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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 Amendment No. 2 Form 10-KSB x Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2003
oro 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 to Section 12(b) of the Act: None
Securities registered pursuant to Section 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 o 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. o 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 September 23, 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 $1,205,239. 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: 13,870,707 shares of Common Stock, par value $.001
per share, as of September 23, 2004. DOCUMENTS INCORPORATED BY REFERENCE: NONE Transitional Small Business Disclosure Format (Check one): Yes o 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
    
    
    12Item 3.
    
    Legal Proceedings
    
    
    12Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    12PART IIItem 5.
    
    Market for Common Equity and Related Stockholder Matters
    
    
    12Item 6.
    
    Managements Discussion and Analysis or Plan of Operation
    
    
    13Item 7.
    
    Financial Statements
    
    
    18Item 8.
    
    Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    32Item 8A
    
    Controls and Procedures
    
    
    33PART IIIItem 9.
    
    Directors, Executive
Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act
    
    
    33Item 10.
    
    Executive Compensation
    
    
    34Item 11.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    36Item 12.
    
    Certain Relationships and Related Transactions
    
    
    38Item 13.
    
    Exhibits and Reports on Form 8-K
    
    
    39Item 14.
    
    Controls and Procedures
    
    
    41Consent to use of Report of Independent Certified Public AccountantsCertification of the CEO Required by Section 302Certification of the CFO Required by Section 302Certification of the CEO Pursuant to Section 906Certification of the CFO Pursuant to Section 906




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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. 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
inventor 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 approximately $124,000 in 2004 and increase each
year until reaching $700,000 for the years 2010 through 2017, and thereafter
decrease as the patents expire. 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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6,167,715 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 2004. 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 were in
service in the United States in 2003 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 GEDG 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 existing distribution rights held by one unaffiliated third party
under a distribution agreement entered into by the Company prior to entering
into the distribution agreement with GEDG. Other than GEDG, Global currently has one additional energy service
company, or ESCO, which has entered into a distribution agreement with Global.
The 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. The 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 the distribution
agreement by delivering to the 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. Hiensch 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 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 a material 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 1 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 On January 30, 2004, upon the approval of Globals board of directors, Global
completed a financing transaction (the Financing Transaction), which is
described in greater detail in the following sections of this Report. On
January 30, 2004, the closing price of the Companys common stock was $0.12 per
share. 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 on January 30, 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 at the closing of the Financing Transaction
warrants to purchase 2 additional shares of the Companys
common stock at a price of $0.10 per share. Prior to the
Financing Transaction, the Company had issued to GEAG warrants
to purchase 8 shares of the Companys common stock at a price
of $0.10 per share for each dollar loaned to the Company by
GEAG under these bridge loans.
    
    between February 1, 2004 and September 23, 2004,
approximately 1,264,000 shares of Series B Preferred Stock have
been issued in exchange for cash invested in the Company by
GEAG. For each dollar of cash 4




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invested in Series B Preferred
Stock, GEAG received warrants to purchase 10 shares of the
Companys common stock at a price of $0.10 per share. The date
the Series B Holders delivered cash for the securities, together
with the closing price of the Companys common stock
on each such date, are as follows: Closing PriceDateApril 7, 2004
    
    $
    0.25May 4, 2004
    
    
    0.31June 16, 2004
    
    
    0.20June 30, 2004
    
    
    0.19July 27, 2004
    
    
    0.15August 10, 2004
    
    
    0.13August 19, 2004
    
    
    0.17August 25, 2004
    
    
    0.27September 3, 2004
    
    
    0.20September 10, 2004
    
    
    0.15September 22, 2004
    
    
    0.21
  
    
    up to 673,000 shares will be issued in exchange for
cash invested by GEAG from September 24, 2004 through July 31,
2005. 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 on January 30, 2004, 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 satisfaction of promissory notes
and, in some instances, unpaid salary payable by the Company to
those creditors of the Company, as well as warrants for the
Companys common stock held by those creditors. For each dollar
owing by the Company such creditors also received on January 30,
2004 warrants to purchase 10 shares of the Companys common stock at
a price of $0.30 per share.
    
    The entering into 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 on January 30, 2004 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 W. 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 5




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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. A portion of these shares were issued in satisfaction
of 90-day bridge notes to the Company outstanding before the
completion of the Financing Transaction. The remaining shares have been and will
be purchased for cash. 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 September 23, 2004, approximately 1.8
million shares of Series B Preferred Stock and warrants for approximately 18.2
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). Prior to the Financing Transaction, the Company had issued to GEAG
warrants to purchase 8 shares of the Companys common stock at a price of $0.10
per share for each dollar loaned to the Company by GEAG under these bridge
loans. 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. 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 are described further
above under the heading Distribution and Customers. 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
on January 30, 2004 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 January 30, 2004. 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. Under certain circumstances a significant portion 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. If the Company
terminates the Turnaround Services Agreement prior to the expiration of its
term without cause and without the approval of Turnaround Specialists and a
change of control approved by the stockholders of the Company is completed
within twelve months following the date of termination, then the Company must
pay to Turnaround Specialists a termination fee in an amount equal to $45,000
multiplied by the number of months remaining after the date of termination on
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 creditors at the time (other than
GEAG) exchange amounts payable to them (totaling approximately $2.45 million),
as well as warrants to purchase up to 5.4 million shares of the Companys
common stock, for shares of Series A Preferred Stock. The terms of the
transactions with these 6




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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 W. 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. 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 as the trustee of the voting trust 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. The Voting
Trust Agreement terminates upon the consent by all the parties to terminate or
at the time as there are no shares of Series A Preferred Stock subject to the
Voting Trust Agreement. Transfer Restrictions. The Series A Purchase Agreements generally prohibit
any transfer of the Series A Preferred Stock for a period of three years. 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 is entitled to 10 votes per share. Dividends. The Preferred Stock accrues dividends quarterly at 6% per
annum, 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. 7




