Amended disclosure statement 02.14.11

Second Amended AND MODIFIED Disclosure Statement

IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

In re: ) CHAPTER 11 ) PITT PENN HOLDING CO., INC., et al.1, ) Case No. 09-11475 (BLS) ) (Jointly Administered) Debtors. ) )

Important Dates

Date by which ballots must be received: August 28, 2011

Date by which objections to confirmation of the plan must be filed and served:

August 28, 2011

Hearing on confirmation of the Plan: _________________, 2011

DEBTORS’ SECOND AMENDED AND MODIFIED DISCLOSURE STATEMENT

DATED: February 11, 2011 Christopher D. Loizides (No. 3968) LOIZIDES, P.A. 1225 King Street, Suite 800 Wilmington, DE 19801 Telephone: (302) 654-0248 Facsimile: (302) 654-0728 E-mail: [email protected] Counsel for Debtors

1 The debtors are: Pitt Penn Holding Co. (Case No. 09-11475), Pitt Penn Oil Co. LLC (Case No. 09-11476), Industrial Enterprises of America, Inc. (Case No. 09-11508), EMC Packaging, Inc. (Case No. 09-11524), Today’s Way Manufacturing LLC (Case No. 09-11586), and Unifide Industries LLC (Case No. 09-11587), all of which have been jointly administered.

Second Amended AND MODIFIED Disclosure Statement i

TABLE OF CONTENTS

[TABLE OF CONTENTS HAS NOT BEEN CONFORMED TO REFLECT PROPOSED REVISIONS]

I. INTRODUCTION .............................................................................................................................................. 1 II. PURPOSE OF THE DISCLOSURE STATEMENT AND PROVISIONS FOR VOTING AND

CONFIRMATION ...................................................................................................................... 1 A. Purpose ................................................................................................................................................ 1 B. Voting Provisions ................................................................................................................................ 2

1. General ................................................................................................................................... 2 2. Claimants Not Entitled to Vote .............................................................................................. 2

a. Administrative and Priority Tax Claims .................................................................. 2 b. Unimpaired Claims .................................................................................................. 3

3. Claimants Entitled to Vote; Impaired Claims ........................................................................ 3 4. Acceptance of the Plan ........................................................................................................... 3

C. Confirmation ........................................................................................................................................ 4 1. Objections .............................................................................................................................. 4 2. Confirmation by Acceptance .................................................................................................. 4 3. Confirmation Without Acceptance ......................................................................................... 4

D. Representation Limited ....................................................................................................................... 5 III. INQUIRIES ...................................................................................................................................................... 5 IV. THE DEBTORS ............................................................................................................................................... 5

A. Pre-Petition Background and History .................................................................................................. 6 B. Background – Formation and Maintenance of Corporate Records ...................................................... 6 C. Acquisitions ......................................................................................................................................... 8 D. Private Placements - July 2005 through March 2006 .......................................................................... 9 E. John D. Mazzuto’s Personal Bankruptcy is Disclosed to the Board .................................................. 11 F. Indecent Disclosure: The Use of Press Releases, Investor Meetings, and “Promoters” .................... 12 G. February 2008 - John D. Mazzuto Resigns and James W. Margulies Becomes CEO and CFO ....... 15 H. April 2008 - Mr. Margulies Discusses the Company’s Cash Requirements with a Number of

Significant Investors ................................................................................................... 15 I. April 2009 - All Prior Financials, Stock Issuances, and Disclosures Are Under Review By

Current Management .................................................................................................. 16 1. The Chaotic State of the Corporate Records Has Created a Major Problem for

New Management ......................................................................................... 17 2. State of IEAM Accounting Books and Records ................................................................... 18 3. Class Action Lawsuit and SEC Inquiries Result in the Formation of a Governance

Committee - October 2008 ........................................................................... 21 4. Capital Structure .................................................................................................................. 22 5. Government Regulation ....................................................................................................... 37 6. Employees ............................................................................................................................ 37

J. Events that Lead to the Bankruptcy Filing .......................................................................................... 38 1. Litigation .............................................................................................................................. 41

a. Zyskind Action ....................................................................................................... 41 b. Goldknopf Action .................................................................................................. 41 c. Margulis Action ..................................................................................................... 42

2. Contested Litigation ............................................................................................................. 42 a. Trinity Bui Action .................................................................................................. 42 b. Black Nickel Actions ............................................................................................. 42 c. EMC New Jersey Litigation ................................................................................... 43 d. Securities Class Action .......................................................................................... 43 e. Bankruptcy Litigation ............................................................................................ 44

3. Cooperation with Regulatory Authority/Law Enforcement ................................................. 44 K. Chapter 11 Cases ............................................................................................................................... 45

1. Initial Events in Bankruptcy ................................................................................................. 45 2. Events Occurring in the Bankruptcy Case – DIP Financing, Avoiding

Conversion, Plan Filing .................................................................. 45 a. Bankruptcy Litigation ............................................................................................ 45

V. THE PLAN OF REORGANIZATION ........................................................................................................... 47 A. Plan Summary ................................................................................................................................... 47

Second Amended AND MODIFIED Disclosure Statement ii

1. Class A – Claims of Professionals ....................................................................................... 48 2. Other Administrative Claims ............................................................................................... 48 3. Class B ................................................................................................................................. 48 4. Classes C, D, and E .............................................................................................................. 48 5. Class F .................................................................................................................................. 48 6. Class G – the Debtor-in-Possession Loan by Omtammot LLC ............................................ 49 7. Class H ................................................................................................................................. 49 8. Class I – Shareholders Equity .............................................................................................. 50 9. Class K – Any Claim for Damages for the Purchase or Sale of Any of the Securities

of Any of the Debtors ................................................................................... 50 B. General Provision Applicable to All Classes ..................................................................................... 50 C. Treatment of Contested Claims Arising Under Section 502(c) ......................................................... 50

VI. PAYMENTS UNDER THE PLAN .............................................................................................................. 51 A. Transfers of the Stock ........................................................................................................................ 52 B. Ownership of Shares After Distribution Under the Plan ................................................................... 52

VII. REJECTION AND ASSUMPTION OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES .... 52 VIII. ALLOWED AMOUNT OF CLAIMS .......................................................................................................... 52 IX. VOIDABLE TRANSFERS .......................................................................................................................... 53 X. TAX CONSEQUENCES .............................................................................................................................. 53 XI. DISCHARGE OF DEBTOR ........................................................................................................................ 53 XII. JURISDICTION OF BANKRUPTCY COURT AFTER CONFIRMATION ............................................. 53 XIII. LIQUIDATION ANALYSIS AND DISCUSSION ...................................................................................... 53

A. Liquidation Analysis/Miscellaneous Bankruptcy Provisions ............................................................ 54 XIV. OPERATING PROJECTIONS .................................................................................................................... 56 XV. CONCLUSION ............................................................................................................................................. 56

Second Amended AND MODIFIED Disclosure Statement

Industrial Enterprises of America, Inc., (“IEAM” or “the Company”), Pitt Penn Holding Co., Inc, (“PPH”), Pitt Penn Oil Co., LLC, (“PPO”), EMC Packaging, Inc., (“EMC”), Today’s Way Manufacturing LLC, (“Today’s Way”), and Unifide Industries LLC, (“Unifide”) collectively the debtors in possession (the "Debtors"), submit this First Amended Disclosure Statement (the "Disclosure Statement") in connection with the Debtors’ First Amended Consolidated Plan of Reorganization (the "Plan"), pursuant to Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code"). Capitalized terms used and not otherwise defined herein shall have the same meanings as are ascribed to them in the Plan. I. INTRODUCTION.

On April 30, 2009 through May 6, 2009 (the "Petition Dates"), the Debtors filed with the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") Voluntary Petitions (the "Petitions") under Chapter 11 of the Bankruptcy Code. Since the Petition Dates, the Debtors have continued in the management and limited operation of their property as debtors in possession pursuant to sections 1107 and 1108 of the Bankruptcy Code.

II. PURPOSE OF THE DISCLOSURE STATEMENT AND PROVISIONS FOR

VOTING AND CONFIRMATION.

A. Purpose.

The Debtors provide this Disclosure Statement, pursuant to the requirements of section 1125 of the Bankruptcy Code, in order to provide to the holders of all Claims against and Interests in the Debtors adequate information about the Debtors and the Plan, so that they may make an informed judgment with respect to the merits of the Plan for purposes of voting on the Plan. By Order dated February 28, 2011, the Disclosure Statement was approved by the Bankruptcy Court as containing "adequate information", which is defined in section 1125(a)(1) of the Bankruptcy Code as "information of a kind, and in sufficient detail, as far as is reasonably practical in light of the nature and history of the debtor and the condition of the debtor’s books and records, including a discussion of the potential material Federal tax consequences of the plan to the debtor, any successor to the debtor, and a hypothetical investor typical of the holders of claims or interests in the case, that would enable a hypothetical reasonable investor, typical of holders of the relevant class to make an informed judgment about the Plan . . . ." This Disclosure Statement does not purport to be a complete description of the Plan, the financial status of the Debtors, the applicable provisions of the Bankruptcy Code, or other matters that may be deemed significant by certain creditors and parties-in-interest. This Disclosure Statement is an attempt to set forth, in reasonable detail, information that will enable a creditor to make an informed judgment with respect to the Plan for voting purposes. The Disclosure Statement necessarily involves a series of compromises between "raw data", the legal language in documents or statutes, and the considerations of readability and usefulness. For further information, you should examine the Plan directly (a copy of which accompanies this Disclosure Statement), and/or consult with your legal and financial advisors. The description of the Plan herein is provided only as a summary and it is recommended that all creditors and parties-in-interest review the Plan, the balance of this Disclosure Statement, and the other documents and

Second Amended AND MODIFIED Disclosure Statement 2

information referenced herein, in order to obtain more complete information. Approval by the Bankruptcy Court of the Disclosure Statement does not constitute an approval of the Plan.

Other than as set forth in this Disclosure Statement, no representations concerning the

Debtors, their assets, their financial condition, management or future operations are authorized by the Debtors. Any representations or inducements made to secure acceptance of the Plan other than as contained in the Plan and described in this Disclosure Statement are not authorized by the Debtors and accordingly should not be relied upon by the holder of any Claim or Interest in reaching a decision whether or not to vote to accept or reject the Plan.

Enclosed with this Disclosure Statement are the following:

(1) a copy of the Plan; (2) a ballot for accepting or rejecting the Plan (if applicable); and (3) a copy of the Order of the Bankruptcy Court approving the Disclosure

Statement setting forth: the time period and the manner by which to vote to accept or reject the Plan, the time period for objecting to Confirmation of the Plan, and fixing the time for the hearing on the Confirmation of the Plan.

B. Voting Provisions.

1. General.

Every holder of a Claim or Interest in an Impaired Class that is entitled to receive a

distribution under the Plan is entitled to vote to accept or reject the Plan. As such, all holders of Claims or Interests in Classes C, D, E and F may vote on the Plan by filling out the enclosed Ballot and mailing it to counsel for the Debtors.

2. Classes of Claims and Interests Not Entitled to Vote.

a. DIP Claims

Pursuant to the compromise and settlement between and among the

Debtors, OMTAMMOT, LLC and OMTAMMOT II, L.P., with respect to the DIP Loan Claims (the “DIP Loan Settlement”), OMTAMMOT, LLC and OMTAMMOT II, L.P. (together, the “DIP Lenders”) have agreed to accept the distributions set forth in Article 3.1 of the Plan in full satisfaction, settlement, release and discharge of, and in exchange for, their Allowed DIP Loan Claims, and to the extent that such distributions may be deemed inadequate to pay the Allowed DIP Loan Claims in full, the DIP Lenders have further agreed to waive any resulting deficiency Claim in accordance with the DIP Loan Settlement.


b. Administrative and Priority Tax Claims.

Claimants holding only Administrative Claims and/or Priority Tax Claims are not entitled to vote on the Plan because Section 1123(a)(1) of the Bankruptcy Code does not require that such Claims be designated in a Class and because the Plan provides for the payment of such Claimants under terms which not only satisfy, but are more favorable to such Claimants than the requirements set forth by Sections 1129(a)(9)(A) and (C) of the Bankruptcy Code.

c. Unimpaired Claims.

Claimants holding Claims in a Class which is not impaired (as discussed

below) are not entitled to vote on the Plan because pursuant to Section 1126 of the Bankruptcy Code, a Class, and each Claimant in such Class, that is not impaired under the Plan is conclusively presumed to have accepted the Plan. As a general matter, under Section 1124 of the Bankruptcy Code, a class of claims is impaired unless the legal, equitable and contractual rights of the claimants in such class are not altered by the Plan (with exception of certain rights of claimants to receive accelerated payment of their claims and certain rights of a debtor to cure defaults) or unless the plan provides, that, on the effective date, each claimant in such class shall receive, on account of its claim, cash equal to the allowed amount of such claim.

Claimants in Classes A and B (as described below) are Unimpaired and,

therefore, are not entitled to vote on the Plan.

d. Deemed Rejecting Class.

Holders of Impaired Non-IEAM Interests in Class G are deemed to reject the Plan because such holders will not receive a distribution under the Plan on account of their Interests. Interest holders in Class G are accordingly not entitled to vote on the Plan.

3. Claimants Entitled to Vote; Impaired Claims.

Certain classes are Impaired under the Plan and Claimants in such Classes, therefore, are

entitled to vote on the Plan. Claimants in Classes C, D, E and F are entitled to vote on the Plan since such classes are impaired.

4. Acceptance of the Plan.

Please note that the Plan is deemed accepted by a Class of Claims or Interests when it is

approved by holders of Claims and Interests who hold at least two-thirds of the dollar amount, and who comprise more than one-half in number of, the Allowed Claims or Interests of such Class that actually vote. An abstention by a Claim or Interest holder will not count toward either acceptance or rejection of the Plan.

