003 and $23,852 in 2002
    
    
    48,197
    
    
    
    63,396OTHER ASSETSInvestment in Investee
    
    
    
    
    
    
    Deposits
    
    
    7,205
    
    
    
    7,205Patents, net of accumulated amortization
of $23,372 in 2003 and $14,710 in 2002
    
    
    171,458
    
    
    
    122,447Total other assets
    
    
    178,663
    
    
    
    129,652TOTAL ASSETS
    
    $
    478,159
    
    
    $
    434,391
 The accompanying notes are an integral part of these financial statements. 18




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##### Table of Contents



GLOBAL ENERGY GROUP, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
AT DECEMBER 31, 2003 AND 2002 2003
    
    2002CURRENT LIABILITIESAccounts payable and accrued expenses
    
    $
    843,558
    
    
    $
    398,049Royalty payable, current portion
    
    
    51,000
    
    
    
    51,000Promissory notes, net of discount
    
    
    2,593,158
    
    
    
    Total current liabilities
    
    
    3,487,716
    
    
    
    449,049LONG TERM LIABILITIESRoyalty payable, net of current portion
    
    
    153,327
    
    
    
    153,728Promissory notes, net of discount
    
    
    
    
    
    
    1,043,521Total long term liabilities
    
    
    153,327
    
    
    
    1,197,249TOTAL LIABILITIES
    
    
    3,641,043
    
    
    
    1,646,298STOCKHOLDERS EQUITY (DEFICIT)Preferred stock, $0.001 par value,
10,000,000 shares authorized, 0
shares issued and outstanding
    
    
    
    
    
    
    Common stock, $0.001 par value,
50,000,000 shares authorized,
13,800,707 and 13,589,851 shares
issued and outstanding in 2003 and
2002, respectively.
    
    
    13,801
    
    
    
    13,590Additional paid-in capital
    
    
    5,508,405
    
    
    
    4,820,125Retained deficit
    
    
    (8,685,090
    )
    
    
    (6,045,622
    )Total stockholders deficit
    
    
    (3,162,884
    )
    
    
    (1,211,907
    )TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    478,159
    
    
    $
    434,391
 The accompanying notes are an integral part of these financial statements. 19




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##### Table of Contents



GLOBAL ENERGY GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002 2003
    
    2002REVENUES
    
    $
    181,606
    
    
    $
    164,422COST OF GOODS SOLD
    
    
    176,478
    
    
    
    158,109GROSS PROFIT
    
    
    5,128
    
    
    
    6,313OPERATING EXPENSESConsulting
    
    
    52,900
    
    
    
    420,042Salaries and benefits
    
    
    1,043,470
    
    
    
    1,121,525Legal and accounting
    
    
    136,905
    
    
    
    266,378Research and development
    
    
    35,827
    
    
    
    125,963Sales and marketing
    
    
    17,641
    
    
    
    63,381General and administrative
    
    
    513,648
    
    
    
    426,552TOTAL OPERATING EXPENSES
    
    
    1,800,391
    
    
    
    2,423,841LOSS BEFORE OTHER EXPENSES
    
    
    (1,795,263
    )
    
    
    (2,417,528
    )OTHER INCOME (EXPENSE)(Loss) on sale of assets
    
    
    
    
    
    
    (3,195
    )Amortization of discount on notes payable
    
    
    (671,787
    )
    
    
    (506,974
    )Interest (expense)
    
    
    (172,418
    )
    
    
    (49,996
    )TOTAL OTHER (EXPENSE)
    
    
    (844,205
    )
    
    
    (560,165
    )LOSS BEFORE INCOME TAXES
    
    
    (2,639,468
    )
    
    
    (2,977,693
    )INCOME TAXES
    
    
    
    
    
    
    NET LOSS
    
    $
    (2,639,468
    )
    
    $
    (2,977,693
    )LOSS PER COMMON SHAREBasic
    
    $
    (0.19
    )
    
    $
    (0.22
    )Fully diluted
    
    $
    (0.19
    )
    
    $
    (0.22
    )WEIGHTED AVERAGE NUMBER OFCOMMON SHARES OUTSTANDINGBasic
    
    
    13,800,707
    
    
    
    13,427,499Fully diluted
    
    
    13,800,707
    
    
    
    13,427,499
 The accompanying notes are an integral part of these financial statements. 20




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##### Table of Contents



GLOBAL ENERGY GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002 2003
    
    2002CASH FLOWS FROM OPERATING ACTIVITIESNet loss
    
    $
    (2,639,468
    )
    
    $
    (2,977,693
    )Adjustments to reconcile net loss to cash (used) in
operating activities:Common stock issued for services
    
    
    
    
    
    
    242,856Stock options issued to employees
    
    
    204,091
    
    
    
    172,564Interest on notes converted to common stock
    
    
    
    
    
    
    10,849Loss on the sale of assets
    
    
    
    
    
    
    3,195Amortization
    
    
    680,449
    
    
    
    514,457Depreciation
    
    
    16,880
    
    
    
    16,360(Increase) decrease in assets:Accounts receivable
    
    
    (3,093
    )
    
    
    (6,680
    )Costs and estimated earnings in excess of billings
    
    
    
    
    
    
    63,524Inventory
    
    
    47,799
    
    
    
    (150,862
    )Prepaid expenses
    
    
    (22,992
    )
    
    
    17,030Increase (decrease) in liabilities:Accounts payable and accrued expenses
    
    
    445,508
    
    
    
    353,611Total adjustments
    
    
    1,368,642
    
    
    
    1,236,904Net cash (used) in operating activities
    
    
    (1,270,826
    )
    