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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 on all but a limited number of matters.
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. Also as a result of the issuance of shares of preferred stock under the
terms of the Financing Transaction, the holders of the Companys common stock
are subject to the rights of the holders of the Companys preferred stock as
described above. Additionally, assuming the exercise of the warrants delivered
under the Financing Transaction, the relative ownership of the Companys common
stock of each stockholder except for the Series A Holders has been
substantially diluted. Prior to the Financing Transaction, Neal S. Stubbs,
Eugene Cornett, Richard E. Wiles, Quest Capital Alliance, L.L.C. and Thomas H.
Hebert each beneficially owned more than ten percent of the outstanding shares
of the Companys common stock. 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 E. Webb and Henry
M. Burkhalter, are owners and controlling persons of GEAG and GEDG. Quest Capital and Robert Smith have purchased an
aggregate 8% interest in 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 do not have any interest in,
and are not otherwise affiliated with, GEAG or GEDG. In 2003, the Company paid
Turnaround Specialists, L.L.C. $145,000 for services under the Turnaround
Services Agreement. The Financing Transaction enabled the Company to pay amounts owed to the
Series A Holders. 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 have received little
if any of the amounts owed them by the Company. Risk 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. 8




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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. 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 provide assurance
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. 9




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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 $124,000 in 2004 and increase each year
until reaching $700,000 in 2010 through 2017. 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. 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 10




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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;
    
    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
currently 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. At their annual meeting expected to be
held in 2004, our stockholders will vote on a proposal to terminate the
classified board of directors serving staggered terms of three years. 11




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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 
 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
13,870,707 shares were issued and outstanding as of September 23, 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 September 23, 2004, there were 53 holders of record of our common
stock. Global believes that there are significantly more beneficial holders of
our common stock. 12




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We have not established a policy regarding the payment of dividends.
However, 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, based upon the number of persons involved in the transaction,
their status as accredited investors representations and agreements from each purchaser that such purchaser is acquiring
the stock for investment purposes only and that it must be held
indefinitely unless subsequently registered, and the use of
restrictive legends on the stock certificates delivered in connection with the
transaction. 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, based upon the number of persons involved in the transaction,
their status as accredited investors representations and agreements from each purchaser that such purchaser is acquiring
the stock for investment purposes only and that it must be held
indefinitely unless subsequently registered, and the use of
restrictive legends on the stock certificates delivered in connection with the
transaction. 
 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.
These 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, those
appearing under the caption Risk Factors set forth under Item 1 of this
Report on Form 10-KSB. 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 On January 30, 2004, upon the approval of Globals board of directors, Global
completed the Financing Transaction, which is described in greater detail in
other sections of this Report. On January 30, 2004, the closing price of the
Companys common stock was $0.12 per share. 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 on January 30, 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 at the closing of the Financing Transaction
warrants to purchase 2 additional shares of the Companys
common stock at a price of $0.10 per share. Prior to the
Financing Transaction, the Company had issued to GEAG warrants
to purchase 8 shares of the Companys common stock at a price
of $0.10 per share for each dollar loaned to the Company by
GEAG under these bridge loans. 13




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##### Table of Contents




    
    between February 1, 2004 and September 23, 2004,
approximately 1,264,000 shares of Series B Preferred Stock have
been issued in exchange for cash invested in the Company by
GEAG. For each dollar of cash invested in Series B Preferred
Stock, GEAG received warrants to purchase 10 shares of the
Companys common stock at a price of $0.10 per share.
    
    up to 673,000 shares will be issued in exchange for
cash invested by GEAG from September 24, 2004 through July 31,
2005. 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 on January 30, 2004, 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 satisfaction of promissory notes
and, in some instances, unpaid salary payable by the Company to
those creditors of the Company, as well as warrants for the
Companys common stock held by those creditors. For each dollar
owing by the Company such creditors also received on January 30,
2004 warrants to purchase 10 shares of the Companys common stock at
a price of $0.30 per share.
    
    The entering into 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 the Company
delivered to Turnaround Specialists on January 30, 2004 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. 14




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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
Services Agreement. The increase was partially offset 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. 15




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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)Contractual obligations(in thousands)
    
    Total
    
    Less than 1 year
    
    1 - 3 years
    
    3 - 5 years
    
    More than 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
    
    
    
    
    
    
    
    Total
    
    
    12,719
    
    
    
    3,115
    
    
    
    1,776
    
    
    
    1,278
    
    
    
    6,550
 (1) These notes were issued with detachable warrants to purchase shares of our
common stock, which resulted in a discount on the notes payable. For further
information, see Note E to Notes to the Companys financial statements included
in this Report. 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. Critical Accounting Policies and Estimates Preparation of our financial statements in conformity with accounting
principles generally accepted in the United States requires us to make
estimates and judgments that affect the reported financial position and results
of operations during the reporting period. Our estimates and judgments are
continually evaluated based on available information and experience. Because
the use of estimates is inherent in the financial reporting process, actual
results could differ from estimates. If there is a significant unfavorable
change to current conditions, it likely will result in a material adverse
impact to our business, operating results and financial condition. 16




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##### Table of Contents



Certain accounting policies require higher degrees of judgment than others
in their application. Global considers the following to be critical accounting
policies due to the estimation processes involved in each. For a detailed
discussion of Globals accounting policies see Note A to the Notes to Financial
Statements in Item 7 of this annual report on Form 10-KSB. The accounting policies that we believe are the most critical to aid in
fully understanding and evaluating our reported financial results consist of
the following:  
    
    Warranty Reserve
    
    Allowance for Uncollectible Receivables 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 estimate of loss requires judgments that are based on available
information and experience, such as an analysis of the historical warranty cost
experience of other HVAC manufacturers that use the same or similar components
in their products and the limited experience of the Company to date. This
estimate is significant because Global may incur additional expenses to satisfy
warranty claims. The Companys estimated future warranty cost is subject to
adjustment from time to time depending on actual experience. Allowance for Uncollectible Accounts Receivable. As of December 31, 2003,
Global had accounts receivable as a result of its ongoing operations of
approximately $9,800. Globals receivables are monitored by management for
collectibility. Global maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments.
These estimates of losses require judgments that are based on available
information and experience, such as an analysis of the 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. These estimates are significant because Global may incur additional
expense to increase its allowance for doubtful accounts and may receive less
cash than expected if the financial condition of the parties was to
deteriorate. 17