The Debtors recommend that each holder of a Claim or Interest that is entitled to vote to

vote to ACCEPT the Plan. IN ORDER FOR YOUR VOTE TO COUNT, YOUR BALLOT


MUST BE COMPLETED AND RECEIVED AT THE ADDRESS STATED ON THE BALLOT (WHICH IS ALSO SET FORTH BELOW) ON OR BEFORE AUGUST 28, 2011:

Christopher D. Loizides, Esquire LOIZIDES, P.A. 1225 King Street, Suite 800 Wilmington, DE 19801

Even though a Claim or Interest holder may choose not to vote or may vote against the

Plan, such Claim or Interest holder will nevertheless be bound by the terms and treatment set forth in the Plan if the Plan is accepted by the requisite majorities in each Class entitled to vote and is confirmed by the Court. Allowance of a Claim or Interest for voting purposes does not necessarily mean that the Claim or Interest will be Allowed for purposes of distribution under the terms of the Plan. Any Claim or Interest to which an objection has been or will be filed will be Allowed for purposes of distribution only after determination by the Court. Such determination may be made after the Plan is Confirmed.

C. Confirmation.

1. Objections.

Should you have an objection to Confirmation of the Plan, it must be filed, in writing,

with the Bankruptcy Court and served on counsel for the Debtors, on or before August 28, 2011. A hearing to consider confirmation of the Plan will be held on , 2011, beginning at ______ before the Honorable Brendan L. Shannon in the United States Bankruptcy Court for the District of Delaware, 824 Market Street, 6th Floor, Courtroom 1, Wilmington, Delaware 19801.

2. Confirmation by Acceptance.

The Debtors are seeking Confirmation of the Plan under Section 1129(a) of the

Bankruptcy Code. Confirmation under Section 1129(a) is dependent upon a finding of the Bankruptcy Court that a number of requirements have been met. One of these requirements is that each Impaired Class of Claims and Interests entitled to vote on the Plan must accept the Plan. Accordingly, the Plan cannot be confirmed under Section 1129(a) unless accepted by each Impaired Class of Claims and Interests.

3. Confirmation Without Acceptance.

Under Section 1129(b)(1) of the Code, the Court may confirm the Plan even if it has not

been accepted by one or more Impaired Classes of Claims and Interests, provided that the Plan does not discriminate unfairly and it is fair and equitable with respect to each Impaired Class of Claims or Interests that has not accepted the Plan.

In order for the Plan to be fair and equitable with respect to an Impaired Class of Secured

Claims, Section 1129(b)(2)(A) of the Code requires that the Plan provide for each Claimant in


such Class: (a) to receive payments over time which, in the aggregate, total at least the Allowed amount of such Claimant's Claim, and which have a present value, as of the Effective Date of the Plan, at least equal to the value of such Claimant's interest in the Debtor's property encumbered by such Claimant's lien(s); and (b) the Secured Claimant shall retain such lien(s) in order to secure such payments.

In order for the Plan to be fair and equitable with respect to an Impaired Class of

Unsecured Claims, Section 1129(b)(2)(B) of the Code requires that the Plan provide either: (a) that each Claimant in such Class shall receive on account of its Claim property which has a present value, as of the Effective Date of the Plan, equal to the Allowed amount of such Claim or (b) that no Claimant or holder of an Interest in the Debtor that is junior to the Claims of such Impaired Class will receive or retain under the Plan any property on account of such junior Claim or Interest.

In order for the Plan to be fair and equitable with respect to an Impaired Class of

Interests, Section 1129(b)(2)(C) of the Code requires that the Plan provide either: (a) that each Interest holder in such Class shall receive on account of its Interest property which has a present value, as of the Effective Date of the Plan, equal to the value of such Interest or the Allowed amount of any fixed liquidation preference or redemption price to which the holder of such Interest is entitled or (b) that no holder of an Interest in the Debtor that is junior to the Interests of such Impaired Class will receive or retain under the Plan any property on account of such junior Interest.

D. Representation Limited.

THE ACCURACY OF THE INFORMATION, PARTICULARLY FINANCIAL

INFORMATION, SUBMITTED WITH THIS DISCLOSURE STATEMENT IS DEPENDENT UPON AN ACCOUNTING PERFORMED BY THE DEBTORS. FURTHER, THE FINANCIAL INFORMATION SET FORTH HEREIN CONTAINS FINANCIAL PROJECTIONS OF FUTURE PERFORMANCE THAT NECESSARILY RELY ON THE OUTCOME OF MANY VARIABLES OVER WHICH THE DEBTORS HAVE NO CONTROL, AND THUS THE ACCURACY OF SUCH PROJECTIONS CANNOT BE GUARANTEED.

THESE FINANCIAL PROJECTIONS PRESENT, TO THE BEST OF THE DEBTORS’ KNOWLEDGE AND BELIEF AS OF THE DATE OF THIS DISCLOSURE STATEMENT, GIVEN ONE OR MORE HYPOTHETICAL ASSUMPTIONS, EACH DEBTOR ENTITY'S EXPECTED FINANCIAL POSITION, RESULTS OF OPERATIONS, AND CHANGES IN FINANCIAL POSITION OVER CERTAIN PROJECTED TIME PERIODS. A FINANCIAL PROJECTION IS SOMETIMES PREPARED TO PRESENT FOR EVALUATION ONE OR MORE HYPOTHETICAL COURSES OF ACTION IN LIGHT OF DIFFERENT SETS OF VARIABLES. A FINANCIAL PROJECTION IS BASED ON THE RESPONSIBLE PARTY'S ASSUMPTIONS REFLECTING RESULTS IT EXPECTS WOULD OCCUR, GIVEN ONE OR MORE HYPOTHETICAL CONDITIONS. A PROJECTION MAY CONTAIN A RANGE OF POSSIBLE OUTCOMES THAT COULD OCCUR UNDER A SET OF GIVEN ASSUMPTIONS AND VARIABLES.


WHILE EVERY EFFORT HAS BEEN MADE TO ENSURE THAT THE

ASSUMPTIONS ARE VALID AND THAT THE PROJECTIONS ARE AS ACCURATE AS CAN BE MADE UNDER THE CIRCUMSTANCES, THE DEBTORS CANNOT UNDERTAKE TO CERTIFY OR WARRANT THE ABSOLUTE ACCURACY OF THE FINANCIAL PROJECTIONS.

III. INQUIRIES.

Inquiries by holders of Claims or Interests or other parties in interest in these chapter 11 cases may be directed to counsel for the Debtors, Christopher D. Loizides, Esquire, Loizides, P.A., 1225 King Street, Wilmington, DE 19801, (302) 654-0248 (telephone) and (302) 654-0728 (facsimile); or to Robert L. Renck, Jr., Industrial Enterprises of America, 116 West 23rd Street, 5th Floor, New York, NY 10011, (212) 851-8434 (telephone) and [email protected] (e-mail).

TREATMENT AND ESTIMATED DISTRIBUTIONS UNDER THE PLAN

The chart below summarizes the treatment of each class of claims and of unclassified

claims under the Plan. Please note, however:

The chart is only a general summary and the actual treatment of each class and of unclassified claims is governed by the terms and provisions of the Plan.

The estimated allowed amounts in each category and the estimated percentage recoveries are merely estimates. The actual amounts may vary considerable from these estimates.

Debtors reserve the right, at any time provided for pursuant to bankruptcy law, to

object to any proof of claim which exceeds the amounts scheduled, in order to provide a conservative picture, the Debtor has estimated the approximate amount of total general unsecured claims to equal proximately $11,219,388.

CLASS TREATMENT ESTIMATED

ALLOWED AMOUNT

ESTIMATED PERCENTAGE

RECOVERY Unclassified DIP Loan Claims (Non-Voting)

Pursuant to the DIP Loan Settlement, on or before the Effective Date, each holder of an Allowed DIP Loan Claim shall receive in full satisfaction, settlement, release and discharge of, and in exchange for, its Allowed DIP Loan Claim an amount of Preferred A Shares of Reorganized IEAM (the “Preferred A Shares”) equal to one (1) Preferred A Share for each one dollar ($1.00) of Allowed DIP Loan Claims. Each

$1,800,000.00 100%


Preferred A Share shall accrue interest at a rate of seven percent (7%) per annum from the Effective Date until payment, and such interest shall accrue and shall only be payable upon payment via the liquidation preference outlined in the succeeding sentence. The Preferred A Shares shall have a liquidation preference equal to one dollar ($1.00) for each Preferred A Share plus all interest accrued thereon from the Effective Date through the date of payment. The Preferred A Shares shall have a liquidation preference over the Preferred B Shares of Reorganized IEAM (the “Preferred B Shares”), the Preferred C Shares of Reorganized IEAM (the “Preferred C Shares”) and any newly issued Common Stock. The Preferred A Shares may be convertible to additional shares of New Common B Stock of Reorganized IEAM (the “New Common B Stock”) (at a conversion rate equal to 30 million Shares of New B Common Stock divided by the aggregate amount of issued Preferred A Shares) at any time upon the sole discretion of the holder of the Series A Preferred Stock.

Unclassified Administrative Claims (Non-Voting)

Except to the extent that an Allowed Administrative Claim has been paid prior to the Effective Date, each holder of an Allowed Administrative Claim shall receive payment of the amount of such Allowed Administrative Claim in Cash on the Effective Date, or as soon as reasonably practicable thereafter, or immediately after entry of an order approving an application therefor if after the Effective Date, in full satisfaction, settlement, release and discharge of, and in exchange for, such Allowed Administrative Claim.

$205,000.00 100%

Unclassified Priority Tax Claims (Non-Voting)

Except to the extent that an Allowed Priority Tax Claim has been paid prior to the Effective Date, each holder of an Allowed Priority Tax Claim shall receive in full satisfaction, settlement, release and discharge of, and in exchange for, such Allowed Priority Tax Claim, equal monthly payments over a period of five (5) years from the Effective Date in an

$385,968.00 100%


aggregate principal amount equal to the face amount of such Allowed Priority Tax Claim, with interest on the unpaid portion thereof at the rate of interest determined under applicable nonbankruptcy law as of the calendar month in which the Plan is confirmed.

Class A Non-Tax Priority Claims (Unimpaired, Non-Voting)

Except to the extent that an Allowed Non-Tax Priority Claim has been paid prior to the Effective Date, each holder of an Allowed Non-Tax Priority Claim shall receive in full satisfaction, settlement, release and discharge of, and in exchange for, such Allowed Non-Tax Priority Claim, payment of the amount of such Non-Tax Priority Claim in Cash on the Effective Date or as soon as reasonably practicable thereafter.

$102,864.00 100%

Class B Convenience Claims (Unimpaired, Non-Voting)

On the Effective Date, or as soon as reasonably practicable thereafter, each holder of an Allowed Convenience Claim shall receive in full satisfaction, settlement, release and discharge of, and in exchange for, such Allowed Convenience Claim, payment of the amount of such Allowed Convenience Claim in Cash.

$160,000.00 100%

Class C Prepetition Lender Secured Claims (Impaired, Voting)

Pursuant to the terms of the Prepetition Loan Settlement, on the Effective Date, or as soon as reasonably practicable thereafter, the Prepetition Loan Collateral shall be liquidated and all the proceeds thereof shall be remitted to OMTAMMOT, LLC in full satisfaction, settlement, release and discharge of, and in exchange for, the secured portion of the Allowed Prepetition Lender Secured Claims. The Allowed deficiency Claim of OMTAMMOT, LLC shall be treated as a Class D Claim.

$2,200,000.00 47.8%

Class D General Unsecured Claims (Impaired, Voting)

On the Effective Date, or as soon as reasonably practicable thereafter, each holder of an Allowed General Unsecured Claim shall receive in full satisfaction, settlement, release and discharge of, and in exchange for, such Allowed General Unsecured Claim:

(i) Cash in an amount equal to the

lesser of (A) two percent (2%) of the

$11,219,388 100%


amount of such Allowed General Unsecured Claim or (B) $200,000.00 to be distributed Pro Rata to the holders of Class D Claims; plus

(ii) an amount of Preferred B Shares

to be issued on a Pro Rata basis equal to the greater of (A) ninety-eight percent (98%) of the amount of such Allowed General Unsecured Claim or (B) the total amount of all Allowed General Unsecured Claims in Class D less $200,000.00. One (1) Preferred B Share shall be issued on account of each one dollar ($1.00) of Allowed General Unsecured Claims. The Preferred B Shares shall not accrue interest or otherwise be convertible. The Preferred B Shares shall have a liquidation preference equal to one dollar ($1.00) for each Preferred B Share. The Preferred B Shares shall have a liquidation preference over the Preferred C Shares and any newly issued Common Stock. When the net cash balances of Reorganized IEAM are equal to or greater than the preference amounts of Preferred A Shares and Preferred B Shares, Reorganized IEAM may in its sole discretion liquidate the Preferred B Shares. In addition, the holders of Preferred B Shares may require Reorganized IEAM to liquidate the Preferred B Shares.

Class E Existing IEAM Interests (Impaired, Voting)

The Existing IEAM Interests shall be deemed cancelled and extinguished as of the Effective Date. On, or as soon as reasonably practicable after the Effective Date, each holder of an Allowed Existing IEAM Interest shall receive its Pro Rata share of 30 million shares of New Common B Stock, to be issued by Reorganized IEAM.

$0.00 100%

Class F Subordinated Claims (Impaired, Voting)

To the extent that monetary damages are assessed against any of the Debtors arising from any claim for damages for the purchase or sale of any securities of any of the Debtors, and to the extent such damages are not paid by any insurance, in accordance with the provisions of 510(b) of the Code, such monetary damages shall treated by the issuance of Preferred C

$0.00 100%


Shares. One (1) Preferred C Share shall be issued on account of each one dollar ($1.00) of Allowed Subordinated Claims. The Preferred C Shares will not accrue interest or otherwise be convertible; however, the Preferred C Shares shall have a liquidation preference over New Common Shares of Reorganized IEAM.

Class G Non-IEAM Interests (Impaired)

All Non-IEAM Interests shall be deemed cancelled and extinguished as of the Effective Date, and the holders of all Non-IEAM Interests shall not receive or retain any property or interest in property under the Plan on account of such Non-IEAM Interests.

n/a 0%

IV. THE DEBTORS. The current management of IEAM first became affiliated with the company’s

subsidiaries on September 12, 2008. Management’s access to corporate records of the parent, IEAM, has been limited as a result of the refusal of certain members of prior management to turn over books and records. Management is relying on public filings previously made with the United States Securities and Exchange Commission and records that they have been given access to or obtained by a document request through the use of the turnover motion in the Bankruptcy Court. As such, certain disclosures may be subject to revision and current management cannot be certain if they have received all of IEAM’s records.