    
    (1,740,789
    )CASH FLOWS FROM INVESTING ACTIVITIESAcquisition of patents and related costs
    
    
    (57,672
    )
    
    
    (28,553
    )Proceeds from the sale of assets
    
    
    
    
    
    
    2,500Acquisition of furniture and equipment
    
    
    (1,681
    )
    
    
    (23,942
    )Net cash (used) in investing activities
    
    
    (59,353
    )
    
    
    (49,995
    )CASH FLOWS FROM FINANCING ACTIVITIESProceeds from stock subscription
    
    
    
    
    
    
    40,000Proceeds from issuance of common stock
    
    
    50,000
    
    
    
    Exercise of stock options
    
    
    3,750
    
    
    
    Proceeds from promissory notes
    
    
    1,308,500
    
    
    
    1,425,007Repayment of royalties
    
    
    (401
    )
    
    
    (918
    )Net cash provided by financing activities
    
    
    1,361,849
    
    
    
    1,464,089NET (DECREASE) INCREASE IN CASH
    
    
    31,670
    
    
    
    (326,695
    )CASH, BEGINNING OF THE PERIOD
    
    
    7,613
    
    
    
    334,308CASH, END OF THE PERIOD
    
    $
    39,283
    
    
    $
    7,613
 The accompanying notes are an integral part of these financial statements. 21




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##### Table of Contents



GLOBAL ENERGY GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002 AdditionalCommon
    
    PaidIn
    
    RetainedShares
    
    Amount
    
    Capital
    
    Deficit
    
    TotalBALANCE DECEMBER 31,
2001
    
    
    12,626,335
    
    
    $
    12,626
    
    
    $
    3,006,360
    
    
    $
    (3,067,929
    )
    
    $
    (88,943
    )Stock subscription received
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,000Common stock issued to convert
debenture($1.00 per share)
    
    
    510,849
    
    
    
    511
    
    
    
    510,338
    
    
    
    
    
    
    
    510,849Common stock issued for
Services($0.48 per share)
    
    
    420,000
    
    
    
    420
    
    
    
    201,978
    
    
    
    
    
    
    
    202,398Issue stock options to employees
    
    
    
    
    
    
    
    
    
    
    172,564
    
    
    
    
    
    
    
    172,564Common stock issued for
royalties owed
    
    
    4,667
    
    
    
    5
    
    
    
    14,995
    
    
    
    
    
    
    
    15,000Common stock issued for
Services($1.54 per share)
    
    
    25,000
    
    
    
    25
    
    
    
    19,169
    
    
    
    
    
    
    
    19,194Common stock issued in lieu of
cash for board members fees
    
    
    3,000
    
    
    
    3
    
    
    
    6,261
    
    
    
    
    
    
    
    6,264Issue debt with detachable
Warrants for cash
    
    
    
    
    
    
    
    
    
    
    888,460
    
    
    
    
    
    
    
    888,460Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,977,693
    )
    
    
    (2,977,693
    )BALANCE DECEMBER 31,
2002
    
    
    13,589,851
    
    
    
    13,590
    
    
    
    4,820,125
    
    
    
    (6,045,622
    )
    
    
    (1,211,907
    )Issue stock options to employees
    
    
    
    
    
    
    
    
    
    
    204,091
    
    
    
    
    
    
    
    204,091Employee exercise of options
    
    
    25,000
    
    
    
    25
    
    
    
    3,725
    
    
    
    
    
    
    
    3,750Common stock issued for cash
    
    
    185,856
    
    
    
    186
    
    
    
    49,814
    
    
    
    
    
    
    
    50,000Issue debt with detachable
Warrants for cash
    
    
    
    
    
    
    
    
    
    
    430,650
    
    
    
    
    
    
    
    430,650Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,639,468
    )
    
    
    (2,639,468
    )BALANCE DECEMBER 31,
2003
    
    
    13,800,707
    
    
    $
    13,801
    
    
    $
    5,508,405
    
    
    $
    (8,685,090
    )
    
    $
    (3,162,884
    )
 The accompanying notes are an integral part of these financial statements. 22




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NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 AND 2002 NOTE A  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This summary of significant accounting policies of Global Energy Group, Inc.,
(Global Energy) is presented to assist in understanding Global Energys
financial statements. The financial statements and notes are the representation
of Global Energys management who is responsible for their integrity and
objectivity. These accounting policies conform to accounting principles
generally accepted in the United States of America consistently applied in the
preparation of the financial statements. Nature
of Operations Global Energy Group, Inc. was organized under the laws of the State of Delaware
on October 5, 1999. Global Energy & Environmental Research, Inc., was organized
under the laws of the State of Florida on February 16, 1998 (collectively
referred to as Global Energy). Global Energy has developed patented and patent pending technology relating to
the heating, air conditioning, refrigeration and ice machine market. Global
Energy is currently producing and developing products that will utilize this
advanced technology to allow for reduced energy consumption, as well as other
associated benefits. Global Energy markets its products to energy service
companies who provide technologies, services and products to federal, state and
municipal governments as well as many private corporations. Global Energy will
also provide its products and services to the traditional residential and
commercial heating, air conditioning, refrigeration and ice machine markets. Principles
of Consolidation The consolidated financial statements include the accounts of Global Energy
Group, Inc. and its wholly owned subsidiary Global Energy & Environmental
Research, Inc. All significant inter-company accounts and transactions have
been eliminated. Basis
of Accounting Global Energy maintains its financial records and financial statements on the
accrual basis of accounting. The accrual basis of accounting provides for
matching of revenues and expenses. Revenue
and Cost Recognition Global Energy recognizes revenue principally from sales of equipment and to a
lesser degree, from contracts for both the sale and installation of equipment,
respectively as follows: Equipment
sales: The Companys transactions that are equipment sales alone are documented by
either a purchase order or a distribution agreement, in each case signed by the
Companys customer. Both of these documents include the Companys customary
terms and conditions of sale. Under these customary terms, title to the
product passes when the Company delivers the equipment to the shipper  the
Companys customer is responsible for the product from this point on. The
Company provides no separate return rights (other than the limited return
rights under the Companys warranty). The Company records revenue when title to the product is transferred pursuant
to shipping terms. Equipment
sales and installation: For contracts for both the sale and installation of products, revenue is
recognized on the percentage-of-completion method. Contract revenues are
accrued based generally on the percentage that costs incurred to date bear to
total estimated costs for each contract. This method is used because management
considers cost expended to be the best available measure of progress on these
contracts. The asset Costs and estimated earnings in excess of billings on
uncompleted contracts represents revenue recognized in excess of amounts
billed. 23