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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 18




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GLOBAL ENERGY GROUP, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2003 AND 2002  ASSETS2003
    
    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. 19




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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. 20




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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 SHARE
Basic
    
    $
    (0.19
    )
    
    $
    (0.22
    )Fully diluted
    
    $
    (0.19
    )
    
    $
    (0.22
    )WEIGHTED AVERAGE NUMBER OF
COMMON 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. 21




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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. 22




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GLOBAL ENERGY GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002 Common
    
    AdditionalPaid-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. 23




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##### Table of Contents



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 or the Company) 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. 24




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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. 25




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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. Stock Options The Company applies the intrinsic value based method of accounting prescribed
by Accounting Principals Board Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations in accounting for its stock option
grants to employees. Accordingly, the Company records compensation expense
when options issued to employees have an exercise price that is less than the
current market price of the underlying stock on the date of grant. SFAS No.
123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148,
Accounting for Stock-Based Compensation-Transition and Disclosure, established
accounting and disclosure requirements using a fair value based method of
accounting for stock-based employee compensation plans. As permitted under
SFAS No. 123, the Company has elected to continue to apply the intrinsic value
based method of accounting described above, and has adopted the disclosure
requirements of SFAS No. 123 and SFAS No. 148. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the Companys net loss would have been the pro
forma amounts indicated below: Years Ended December 31,2003
    
    2002Net loss attributable to common stockholders
as reported
    
    $
    (2,639,468
    )
    
    $
    (2,977,693
    )Add: Total stock option based employee compensation expenses
included in
reported net income, net of taxes
    
    
    204,091
    
    
    
    172,564Less: Total stock-based employee compensation expenses determined
under fair value based method for all awards, net of taxes
    
    
    (545,231
    )
    
    
    (3,128,356
    )Pro forma
    
    $
    (2,980,068
    )
    
    $
    (5,933,485
    )Basic earnings (loss) per shareAs reported
    
    
    (0.19
    )
    
    
    (0.22
    )Pro forma
    
    
    (0.20
    )
    
    
    (0.44
    )
 26




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##### Table of Contents



Years Ended December 31,2003
    
    2002Diluted earnings (loss) per shareAs reported
    
    
    (0.19
    )
    
    
    (0.19
    )Pro forma
    
    
    (0.20
    )
    
    
    (0.44
    )
 The fair market values in the table above were estimated at the date of grant
using the Black-Scholes valuation model with the following assumptions:
risk-free interest rates ranging from 0.84% to 1.77%, expected dividend yield
of zero, expected volatility of the market price of the Companys common stock
of 60%, and an expected life of the options of 10 years. The weighted average
fair market value per option at the date of grant for options granted in 2003
and 2002 was $0.32 and $3.83, respectively. Total stock-based employee compensation expense included in net loss, as
reported, primarily consists of expense related to stock options granted to
employees with exercise prices lower than the fair market price of the
Companys common stock at the date of grant. 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
 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  GUARANTEES AND WARRANTIES In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others.FIN 45 requires liability to be
recognized at the time a company issues a guarantee for the fair value of the
obligations assumed under certain guarantee agreements. The Company provides a limited warranty for the replacement of defective
products. Our standard warranties require us to repair or replace defective
products at no cost to the consumer. Effective January 1, 2002, management is
recording a warranty reserve of 1% of 27




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##### Table of Contents



sales based on their analysis of other
HVAC manufactures that use the same or similar components in the products. The Company
periodically assesses the adequacy of its recorded warranty liabilities and
adjusts the amounts as necessary. The Company utilizes historical trends and information
received from customers to assist in determining the appropriate loss reserve
levels. Actual warranty and claim costs are deducted from the accrual when
incurred. A reconciliation of the Companys product warranty liability for 2003
and 2002 is as follows: 2003
    
    2002Beginning warranty liability
    
    $
    1,741
    
    
    $
    Additional accruals
    
    
    1,564
    
    
    
    1,741Claims paid
    
    
    
    
    
    
    Ending warranty liability
    
    $
    3,305
    
    
    $
    1,741
 NOTE E  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 on an 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 F  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 G  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: 28




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##### Table of Contents



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
 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 H  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 I  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. The option
awards to Mr. Richardson and Mr. Toomey were terminated in connection with
their separation from the Company. On April 5, 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 November 4, 2002, Global Energy granted options to another employee to purchase
10,000 shares at $0.75 per share. The options vest one year from the grant
date and expire after ten years. On January 3, 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. On July 16, 2003, Global Energy granted options to various key employees to
purchase 200,000 shares of its common stock with an exercise price of $0.01
per share. The Companys net income, as reported, includes approximately $204,000 and
$173,000 of expense, net of related tax effects, arising from stock-based
employee compensation during 2003 and 2002, respectively. These amounts consist
of compensation expense for options granted in December 2002 at a price below
the current market value of the underlying stock. The Company records
compensation expense related to the value of the shares which is calculated
using the intrinsic value method. At December 31, 2003, there were 1,637,500 shares available for grant under the
Plan. 29




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##### Table of Contents



Stock option activity during 2003 and 2002 was as follows: WeightedNumber of
    
    Average ExerciseShares
    
    PriceBalance at December 31, 2001
    
    
    
    
    
    $
    Granted
    
    
    962,977
    
    
    
    0.14Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Expired
    
    
    
    
    
    
    Balance at December 31, 2002
    
    
    962,977
    
    
    $
    0.14Granted
    
    
    207,500
    
    
    
    0.04Exercised
    
    
    (25,000
    )
    
    
    0.01Forfeited
    
    
    (832,977
    )
    
    
    0.01Expired
    
    
    
    
    
    
    Balance at December 31, 2003
    
    
    312,500
    
    
    $
    0.43Shares exercisable at December 31, 2002
    
    
    277,659
    
    
    $
    0.01Shares exercisable at December 31, 2003
    
    
    105,000
    
    
    $
    1.22
 NOTE J  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 K  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: 30




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##### Table of Contents



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. 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 one distribution agreement that
was in effect at the time the GEAG arrangement became exclusive) 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 O, the Company is required to pay Turnaround
Specialist, LLC (Turnaround) $45,000 per month for three years commencing on
December 1, 2003. NOTE L  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 M  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. 31




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##### Table of Contents



NOTE N  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 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 O  SUBSEQUENT EVENTS On January 30, 2004, upon the approval of Globals board of directors, Global completed
the Financing Transaction. On January 30, 2004, the closing price of the
Companys common stock was $0.12 per share. 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 on January 30, 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 at the closing of the Financing Transaction
warrants to purchase 2 additional shares of the Companys
common stock at a price of $0.10 per share. Prior to the
Financing Transaction, the Company had issued to GEAG warrants
to purchase 8 shares of the Companys common stock at a price
of $0.10 per share for each dollar loaned to the Company by
GEAG under these bridge loans.
    