A. Pre-Petition Background and History. IEAM’s organizational history was last described in a Form 10-KSB Amendment 1-FY

2006, Filed December 28, 2007. That document disclosed the following:

• IEAM originally operated as a holding company with four (4) wholly owned subsidiaries, Pitt Penn Holding Inc., a Delaware corporation ("PPH"), EMC Packaging, Inc., a Delaware corporation ("EMC"), Unifide Industries Limited Liability Company, a New Jersey limited liability company ("Unifide"), and Todays Way Manufacturing, LLC, a New Jersey limited liability company ("Todays Way").

• PPH, through its wholly owned subsidiary Pitt Penn Oil Co., LLC, an Ohio

limited liability company (“Pitt Penn”), was a leading manufacturer, marketer and seller of automotive chemicals and additives.


• EMC’s original business consisted of converting hydrofluorocarbon gases (“HFC”) R134a and R152a into branded private label refrigerant and propellant products.

• Unifide was a leading marketer and seller of automotive chemicals and additives.

• Todays Way manufactured and packaged the products which were sold by Unifide.

B. Background – Formation and Maintenance of Corporate Records. The Company was originally incorporated in the State of Florida on June 14, 1990 as

Mid-Way Medical Diagnostic Center, Inc. ("Mid-Way (Florida)"). Mid-Way (Florida) was initially engaged in the business of seeking to establish and operate medical and diagnostic centers. During 1991, Mid-Way (Florida) abandoned its efforts to engage in such business.

In December 1997, Mid-Way (Florida) effected a reorganization by merging Mid-Way Acquisition Corp. (the “Merger Sub”), a wholly owned Nevada corporation created by Mid-Way (Florida) solely for the purpose of merging with Ciro Jewelry, Inc. ("Ciro Jewelry (Delaware)"), a Delaware corporation. By virtue of the merger, all of the assets, liabilities, and business of Ciro Jewelry (Delaware) became the assets, liabilities, and business of the Merger Sub. As a result of the merger, the Merger Sub changed its name to Ciro Jewelry, Inc. ("Ciro Jewelry"); the then-current sole officer and director resigned as the sole officer and director of both the Company and Ciro Jewelry and simultaneously appointed Murray Wilson as the sole director of each entity.

In December 1997, Mid-Way (Florida) changed its name to Ciro International, Inc. ("Ciro"); at the same time, Ciro merged with Mid-Way Medical and Diagnostic Center, Inc., a Nevada corporation, which was established solely for the purpose of changing the domicile of the Company from the State of Florida to the State of Nevada.

On April 21, 2003, Ciro and Advanced Bio/Chem, Inc., a Texas corporation (“ABC

Texas”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) whereby a wholly owned subsidiary of Ciro, Ciro Acquisition Corp., a Texas corporation (which was inappropriately identified in the Merger Agreement as Advanced Bio/Chem Acquisition Corp.), merged with and into ABC Texas in a tax free exchange of shares at which time ABC Texas became a wholly owned subsidiary of Ciro (the "Merger").

Until June 2003, the Company existed primarily as a holding company, and accordingly, the operations were those of the former operating subsidiary, Ciro Jewelry. Until late 2002, the main source of income derived from the licensing of the “Ciro” name. Effective June 9, 2003, the Company sold all of the issued and outstanding common stock of the wholly owned subsidiary, Ciro Jewelry, to Merchant’s T&F, Inc. (“MT&F”). Following December 2002, Ciro Jewelry became a “shell” corporation with no defined business purpose and began the process of searching for a new line of business or a merger candidate.


In May 2004, the Company entered into an Asset Purchase Agreement (the “Power3 Agreement”) with Power3 Medical Products, Inc., a New York corporation ("Power3"), Steven B. Rash and Ira Goldknopf (collectively, the "Shareholders") (the "Power3 Sale"). According to the Company’s records, the sale to Power3 was approved by the shareholders voting by proxy.

The company’s name was changed to IEAM.

The corporate records of IEAM, the parent, had allegedly been maintained in at least two locations, its former New York headquarters at 711 Third Avenue, New York, NY and at the law offices of Margulies and Levinson LLP, 30100 Chagrin Blvd., Suite 250, Pepper Pike, OH 44124. Upon the February 2008 resignation of John D. Mazzuto, president and chief financial officer, the records held at the New York office were packed and sent to the attention of R. Daniel Redmond, President, PPO and Executive Vice President, IEAM.

With the departure of John D. Mazzuto in February 2008, IEAM’s functional corporate headquarters shifted to the offices of Margulies and Levinson, 30100 Chagrin Blvd., Suite 250, Pepper Pike OH 44124. At least two employees of IEAM and/or its subs have been domiciled at that location. They included James W. Margulies and Steven W. Berger.

Upon investigation and review it appears that the vast majority of the corporate records may have been under the custody and control of James W. Margulies, Esquire, who has acted in various capacities at IEAM. His role was multifaceted. At one time or another, he acted as an attorney for MC Industrial (FKA New Jersey Acquisition Corp.) a shell corporation which had announced that it had reached an agreement to acquire EMC packaging which was subsequently acquired by IEAM in October 2004. Mr. Margulies was engaged as outside counsel to IEAM, became its CFO before resigning from that position on December 4, 2006. During the period December 2006 through July 2007, Mr. Margulies was named and received salary compensation from PPO in return for his services as head of IEAM’s legal department. Mr. Margulies rejoined IEAM as CEO and CFO and a director in February 2008 as noted in the Company’s 8-K.

On March 6, 2009, the Company received a conditional resignation as its chief executive officer, James W. Margulies, to be effective March 9, 2009. On March 9, 2009, the Company’s Board of Directors accepted the resignation of Mr. Margulies as a director, chief executive officer and chief financial officer. The resignation letter did not indicate any disagreement with the company’s operations, policies or practices. Mr. Margulies offered to continue to assist the Company in the completion of the June 2007 filing on Form 10-K, if requested.

As a result of Mr. Margulies’s various and ever-changing relationships with IEAM and its former management and Board he appears to have been the custodian of the vast majority of the parent company’s official corporate records, minutes, correspondence with regulators, transfer agent, and D&O carrier, among others. He has also been the primary signatory on the largest of the Company’s checking accounts. In his various capacities, Mr. Margulies and Mr. Mazzuto were the two primary interfaces with IEAM’s outside auditors and various sub-contractors of accounting services to the parent corporation.


C. Acquisitions. In October 2004, the Company purchased all of the issued and outstanding capital stock

of EMC (the "EMC Shares") from the then holders of the EMC Shares. EMC became the Company’s wholly owned subsidiary on the effective date of that purchase.

Effective June 30, 2005, the Company acquired 100% ownership of Unifide, which was a leading marketer and seller of automotive chemicals and additives for an aggregate consideration of approximately $3.1 million in cash, notes and stock, and Today’s Way, which manufactured and packaged the products which were sold by Unifide, for an aggregate consideration of approximately $950,000 in cash, notes and stock. As a result of these acquisitions, Unifide and Today’s Way became the Company’s wholly owned subsidiaries as of July 17, 2005.

On January 31, 2006, pursuant to a Membership Interest Purchase Agreement dated January 17, 2006 (the “Pitt Penn Agreement”), the Company purchased one hundred percent (100%) of the membership interests of the Pitt Penn Group (as hereinafter defined), a supplier of automotive and chemical products based outside of Pittsburgh, Pennsylvania. Pursuant to the Pitt Penn Agreement, the Company acquired the Pitt Penn Group through the purchase of all of the issued and outstanding membership interests of Spinwell. Spinwell, in turn, owned all of the issued and outstanding membership interests of (1) Pitt Penn, and (2) Pitt Penn Oil DISC Company, a Delaware corporation, (together, the "Pitt Penn Group") for an aggregate consideration of $4,000,000 subject to adjustment as provided in the Pitt Penn Agreement. As a result of this acquisition, Spinwell became the Company’s wholly owned subsidiary on January 31, 2006.

On May 12, 2006, the Company sold Springdale Specialty Plastics, Inc., a subsidiary of Pitt Penn (" Springdale ") pursuant to an Asset Purchase Agreement with Fortco Pittsburgh, LLC ("Fortco"). Pursuant to the Asset Purchase Agreement, the Company sold all right, title and interest in and to the property and assets, real, personal or mixed, of every kind and description, which relate solely to the business of Springdale to Fortco for an aggregate amount of two million five hundred thousand dollars ($2,500,000.00), subject to adjustment as provided in the Asset Purchase Agreement. The terms of the Asset Purchase Agreement were determined by arms-length negotiations between the parties.

D. Private Placements- July 2005 through March 2006. On December 28, 2007 the former management of IEAM filed Form 10-KSB,

Amendment Number 1 for the fiscal year ending June 2006. In that document prior management identified three private placements. Unless otherwise noted, Debtors are relying on that document for information disclosed with respect to private placements.

July 2005 Private Placement


IEAM reported that it entered into a subscription agreement as of July 19, 2005. Pursuant to that subscription agreement, certain investors purchased securities, in a private placement pursuant to Rule 506 of Regulation D under the Securities Act of 1933, as amended (the "Securities Act"). They included (1) notes convertible into shares of IEAM’s common stock, as well as (2) five-year warrants to purchase an aggregate of 1,270,833 (post-split) shares of IEAM’s common stock (excluding finder’s warrants described below), for an aggregate purchase price of $2,500,000, with $1,500,000 of that purchase price paid on July 19, 2005, the initial closing date, and the remaining $1,000,000 paid on November 2, 2005, the second closing date. JG Capital, Inc. ("JG Capital") acted as the finder in connection with the July 2005 private placement

Pursuant to the subscription agreement, IEAM was required to file with the Securities and

Exchange Commission (the "SEC"), within 30 days of the closing of the July 2005 private placement, a registration statement which registers the resale of all shares of its common stock underlying the convertible notes and the warrants issued or issuable by IEAM to the investors in the July 2005 private placement. IEAM did not comply with those obligations.

The company paid an aggregate of $278,995.27 representing accrued interest and

liquidated damages to the investors in the July 2005 private placement pursuant to a modification, amendment and waiver agreement, dated as of March 8, 2006. The Company concluded with such investors as part of the March 2006 private placement as described below under “—March 2006 Private Placements— Modification, Amendment and Waiver Agreement.” Debtors continued to incur liquidated damages to these investors until they filed the resale registration statement on May 31, 2006.

January 2006 Private Placement

IEAM entered into a securities purchase agreement dated as of January 27, 2006 with

JLF Asset Management, LLC and the three funds it manages, JLF Offshore Fund, Ltd., JLF Partners I, L.P., and JLF Partners II, L.P. (together, “JLF” or the “JLF entities”), pursuant to which the three JLF entities purchased from IEAM, in a private placement pursuant to Rule 506 of Regulation D under the Securities Act, (1) debentures convertible into shares of IEAM common stock, as well as (2) Class A warrants to purchase an aggregate of 1,064,166 (post split) shares of IEAM common stock, and (3) Class B warrants to purchase an aggregate of 1,713,611 (post split) shares of IEAM common stock, for an aggregate purchase price of $5,000,000.

Pursuant to the January 2006 purchase agreement, IEAM agreed to file with the

Commission, within 60 business days of the closing of that offering, a registration statement which registers the resale of all shares of IEAM common stock underlying the convertible debentures and the warrants issued or issuable by IEAM to the JLF entities. IEAM did not comply with those obligations. IEAM filed the registration statement on May 31, 2006.

March 2006 Private Placements

IEAM reported that it entered into a securities purchase agreement dated as of March 8,

2006 with certain investors pursuant to which those investors purchased securities, in a private


placement pursuant to Rule 506 of Regulation D under the Securities Act, (1) debentures convertible into shares of IEAM common stock, as well as (2) Class A warrants to purchase an aggregate of 402,778 (post split) shares of IEAM common stock, and (3) Class B warrants to purchase 402,778 (post split), shares of IEAM common stock, for an aggregate purchase price of $1,450,000.

In addition, also effective March 8, 2006, IEAM entered into a separate securities

purchase agreement (together with the abovementioned securities purchase agreement, the “March 2006 purchase agreements”) with Truk International Fund, LP and Truk Opportunity Fund, LLC (together, “Truk”), pursuant to which these investors purchased from IEAM, in a separate private placement pursuant to Rule 506 of Regulation D under the Securities Act, (1) debentures convertible into shares of IEAM common stock, as well as (2) Class A warrants to purchase an aggregate of 138,888 (post split) shares of IEAM common stock, and (3) Class B warrants to purchase an aggregate of 138,888 (post split) shares of IEAM common stock, for an aggregate purchase price of $500,000.

The Class A warrants IEAM issued in the March 2006 private placement had the exercise

price of $3.40 per share, and the Class B warrants have the exercise price of $3.40 per share. Each of the Class A and Class B warrants will expire on the third anniversary of their issuance date, and can be exercised at any time during such period. The warrants we issued to the investors in the March 2006 private placements are not subject to cashless exercise. As previously noted, management is relying on information contained in a filing made by former management of IEAM in Form 10-KSB, Amendment Number 1 for the fiscal year ending June 2006, filed on December 28, 2007. That document was silent with respect to the exercise of the warrants. Current management is still reviewing these transactions. Any of such warrants which have not been exercised have expired.

Pursuant to the March 2006 purchase agreements, IEAM agreed to file with the SEC,

within 60 business days of the closing dates of those offerings, a registration statement which registers the resale of all shares of our common stock underlying the convertible debentures and the warrants issued or issuable by IEAM to the investors in the March 2006 private placements. IEAM did not comply with those obligations. IEAM filed the registration statement on May 31, 2006.

E. John D. Mazzuto’s Personal Bankruptcy is Disclosed to the Board. In March 2006, the members of the Board of Directors of IEAM, were sent certified

letters by the former CEO of Advanced Biochem, Crawford Shaw. Among other things, those letters notified the company that John Mazzuto’s 2002 bankruptcy which was filed in the U.S. Bankruptcy Court Southern District of New York (SDNY), Case 02-15586-rdd, had not been disclosed and needed to be disclosed in SEC filings.

• Mr. Shaw used an action against IEAM in Texas as the vehicle by which he sued for payment under his employment contract.