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##### Table of Contents



Accounts Receivable Global Energys trade accounts receivable result from the sale of its products
and services with its projects, and consist primarily of amounts due from both
private companies and governmental entities. Global Energy uses the allowance
method to account for uncollectible accounts receivable. Concentration of Credit Risk Financial instruments, which potentially expose Global Energy to concentrations
of credit risk, as defined by FASB Statement No. 105, Disclosure of Information
about Financial Instruments with Off-Balance Sheet Risk and Financial
Instruments with Concentration of Credit Risk,consist principally of trade
receivables. The potential for a loss on receivables with a government entity is usually
minimal; while credit limits, ongoing credit evaluation, and account monitoring
procedures are utilized to minimize the risk of loss on contractor private
companies. Collateral is not generally required. Financial Instruments Global Energy estimates that the fair value of all financial instruments at
December 31, 2003 and 2002 do not differ materially from the aggregate carrying
value of its financial instruments recorded in the accompanying balance sheets. Inventories Inventories consist primarily of parts and materials used to develop Global
Energys products. Inventories are stated at the lower of cost (first-in,
first-out method) or market. Furniture and Equipment Furniture and equipment are recorded at historical cost and include
expenditures, which substantially increase the useful lives of existing
property, plant and equipment. Maintenance and repairs are charged to
operations when incurred. Depreciation of property and equipment is computed
primarily using the straight-line method based on estimated useful lives
(furniture and office equipment, 5 to 10 years; equipment and tools, 5 to 10
years). Investment in Investee Global Energy accounts for its investment in investee using the equity method
of accounting, which includes its cost, adjusted for its proportionate share of
earnings or loss, if any. Patents The costs associated with the internal development of Global Energys patents
relating to the technologies associated with the reduction of energy
consumption, consisting mainly of legal and filing fees, are amortized over a
17 year period, consistent with current patent lives. Amortization expense for
the years ended December 31, 2003 and 2002 were $8,816 and $7,483,
respectively. Use of Estimates The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 revenues
and expenses during the reporting period. Actual results could differ from
those estimates. Research and Development Global Energy has expended significant amounts of funds in the development of
its products and technology. In accordance with accounting principles generally
accepted in the United States of America, these amounts are shown as current
period expenses in the accompanying financial statements. 24




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##### Table of Contents



Advertising
Costs Global expenses the production costs of advertising the first time the
advertising takes place. Advertising expense for the years ended December 31,
2003 and 2002 was $0; and $3,621, respectively. Income
Taxes Global Energy records its federal and state income tax liability in accordance
with Financial Accounting Standards Board Statement No. 109 Accounting for
Income Taxes. Deferred taxes payable are provided for differences between the
basis of assets and liabilities for financial statements and income tax
purposes, using current tax rates. Deferred tax asset is the expected benefit
of a net operating loss carryover and general business credits that are
available to offset future income taxes. Loss
Per Share Global Energy records basic and fully diluted loss per share in accordance with
Financial Accounting Standards Board Statement No. 128, Earnings per Share.
Basic earnings (loss) per share includes no dilution and is computed by
dividing income (loss) available to common stockholders by the weighted average
number of shares outstanding for the period. Dividend
Policy Global Energy has not yet adopted a policy regarding payment of dividends. Product
Warranties The Company records an estimated cost of product warranty at the time the
revenue is recognized. Effective January 1, 2002, management is recording a
warranty reserve of 1% of sales based on their analysis of other HVAC
manufacturers that use the same or similar components in their products. The
Companys estimated future warranty cost is subject to adjustment from time to
time depending on actual experience. NOTE B  PATENTS Global Energy has the rights to patents and patent-pending applications
pursuant to a series of assignments and royalty agreements. The assignment
agreements are with Mr. Thomas Hebert, an officer and shareholder of Global
Energy. Under the terms of these agreements, Global Energy has the right and the
obligation to pursue commercial development of these technologies. If Global
Energy fails to commercialize the patents within a specified period of time,
Mr. Hebert has the right to terminate the assignments to Global Energy. Mr. Hebert is entitled to royalty payments from the sale of products produced
by Global Energy with the patented technology. The royalty to Mr. Hebert are
to be paid at the rate of 3 percent of the portions of net revenues received by
Global Energy beginning April 1, 2004. Prior to April 1, 2004 there are no
amounts due on any of the patents associated with Mr. Hebert. The future minimum royalty payments under these agreements are as follows: Year Ended December 31,
    