    Subsequent to February 1, 2004,
approximately 1,264,000 shares of Series B Preferred Stock have
been issued in exchange for cash invested in the Company by
GEAG. For each dollar of cash invested in Series B Preferred
Stock, GEAG received warrants to purchase 10 shares of the
Companys common stock at a price of $0.10 per share.
    
    up to 673,000 shares will be issued in exchange for
cash invested by GEAG from September 24, 2004 through July 31,
2005. 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 on January 30, 2004, 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 satisfaction of promissory notes
and, in some instances, unpaid salary payable by the Company to
those creditors of the Company, as well as warrants for the
Companys common stock held by those creditors. For each dollar
owing by the Company such creditors also received on January 30,
2004 warrants to purchase 10 shares of the Companys common stock at
a price of $0.30 per share.
    
    The entering into 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 on January 30, 2004 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. 
 Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure. Not applicable. 32




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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. 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 executive officers and members of the board of directors of the Company are
as follows: Name
    
    Age
    
    PositionCarlos J. Coe
    
    
    46
    
    
    Chief Executive Officer, DirectorJohn R. Bailey
    
    
    51
    
    
    President, Chief Financial Officer, Chief Operating Officer, Secretary, DirectorThomas H. Hebert
    
    
    64
    
    
    Chief Technology OfficerKeith Glaze
    
    
    42
    
    
    Vice President - OperationsHenry M. Burkhalter
    
    
    57
    
    
    DirectorSteven W. Fox
    
    
    47
    
    
    DirectorDavid E. Webb
    
    
    57
    
    
    Director
 Set forth below is information concerning the business experience of each
executive officer and member of the board of directors of the Company: CARLOS J. COE.Mr. Coe has served as a director and Chief Executive
Officer of the Company since September 2003. From September 2003 through
December 2003, Mr. Coe served as the Companys President. From 2000 to 2003,
Mr. Coe served as Chief Executive Officer and President of Anthony
International, a manufacturer of glass doors systems for refrigerated display
cases. From 1994 to 1999, Mr. Coe served as a Vice President of Whirlpools
worldwide air treatment business unit. JOHN R. BAILEY.Mr. Bailey has served as a director and the Chief
Financial Officer, Treasurer and Secretary of the Company since December 2003
and as the Companys President and Chief Operating Officer since March 2004.
From December 2003 through March 2004, Mr. Bailey served as the Companys
Executive Vice President. From 2002 through 2003, Mr. Bailey served as
Managing Director  Corporate Finance for Holmes, Murphy & Associates, Inc.
From 1988 through 2002, Mr. Bailey served as Senior Managing Director of
Berkshire Partners, Inc., a private investment bank. Mr. Bailey has over
twenty years experience in executive level positions with national and regional
investment banking firms, and has served as an executive of both public and
private companies, including his service from 2001 through 2002 as Chief
Executive Officer and member of the board of directors of Warrior Resources,
Inc., an oil and gas exploration and production company, and his service from
1998 through 2000 as Chief Financial Officer, Senior Vice President, Treasurer,
Secretary and a member of the board of directors of USA Media Group, L.L.C., a
company in the cable television industry. 33