• In conjunction with this lawsuit, Mr. Mazzuto was deposed in District Court Harris County on July 12, 2006. His statements under oath are not reflected in SEC filings.

• Mr. Mazzuto’s prior business history including various failed business

ventures, board seats and directorships and his ongoing personal bankruptcy were never disclosed1.

On May 31, 2006 the Company filed a Form SB2 which is a securities registration for

small business. This registration statement is relevant. Despite the March 2006 written notice to directors, IEAM continued to omit material facts. Specifically, this filing failed to disclose Mr. Mazzuto’s bankruptcy, and the bankruptcy of George Cannan, Sr. (Chapter 7 Southern District of Florida, Case 01-27073-BKC-RBR, Kenneth A Welt, US Bankruptcy Trustee).

According to U.S. Securities and Exchange Commission, Litigation Release No. 19732 /

June 21, 2006, SEC v. Carl R. Rose, et al., Civil Action No. H-04-CV-2799, the SEC announced that on June 19, 2006, the United States District Court for the Southern District of Texas entered a Final Judgment against Defendant George J. Cannan, Sr., based on his consent.

Cannan, Sr., without admitting or denying the allegations of the complaint, consented to

an order of permanent injunction which permanently restrained and enjoined him from violating, directly or indirectly, the anti-fraud and reporting provisions of the Exchange Act as well as other provisions of the Securities laws, including, Exchange Act Sections 10(b) (and Rule 10b-5 thereunder), 13(a), 13(d)(1) (and Rules 13d-1 and 13d-2 thereunder), 15(a)(1) and 16(a) (and Rule 16a-3 thereunder) and Securities Act Sections 5 and 17(a) and Rule 101 of Regulation M under the Exchange Act. The order also bars Cannan Sr. for five years from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act or that is required to file reports pursuant to Section 15(d). Further, the order requires Cannan, Sr., to pay a civil penalty in the amount of $75,000.

George Cannan, Sr. acted as President and CEO of EMC from the time of its acquisition

on October 7, 2004 until his termination for cause on July 14, 2008. He was one of the five highest paid officers of IEAM and its subsidiaries subsequently reached an agreement with the SEC to refrain from acting as an officer or director of a public company.

Neither the SEC investigation nor the consent order was ever disclosed by IEAM in a public filing. Further, despite a change in the corporate by-laws mandating the filing of a proxy and the holding of an annual meeting, IEAM under the Mazzuto and Margulies management never filed a proxy or held a shareholder meeting.

F. Indecent Disclosure: The Use of Press Releases, Investor Meetings, and “Promoters.”

At the heart of the IEAM problems was Mazzuto’s and Margulies’s attempt to portray the

Debtors as a business success. As noted earlier, starting in late-2006, the Company hosted a 1 Baker MacKenzie represented IEAM in this matter.


series of investor meetings designed to portray IEAM as a small but growing company in a mundane business with professional management which was beginning to generate positive cash flow through operating efficiencies and the integration of similar businesses (EMC, Unifide, and PPO).2

In early-December 2006, James Margulies resigned as CFO and moved to the legal

department. John Mazzuto assumed the role and announced the search for a permanent replacement. In March 2007 the company announced that Dennis O’Neill had accepted a position as CFO. Under a potential adversary proceeding in the Bankruptcy Court, Mr. O’Neill’s counsel turned over certain documents including a March 8, 2007 initial agreement and a copy of a May 11, 2007 resignation letter. The March 8, 2007 letter contradicts the Company’s public statements. Points One and Two of that agreement are as follows:

1. All parties agree that the current operations of IEAM are in a “troubled state.”

2. The extent of this condition, if any, is not yet known to the parties.

With these three acquisitions under its belt, IEAM management was now in a position to begin to tell a “story” which might attract investor interest. Company management made a series of presentations in various public forums outlining their strategy of integrating these three businesses on both an operational and financial basis.3

The company with the assistance of David Zazoff of ZA-Consulting began a public

relations campaign to tell the IEAM story. With JLF Asset Management, LLC, a well known money management firm, as a core investor, the company began to craft a series of presentations hosted by brokerage firms. The apparent purpose of these presentations was to promote the merits of IEAM as being an attractive investment opportunity.

The company hosted major presentations as follows:

• September 7, 2006 – Roth Conference • November 8, 2006 – Pacific Growth Conference • March 14, 2007 – B. Riley Conference

Management also began hosting a series of plant tours. The October 25, 2006 investor

package was representative of IEAM’s standard presentation. In addition, beginning in December 2006 the company was distributing a 77-page package telling the IEAM story. The

2 In retrospect, it appears that IEAM may have been insolvent in March 2007 or earlier. In response to a request from the bankruptcy court, Dennis O’Neill’s attorney has turned over 2,000 pages of documents between August 25, 2009 and August 31, 2009. A review of Mr. O’Neill’s correspondence in March 2007 suggests that was known to Mr. Mazzuto and others at that time. 3 While IEAM took some steps to integrate operations, it continued to maintain three separate accounting systems. IEAM, the parent company, kept its books on a Quickbooks accounting system. Pitt Penn Oil used a vibrant, state-of-the art Microsoft Great Plains accounting system. Unifide and Today’s Way accounting were partially, but not completely, integrated into this system. EMC Packaging maintains its accounting on a legacy accounting system.


first seven pages of that package made a number of material misstatements about both the company and Mr. Mazzuto. The last 70 pages consisted of public filings.

IEAM has a June fiscal year. During the period December 4-6, 2006 the company filed a 10-QSB and two amendments for the period ended September 30, 2006. All of those documents indicated that were just over 9.9 million shares outstanding. James Margulies, who acting as the company’s CFO, stepped down from that position as of December 6, 2006 and joined the company’s “legal department.” He continued as a salaried employee in that position until July 31, 2007. Despite the fact that the press release referenced IEAM’s legal department, his salary was paid by PPO without an offset to IEAM. During the period from August 1, 2007 until February 2008 he had an ambiguous role as outside counsel to the audit committee and the board.

Between October 2006 and the Spring of 2007, IEAM had begun to attract the attention

of many sophisticated institutional investors as well as a diverse group of individual investors. The appeal of IEAM was based upon the proposition that a group of entrepreneurs had found a publicly traded shell corporation (IEAM-FKA Advanced Bio Chem) and with the assistance of some outside financing had assembled a portfolio of corporations producing products for the automotive after markets.

In addition, in December 2006, the Company issued a press release which noted that it

had signed a joint venture with Sino Chem to import specialized gas into the United States.4 Further, while dilution was expected from the exercise of warrants and the conversion of various notes, management suggested in various public forums that with all exercises fully diluted shares would fall within a range of 13.0 – 14.0 million shares.

On February 16, 2007, the Company filed Form 10-QSB for the period ended

December 31, 2006. That filing indicated that there were 12.9 million shares outstanding. On April 20, 2007 the company filed Form 8-A12B/A which is a NASDAQ listing application. That form indicated that there were 16.848 million shares outstanding as of April 18, 2007. When questioned about this on a conference call, Mr. Mazzuto suggested that these shares did not reflect the “retirement” of certain shares due to stock purchase. On May 22, 2007 the company filed a 10-QSB for the period ending March 31, 2007. That filing indicated that there were 13.297 million shares outstanding as of May 18, 2007.

An 8-K filing and a subsequent conference call shows that there was a $6.2 million

investment in a joint venture (which was identified as being with the Chinese partner). That filing and conference call also indicated that there was a problem with revenue recognition. That issue has subsequently been identified as a “bill and hold issue.” The issues of revenue recognition and bill and hold are the central elements in a current class action complaint.

4 While SEC regulations require the filing of a report on Form 8-K to disclose “material events,” this press release was among one of at least three press releases discussing a material event which were never filed with the SEC. As we have determined, the information contained in the press release was false. Independent investigation and a Spring 2008 e-mail from George Cannan to Dan Redmond confirm that there never was a joint venture.


On July 12, 2007, the Company issued a press release. That release indicated without elaboration that there were 19.0 million shares outstanding. The press release also went on to indicate that the company had authorized a $25.0 million share repurchase.5

On October 11, 2007, IEAM, along with all of its subsidiaries, entered into a $5.0 million

revolving credit line with Sovereign Bank. Margulies and Levinson provided an opinion letter to Martin Weisberg at Baker McKenzie. Weisberg provided an opinion letter with respect to IEAM to Sovereign Bank. In our subsequent review of the documents submitted to the bank it appears that (1) the backgrounds of the principals were misstated, (2) IEAM was clearly not current in its financial filings with the SEC, (3) other documentation supplied by IEAM may have been false, and (4) IEAM was out of compliance with the terms of the loan when it was made.

On November 7, 2007 the Company issued two press releases. One related to the

suspension of Jorge Yepes, a CFO who had been appointed on September 4, 2007. The second press release made a number of material disclosures relating to (1) a variable interest entity (VIE) in Akron, OH; (2) an increase in a litigation reserve; (3) reversal of bill and hold activities for the December 2006 and March 2007 quarters; (4) the settlement of certain litigation; (5) a share count increased to 26.0 million shares; and (6) a continuation of a stock buyback program, among other items. These disclosures, all of which were material, were never filed with the SEC on Form 8-K.

On January 31, 2008, the Company filed an 8-KA which indicated that on January 15,

2008 Black Nickel had lent IEAM $750,000 at a double digit interest rate and received 75,000 purchase warrants plus 2.0 million shares of IEAM stock increasing the shares outstanding to 28.0 million.6

G. February 2008 - John D. Mazzuto Resigns and James W. Margulies Becomes

CEO and CFO.

On February 5, 2008, James Margulies replaced John Mazzuto as both CEO and CFO. On February 19, 2008 the Company issued a four page press release entitled, “IEAM Provides an Accounting and Operational Update.” That press release discussed (1) the delayed filings, (2) the increase in share count announced in the July 12, 2007 press release, and (3) the company’s financing needs.7

Of particular interest was the caption, “The substantial increase in share count

announced in the July 12, 2007 Press Release was a surprise to investors and to the Board.”

5 Our subsequent review of the record books shows that as of June 30, 2007 the company’s transfer agent suggests that there were approximately 22.9 million shares outstanding. In our limited access to board records, we have found no such approval. Further given the company’s actual cash position at the time, no such program was feasible. 6 The company failed to disclose that on January 15, 2008 it had issued some 500,000 shares of freely trading IEAM shares to Black Nickel under its S-8 registration statement. 7 The February 19, 2008 press release was never filed as part of a Form 8-K.


The notation went on to say, “the vast majority of the increase in the number of shares were properly and rightfully issued on the exercise of convertible debt and warrants thereto; however additional shares appear to have been issued by the former CEO based upon authorization granted to him by the December 2004 Board of Directors….” The Debtors’ subsequent review suggested this was disingenuous at best and an outright fabrication at worst.8

In February 2008, Jim Margulies committed to filing the company 10-K for the period ending June 2007 within several weeks of taking office as CEO and CFO. No such 10-K has yet been filed.

H. April 2008 - Mr. Margulies Discusses the Company’s Cash Requirements With a Number of Significant Investors.

Immediately prior to taking the position of CEO and CFO and, shortly thereafter, Mr.

Margulies, the new CEO and CFO of IEAM, discussed the capital requirements of IEAM on a going-forward basis. The problems facing IEAM were described as a simple liquidity issue. Certain large investors who owned up to 60.0% of the outstanding shares of the Company’s common stock indicated that upon the filing of the 10-K for FY 2007, they were willing to consider a participation in a rights offering to provide $3.0-$5.0 million of common or preferred stock. The condition was that it be open and available to all current stockholders of the Company.

Despite assurances to both the investment community and to the Company’s secured

lender that Mr. Margulies was merely reviewing a 10-K prepared by Mr. Mazzuto, no such 10-K was ever filed. As noted later, the failure to file the June 2007 10-K was a violation of the Company’s loan agreement with Sovereign Bank as well as a violation of the Black Nickel agreement. As a result of the failure to file the 10-K, Mr. Margulies caused IEAM to issue an additional 1.5 million shares to Black Nickel. Further, the failure to file the 10-K was the proximate cause of Sovereign Bank’s decision to freeze the funds in the Company’s bank accounts in October 2008.

On April 7, 2008, Mr. Margulies, Mr. Redmond, Mr. Zazoff and Daniel Boucher met

with institutional investors and others who owned more than 45.0% of the company’s shares outstanding. The purpose of the meeting was to discuss (1) certain financing alternatives, (2) the potential sale of EMC to George Cannan, Sr. and (3) provide an update on the preparation of the 10-K for FY 2007. During the course of that discussion, Mr. Margulies asserted that if IEAM did not receive a cash injection of more than $9.0 million by Friday, April 11, 2008 he would be forced to file “bankruptcy.” He did not specify whether he was contemplating Chapter 11 or Chapter 7 nor did he specify which of the corporate entities he was considering for a bankruptcy alternative.

8 Our review of the share issuance data, as discussed later in this report, shows that the transfer agent received instructions signed by either Mr. Mazzuto or Mr. Margulies to issue shares pursuant to an S-8 filed in February 2005. The S-8 was never made effective. In addition, while the July 12th press release refers to 19.0 million shares outstanding as of the end of June 2007, there were actually 22.9 million shares outstanding.


Subsequent to that meeting the present CEO was contacted by other large shareholders and was asked to propose a solution for reorganization. On April 9, 2008 both Mr. Ward and Mr. Renck agreed to begin reviewing reorganization alternatives. At that juncture Mr. Margulies agreed to provide certain high level information with respect to the operating results of the two major subsidiaries, PPO and EMC. On or about June 30, 2008, the Company agreed to provide more detailed information with respect to the subsidiaries.

On Saturday August 9, 2008, Mr. Margulies and the outside investors agreed on a conceptual approach towards resolving the financial and operational problems faced by IEAM and its subsidiaries. Other members of IEAM’s operating management then became involved in the due diligence process. A review of the subsidiary books and records revealed that PPO was being burdened with excessive salaries including those at parent. The combined staff salaries throughout the organization as of June 30, 2008 were just under $5.0 million. This did not include any stock based compensation or grants to various “consultants” or outside contractors being paid by parent (IEAM). In addition, a review of the internal books and records of the subsidiaries suggested that there was a significant disconnect between reported results and reality.