    Amount2004
    
    
    123,0002005
    
    
    247,0002006
    
    
    358,0002007
    
    
    493,0002008
    
    
    615,0002009
    
    
    663,000Annually Thereafter through 2017
    
    
    700,000
 25




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##### Table of Contents



NOTE C  FURNITURE AND EQUIPMENT Furniture and equipment as of December 31, 2003 and 2002 is summarized as
follows: 2003
    
    2002Machinery and equipment
    
    $
    45,102
    
    
    $
    43,421Office equipment
    
    
    43,827
    
    
    
    43,82788,929
    
    
    
    87,248Less accumulated depreciation
    
    
    (40,732
    )
    
    
    (23,852
    )Net furniture and equipment
    
    $
    48,197
    
    
    $
    63,396
 Depreciation expense for the years ended December 31, 2003 and 2002 was $16,880
and $17,730, respectively. NOTE D  PROMISSORY NOTES During the year ended December 31, 2002 two shareholders and two officers of
Global Energy made loans to the company totaling $1,425,007. These loans bear
interest at 8% and accrue until the maturity date, and are secured by a lien on
substantially all of the companys assets. The maturity date of all of the
notes was extended to February 1, 2004. These loans were issued with
detachable warrants to purchase up to 3,776,379 shares of the Companys common
stock at prices ranging from $1.00 to $1.50 per share. The warrants issued
resulted in a discount on the notes payable of $888,460. During the year ended December 31, 2003, the same two shareholders of Global
Energy made additional loans to the company totaling $610,000. These loans
were issued on the same terms as the notes made in 2002. These loans were
issued with detachable warrants to purchase 1,420,000 shares of the Companys
common stock at prices ranging from $0.50 to $1.00 per share, which resulted in
a discount on the notes payable of $430,650. The unamortized discount of the
above promissory notes was $140,348 and $381,460 at December 31, 2003 and 2002,
respectively. During 2003 the company has received limited funding from a new strategic
partner, Global Energy Acquisition Group (GEAG). Through December 31, 2003
GEAG has loaned the Company $631,500 in unsecured basis. The loans bear
interest at eight percent (8%) per annum and are due 90 days after funds are
advanced, with the earliest loans coming due at the end of December. As an
inducement to make the loans, the Company is obligated to issue GEAG warrants to purchase
up to approximately 5.1 million shares of the Companys common stock (eight
shares for each dollar lent) at a purchase price of $0.10 per share. As of December 31, 2003, warrants to purchase approximately 3.9 million shares of the Company's common stock have been issued. During the year ended December 31, 2003, two former officers of the Company,
Mr. Richardson and Mr. Toomey, made loans to the Company in the amount of
$40,000 and $27,000, respectively. These loans bear interest at 8%, are
unsecured and are due on demand. Accrued interest on the above notes was $208,774 and $45,132 at December 31,
2003 and 2002, respectively As discussed in Section O, Subsequent Events, all of the aforementioned notes
above were converted into a new class of preferred stock in January 2004. NOTE E  AMENDMENT OF ARTICLES OF INCORPORATION During the year ended December 31, 2002, Global Energy approved an amendment to
its articles of incorporation to create a classified Board of Directors. Under
the new structure, there are three classes for the Board, each serving three
year terms. NOTE F  INCOME TAXES For income tax purposes Global Energy has a net operating loss carryover of
$7,844,783, which can be used to offset future federal and state taxable income
through 2016 as indicated below. In addition, Global Energy has available
general business credits that arose from research activities which can be used
to offset future federal income tax through 2016 as follows: Year ended December 31,
    
    Losses
    
    Credits2013
    
    $
    1,033,297
    
    
    $
    6,6992014
    
    
    251,039
    
    
    
    6,2592015
    
    
    515,927
    
    
    
    4,9572021
    
    
    1,355,345
    
    
    
    5,0002022
    
    
    2,485,762
    
    
    
    1882023


2,203,413



Total
    
    $
    7,844,783
    
    
    $
    23,103
 26




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##### Table of Contents



The potential tax benefit of these losses and credits is estimated as follows: Future tax benefit
    
    $
    2,353,435Valuation allowance
    
    
    (2,353,435
    )Future tax benefit
    
    $
    
 At December 31, 2003 and 2002, no deferred tax assets or liabilities were
recorded in the accompanying financial statements. NOTE G  LOSS PER SHARE Global Energy has reported basic loss per share based on the weighted average
number of shares outstanding for the period. Global Energy cannot report fully
diluted loss per share including the shares reserved for the options,
warrants, or the conversion of the 6% convertible debenture even though they
are common stock equivalents, as the effect of this would be anti-dilutive.
Global will include the effect of this dilution in the calculation of fully
diluted earnings per share only upon actual conversion, or to the extent they
are not anti-dilutive. NOTE H  EQUITY INCENTIVE PLAN On March 18, 2002, Global Energy issued 420,000 shares of its $0.001 par value
common stock from its 2001 Equity Incentive Plan (the Incentive Plan) in exchange for consulting services to
certain shareholders of Global Energy. On March 30, 2002, Global Energy granted an option to its President, Joseph H.
Richardson, and its Chief Financial Officer, Peter E. Toomey, to purchase
555,318 and 277,659 shares of its common stock respectively at $0.01 per share
expiring March 30, 2012. The options are exercisable one-third March 30, 2002,
one-third on March 30, 2003, and one-third on March 31, 2004. On April 6, 2002 Global Energy granted options to two employees to purchase a
total of 70,000 shares of its common stock. The exercise prices were $0.01 per
share for 35,000 shares, and $2.00 per share for 35,000 shares. The options
vest one year from the grant date. On July 22, 2002 Global Energy granted options to an employee to purchase a
total of 50,000 shares of its common stock. The exercise prices were $0.01 per
share for 25,000 shares, and $2.00 per share for 25,000 shares. The options
vest one year from the grant date and expire after ten years. On July 16, 2003, Global Energy granted options to various key employees to
purchase 200,000 shares of its common stock with and exercise prices of $0.01
per share. On January 3, 2003 the company granted options to another employee
to purchase 7,500 shares at $0.75 per share. The options vest one year from
the grant date and expire after ten years. On January 1, 2003 Global Energy granted options to an employee to purchase a
total of 7,500 shares of its common stock. The exercise price was $0.75 per
share, and the options vest one year from the grant date. 27