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##### Table of Contents



THOMAS H. HEBERT.Mr. Hebert has served as the Companys Chief Technology
Officer since March 2004. From October 2001 to March 2003, Mr. Hebert served
as the Companys Vice President  Research and Development. Prior to that
time, Mr. Hebert served its predecessor GEER in this capacity since February
1998. With over 32 years in the construction, HVACR and refrigeration
industries, Mr. Hebert has invented and been the principal design engineer for
numerous technologies, including several patented products. From June 1995 to
September 1997, he served as Vice President of Engineering with Energy
Technologies, Inc. Mr. Hebert has focused on product development, applications
and manufacturing/production development, and has spent over twenty years in
the development and research of his proprietary inventions. Mr. Hebert earned
a BS in Physics and an M. SCI in Physical Chemistry from the University of
South Florida, and is a Masters Candidate in Engineering. KEITH GLAZE.Mr. Glaze was appointed Vice President  Operations in
October 2001. From 1998 to October 2001, Mr. Glaze served its predecessor
company, GEER, in this same capacity and in others. From 1997 to 1998, Mr.
Glaze was an Executive Business Analyst with George S. May international, a
consulting firm specializing in quality programs and process improvement. From
1989 to 1997, Mr. Glaze worked for York International in a variety of
positions. From 1994 to 1997, Mr. Glaze served as the Regional Sales Manager
with responsibility for inventory control and distribution for the
Jacksonville, Florida region. Mr. Glaze has a BS degree in business
administration from Trinity College. HENRY M. BURKHALTER.Mr. Burkhalter has served as a director of the
Company since his election by the Companys Board of Directors in March 2004 to
fill a vacancy that existed at the time of his election. This election was not
a condition of the completion of the Financing Transaction. Mr. Burkhalter is
President and Chief Executive Officer of Investsearch Capital, LLC, a venture
capital company. From 2000 to 2001, Mr. Burkhalter served as Chief Operating
Officer of WorldCom Wireless Solutions, Inc., a subsidiary of MCI, Inc.
formerly known as WorldCom Inc. In 2002, WorldCom Wireless Solutions, Inc.
filed a petition in bankruptcy. Prior to 2000, Mr. Burkhalter served as
President and Chief Executive Officer of Wireless One, Inc., a company involved
in the wireless cable and internet business. Mr. Burkhalter serves as a member
of the board of directors of Wi-Lan Inc., a manufacturer of wireless
communications equipment. STEVEN W. FOX.Mr. Fox has served as a director of the Company since
March 2004. Mr. Fox has served as the Chief Executive Officer and General
Manager of Quest Capital Alliance, L.L.C., a private equity fund, since
September 2000. Prior to that time, Mr. Fox served in a number of executive
positions for Bank of America and Boatmens Bank, and its affiliates. Mr. Fox
serves as a member of the board of directors of Decorize, Inc. DAVID E. WEBB. Mr. Webb has served as a director of the Company since his
election by the Companys Board of Directors in March 2004 to fill a vacancy
that existed at the time of his election. This election was not a condition of
the completion of the Financing Transaction. Since March 1998, Mr. Webb has
managed the investments of Webb Capital, L.L.C. From December 1996 to March
1998, Mr. Webb served as President and Chief Executive Officer of CS Wireless
Systems, Inc., a wireless cable company. The members of our Audit Committee are Henry M. Burkhalter, David E. Webb
and Steven W. Fox. Our Board of Directors has determined that each member of
the Audit Committee is an audit committee financial expert as defined by SEC
rules and that none of its members is an independent director as that term is
defined by NASD Rule 4200. The Audit Committee was formed in April 2004. In
April 2004, we adopted a Code of Conduct. The Code of Conduct sets forth
ethical requirements for the Companys employees, officers and directors. The
Company undertakes to supply without charge a copy of its Code of Conduct to
any person that delivers a request for a copy to the Companys Secretary. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934 requires our
executive officers, directors and persons who own more than 10% of our common
stock to file reports of ownership and changes in ownership with the Securities
and Exchange Commission. These persons are required to provide us with copies
of all Section 16(a) forms that they file. Based solely on our review of these
forms or written representations from the executive officers and directors, the
following persons failed to file on a timely basis Section 16(a) forms during
fiscal year 2003: GEAG failed to file on a timely basis a Form 3 upon its
acquisition of beneficial ownership of greater than 10% of our common stock, as
well as certain Forms 4 upon its acquisition of additional shares of our common
stock with respect to the Financing Transaction. Carlos J. Coe and John R.
Bailey failed to file on a timely basis a Form 3 upon becoming a director and
officer of the Company. Keith Glaze failed to file on a timely basis a Form 4
upon executing a transaction in our common stock in April 2003. 
 Item 10. Executive Compensation Summary Compensation Table.The following table sets forth the
compensation earned by each person that served in 2003 as our Chief Executive
Officer and the other most highly compensated executive officers whose salary
and bonus for the fiscal year ended December 31, 2003 were in excess of
$100,000. These persons are collectively referred to as the Named Executive
Officers. In accordance with the rules of the Securities and Exchange Commission,
the compensation described in the following table does not include medical
insurance, group life insurance or other benefits received by the Named
Executive Officers that are available 34




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##### Table of Contents



generally to all salaried
employees. In addition, the compensation described in the following table may
not include certain perquisites and other personal benefits received by the
Named Executive Officers that do not exceed the lesser of $50,000 or 10% of the
Named Executive Officers salary and bonus disclosed in the table. SUMMARY COMPENSATION TABLE Name and
    
    Fiscal
    
    
    
    
    
    Long-Term CompensationPrincipal Position
    
    Year
    
    Salary
    
    Option Awards/SARsCarlos J. Coe (1)
    
    
    2003
    
    
    
    
    
    
    
    Chief Executive OfficerGuy S. Frankenfield (2)
Executive Vice President -
    
    
    2003
    
    
    $
    103,146
    
    
    
    45,000Marketing and Sales
    
    
    2002
    
    
    
    40,408
    
    
    
    50,000Joseph H. Richardson (3)
Former President
    
    
    2003
    
    
    
    95,500
    
    
    
    and Chief Executive Officer
    
    
    2002
    
    
    
    95,673
    
    
    
    555,318
   (1)
    
    Mr. Coe became an officer and director of the Company in September
2003 in connection with a loan by Global Energy Acquisition Group, L.L.C. to
the Company. In connection with the Financing Transaction the Company entered
into the Turnaround Services Agreement with Turnaround Specialists, L.L.C. as
described above in Item 1 of this Report under the heading Turnaround Services
Agreement. Mr. Coe, as an affiliate of Turnaround Services, L.L.C., benefits
from the payments made by the Company to Turnaround Specialists under the
Turnaround Services Agreement. The Company does not directly compensate Mr.
Coe for his services to the Company, except that Mr. Coe does participate in
the Companys employee benefit plans.(2)
    
    Mr. Frankenfield became an officer of the Company in July 2002. Mr.
Frankenfields relationship with the Company terminated in May 2004.(3)
    
    Mr. Richardson became an officer and director of the Company in March
2002. Mr. Richardson resigned his officer positions in August 2003 to accept a
position with Allegheny Power, part of Hagerstown, Maryland based Allegheny
Energy, Inc. He remained a director until September 2003, when Mr. Coe was
appointed to the Companys Board of Directors. Certain amounts of compensation
earned by Mr. Richardson during 2003 were exchanged for securities of
the Company in the Financing Transaction. The option awards to Mr. Richardson
reflected in the table were terminated in connection with his separation from
the Company. Option Grants In Last Fiscal Year.The following table sets forth the
stock option grant made during the year ended December 31, 2003, to the
following Named Executive Officer. Number of Securities Underlying
    
    % Of Total Options
    
    Exercise Price
    
    ExpirationName
    
    Options Granted (1)
    
    Granted in 2003 (2)
    
    per Share
    
    Date (3)Guy S. Frankenfield (4)
    
    
    45,000
    
    
    
    21.7
    %
    
    $
    0.01
    
    
    
    7/16/13
   (1)
    
    The options vested on January 1, 2004.(2)
    
    Based on options granted during 2003 to purchase an aggregate of
207,500 shares of the Companys common stock.(3)
    
    The options have a term of ten (10) years, but may terminate before
their expiration date in the event of the death, disability or termination of
employment of the optionee.(4)
    