Despite the problems at IEAM, numerous press releases and presentations suggested that PPO (the major operating entity) was generating positive cash flow during all of 2007. As a result of questions asked during an intensive due diligence review which began on or about June 29, 2008, Mr. Redmond prepared a report which indicated that Pitt Penn Oil had never generated positive cash flow.

I. April 2009 - All Prior Financials, Stock Issuances, and Disclosures Are

Under Review By Current Management. In a Form 8-K filed with the SEC on May 29, 2009, the current management of IEAM

made the following disclosure: Under new management, Debtors have been conducting an ongoing review of the

financial records and the books and records of subsidiaries and parent. As part of this review, the Company has been endeavoring to gather and analyze the books and records from various sources.

To date, the Company’s review has focused upon the intracompany transactions and the issuance of the Company’s securities pursuant to certain agreements between the Company and the subsidiaries and various consultants.

1. The Chaotic State of the Corporate Records Has Created a Major

Problem for New Management. IEAM is a holding company incorporated in the State of Nevada, with four direct

subsidiaries, EMC, Today’s Way, Unifide, and PPH. IEAM is the sole owner of PPO as a result of its 100% ownership of PPH. PPO, with annual revenues of approximately $25 Million at the time of its acquisition in January 2006, became the main operating subsidiary of the IEAM


Group. The operational activities of Today’s Way and Unifide had been effectively absorbed into PPO by December 2006. IEAM had indicated that they were “consolidated.”

By January 2007 Pitt Penn Oil was paying for the obligations of PPO, Today’s Way and

Unifide. In February and May 2007, IEAM acquired the assets of Fire 1st Defense LLC (“FFD”) and High-Tach respectively. High-Tach was absorbed into PPO.

While relatively small in comparison, at $3 Million in average annual revenues, EMC

remained the only subsidiary with its own payroll and operations. While both the FFD and Hi-Tach acquisitions were asset purchases, FFD was by all appearances managed from EMC. The assets of FFD were owned by IEAM. They were physically transferred to EMC. George Cannan, in his role as President of EMC Packaging, incorporated FFD as a “C” corporation in the State of Delaware. A separate checking account was set up and certain revenues were run through that account. This entity was never recorded on the books of either IEAM or EMC.

By 2006, IEAM, as the parent company, had no employees. The burden of payroll

disbursements, as well as the obligations of Today’s Way and Unifide previously mentioned, were pushed down to PPO.

Functionally, IEAM typically only appears to have had two or three officers at any given

time. From the period December 2006 through February 2008, John Mazzuto was the CEO/CFO at which time he resigned and was replaced on an interim basis by James Margulies. Mr. Margulies, over the period 2005 to July 2007, held various roles including CFO and Secretary. During that period he was paid as an employee of PPO. Robert Dan Redmond served as Executive VP and President of IEAM during his tenure. Dennis F. O’Neill served as CFO as did his replacement Jorge Yepes. All of those individuals received their compensation from PPO.

Mr. Margulies continued to be actively engaged with the company on legal and

accounting matters until he assumed the CEO/CFO role in February 2008. In fact, the accounting records indicate that even after he stepped down as CFO in December 2006 he appeared to be actively engaged along with Mr. Mazzuto, in the preparation of IEAM’s internal financial records. The National City Bank checkbook was maintained in Cleveland Ohio at his office during that time.

Rather than consolidate IEAM financial operations at PPO, where the bulk of the staff

and the most robust accounting system resided, IEAM used paid professionals to fulfill other roles, primarily accounting. Both Dennis O’Neill and Jorge Yepes, CFOs of IEAM maintained offices at PPO. Debtors do not know what access, if any they had to IEAM parent records or checkbooks.

The overall corporate organizational structure of IEAM and its subsidiaries is

unremarkable. What is remarkable is the lack of organizational oversight previously provided by IEAM. Each direct subsidiary of IEAM was wholly owned. PPO, the sole exception, was effectively structured in the same manner as it is the wholly owned subsidiary of PPH. Under this structure, it is the holding company’s responsibility to direct accounting policy and procedures of the subsidiaries and to consolidate the entities for reporting purposes. Much of


this is facilitated through the holding company’s Board of Directors Audit Committee. The Audit Committee engages an audit firm (external auditor) to perform an audit of the annual financial statements. It is through the audit that assurance is given to the Board of Directors, Investors, and management that reliance can be place upon the Company’s financial statements.

Under the Sarbanes Oxley Act of 2002, the external auditor only provides assurance relative to the financial statements filed with the SEC; management is not permitted to place any reliance on their work. To the contrary, management must have a system of internal control that is sufficient without auditor reliance.

2. State of IEAM Accounting Books and Records.

IEAM’s accounting books and records have been maintained on QuickBooks by John

Mazzuto and James Margulies with the assistance of third party paid professionals. The records indicate they included David Selmon until March 2007; Tracie Matsuo, Selmon’s eventual replacement, was initially engaged in late 2006 to assist with the completion of the 10Q for the quarter ending December 31, 2006 and again for March 31, 2007. Ms. Matsuo was then employed under a consulting agreement by John Mazzuto. This relationship was maintained by James Margulies, through March 2009. Prior to the arrangement with paid professionals, the company appears to have relied upon Ilene Engelberg. Ms. Engelberg was originally the CFO of EMC Packaging, a subsidiary of IEAM through its acquisition in 2004. As disclosed in an 8K in December 2004, Ms. Engelberg was named Assistant Controller and Dennis O’Neill Controller.

Ms. Matsuo did not provide monthly accounting services, instead would periodically

make necessary accounting entries or adjustments, dependent upon documentation provided by IEAM. Until September 2008, Mr. Mazzuto, and subsequently Mr. Margulies were the sole contact points for Ms. Matsuo. Michael Dignazio joined Pitt Penn Oil Company as Corporate Controller on October 17, 2007 and had limited interface with Ms. Matsuo and the company’s auditor, DeJoya Griffith & Co., LLC. His interaction was limited to those matters that affected the subsidiaries.

August 2008: Outside Accountant Requests Clarification of Certain Transactions.

On August 25, 2008, Mr. Dignazio (at that time the corporate controller of PPO) received

an email request from Tracie Matsuo regarding intercompany transactions on the parent company books that could not be reconciled (other than several brief phone calls, this was the first email Mr. Dignazio received since January 25, 2008). Mr. Dignazio prepared an analysis of the intercompany transactions, noting the schedule Ms. Matsuo provided reflected transactions, specifically cash transactions related to wire transfers that were not recorded on the books and records of the subsidiaries. On August 28, 2008, Mr. Dignazio emailed Mr. Margulies in regards to the intercompany accounts, identifying for him beginning balance differences between the books and records of IEAM and its subsidiaries. Mr. Dignazio stated in the email that entries will need to be made on both the parent and subsidiary accounting records to properly reflect previously unrecorded transactions that Mr. Dignazio identified. Mr. Dignazio noted that we would need to document the reason for the transactions with supporting documentation.

September 2008 New Management Assumes Positions at Pitt Penn Holding, et al.


Effective September 12, 2008, as disclosed in an 8K filed at the time, Robert Renck was

named President and CEO of PPH and John Ward was named Chairman of the Board of Directors, which was also newly installed at PPH. Michael Dignazio was promoted to Vice President of Finance of PPH and made Corporate Secretary of IEAM.

September 2008: New Management Begins Review of All Accounting Systems.

Preliminary due diligence began April 8, 2008; an accelerated due diligence process

began on June 30, 2008. In trying to determine a proforma set of financials for all subsidiaries, it was determined that despite public statements to the contrary, EMC records were still being maintained on a legacy accounting system and their specific financial closing was only performed quarterly. Further, new management also requested due diligence be performed on the state of the company’s IT systems.

EMC results were accounted for on a legacy “Novell” network based system. The

stability of this system has been greatly compromised since June 2008; accounting data has been extracted through system reports and is in the process of being transferred into Great Plains. EMC production was similarly suspended in September 2008 with only limited production runs until December 2008. Beginning in September 2008, we began an implementation process to integrate EMC into the Great Plains accounting system. October 2008: Current Management Finally Sees National City Bank Statements for IEAM: More Questions Than Answers.

In response to repeated requests, current management finally received bank statement

information on October 22, 2008 that covered the period June 2006 through August 2008 from Steve Berger9 in his capacity as corporate counsel reporting to James Margulies. The bank statements were from National City Bank in Cleveland Ohio. Those statements provided additional evidence that wire transfers occurred, however the statements did not provide any detail and were not adequate support. At the time and since these transactions were identified, we have requested the wire documentation from Mr. Margulies and to date have not received them. March 2009: A Significant Account at Wachovia is Discovered.

Mr. Margulies informed us that the account with National City was the primary checking

account for IEAM. Mr. Margulies noted in a conversation that IEAM had a money market account at Wachovia. It was stated that the account had limited activity and balance, and that it

9 Steve Berger had been an employee of Margulies Law, Mr. Berger participated in Sovereign Loan note. On or about November 2007, Mr. Berger became an employee of PPO and was nominally named General Counsel to IEAM. Mr. Berger worked out of the law offices of Margulies Law in Cleveland, Ohio. From September 12, 2008 until September 18, 2008, Mr. Berger reported to Robert Renck. At this point, Mr. Margulies recommended that Mr. Berger work under his direction to gather documents for the preparation of the 10K for the year ending June 30, 2007. As of October 31, 2008, Mr. Berger was terminated from his employment. Because of the use of the [email protected] email, it appears that some outsiders may have thought they were dealing with an outside general counsel for both IEAM and PPH.


was primarily used by John Mazzuto as a source of cash for personal and travel expenses. In late March 2009 Mr. Renck uncovered the existence of a second account with Wachovia. April 2009: The Wachovia Statements are Reviewed and Analyzed.

It appears that during the period December 2006 through the balance of 2007, that

account was a major recipient and dispenser of funds for IEAM. In one month alone, there were $5.0 million of transfers in and out of this account. Many of these transactions appeared to have had questionable business purposes. This appeared to be a prima facie indication of possible wire fraud. IEAM QuickBooks Notations Not Readily Supported by Documentation.

Since December 2007, Mr. Dignazio made requests for documents to former company

management for the purposes of properly identifying and supporting material transactions on the books and records of IEAM and its subsidiaries. Those requests, beginning with a list provided by the auditors to John Mazzuto in December 2007, went largely unfulfilled and left open the status of the audit for the fiscal year ending June 30, 2007. As of October 2008 those requests were largely unfulfilled.

3. Class Action Lawsuit and SEC Inquiries Result in the Formation of a Governance Committee – October 2008.

On October 19, 2007, the Company’s outside general counsel, Martin Weisberg, was

indicted on matters unrelated to IEAM or his then current employer. On November 7, 2007 IEAM made two announcements. One related to its then current CEO, Jorge Yepes. A second indicated that as of November 7, 2007 IEAM now had 26.0 million shares outstanding and was investigating certain bill and hold activities.

Subsequent to the November 7, 2007 announcement a class action suit was filed against the company, its officers, directors, and certain individual defendants.10

Subsequent to IEAM’s failure to answer the class action suit in New York State Court, the Company’s D&O insurance carrier, ACE-INA, secured Alston & Byrd to defend the company in that action. In June 2008, Alston & Byrd resigned its representation purportedly due to an irreconcilable conflict. As a result of that resignation, both James W. Margulies and Dennis O’Neill (a former CFO) were given independent representation paid for by the D&O carrier. ACE-INA chose Cozen O’Connor to replace Alston & Byrd to as company counsel in defense of this action. At that juncture the Board of Directors consisted of Robert Casper (Chairman of the Board and Head of the Audit Committee), James W. Margulies (CEO and CFO) and Jerome Davis (an Independent director). Prior to November 2008, the only correspondence between new counsel, Cozen O’Connor, and the company was through Steven W. Berger, Esquire who reported directly to Mr. Margulies, and was domiciled at the offices of Margulies and Levinson. 10 As disclosed in the Company’s May 29, 2009 8-K filed with the SEC, the SEC began an informal investigation.


As disclosed in a September 18, 2008 8-K filed with the SEC, John Ward and Robert L. Renck, Jr. became directors of PPH. Mr. Renck became President and CEO of PPH. Mr. Ward’s role was to assist in the negotiations with PPH’s major lender, Sovereign Bank. Mr. Renck’s role was to evaluate, restructure and streamline PPH’s operations.

There were several pre-conditions to Mr. Ward and Mr. Renck joining the subsidiary Board:

• Mr. Margulies had represented in public filings with the SEC agreements with the company’s lender and to Mr. Ward and Mr. Renck that IEAM’s 2007 10-K for the year ended June 2007 would be filed on or before October 31, 2008.

• Upon the filing of that 10-K, Mr. Ward and Mr. Renck agreed to consider becoming members of parent Board and providing transition management as Mr. Margulies returned to the practice of law. It was left open whether Mr. Margulies would continue and complete the delinquent filings for FY 2008 and the first two quarters of FY 2009. The last due date for the December 2008 10-Q would be February 15, 2009.

• There were three additional pre-conditions to Mr. Ward and Mr. Renck’s

acceptance of positions. They included:

(1) the termination for cause of R. Daniel Redmond as President of IEAM,

(2) the voluntary resignation of Robert W. Casper as a director, and (3) the formation of an independent Corporate Governance Committee at

parent The purpose of the Corporate Governance Committee was to provide a formal vehicle for

(1) Mr. Renck to review and examine parent company books and records, (2) review inter-company transactions, (3) evaluate the company’s response to the class action and (4) to provide a vehicle for Mr. Ward and Mr. Renck to have unfettered communication with the sole independent director Jerome W. Davis.

Under the auspices of the Governance Committee, current management began reviewing

corporate records. As part of that process they made repeated requests to Mr. Margulies for IEAM documents.

Mr. Margulies was extraordinarily selective in his response to the Governance Committee

for documents. Even after his resignation as a director, CEO and CFO of IEAM, was accepted on March 23, 2009 by Jerome W. Davis, Mr. Margulies has delayed in returning the company’s original records. Based upon a November 5, 2009 order of the Federal Bankruptcy Court, Mr. Margulies did turn over some 160,000 Bates Stamped copies of certain records.