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NOTE I  STOCK ISSUANCES On April 26, 2002, Global Energy issued 17,667 shares of its $. 001 par value
common shares for services. The value of the services rendered was the basis
used to determine the value of the shares issued. On November 30, 2002, Global Energy issued 15,000 shares of its $. 001 par
value common shares for services. The value of the stock was determined based
on a fair market analysis of the underlying shares. During 2003, Global Energy sold 185,856 shares of its $.001 par value common
stock for $50,000 at prices ranging from $0.14 to $0.38. On August 8, 2003, an employee exercised an option to purchase 25,000 shares of
Global Energy $.001 common stock for $3,500, or $0.14 per share. NOTE J  COMMITMENTS AND CONTINGENCIES Royalties In connection with the funding arrangement from the Technical Research and
Development Authority of the State of Florida (TRDA) on December 6, 1999,
Global Energy is obligated to TRDA for royalty payments equal to three times
the amount funded by TRDA. In addition, the royalty payments have priority
over all existing and future obligations obtained from all other sources. The
amount funded by TRDA was $207,113, as of December 31, 2003 and 2002. In accordance with the agreement, royalty payments to TRDA are based on 5% of
the gross sales of certain of its products in any calendar year. Royalty
payments are due quarterly, beginning with the calendar quarter after the
quarter in which products are sold. The payments continue for a period of five
years with annual renewals until such time as the repayment to TRDA is
complete. At the time payments are made to TRDA, royalty expense equal to 2/3rds of each
payment is recorded. Royalty expense to TRDA for the years ended December 31,
2003 and 2002 amounted to $4,655 and $1,836, respectively. In the event the
agreement terminates for cause, Global Energy has the option to repay the
obligation immediately, or convert the obligation into an interest bearing
promissory note. The total obligation to TRDA at December 31, 2003 is $613,783, which consists
of the unpaid funded liability of $204,327 and related royalty expense of
$409,456. The estimated future maturities of this payable are as follows: Year Ended December 31,
    
    Amount2004
    
    $
    153,0002005
    
    
    382,5002006
    
    
    78,2832007
    
    
    Thereafter
    
    
    Total
    
    $
    613,783
 Operating
Leases On October 4, 2001, Global Energy entered into an agreement to lease its
executive offices and warehouse space in Odessa, Florida under a 5-year
non-cancelable lease commencing January 1, 2002 at the rate of $7,170 per month
plus applicable Florida sales tax. The lease is automatically renewable for an
additional one-year period. Global Energy shall be liable, as additional rent,
for real estate taxes exceeding $11,840 per year, solid waste disposal
assessment exceeding $2,200 per year and any insurance costs exceeding $2,000
per year. The lease contains an escalation clause whereby rent shall increase
by the greater of 3% or the increase in the consumer price index. Global Energy leases certain computer equipment under a three-year lease which
commenced on October 24, 2002 at the rate of $220 per month plus applicable
Florida sales tax. 28




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##### Table of Contents



The future maturities of minimum lease payments under these leases are as
follows: Year ended December 31,
    
    Amount2004
    
    $
    105,5912005
    
    
    108,2592006
    
    
    108,663Thereafter
    
    
    Total
    
    $
    322,513
 Other
Commitments In connection with its loans to the Company, GEAG also required that the
Company enter into a product distribution arrangement with Global Energy
Distribution Group, L.L.C. (GEDG), an affiliate of GEAG. Originally, these
arrangements granted to GEDG non-exclusive product distribution rights (and,
under certain circumstances, manufacturing rights). Subsequently, as GEAG
funded the Company $500,000, the distribution arrangement became exclusive in
nature (with the exception of four (4) distribution agreements that remain
outstanding as of the date of this report) and the term of which is five (5)
years. The contractual purchase price is calculated by a formula based upon
total manufacturing costs and contains provisions for discounts awarded for
prompt payment. Additionally, as discussed in Note N, the Company is required to pay
Turnaround Specialist, LLC (Turnaround) $45,000 per month for three years
commencing on December 1, 2003. NOTE K  SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION During 2002 and 2003 the Company issued promissory notes with detachable common
stock warrants. When debt with detachable stock purchase warrants is issued, a
portion of the proceeds is allocated to the warrants and recorded as paid in
capital. The amount allocated is based upon the relative fair market value of
the two securities at the time they are issued. The Company recorded a non-cash
discount and additional paid in capital in the amount of $430,649 and $888,460
in 2003 and 2002, respectively. For the years ended December 31, 2003 and 2002, cash interest expense of $0
and $46 was paid. Additionally, no income taxes were paid during these periods. NOTE L  ECONOMIC DEPENDENCY  MAJOR CUSTOMER Global Energy sold a substantial portion of its products to one customer during
2003 and 2002, respectively. Sales to this customer aggregated $75,475 and
$83,207, in 2003 and 2002 respectively. At December 31, 2003 and 2002, amounts
due from this customer included in accounts receivable were $0 and $821,
respectively. NOTE M  GOING CONCERN The Companys financial statements are prepared using generally accepted
accounting principles applicable to a going concern, which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. The Company has incurred losses from its inception on February 16,
1998 through December 31, 2003. The Company does not have an established source
of revenues sufficient to cover its operating costs and, accordingly, there is
substantial doubt about its ability to continue as a going concern. In order to develop an established source of revenues, and achieve a profitable
level of operations, the Company will need, among other things, additional
capital resources. Management is currently seeking outside funding through
various sources, including 29