    Mr. Frankenfields relationship with the Company terminated in May
2004. Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values.The following table sets forth information concerning options
exercised during 2003 and options held on December 31, 2003, by our Named
Executive Officers whose salary and bonus exceeded $100,000 for 2003. Number of SecuritiesUnderlying Unexercised
    
    Value of Unexercised In-The-SharesAcquired
    
    
    
    
    
    Options at Year-End
    
    Money Options at
Year-End (1)on
    
    ValueName
    
    Exercise
    
    Realized
    
    Exercisable
    
    Unexercisable
    
    Exercisable
    
    UnexercisableGuy S. Frankenfield (2)
    
    
    
    
    
    
    
    
    
    
    95,000
    
    
    
    
    
    
    $
    6,300
    
    
    
    
 35




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##### Table of Contents



(1)
    
    Based on the difference between the option exercise price and the
closing sale price of $0.10 of the Companys common stock as reported
on the OTC Bulletin Board on December 31, 2003, the last trading day
prior to the closing of our fiscal year multiplied by the number of
shares underlying the options.(2)
    
    Mr. Frankenfields relationship with the Company terminated in May
2004. Employment Arrangements.Mr. Bailey and Mr. Coe are compensated for their
services as officers of the Company under the Turnaround Services Agreement
described in Item 1 of this Report under the heading Turnaround Services
Agreement,. In addition these individuals participate in the Companys employee
benefit plans. As of January 2004, the Company entered into an employment agreement with
Guy S. Frankenfield, which was terminated pursuant to a separation agreement
effective May 2004. The employment agreement provided for annual base salary
of at least $110,000 for Mr. Frankenfield and eligibility to receive a bonus
determined by the Board of Directors or the Compensation Committee. The
employment agreement had an initial term of three years from January 1, 2004.
The employment agreement provided that the Company could terminate Mr.
Frankenfields employment for good cause or without good cause (as those terms
are defined in the agreement) or upon disability. Mr. Frankenfield could
terminate the agreement voluntarily. Under the terms of the separation
agreement, the Company continued to pay Mr. Frankenfield his salary and
benefits through August 2004 and extended Mr. Frankenfields right to exercise
options granted by the Company for three months. Directors Compensation While the Board of Directors may change its policy in the future, the
Company currently pays its directors no compensation for their service on the
Companys board of directors or its committees, except that the Company
reimburses its directors for any expenses associated with attending the
meetings. 
 Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters. The following table sets forth information regarding the beneficial
ownership of our Preferred Stock and our common stock as of September 23, 2004,
for:  
    
    each person who is known by us to beneficially own more than 5%
of the outstanding shares of any class of our voting securities;
    
    each of our directors;
    
    each of our Named Executive Officers; and
    
    all of our directors and Named Executive Officers as a group. The percentages of shares of the Companys common stock owned provided in
the table is based on 13,870,707 shares of the Companys common stock
outstanding as of September 23, 2004. The percentages of shares of Preferred
Stock owned provided in the table is based on 4,280,229 shares of Preferred
Stock outstanding as of September 23, 2004. Beneficial ownership is determined
in accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to securities.
Except as indicated by footnote, the persons named in the table have sole
voting and investment power with respect to all shares of the Companys common
stock shown as beneficially owned by them. The determination of whether these
persons have sole voting and investment power is based upon information
provided by them. In computing an individuals beneficial ownership, the
number of shares of the Companys common stock subject to warrants or options
held by that person that are exercisable within 60 days of September 23, 2004,
are also deemed outstanding and are shown in the column labeled Warrants.
These shares, however, are not deemed outstanding for the purpose of computing
the beneficial ownership of any other person. Unless a footnote indicates
otherwise, the address of each person listed below is c/o Global Energy Group,
Inc., 2346 Success Drive, Odessa, Florida 33556. Shares of Preferred Stock
    
    Shares of Common StockBeneficially Owned
    
    Beneficially OwnedName
    
    Number (Series)
    
    Percent
    
    Number
    
    Warrants
    
    PercentGlobal Energy Acquisition Group,
L.L.C. (1) (11)
    
    
    1,826,614
    (B)
    
    
    42.7
    %
    
    
    
    
    
    
    18,165,410
    
    
    
    56.7
    %Quest Capital Alliance, L.L.C. (2)(11)
    
    
    571,014
    (A)
    
    
    13.3
    
    
    
    170,000
    
    
    
    5,710,140
    
    
    
    30.0Richard E. Wiles (3)
    
    
    
    
    
    
    *
    
    
    
    1,534,798
    
    
    
    
    
    
    
    11.1Eugene Cornett (4)
    
    
    
    
    
    
    *
    
    
    
    1,536,464
    
    
    
    
    
    
    
    11.1Neal S. Stubbs (5)
    
    
    
    
    
    
    *
    
    
    
    3,434,005
    
    
    
    
    
    
    
    24.8Thomas H. Hebert
    
    
    
    
    
    
    *
    
    
    
    1,456,205
    
    
    
    
    
    
    
    10.5Robert J. Smith (6) (11)
    
    
    1,292,362
    (A)
    
    
    30.2
    
    
    
    
    
    
    
    12,923,620
    
    
    
    48.2Joseph H. Richardson (7) (11)
    
    
    334,863
    (A)
    
    
    7.8
    
    
    
    
    
    
    
    3,348,630
    
    
    
    19.4Peter E. Toomey (8) (11)
    
    
    255,376
    (A)
    
    
    6.0
    
    
    
    
    
    
    
    2,553,760
    
    
    
    15.5
 36




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Shares of Preferred Stock
    
    Shares of Common StockBeneficially Owned
    
    Beneficially OwnedName
    
    Number (Series)
    
    Percent
    
    Number
    
    Warrants
    
    PercentCarlos J. Coe (9)
    
    
    
    
    
    
    *
    
    
    
    
    
    
    
    700,000
    
    
    
    4.8John R. Bailey (9)
    
    
    
    
    
    
    *
    
    
    
    
    
    
    
    700,000
    
    
    
    4.8Guy S. Frankenfield (10)
    
    
    
    
    
    
    *
    
    
    
    70,000
    
    
    