While the turn-over motion called for the return of the Company’s original books and records, not copies. Mr. Margulies failed to return the Company’s original Quick Books files and the supporting documentation which contained the financial reports of the parent company. After filing a contempt motion, counsel for Mr. Margulies did provide copies of certain Quick Books files. However, the files provided contained no entries after March 31, 2007. Tracie Matsuo, of TKM Accounting, supplied Debtors with a copy of IEAM QuickBooks files covering the period October 2004 through June 30, 2007. These files were a copy of files maintained by James W. Margulies and had been provided to her for the purpose of producing a financial statement for June 30, 2007 10-K.

4. Capital Structure.

The present members of PPH management first began to have limited access to the underlying books and records of PPO beginning April 9, 2008. Extensive and exhaustive due diligence began on June 27, 2008. By mid-July 2008 it was apparent that PPO was an extraordinarily troubled company.

PPO, which had been purchased as of January 2006, had its operations merged with

Unifide and Today’s Way as of that date. Starting in or about January 2007, then current management of PPO changed the underlying chart of accounts and the inventory cost methodology making operational cost comparisons difficult at best.

Those fundamental changes have left a discontinuous accounting for operational data.

This has been compounded by a series of inter-company transactions with parent and a sister company, EMC. Despite recommendations from a forensic accounting consulting group brought in by the audit committee of the parent in or about September 2007, any and all recommendations to consolidate all of the related accounting systems have been rejected or ignored. The only recommendation that was accepted was the hiring of a new controller and assistant controller in mid-October 2007.

Public filings, conference call transcripts and press releases suggested a relatively high

level of profitability at parent virtually all of which was publicly attributed to its major operating asset PPO. Without going into detail it was suggested that adjusted EBITDA (ex-Capex) for each of three quarters ended March 2007 was running around $4.0 million per quarter. It was further suggested that the company had or would implement operating efficiencies that would result in annual cost reductions of $4.5 million.

Debtors’ preliminary review which concluded prior to taking present positions on

September 12, 2008, suggested that neither the $4.0 million per quarter EBITDA nor the $4.5 million operating cost reduction could be attributed to either parent or, more importantly, PPO the major operating asset where they were alleged to have occurred.

IEAM last reported its capital structure as of March 31, 2007 on a consolidated basis on

a Form 10-Q filed May 22, 2007.


The aforementioned balance sheet was presented on a consolidated basis. Current

management of IEAM has requested, but not received, supporting documents which would allow it to reconcile the inter-company financials. However, it does have IEAM QuickBooks files. Those parent company financials for the same period are as follows:

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


ASSETSCurrent Assets

Total Checking/Savings 1,299,315.96

Other Current AssetsRestricted Cash 500,000.00Total Accrued Interest Receivable 50,221.43

Due From (To)Margulies & Levinson IOLTA Acct 258,166.28

Total Due From (To) 258,166.28

Notes ReceivablePackaged Air Products, Inc. 30,000.00Brooke Capital LLC 250,000.00Nick Torrens 250,000.00

Total Notes Receivable 530,000.00

Prepaid ExpensesConsultant Fees 4,359,161.70Insurance 15,195.37

Total Prepaid Expenses 4,374,357.07

Total Other Current Assets 5,712,744.78

Total Current Assets 7,012,060.74

Fixed AssetsTotal Furniture, Fixtures & Equipment 146,292.75

Total Fixed Assets 146,292.75

Other AssetsGoodwill 1,371,380.00Debt Issuance Costs, unamort 155,504.34Investments

China J.V. 6,262,156.50Total Davison Warehouse 942,335.05

EMC Packaging 2,723,805.69First Defense, Inc. 1,238,044.82Total Power 3 Medical - Cost 1,080,426.00

Spinwell Holding Co., LLC 12,532,933.04Today's Way 950,000.00Unifide Industries, LLC 3,217,974.92

Total Investments 28,947,676.02

Total Other Assets 30,474,560.36

TOTAL ASSETS 37,632,913.85

Industrial Enterprises Of America, IncBalance Sheet

As of March 31, 2007


LIABILITIES & EQUITYLiabilities

Current LiabilitiesOther Current Liabilities

Current Notes PayableTotal Related Parties 360,007.69

Total Current Notes Payable 360,007.69

Due ToTotal Related Party 80,402.64

Total Due To 80,402.64

Total Other Current Liabilities 440,410.33

Total Current Liabilities 440,410.33

Long Term LiabilitiesRegistration Rights Penalty Pay 61,192.00

Total Accrued Interest 340,417.80

Notes PayableTotal Convertible 5,073,556.88

Discount on convertible debt 5,153,403.59Total Related Parties 1,367,740.32

Total Notes Payable 11,594,700.79

Total Long Term Liabilities 11,996,310.59

Total Liabilities 12,436,720.92

EquityEquity pre-Earnings

Total Contributed Capital 71,713,159.55

Treasury Stock (1,109,346.03)Equity Dev Fees, unamortized

Donson Brooks, net (110,403.61)James O'Callaghan (4,333.34)LNG Consulting, net (274,111.52)

Total Equity Dev Fees, unamortized (388,848.47)

Shareholder Receivable (6,000.00)Unrealized Security Gain(Loss) (1,646,760.83)

Total Equity pre-Earnings 68,562,204.22

Retained Earnings (10,647,729.52)Net Income (32,718,281.77)

Total Equity 25,196,192.93

TOTAL LIABILITIES & EQUITY 37,632,913.85


The Debtors note that there are some self-evident differences between parent company financials including (1) the magnitude of assets and liabilities, (2) additional paid in capital versus “contributed” capital, and (3) total equity.

IEAM last reported its Income Statement for the nine months ended as of March 31, 2007

on a consolidated basis on a Form 10-Q filed May 22, 2007.

Mar 31, 20063/31/2007 (restated)

Revenues 41,604,813$ 19,567,081$

Cost of Goods Sold 30,210,106 16,302,267

Writedown of Inventory 0 2,400,000

Gross Profit 11,394,707$ 864,814$

Expenses:Selling, general &administrative 4,400,328 2,403,874Salaries and contract labor 0 1,422,995Depreciation and amortization 1,621,236 370,839Legal and professional fees 203,018 1,323,267Operations and consolidationexpense 250,000Total Expenses 6,224,582$ 5,770,975$

Income (loss) from operations 5,170,125 (4,906,161)

Other income (expense)Interest income 52,404 0Interest expense (14,284,064) (3,028,670)Gain (loss) from sale of securities (36,313) 533,802Litigation settlement revenues 1,045,739 0Equipment and realty option revenues 375,000 0Gain on disposition of plant andfacilities 1,042,026 0Loan Fees (49,070) 0Miscellaneous income (expense) (17,083) 8,627

Net income (loss) (6,701,236)$ (7,392,402)$

Net income (loss) per share basicand diluted (0.67)$ (1.61)$

Weighted average number of commonshares outstanding 9,932,967 4,602,476

Nine Months Ended

INDUSTRIAL ENTERPRISES OF AMERICA, INC.Consolidated Statements of Operations

(Unaudited)

The aforementioned income statement was presented on a consolidated basis. Current management of IEAM has requested, but not received, supporting documents which would allow


it to reconcile the inter-company financials. However, it does have IEAM QuickBooks files. That parent company income statement for the same period was as follows:

Ordinary Income/ExpenseExpense

Amortization ExpenseTotal Amortization Expense 826,330.82

Auto lease 11,976.88Total Bank Service Charges 2,244.26

Consultants 17,089,260.55Contributions/Donations 16,100.00Depreciation Expense 2,589.49Dues and Subscriptions 6,086.25Total Insurance 29,494.61

Interest ExpenseTotal Interest Expense 13,612,363.43

Office Supplies 659.52Total Payroll expense 2,866,762.99

Postage and Delivery 682.30Professional Services

Total Legal Professional Fees 447,988.44

Total Professional Services 635,018.42

Rent 67,332.75Repairs

Computer Repairs 60.32Total Repairs 60.32

Stock Transfer Agent 6,946.97Telephone & Communication 5,841.82Total Travel 225,360.19

Total Expense 35,405,111.57

Net Ordinary Income (35,405,111.57)

Other Income/ExpenseTotal Other Income 2,436,829.80Total Other Expense (250,000.00)

Net Other Income 2,686,829.80

Net Income (32,718,281.77)

Industrial Enterprises of America, Inc.Profit & Loss

July 2006 through March 2007

The Debtors note that there are some self-evident differences between the IEAM consolidated income statement and the parent company income statement:


• The consolidated statement shows revenues of $41.6 million while the parent company statement shows no revenues.

• The consolidated statement shows total expenses of $6.224 million, not including interest expense of $14.284 million. This would bring total expense (including interest expense) to $20.508 million.

• The parent company only statement shows total expenses (including interest expense of $13.612 million) of $35.405 million, which is $15.0 million greater than reported on the consolidated financials. This raises questions that can only be resolved by access to IEAM’s complete books and records.

• The consolidated statement shows net income from operations of $5.170 million and total net loss of $6.701 million. The major difference between these two numbers is accounted for by subtracting interest expense of $14.284 million.

• The parent company statement shows net loss of $35.405 million before an off-set of other income of $2.68 million. Parent company financials show a net loss of $32.718 million.

• The difference between the two different presentations of net income amounts to just over $26.0 million.

• In order for IEAM to report a consolidated loss of only $6.7 million versus $32.7 million at the parent company level, the implication is that all of the subsidiaries would need to have produced net income of $26.0 million.

The financial records of the Company’s operating subsidiaries do not support that

contention. PPO Results - January 2006 to December 2006.

As noted previously, PPO absorbed the operations of Unifide and Today’s Way on an operational basis as of January 2006. However, the accounting systems were not integrated until January 2007. Consequently, the only numbers we have been able to review for PPO prior to January 2007 are disaggregated into PPO and Unifide. PPO’s summary income statement for calendar 2006 follows:


Table I – Historical Financials Pitt Penn Oil Co., LLC

For the quarter ending:March 2006

June 2006

September 2006

December 2006

Sales

5,069,564

9,002,534 7,607,093 8,277,187

COGS 5,343,825

5,413,538 6,139,956 6,964,960

Gross Profit

(274,261)

3,588,996 1,467,138 1,312,226

-5% 40% 19% 16%

Overhead 1,523,345

2,858,378 2,509,077 2,328,744

30% 32% 33% 28%

Pre-Tax Income

(1,797,606)

730,618 (1,041,940)

(1,016,518)

-35% 8% -14% -12%

As noted above, PPO’s Pre-Tax Income reflected a $1 million loss for the quarters ended

September 2006 and December 2006 respectively. Debtors cannot reconcile these pre-tax losses when considered in conjunction with the Unifide financial statement presented below. Unifide Results – January 2006 to December 2006. Unifide’s summary income statement for calendar 2006 follows:

Table II – Historical Financials Unifide Industries, LLC


June 2006

September 2006

December 2006

Sales

3,050,910

3,165,485

3,123,910

6,028,424

COGS 2,201,418

2,797,321

1,484,903

4,262,415

Gross Profit 849,492

368,164

1,639,007

1,766,009

28% 12% 52% 29%

Overhead 949,041

1,024,493

899,986

753,546

31% 32% 29% 12%

Pre-Tax Income

(99,549)

(656,329)

739,021

1,012,463

-3% -21% 24% 17%


Prior to the consolidation, Unifide’s pre-tax income was $995,000. Debtors do not have a basis to reflect a consolidated financial statement for any period prior to January 2007. However, if the Debtors accepted these documents at face, and assumed no intercompany transactions, the cumulative pre-tax results for these two entities would show a loss of approximately $307,000 for the six months ended December 2006 versus the approximately $8 million of EBITDA reflected for same period by the parent’s consolidated statements and public pronouncements. Consequently, the gap would have had to been made up by pre-tax profits from the Parent and/or EMC. The Debtors’ review of records suggests that such a profit does not exist. PPO/Unifide Consolidated Results – January 2007 to September 2008.

A new executive, R. Daniel Redmond, was hired in the spring 2007. He became both Executive VP of parent and president and Chief Operating Officer (COO) of PPO. He was subsequently named president and COO of IEAM as well. It appears that under his direction the accounting for PPO and Unifide were finally consolidated for the period beginning January 2007. Despite the fact that parent and subs are on a June fiscal year, inexplicably the consolidation was not done for the quarters beginning July 1, 2006 and October 1, 2006.

PPO/Unifide’s consolidated summary income statements for the periods January 2007 to

December 2007 and January 2008 to September 2008 follows:

Table IIIa – Historical Financials Pitt Penn Oil Co., LLC


June 2007

September 2007

December 2007

Sales

11,022,161

7,276,497

7,348,038

7,948,479

COGS

11,764,717

6,698,865

7,230,484

6,380,271

Gross Profit

(742,557)

577,632

117,554

1,568,208

-7% 8% 2% 20%

Overhead

1,784,653

2,078,883

1,329,685

1,976,950

16% 29% 18% 25%

Pre-Tax Income

(2,527,210)

(1,501,252)

(1,212,131)

(408,742)

-23% -21% -16% -5%

The data presented above, removes the question of intercompany transactions for the

quarter ended March 2007 (the last financial period reported to the SEC). The major operating entity of the Parent shows a pre-tax loss of $2.5 million suggesting that an additional $5.5 million was earned between the operations of the parent and EMC. Again, the Debtors’ review of records suggests that such a profit does not exist.


Table IIIb – Historical Financials Pitt Penn Oil Co., LLC


June 2008

September 2008

Sales

6,132,078

4,579,694

2,120,036

COGS

5,681,845

4,757,524

2,830,066

Gross Profit

450,233

(177,830)

(710,030)

7% -4% -33%

Overhead

1,572,771

1,534,954

1,413,358

26% 34% 67%

Pre-Tax Income

(1,122,538)

(1,712,784)

(2,123,388)

-18% -37% -100%

Further, parent pronouncements and comments by prior PPO management suggesting

that PPO was generating positive operating cash flow are not supported by actual results as derived from the Great Plains accounting system.