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##### Table of Contents



through debt and/or the sale of equity in the Company. However, there is no
guarantee that management will be successful in procuring any outside funding,
or if such funding does become available, that such funding will be on terms
acceptable to the Company. NOTE N  SUBSEQUENT EVENTS In January 2004, Globals board of directors approved and Global
completed a financing transaction (the Financing Transaction). Under the
Financing Transaction, Global carried out the following actions:  
    
    The creation of two new series of preferred stock, referred to as Series A Preferred Stock and Series B Preferred Stock.
    
    The issuance of up to 2.5 million shares of Series B Preferred Stock at a price of $1.00 per share:  
    
    approximately 563,000 shares of Series B Preferred Stock were
issued in January 2004 at a price of $1.00 per share. These shares
were issued to GEAG in exchange for promissory notes previously
issued to GEAG for bridge loan financing provided by GEAG in the
latter part of 2003 and early 2004. For each dollar of principal owed
under such notes, GEAG also received warrants to purchase 2 shares of
the Companys common stock at a price of $0.10 per share.
    
    approximately 724,000 of these shares have been issued or are
issuable in exchange for cash invested in the Company by Global
Energy Acquisition Group, L.L.C. (GEAG) through March 2004. For
each dollar of cash invested in Series B Preferred Stock, GEAG is entitled to
receive warrants to purchase 10 shares of the Companys common stock
at a price of $0.10 per share.
    
    up to 1.2 million shares will be issued in exchange for cash
invested by GEAG over the eighteen months following the closing of
the Financing Transaction. For each dollar of cash invested in
Series B Preferred Stock, GEAG will receive warrants to purchase 10
shares of the Companys common stock at a price of $0.10 per share.  
    
    The agreement to issue, for cash, of up to 2,000,000 shares of Series
B Preferred Stock at a price of $1.00 per share, at the option of GEAG.
These shares, if issued, will be issued in exchange for cash to be
invested in the Company by GEAG at any time prior to September 15,
2008. For each dollar of cash invested in Series B Preferred Stock,
GEAG also will receive warrants to purchase 10 shares of the Companys
Common Stock at a price of $0.10 per share.
    
    The issuance, in exchange for amounts payable by the Company, of
2.45 million shares of Series A Preferred Stock at a price of $1.00 per
share. These shares were issued to several creditors of the Company in
exchange for promissory notes issued for advances previously made by
such creditors to the Company, as well as warrants for the Companys
common stock held by those creditors. For each dollar of principal owed
under such notes, such creditors also received warrants to purchase 10
            shares of the Companys common stock at a price of $0.30 per share.
    
    The entering into of a Turnaround Services Agreement with Turnaround
Specialists, L.L.C., which is helping to establish and implement
operational, financial, marketing and other policies and procedures.
The Company is paying Turnaround Specialists $45,000 per month during
the term of the agreement, and Global has delivered to Turnaround
Specialists a warrant to purchase up to 700,000 shares of the Companys
common stock for $0.10 per share. Turnaround Specialists is owned by
Carlos J. Coe and John R. Bailey, both of whom serve as directors and
officers of the Company. Under the Turnaround Services Agreement,
Turnaround Specialists will receive a success fee of $1,000,000 upon a
sale or merger of the Company or its business or any similar
transaction. A substantial portion (and, under certain circumstances,
possibly all) of the financing provided by GEAG may be used to pay
Turnaround Specialists. The Turnaround Services Agreement has a term of
three years. The Company may not terminate the agreement for at least
two years unless Turnaround Specialists breaches the agreement and the
breach continues for a period of time. Under some circumstances, if the
Company terminates the Turnaround Services Agreement then the Company
will be required to pay a termination fee equal to $45,000 multiplied by
the number of months remaining in the original term of the agreement. 
 Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure. Not applicable. Item 8A. Controls and Procedures. The Company maintains disclosure controls and procedures designed to
ensure that it is able to collect the information it is required to disclose in
the reports it files with the SEC, and to process, summarize and disclose this
information within the time periods specified in the rules of the SEC. The
Companys Chief Executive and Chief Financial Officer are responsible for
establishing and maintaining these procedures, and, as required by the rules of
the SEC, evaluating their effectiveness. Based on their evaluation of the
Companys disclosure controls and procedures which took place as of the end of
the period covered by this Report, the Chief Executive and Chief Financial
Officer believe that these procedures are effective to ensure that the Company
is able to collect, process and disclose the information it is required to
disclose in the reports it files with the SEC within the required time periods. 30