    
    
    
    
    *Henry M. Burkhalter (1)
    
    
    
    
    
    
    *
    
    
    
    
    
    
    
    
    
    
    
    *David E. Webb (1)
    
    
    
    
    
    
    *
    
    
    
    
    
    
    
    
    
    
    
    *Steven W. Fox (2)
    
    
    
    
    
    
    *
    
    
    
    
    
    
    
    
    
    
    
    *Directors and Named Executive
Officers as a group (6 persons)
    
    
    2,732,491
    
    
    
    63.8
    %
    
    
    240,000
    
    
    
    27,924,180
    
    
    
    67.0
    %
   *
    
    less than 1%(1)
    
    The address of Global Energy Acquisition Group, L.L.C. is 5000 Legacy
Drive, Suite 470, Plano, Texas 75024. David E. Webb and Henry M.
Burkhalter, who are on Global Energys Board of Directors, are affiliated
with, and control the disposition and voting of, the shares of the Company
beneficially owned by Global Energy Acquisition Group, L.L.C.(2)
    
    The address of Quest Capital Alliance, L.L.C. is 3140 E. Division Street,
Springfield, Missouri 65802. Steven W. Fox, who is on Global Energys
Board of Directors, is General Manager and a Principal of Quest. Mr. Fox
controls the disposition and voting power of the shares of the Companys
capital stock beneficially owned by Quest, and every action or transaction
that benefits Quest directly or indirectly benefits Mr. Fox. This
control of voting power, however, is subject to the Voting Trust Agreement
referred to in footnote 11 to this table.(3)
    
    The address of Richard E. Wiles is 4304 Beau Rivage Circle, Lutz, Florida
33558.(4)
    
    The address of Eugene Cornett is 27110 Coral Springs Drive, Wesley
Chapel, Florida 33543.(5)
    
    The address of Neal S. Stubbs is 928 Oakfield Drive, Brandon, Florida
33551.(6)
    
    The address of Robert J. Smith is 3865 Turtle Hatch Road, Springfield,
Missouri 65809.(7)
    
    The address of Joseph H. Richardson is 147 North Drive, Pitts, PA 15238.(8)
    
    The address of Peter E. Toomey, 119 Riding Trail Lane, Pittsburgh, PA
15215.(9)
    
    Carlos J. Coe and John R. Bailey are each an officer of the Company and
on Global Energys Board of Directors. Each is affiliated with Turnaround
Specialists, L.L.C. The shares indicated as being beneficially owned
represent warrants held by Turnaround Specialists, L.L.C. to purchase
700,000 shares of Common Stock.(10)
    
    Mr. Frankenfields relationship with Global Energy terminated in May
2004.(11)
    
    The rights, limitations and preferences of each series of Preferred Stock
are described in Item 1 of this Report under the heading 2004 Financing Transaction.
The shares of Series A Preferred Stock are held
subject to a Voting Trust Agreement, which is
described in Item 1 of this Report under the heading 2004
Financing Transaction. With respect to
matters to which the terms of the Voting Trust Agreement apply, for
purposes of voting control Global Energy Acquisition Group, LLC possesses
beneficial ownership of 100% of the outstanding shares of Preferred Stock. 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 and as of December 31, 2003, 1,025,000
shares of restricted stock have been issued under the Plan, and options
covering a total of 1,170,477 shares have been granted. Of these options granted,
832,977 have been forfeited, 25,000 shares have been issued upon the exercise of options granted under the Plan, and 312,500 options remain issued and outstanding,
leaving 1,637,500 shares authorized to be issued under the Plan. The following
table sets forth certain information regarding the plan as of December 31,
2003. 37




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##### Table of Contents



(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 InOutstanding Options
    
    Outstanding Options
    
    Column (a))Plan CategoryEquity Compensation
Plans Approved by
Security Holders
    
    
    312,500
    
    
    $
    0.43
    
    
    
    1,637,500Equity Compensation
Plans not Approved
by Security Holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    312,500
    
    
    $
    0.43
    
    
    
    1,637,500
 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. Pursuant to the terms of the Financing Transaction,
all of the outstanding warrants issued by the Company, except for warrants to purchase an aggregate of 4,420,000 shares of common
stock issued to GEAG, were terminated as of January 30, 2004. 
 Item 12. Certain Relationships and Related Transactions 2004 Financing Transaction On January 30, 2004, the Companys board of directors approved and the
Company completed the Financing Transaction, which is described in greater
detail in Item 1 of this Report. As stated above in Item 1 of this Report, 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 E. Webb and Henry M.
Burkhalter, are owners and controlling persons of GEAG and GEDG. The holders of the outstanding shares of Series A Preferred Stock (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 as the trustee of the
voting trust 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. The Voting Trust Agreement terminates upon
the consent by all the parties to terminate or at the time as there are no
shares of Series A Preferred Stock subject to the Voting Trust Agreement. In connection with loans made to the Company, GEAG required that the
Company enter into a product distribution agreement with GEDG, an affiliate of
GEAG. This agreement grants to GEDG 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 existing distribution rights held by one
unaffiliated third party under a distribution agreement entered into by the
Company prior to entering into the distribution agreement with GEDG. As a condition to the Financing Transaction, GEAG required that the
Company entered into the Turnaround Services Agreement with Turnaround
Specialists, L.L.C., as described above in Item 1. Turnaround Specialists is
owned by Carlos J. Coe and John R. Bailey. All amounts 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 do not have
any interest in, and is not otherwise affiliated with, GEAG or GEDG. In 2003,
Turnaround Specialists earned $145,000 for services under the Turnaround
Services Agreement. The Financing Transaction enabled the Company to satisfy amounts owed to
the Series A Holders. Without the Financing Transaction the Company would have
been unable to satisfy the indebtedness owed to Series A Holders. But for the
Financing Transaction, the Series A Holders might have received little if any
of the amounts owed them by the Company. 38