• Estimated capital structure as per subsidiary records Prior to taking control on September 12, 2008 current PPH management was of the

opinion that it would be possible to restore PPH to profitability through a combination of (1) significant, sustained expense reduction; (2) the injection of temporary working capital through a protected $3.0 million purchase money line and an early-2009 injection of up to $4.0 million equity at either the parent or PPH level through a rights offering to current shareholders backstopped with a standby commitment by one or more of six entities who collectively had owned up to 60.0% of parent (whose market value had reached over $100.0 million in late-2006, early-2007). In the Debtors’ view, this would have allowed for the refinancing and expansion of the current credit line.

A combination of factors has made this impossible. The Lehman bankruptcy, which

occurred on September 14, 2008, has led to the freezing of the credit markets and other macro events. As importantly, the Debtors’ review of internal documents, many of which were not available during the due diligence process, have put a different color on the financial results of both parent and PPO.

Based on this significant and serious disconnect between results attributed nominally to

parent and more substantially to PPO, PPH management’s assessment of PPO’s financial condition combined with the lender’s actions, determined that the best course of action to protect creditors and preserve collateral was to mothball the plant.


• Parent company only records as per September 2008 IEAM QuickBooks file

Although IEAM has presented its financial statements and filed its financial results with

the SEC, the internal records that have been turned over to the present management are extraordinarily deficient. The former management, under the leadership of Messrs. John D. Mazzuto and James W. Margulies, appear to have never filed a federal or state tax return for any of the entities since they assumed management control on October 7, 2004. The books and records of the major operating subsidiary, Pitt Penn Oil (100% owned by PPH), does not support the public statements of prior management.

In reviewing the QuickBooks files for IEAM for the period October 2004 through

June 30, 2007, IEAM’s parent company books recorded the following:

• Revenues None • Total Expenses $83,706,441.35 • Net Ordinary Loss $83,706,441.35 • Other Income $3,013,256.66 • Total Other Expense $10,561,729.27 • Net Other Loss $7,548,472.61 • Net Loss $91,254,913.96

Based on the same records, parent IEAM recorded the following net losses by fiscal year:

FY 2005 loss $14,960,408.92 FY 2006 loss $ 6,738,999.73 FY 2007 loss $69,609,851.20

Of the total $83.7 million of expenses, the major categories which were identified were as

follows:

• Acquisition Costs $6,262,156.50 • Amortization Expense $5,791,564.24 (of which $4.7 million was

attributed to consulting contracts)

• Consultant Expense $29,929,755.84 • Total Interest Expense $24,314,927.19 • Officer Compensation $11,457,097.70 • Legal Fees $ 3,110,794.57

A further review of IEAM parent company only data illustrates that while the

QuickBooks records indicate total expenses of $83.7 million, payments to identified vendors total only $41.0 million. Expenses attributed to the ten largest “vendors” in QuickBooks totaled $36.4 million. Those “vendors” were as follows:


John Mazzuto 13,487,670.99River Valley Asset Management LLC 7,820,426.00Regal Partners, Inc. 4,379,993.73Randall Rosenthal 3,324,670.00Sapphire Associates LLC 1,787,958.33James Margulies 1,424,611.40Jeffrey M. Levinson 1,216,807.00Mitch Seifert 1,181,708.00Brian Corbman 1,167,867.96LNG Consulting 660,184.09Sub-Total - Top 10 36,451,897.50

Many of these expenses appear to have been attributed to “consulting” contracts or “equity development fees” on the QuickBooks entries. The current management has not been able to locate “consulting” contracts which would support these expenses. Some of these expenses may be attributable to issuance of freely trading shares under an S-8 registration statement as consulting fees. As previously disclosed, current management is questioning the bona fides of $87.3 million of said issuances. All of those issuances, save one, appear to have been done at the instruction of either John D. Mazzuto or James W. Margulies in various capacities. The other issuance was done at the written instruction of Randall Rosenthal, who was identified as a paralegal at the law firm of Margulies and Levinson.

The timing and the amounts of issuances, including the disputed S-8 issuances, are shown

in the table which follows:

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


The current management has identified all of the recipients of securities. The Debtors have commenced five adversary proceedings in the Bankruptcy Court seeking the return of the proceeds of sale of the improperly issued securities.

In addition, the Debtors have sought the return of over $1.7 million from the proceeds of

common stock issued to Yale University and $1.5 million issued to Tabor Academy at the instruction of John D. Mazzuto. Mr. Mazzuto is a graduate of both Yale and Tabor.

Current management has also advised broker/dealers and clearing firms who received

these freely trading shares of these issuances. The Debtors are examining their potential liability as being part of an improper distribution of securities under the federal securities laws.


5. Government Regulation.

With respect to government regulation, IEAM’s amended 10-K for the year-ended June 30, 2006, which was filed on December 28, 2007, made the following assertion:

IEAM believes that it is currently in material compliance with all relevant federal, state, and local environmental regulations, and does not expect to incur any significant costs to maintain compliance with the regulations in the foreseeable future. IEAM is subject to the rules and regulations of United States Occupational Safety and Health Administration (OSHA), and the United States Department of Transportation (DOT). Among other things, these regulatory authorities impose requirements which regulate the handling, packaging, labeling, transportation and disposal of hazardous and non-hazardous materials and the health and safety of workers, and require us, and, in certain instances our employees, to obtain and maintain licenses in connection with our operations. IEAM is also subject to regulations adopted by the United States Department of Transportation which classify most refrigerants as hazardous materials or substances and impose requirements for handling, packaging and transporting refrigerants. In addition, the Environmental Protection Agency performs regular, routine reviews of the business of each of our subsidiaries.

During the course of the Debtors’ review of operations at EMC prior to making a decision to cease operations and vacate the facility, the Debtors noted there were some unresolved issues at EMC prior to its acquisition by IEAM in October 2004.

6. Employees.

With respect to employees, IEAM’s amended 10-K for the year-ended June 30, 2006,

which was filed on December 28, 2007, made the following assertion:

IEAM currently employs approximately 90 full time people, including two senior managers, consisting of approximately 15 employees at EMC, approximately 65 at the Pitt Penn Group and approximately 10 employees at Unifide and Todays Way. None of the employees of our company or our subsidiaries are covered by a collective bargaining agreement, and we believe our employee relations are good.

As of December 31, 2008 IEAM had placed its manufacturing operations on hiatus. The

Company and its subsidiaries maintained a skeleton staff of four employees until September 18, 2009. They also used the services of certain former employees on an as needed part time basis. On September 18, 2009, Michael Dignazio (who was then VP Finance and Corporate Secretary of each of the entities) announced his immediate resignation. He continued to assist in the transition as a part time consultant until late-January 2010. The Company continued with one full time employee, Robert L. Renck, Jr., its President and CEO. Mr. Renck has deferred his contractual compensation through January 31, 2010. The Debtors are using the part time


services of two former employees to assist in the preparation of accounting reports, insurance claims and recovery, and other administrative tasks since October 1, 2009.

The Debtors will evaluate their employment needs on an ongoing basis particularly after

they determine the extent of damages and insurance and other recovery at its Creighton PA manufacturing facility. Management continues to have orders filled at its FFD subsidiary by Spray Manufacturing. The Debtors are evaluating their capital needs and intend to raise sufficient capital to finalize Underwriters Laboratory approval and expand marketing of the product line.

J. Events that Led to the Bankruptcy Filing.

As noted above, prior to taking control on September 12, 2008 current PPH management was of the opinion that it would be possible to restore PPH to profitability through a combination of (1) significant, sustained expense reduction; (2) the injection of temporary working capital through a protected $3.0 million purchase money line and an early-2009 injection of up to $4.0 million equity at either the parent or PPH level through a rights offering to current shareholders backstopped with a standby commitment by one or more of six entities who collectively had owned up to 60.0% of parent (whose market value had reached over $100.0 million in late-2006, early-2007). In the Debtors’ view, this would have allowed for the refinancing and expansion of the current credit line.

Those plans were rendered moot when Sovereign Bank foreclosed on the note in late-

October 2008. The proximate cause was IEAM’s failure to file a Form 10-K for FY 2007. That was a condition of both the original loan and the forbearance agreements signed during calendar 2008 by Mr. Margulies.

As a result of these actions, manufacturing at the Debtors’ facilities were put on hiatus

while management of PPH actively solicited prospective buyers or manufacturing partners. In its discussions with potential operators, management determined that PPO’s facilities had certain appeal.

November 2008 Creighton Facility Analysis

Despite the obvious gap between published reports and the underlying reality reflected in

the accounting records, the production capacity of the Creighton facility and its location has continued to be the primary attraction to prospective buyers.

Based upon our examination of the underlying accounting records, customer and supplier

records, and preliminary conversations with various interested parties within and outside the industry our preliminary conclusions are as follows:

• The operations of PPO have been burdened by excessive costs at parent and at the

operating level. Particularly in the areas of management and sales management.


• Exempt salaries represented an annualized burden of over $4.9 million at PPO and EMC as of June 30, 2008.

• A good operator would be in a position to eliminate burdens attributable to parent. • A good operator is capable of operating manufacturing and sales at far lower

levels of compensation. • An operator with other facilities would achieve further synergies by reducing PPO

to a sole function as a manufacturing facility. • Much of the value ascribed to PPO comes from the location of the facility and

most importantly the access to rail transportation and the ability to receive shipments by barge.

• Location and access to water and rail lines also assists in the shipment process. • The industry is local by nature; it is estimated that the maximum effective

shipping radius for traditional customers is within 250 miles. • To industry participants, whose facilities are outside the natural shipping radius,

the maintenance of customer accounts may be an asset. Expressions of Interest

In their capacity as representatives of the major shareholders of parent, and prior to September 12, 2008, current executive management of PPH has received a wide range of inquiries, discussions and comments. The interested parties have been (1) financial investors, (2) private equity firms, (3) major public companies, (4) executives of public companies, (5) private businesses, and (6) trade competitors among others. Their overall objectives were focused on creating value at parent through PPO.

Since assuming their positions at PPH on September 12, 2008 the current management

has fielded new inquiries from various parties and made contact with every single caller who has expressed an interest in PPO. Because of PPO’s status as the major asset of a public corporation which is not current in its filings with the SEC, PPH management was not been in a position to actively explore the level of interest by third parties with respect to the sale of the PPO asset.

During the period November 1, 2008 through March 2009 PPH management had

extensive conversations with more than ten qualified operators or buyers who had some degree of interest in purchasing or operating the facility. Among the considerations was the facility’s status, the grandfathering with respect to certain building regulations, the availability of its manufacturing lines, and the best way to utilize the net operating loss carry forward available at both parent and PPO.


As a result of the actions of its lender, Sovereign Bank, PPO had fallen behind on lease payments to both Allstate and GSL. By late-March 2009, PPH was in advanced stages of negotiations to have Spray Products, a privately owned aerosol producer, take over the manufacturing of motor oils at its Creighton facilities. In addition, it would enter into filling contracts for the company’s aerosol customers formerly serviced by either EMC or a third party contractor, Koki Labs of Akron Ohio. Spray Products was also in a position to manufacture and fulfill orders for its FFD subsidiary which is not in bankruptcy.

Prior management’s failure to maintain an adequate system of controls created a situation

whereby GSL was in a position to file a replevin action. GSL’s replevin action filed in April 2009 allowed GSL to seize and take control of the Creighton facility and became the proximate cause of the bankruptcy filing.

Despite IEAM’s public statements that it had consolidated and streamlined operations,

former executive management at IEAM failed to consolidate the company’s three separate accounting systems. This failure and the continued refusal of James Margulies to turn over corporate records to the Governance Committee, beginning in late-2008 and since he advised the Board of his intent to resign on March 8, 2009 has damaged the corporation in many respects.

• There were no accounting entries on the books of Pitt Penn Oil which reflected a

loan from GSL. Despite the fact that its public statements and filings suggested the company was (1) cash flow positive, (2) engaged in a stock repurchase program, and (3) free of all long-term debt as of June 30, 2007; the management of IEAM entered into a loan agreement with GSL wherein it pledged approximately $1.1 million of production and office equipment as security for a $760,000 loan bearing interest at 14.0%. GSL was also given an equity kicker to make this loan. Senior management of IEAM had characterized this loan as a lease on the books of Pitt Penn Oil.

• PPO did not possess a copy of the GSL loan document, which was dated as of

April 7, 2007. The loan document had been executed on or about October 2007 by James Margulies in his capacity as Corporate Secretary. Since Mr. Margulies has not returned the company’s original financial and corporate records, current management cannot determine if the loan was entered on the books of parent. Further, it cannot verify from the financial information available to it whether or not IEAM or PPO received the proceeds of the GSL loan. Neither Mr. Margulies nor GSL has provided copies of the wire transfer.

• The fact that this was a loan, not a lease, gave GSL certain rights it would not

have had as a lease. In the event that a company chooses to file for protection under chapter 11, it has the right to accept or reject leases. If it chooses to accept a lease, it needs to bring the lease current and make all future payments. PPH made a fully funded offer to cure the lease and late-April 2009. That offer was rejected by GSL. Under the terms of its loan agreement, GSL had the right to sell the collateral in a public auction to recover its secured position. GSL had taken control of the company’s facilities on Friday April 3rd. PPH had received reports


equipment and other items had been removed from the facility between that date and the filing of the bankruptcy. Even after the filing of the bankruptcy, GSL continued to remove equipment and other items from the facility. As of this date, GSL or its agents are in control of the facility.

In addition to the operational issues which are affecting PPH, PPO, and EMC, parent company, IEAM, had been involved in significant litigation which had drained corporate resources. The existence of that litigation and, in many cases, the failure of prior management to provide case files was a primary factor in deciding to file a petition for bankruptcy for IEAM. On May 29, 2009 Debtors filed a report with the SEC on Form 8-K in which it discussed the status of that litigation.

1. Litigation.

The Company is managing various litigations involving the Company and its subsidiaries

in various courts throughout the country. These litigations fall into three basic categories: abandoned by prior management, contested, and bankruptcy-related.