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In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management necessarily was required to apply
its judgment in evaluating the cost-benefit relationship of possible controls
and procedures. The Company maintains a system of internal controls designed to provide
reasonable assurance that transactions are executed in accordance with
managements general or specific authorization and that transactions are
recorded as necessary:  
    
    to permit preparation of financial statements in conformity with generally accepted accounting principles, and  
    
    to maintain accountability for assets. Since the date of the most recent evaluation of the Companys internal
controls by the Chief Executive and Chief Financial Officer, there have been no
significant changes in such controls or in other factors that could have
significantly affected those controls, including any corrective actions with
regard to significant deficiencies and material weaknesses. 
 PART III 
 Item 9. Directors and Executive Officers of the Registrant The information required by this item appears in our definitive proxy statement
for our 2004 annual meeting of stockholders under the captions Nominees for
Directors, Directors Continuing in Office, Executive Officers, Section
16(a) Beneficial Ownership Compliance and Statement of Corporate Governance,
which information is incorporated herein by reference. 
 Item 10. Executive Compensation The information required by this item appears in our definitive proxy statement
for our 2004 annual meeting of stockholders under the caption Named Executive
Officers Compensation, which information is incorporated herein by reference. 
 Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters. Securities Authorized For Issuance Under Equity Compensation Plans The Global Energy Group, Inc. 2001 Equity Incentive Plan, adopted by our
Board of Directors effective as of September 1, 2001 and ratified by our
stockholders in October 2001, and as amended and ratified by our stockholders
in December 2002, covers up to 3,000,000 shares of our common stock. Such
shares are issuable upon the exercise of stock options or as outright stock
awards. The purpose of the Plan is to enable us to encourage eligible plan
participants to contribute to our success by granting such individuals stock
options or stock rewards. Options granted under the Plan may qualify as
incentive stock options as defined in Section 422A of the Internal Revenue
Code of 1986. The Board administers the Plan. Subject to the express
provisions of the Plan, the Board has the complete discretion and power to
determine from among eligible persons those to whom options or stock awards
may be granted, the option price, the number of shares of common stock to be
granted and the recipients. Securities may be granted under the Plan from time
to time until September 1, 2011, or such earlier date as may be determined by
the Board. Since the inception of the Plan, 605,000 shares of restricted stock have
been issued under the Plan, 25,000 shares have been issued upon the exercise
of options granted under the Plan, and options covering another 1,170,477
shares have been issued and remain outstanding, leaving 1,224,523 remaining
shares authorized to be issued under the Plan. The following table sets forth
certain information regarding the plan as of December 31, 2003. (a)
    
    (b)
    
    (c)Number of SecuritiesRemaining Available ForFuture Issuance UnderEquity CompensationsNumber of Securities to Be
    
    Weighted-Average
    
    Plans (ExcludingIssued Upon Exercise of
    
    Exercise Price of
    
    Securities Reflected InPlan Category
    
    Outstanding Options
    
    Outstanding Options
    
    Column (a))Equity Compensation
Plans Approved by
Security Holders
    
    
    1,170,477
    
    
    $
    0.12
    
    
    
    1,224,523Equity Compensation
Plans not Approved
by Security Holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,170,477
    
    
    $
    0.12
    
    
    
    1,224,523
 31




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##### Table of Contents



Warrants and options to purchase the Companys stock may also be issued
outside the Plan. During 2002 and 2003, the Company issued warrants to purchase
an aggregate of up to 3,856,680 and 5,392,001, respectively, shares of its
common stock as additional consideration to lenders providing debt financing
to the Company. As of December 31, 2003 warrants outstanding cover an
aggregate of 9,248,681 shares of common stock at exercise prices ranging from
$0.01 to $1.50, with a weighted average exercise price of $0.60 per share. Other information required by this item appears in our definitive proxy
statement for our 2004 annual meeting of stockholders under the caption
Security Ownership of Certain Beneficial Owners, Directors and Officers,
which information is incorporated herein by reference. 
 Item 12. Certain Relationships and Related Transactions The information required by this item appears in our definitive proxy statement
for our 2004 annual meeting of stockholders under the caption Certain
Transactions, which information is incorporated herein by reference. 
 Item 13. Exhibits and Reports on Form 8-K. (a) Exhibits The following exhibits are filed as part of this Report (exhibits marked
have been previously filed with the Commission as indicated and are
incorporated herein by this reference): Exhibit No.
    
    Description3.1(7)
    
    Amended Certificate of Incorporation dated December 31, 2002, as filed in the office of the
Secretary of State, State of Delaware on January 6, 2003.3.2(7)
    
    Bylaws (As amended by the Companys Board of Directors on December 10, 2002).4.1
    
    Amended Certificate of Incorporation dated December 31, 2002, as filed in the office of the
Secretary of State, State of Delaware on January 6, 2003  See Exhibit 3.1.4.2
    
    Bylaws (As amended by the Companys Board of Directors on December 10, 2002)   See Exhibit 3.2.4.3(7)
    
    Global Energy Group, Inc. 2001 Equity Incentive Plan (as amended and ratified by the Companys
stockholders on December 10, 2002)4.4(5)
    
    Certificate of Designation of 6% Redeemable Preferred Stock, Series A4.5(5)
    
    Certificate of Designation of 6% Redeemable Preferred Stock, Series B4.6(5)
    
    Form of certificate for Common Stock, $.001 par value per share4.7(5)
    
    Form of certificate for Series A Preferred Stock, $.001 par value per share4.8(5)
    
    Form of certificate for Series B Preferred Stock, $.001 par value per share4.9(5)
    
    Form Common Stock Purchase Warrant for persons purchasing shares of Series A Preferred Stock4.10(5)
    
    Form Common Stock Purchase
Warrant for persons purchasing shares of Series B Preferred
Stock in connection with Series B Purchase Agreement4.11(5)
    
    Common Stock Purchase Warrant for Turnaround Specialists, L.L.C.9.1(5)
    
    Voting Trust Agreement among the Company, the holders of Series B Preferred Stock and the holders of
Series A Preferred Stock
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##### Table of Contents



Exhibit No.
    