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Other Transactions Pursuant to an Investment Agreement between the Company and one of its
principal stockholders, Mr. Robert Smith, the Company borrowed $410,000 from
Mr. Smith in 2003 and issued to Mr. Smith, as additional consideration for
lending such amounts to the Company, warrants to purchase up to 400,000 shares
of our common stock at an exercise price of $1.00 per share and an additional
620,000 shares at an exercise price of $0.50 per share, in each case
exercisable for three years from the date of issuance. The Company issued its
short-term promissory notes with respect to the borrowed amounts, each bearing
interest at 8% per annum and secured by a pledge of substantially all of the
assets of the Company. To avoid a default under the notes, in January 2004 the
Company issued new 90-day bridge notes in exchange for the old notes. The
notes and the warrants described in this paragraph were cancelled as part of
the Financing Transaction. Pursuant to an Investment Agreement between the Company and another of its
principal stockholders, Quest Capital Alliance, L.L.C., the Company borrowed
$200,000 from Quest in 2003 and issued to Quest, as additional consideration
for lending such amounts to the Company, warrants to purchase up to 400,000
shares of our common stock at an exercise price of $0.50 per share, in each
case exercisable for three years from the date of issuance. The Company issued
its short-term promissory notes with respect to the borrowed amounts, each
bearing interest at 8% per annum and secured by a pledge of substantially all
of the assets of the Company. To avoid a default under the notes, in January
2004 the Company issued new 90-day bridge notes in exchange for the old notes.
The notes and the warrants described in this paragraph were cancelled as part
of the Financing Transaction. In 2003 the Company issued warrants to two of its officers, Joseph H.
Richardson and Peter E. Toomey, covering 44,572 and 35,429 shares,
respectively, as additional consideration for short-term loans to the Company
in the amounts of $5,572 and $4,429, respectively, in each case at an exercise
price of $1.00 per share for three years from the date of issuance. To avoid a
default under the loans, in January 2004 the Company issued new 90-day bridge
notes in exchange for the old notes. The notes and the warrants described in
this paragraph were cancelled as part of the Financing Transaction. The Company currently holds the exclusive rights to seven U.S. patents and
seven patent-pending applications pursuant to a series of agreements with the
inventor 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 stockholder 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 to Mr. Hebert beginning in
2004. Minimum royalties under the Companys patent agreements with Mr. Hebert
would amount to $123,000 in 2004, increasing each year until reaching $700,000
in 2010 and following years. 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. Most 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. 
 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
exchange for bridge notes
 39




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Exhibit No.
    
    Description4.11(5)
    
    Form Common Stock Purchase Warrant for persons purchasing shares of Series B Preferred Stock for cash4.12(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 Stock10.1(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(1)
    
    Proxy and Voting Agreement10.7(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(4)
    
    Distribution Agreement dated September 26, 2003 with Global Energy Distribution Group, L.L.C. (GEDG)10.22(4)
    
    License Agreement dated September 26, 2003 with GEDG21.1(1)
    
    Subsidiaries of the Company23.1(8)
    
    Consent to use of Report of Independent Certified Public Accountants31.1(8)
    
    Certification of the Chief Executive Officer of Global required by Section 302 of the Sarbanes-Oxley
Act of 200231.2(8)
    
    Certification of the Chief Financial Officer of Global required by Section 302 of the Sarbanes-Oxley
Act of 200232.1(8) #
    
    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(8) #
    
    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)
    
    Incorporated by reference to the same-named exhibit to the Companys
Annual Report on Form 10-KSB for the year ended December 31, 2003, as
originally filed on April 14, 2004.(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.(8)
    
    Filed herewith.#
    
    Pursuant to Item 601(b)(32) of SEC Regulation S-K, these exhibits are
furnished rather than filed with this Report. 40




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(b) Reports on Form 8-K Not applicable 
 Item 14. Principal Accountant Fees and Services Baumann, Raymondo & Company served as our independent accountants for the
year ended December 31, 2003, and is expected to serve in that capacity for the
current year. Principal Accountant Fees and Services. Aggregate fees billed for
professional services rendered for the Company by Baumann, Raymondo & Company
as of and for the years ended December 31, 2002 and 2003, were: 2003(1)
    
    2002(1)Audit
    
    $
    48,138
    
    
    $
    86,450Audit-Related
    
    
    
    
    
    
    Tax
    
    
    
    
    
    
    7,162All Other
    
    
    1,897
    
    
    
    23,242Total
    
    
    50,035
    
    
    
    116,854
  (1)
    
    The aggregate fees included in Audit represent fees for the audit of
the Companys annual financial statements and review of financial
statements and statutory and regulatory filings or engagements. The
aggregate fees included in all categories represent fees billed during the
fiscal years. Audit Fees. Audit fees were for professional services rendered in
connection with audits and quarterly reviews of the consolidated financial
statements of the Company, review of and preparation of consents for
registration statements filed with the Securities and Exchange Commission, and
for subsidiary statutory audits. Audit-Related Fees. Audit related fees were for assurance and related
services related to employee benefit plan audits and consultations regarding
financial accounting and reporting standards. Tax Fees. Tax fees related to services for tax compliance and consulting. All Other Fees. All other fees were for employee benefit plan advisory
services. Audit Committee Pre-Approval Policies and Procedures. The Companys Audit
Committee was formed in April 2004. At its regularly scheduled and special
meetings, the Audit Committee of the Board of Directors expects to consider and
pre-approve any audit and non-audit services to be performed by the Companys
independent accountants. 41




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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 Amendment No. 2 to
the Annual Report on Form 10-KSB/A to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Dallas, State of Texas,
on this 29th day of September, 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
Amendment No. 2 to Annual Report on Form 10-KSB/A has been signed by the
following persons and on September 29, 2004. SIGNATURES
    
    TITLE/s/ John R. Bailey
John R. Bailey
    
    President, Chief Financial
Officer, Chief Operating Officer,
Secretary and Director (Principal
Financial and Accounting Officer)/s/ David E. Webb*
David E. Webb
    
    Chairman of the Board/s/ Henry M. Burkhalter*
Henry M. Burkhalter
    
    Director/s/ Steven Fox*
Steven Fox
    
    Director/s/ Carlos Coe*
Carlos Coe
    
    Chief Executive Officer and
Director (Principal Executive
Officer)*By: /s/ John R. Bailey
Attorney-in-Fact
 42