    Description10.1(5)
    
    Form of Series A Purchase Agreement dated as of January 30, 2004 between the Company and the
purchasers of Series A Preferred Stock10.2(5)
    
    Series B Purchase Agreement dated as of January 30, 2004 between the Company and Global Energy
Acquisition Group, L.L.C.10.3(5)
    
    Turnaround Services Agreement dated as of January 30, 2004 between the Company and Turnaround
Specialists, LLC10.4(1)
    
    Employment agreement  Richardson10.5(1)
    
    Employment agreement -Toomey10.6
    
    [Intentionally omitted]10.7(2)
    
    Investment Agreement dated March 30, 200210.8(2)
    
    Registration Rights Agreement10.9(2)
    
    Agreement with the Technical Research and Development Authority10.10(3)
    
    Patent Assignment Agreement with Mr. Thomas Hebert  Patent No. 5,970,72810.11(3)
    
    Patent Assignment Agreement with Mr. Thomas Hebert  Patent No. 6,070,42310.12(3)
    
    Patent Assignment Agreement with Mr. Thomas Hebert  Patent No. 6,116,04810.13(3)
    
    Patent Assignment Agreement with Mr. Thomas Hebert  Patent No. 6,167,71510.14(3)
    
    Patent Assignment Agreement with Mr. Thomas Hebert  Patent No. 6,237,35910.15(3)
    
    Patent Assignment Agreement with Mr. Thomas Hebert  Patent No. 6,442,90310.16(3)
    
    Investment Agreement dated October 2, 200210.17(6)
    
    Investment Agreement dated January 30, 200310.18(7)
    
    Patent Assignment Agreement with Mr. Thomas Hebert  Patent No. 6,460,358 B110.19(4)
    
    Form of Promissory Note used in connection with loans to the Company from Global Energy Acquisition
Group, L.L.C. (GEAG)10.20(4)
    
    Form of Stock Purchase Warrant issued as additional consideration for loans by GEAG to the Company10.21(5)
    
    Distribution Agreement dated
January 30, 2004 with Global Energy Distribution Group, L.L.C. (GEDG)10.22(5)
    
    License Agreement dated
January 30, 2004 with GEDG21.1(1)
    
    Subsidiaries of the Company23.1(5)
    
    Consent to use of Report of Independent Certified Public Accountants31.1(5)
    
    Certification of the Chief Executive Officer of Global required by Section 302 of the Sarbanes-Oxley
Act of 200231.2(5)
    
    Certification of the Chief Financial Officer of Global required by Section 302 of the Sarbanes-Oxley
Act of 200232.1(5) #
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 200232.2(5) #
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
    *
    
    Previously filed; incorporated by reference as indicated.(1)
    
    Incorporated by reference to the same-named exhibit
to the Companys Annual Report on Form 10-KSB for the year ended December
31, 2001, as originally filed on April 11, 2002.(2)
    
    Incorporated by reference to the same-named exhibit
to the Companys Registration Statement on Form SB-2, Registration No.
333-86208, originally filed on April 12, 2002, as subsequently amended.(3)
    
    Incorporated by reference to the same-named exhibit
to the Companys Annual Report on Form 10-KSB/A for the year ended
December 31, 2001, as originally filed on November 26, 2002.(4)
    
    Incorporated by reference to the same-named exhibit
to the Companys Form 8-K, as originally filed on January 7, 2004.(5)
    
    Filed herewith.(6)
    
    Incorporated by reference to the same-named exhibit
to the Companys Amended Quarterly Report on Form 10-QSB/A for the quarter
ended March 31, 2002, as originally filed on February 14, 2003.(7)
    
    Incorporated by reference to the same-named exhibit
to the Companys Annual Report on Form 10-KSB for the year ended December
31, 2002, as originally filed on April 14, 2003.#
    
    Pursuant to Item 601(b)(32) of SEC Regulation S-K, these exhibits are
furnished rather than filed with this Report. (b) Reports on Form 8-K Not applicable 
 Item 14. Principal Accountant Fees and Services The information required by this item appears in our definitive proxy statement
for our 2004 annual meeting of stockholders under the caption Independent
Accountants, which information is incorporated herein by reference. 33




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##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this annual report on Form
10-KSB to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas, on this 13th day of April,
2004. GLOBAL ENERGY GROUP, INC.By:
    /s/ John R. BaileyJohn R. BaileyPresident, Chief Operating Officer and
Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons in the capacities and on the
dates indicated. POWER OF ATTORNEY KNOW ALL MEN AND WOMEN BY THESE PRESENTS that each person whose signature
appears below constitutes and appoints David E. Webb and John R. Bailey, and
each of them, such individuals true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for such individual and in
his or her name, place and stead, in any and all capacities, to sign any and
all amendments to this annual report on Form 10-KSB, with all exhibits thereto,
and to file the same with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, 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 and to intents and purposes as he might or
could do in person hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof. SIGNATURES
    
    TITLE
    
    DATE/s/ John R. Bailey
    
    President, Chief Financial Officer,
    
    April 13, 2004Chief Operating Officer, SecretaryJohn R. Bailey
    
    and Director (Principal ExecutiveOfficer and Principal Financial andAccounting Officer)/s/ David E. Webb
    
    Chairman of the Board
    
    April 13, 2004David E. Webb/s/ Henry M. Burkhalter
    
    Director
    
    April 13, 2004Henry M. Burkhalter/s/ Steven Fox
    
    Director
    
    April 13, 2004Steven Fox/s/ Carlos Coe
    
    Chief Executive Officer
    
    April 13, 2004and DirectorCarlos Coe
 34