The defense of certain lawsuits was effectively abandoned by prior management after the

withdrawal of representation by a law firm as of December 14, 2007.

a. Zyskind Action. In 2004, Beryl Zyskind (“Zyskind”) loaned the Company a total of $100,000.00. This

loan was memorialized in four notes. Each note was convertible into the Company’s common stock. Zyskind alleges that the Company refused to comply with the terms of the notes, and refused to convert them into the Company’s common stock. Zyskind therefore filed a lawsuit captioned Zyskind v. Industrial Enterprises of America, Inc., New York County, NY Supreme Court Index No. 602523/2006. On March 3, 2009, the Court entered an order (the “Zyskind Judgment”) awarding Zyskind 121,500,280 shares of the Company’s common stock, along with approximately $8.3 million in cash. The Company has sought reargument of the March 3, 2009 Order because, inter alia, the Company believes that Zyskind could not have recovered more than $1,314,955.70 under the terms of the notes. The Company has also filed an appeal. Mr. Zyskind filed a proof of claim against IEAM in the amount of $10,758,463.30. In addition he filed a proof of claim for 120.5 million shares of IEAM common. IEAM disputes his claim.

The foregoing Claims and disputes have been resolved by letter agreement dated April 7,

2010 between and among the Debtors, the DIP Lenders and Zyskind (the “Zyskind Settlement”), providing that, among other things, Zyskind be granted an Allowed General Unsecured Claim in the amount of $5,500,000.00 (the “Allowed Zyskind Claim”) in full and final satisfaction of his Claims against the Debtors, and in exchange for his return of all shares of stock in IEAM issued to him pursuant to the Zyskind Judgment, less any shares sold prior to the date of execution of the Zyskind Settlement. To the extent necessary, the Plan will constitute a motion for approval of the Zyskind Settlement in accordance with the applicable provisions of the Bankruptcy Code.


b. Goldknopf Action.

IEAM was named as a defendant in an action brought in the 157th Judicial District Court

of Harris County, Texas, which trial occurred on April 7, 2009. The case is captioned Ira L. Goldknopf v. Industrial Enterprises of America, Inc., John Mazzuto, Regal Partners, Inc. and Crawford Shaw. Following the trial, the court award judgment for Goldknopf and against the Company as follows: (i) Goldknopf was awarded $365,492.12 in past due principal and interest on a note executed by the Company to Goldknopf; (ii) Goldknopf was awarded $113,427.91 on credit card charges Goldknopf had paid or still owes that had not been reimbursed by the Company; (iii) Goldknopf was awarded $6,000 for payments made on a loan owed by the Company; (iv) the court found that Goldknopf was entitled to reimbursement for any amounts he may pay in the future on the foregoing loan; and (v) Goldknopf was awarded attorney fees of which $22,500 was awarded against the Company. Mr. Goldknopf has filed a proof of claim against IEAM in the amount of $761,417.73. The present management has not had an opportunity to review any of the underlying documents in this case. Upon the completion of its review, IEAM will determine whether it will dispute his claim.

c. Margulis Action.

On February 27, 2008, Barry Margulis filed suit against the Company in the New York Supreme Court, County of New York, seeking approximately $848,408 on a promissory note. After settlement talks failed, the Company did not contest this suit. The court granted Mr. Margulis a default judgment on June 4, 2008, in the amount of $853,834.76. Mr. Margulis has filed a proof of claim against IEAM in the amount of $1,414,309.38. The present management of IEAM is reviewing this claim. The promissory note stems from the purchase of stock from Mr. Margulis under a ”buyback” program. The terms of the purchase included a private sale at an approximate 20.0% premium to market, an apparent contradiction of SEC regulations covering buybacks. IEAM disputes his claim.

2. Contested litigation.

a. Trinity Bui Action.

On January 23, 2008, Trinity Bui and her investment company filed suit in United States District Court, Southern District of New York, against the Company, Beckstead and Watts, LLP, John Mazzuto, James Margulies, Dennis O’Neill, and Jorge Yepes in connection with certain securities of the Company issued to Trinity Bui’s investment company, seeking approximately $2.5 million in damages. The Company, James Margulies, and Dennis O’Neill filed a motion to dismiss on May 9, 2008, which was later joined by John Mazzuto. Trinity Bui filed an amended complaint on or about October 31, 2008, to which the court applied the previously-filed motions to dismiss. On January 15, 2009, the court granted the motion to dismiss the amended complaint with prejudice as to the Company, James Margulies, Dennis O’Neill, and James Mazzuto, dismissed the complaint without prejudice as to the other defendants, and directed the clerk of the court to close the case.


b. Black Nickel Actions.

On April 30, 2008, Black Nickel Vision Fund, LLC (“Black Nickel”) filed suit against the Company in the New York Supreme Court, Count of New York, for alleged breaches of a Loan and Purchase Agreement, seeking the issuance of 1,500,000 shares of Company common stock plus $750,000 plus interest. The Company subsequently issued 1,500,000 shares of common stock to Black Nickel on or about May 12, 2008. Black Nickel then moved for summary judgment on July 3, 2008. The Company opposed the motion for summary judgment.

On August 15, 2008, Black Nickel filed a second suit against the Company and

Sovereign Bank in the New York Supreme Court, Count of New York, for specific performance of certain provisions of a note issued in connection with the Loan and Purchase Agreement. Black Nickel subsequently brought a motion by order to show cause seeking a preliminary injunction enjoining the Company from further encumbering the manufacturing facility in East Deer Township, Pennsylvania. The Company and Sovereign Bank opposed the motion for a preliminary injunction, and Sovereign Bank subsequently brought a motion to dismiss as to Sovereign Bank.

On February 10, 2009, the court issued decisions in both Black Nickel lawsuits. As to

the first suit, the court denied Black Nickel’s motion for summary judgment. As to the second suit, the court denied Black Nickel’s motion for a preliminary injunction, and granted Sovereign Bank’s motion to dismiss. Black Nickel has filed a notice of appeal as to the court’s dismissal of Sovereign Bank. On April 14, 2009, the court referred both Black Nickel suits to a mediator assigned by the Alternative Dispute Resolution Program of the Commercial Division. The Company believes that it has adequate defenses to both Black Nickel suits and is vigorously defending these matters. This action is stayed as to IEAM pursuant to the Bankruptcy Code. Black Nickel has not filed a proof of claim.

c. EMC New Jersey Litigation.

The Company, along with its subsidiary, EMC, is named as a defendant in an action for breach of an employment agreement (against EMC only), replevin and conversion. The action was filed and is currently pending in the Superior Court of the State of New Jersey, Ocean County. EMC has filed counterclaims and third-party claims. The case is captioned Cannan, et al. v. EMC Packaging Inc., et al., Docket No. OCN-L-3559-08. In their complaint, the plaintiffs, George Cannan and EMC Aerosol LLC, seek possession of certain cylinders of refrigerant gas which they claim to have purchased from EMC for a total purchase price of $450,000, which was paid to the Company. Plaintiffs alternatively seek money damages against EMC and the Company. EMC and the Company deny that the Plaintiffs are entitled to either these cylinders or money damages. EMC is currently enjoined from transferring or removing any of the remaining cylinders from their warehouse location, unless EMC deposits in escrow, a specified sum per cylinder sought to be transferred or removed. Plaintiff George Cannan is a former employee and officer of EMC and the complaint includes a wrongful termination claim brought on his behalf against EMC. EMC denies all liability for that claim and maintains that Mr. Cannan was an at-will employee who was nevertheless terminated for cause under his written employment agreement. EMC has filed counterclaims against Plaintiffs and third-party


claims against another former employee and officer, Caroline Costante, as well as EMC’s former landlord, JS Realty LLC (owned by Mr. Cannan and Ms. Costante) and Mr. Cannan’s two children, George Cannan, Jr. and Stacy Cannan. Those claims include claims of fraud, breach of fiduciary duty, conversion, breach of employment agreements and unjust enrichment. EMC is vigorously defending the action in the Bankruptcy Court and pursuing EMC’s claims. The action is still in the early stages of discovery.

d. Securities Class Action.

The Company was named as a defendant in a securities law class action brought in the federal court for the Southern District of New York in November 2007. The case is captioned Mallozzi v. Industrial Enterprises of America, Inc., et al., Case No.: 07- CV-10321. The case was filed by a purported class of persons who purchased the Company’s common stock during the period December 4, 2006 through November 7, 2007. Plaintiffs allege that the Company and its co-defendants (several of the Company’s officers who are no longer with the Company) made fraudulent misrepresentations and omissions about the Company’s financial condition that caused the plaintiffs to purchase the Company’s stock and to suffer damages. The Company filed a motion to dismiss those claims, and prior to a Court ruling on the motion to dismiss, the parties agreed to settle the case for $3.8 million, with the proceeds of the settlement being paid to plaintiffs by the Company’s insurer. On April 16, 2009, the Southern District of New York preliminarily approved that settlement and directed that notice of the settlement be sent to class members. A final hearing on the proposed settlement was scheduled for July 29, 2009. On May 1, 2009, the Company filed for bankruptcy under Chapter 11 of the Federal Bankruptcy Code.

The proposed settlement had an “opt-out clause.” Under the terms of that clause, if more

than 1.0 million share of the common opted out of the settlement (to preserve their right of private action), any one of the defendants could terminate the settlement. Some 9.0 million shares (out of an estimated 25.0 million eligible for settlement) elected to do so. Under the terms of the settlement, settling shareholders would have received just over $0.10 per share and given up their rights to recover against the individual defendants as well as related professionals.

Based upon the large number of opt-outs, counsel for Dennis O’Neill, a former CFO,

exercised his right to terminate the settlement. After that election the matter was referred to magistrate’s court in the Southern District of New York to renew settlement discussions. Said discussions terminated. The case has been re-filed on behalf of a truncated class. The second amended complaint was filed on November 30, 2009.

This action is stayed as to IEAM pursuant to the Bankruptcy Code. A proof of claim in

the amount of $50,000,000 has been filed against IEAM. The Company disputes this claim. Immediately after the filing of the truncated class action, Plaintiffs and the other

Defendants began to negotiate the terms of a new settlement. The action was referred to Magistrate Judge Ellis in the Southern District of new York for settlement. The Debtors’ Board of Directors reviewed various proposals by the other defendants between April 2010 and August 2010. In early-September 2010, Debtors advanced the terms of a settlement proposal which was


acceptable to the IEAM Board. A revised settlement was entered into as of December 9, 2010. A final settlement agreement was signed by all parties, including ACE, the Debtors’ D&O carrier, on December 11, 2010.

A motion for the preliminary approval of the settlement was filed in the SDNY on

January 12, 2011. The hearing date for preliminary approval of the unopposed motion has been set for February 2, 2011. The settlement contemplates the payment of $3.4 million of insurance company funds in settlement of the truncated class action. Of this amount, $1.0 million will be held back for defense or settlement costs should the “opt-out group” exercise their rights to file a private suit prior to the statutory date. As part of the settlement, the previously noted $50,000,000 proof of claim will be withdrawn upon final approval of the class action settlement by the SDNY and the as well as the approval of the settlement by the Bankruptcy Court. It is the intention of these Debtors to file a motion requesting the preliminary approval of the settlement by the Bankruptcy Court subsequent to the approval by the SDNY. The SDNY approved the settlement by Order entered February 3, 2011. A hearing on final approval is scheduled for May 18, 2011. The SDNY approved the settlement by Order entered February 3, 2011. A hearing on final approval is scheduled for May 18, 2011.

3. Cooperation with Regulatory Authority/Law Enforcement.

In or around February 2008, the Company received a request to provide voluntary

information from the SEC. The SEC’s request related, in part, to certain “Bill and Hold” transactions and the accounting treatment provided by prior management therefore (see prior disclosures dated October 15, 2007 and November 7, 2007). The Company has been cooperating fully and to the best of its ability with this request and voluntarily providing information. It is the express policy of the Company to cooperate fully with any and all appropriate inquiries by regulatory authorities.

On or about April 27, 2009, the Company received a Grand Jury subpoena from the New York County (N.Y.) District Attorney’s Office (the “Manhattan DA”) seeking documents and records relating to a broad range of the Company’s finances and issuances of securities. The Company is endeavoring to comply with the subpoena and cooperate with the Manhattan DA fully. It is the express policy of the Company to cooperate to the fullest extent appropriate with law enforcement.

4. Indictments of former executive officers- John Mazzuto and James W. Margulies. On Tuesday May 25, 2010, Manhattan District Attorney Cyrus R. Vance, Jr., announced

the indictment against JOHN D. MAZZUTO, a corporate executive, and JAMES W. MARGULIES, an attorney, for illegally issuing shares of stock to enrich themselves and others, and for engaging in fraudulent activity to inflate the stock's value and deceive investors.11 The defendants were charged with Grand Larceny, Scheme to Defraud, Conspiracy, Falsifying

11 The DA's Office press release is available here: http://www.manhattanda.org/whatsnew/press/2010-05-25.shtml.


Business Records, and violations of the Martin Act (New York State's securities fraud law). The crimes charged in the indictment occurred between 2004 and 2008 and relate to Industrial Enterprises of America, Inc. ("IEAM"), a public holding corporation located in Manhattan. The defendants illegally issued millions of shares of stock in IEAM to family, friends, and close associates, and engaged in myriad fraudulent activities in their scheme to steal more than $60 million. The defendants stole from the corporation and legitimate investors, and engaged in a variety of fraudulent accounting and securities practices to disguise the theft and pump up the value of the stock.

From the date of the indictment through November 9, 2010, defendants made several

motions to dismiss or limit the indictments. On November 10, 2010 Justice Gregory Carro (Supreme Court of the State of New York, Part 32) issued a decision and order in the case of People of the State of New York vs. John D. Mazzuto and James W. Margulies which upheld the indictments. The next scheduled hearing date is March 7, 2011 at which time the case is expected to be ready for trial.

K. Chapter 11 Cases.

1. Initial Events in Bankruptcy.

On May 1, 2009, the Company filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court under Case No. 09-11508. On April 30, 2009, PPH, a Delaware Corporation, and PPO, an Ohio limited liability company, each filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court under Case Nos. 09-11475 and 09-11476, respectively. On May 4, 2009, EMC, a Delaware corporation, filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court under Case No. 09-11524. On May 6, 2009, Unifide, a New Jersey limited liability company, and Today’s Way, a New Jersey limited liability company, each filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court under Case Nos. 09-11587 and 09-11586, respectively. PPH, PPO, EMC, Unified, and Today’s Way are each subsidiaries (the “Subsidiaries”) of the Company.

The Company and its co-debtor Subsidiaries have sought the protection of the Bankruptcy Code. The purpose of the chapter 11 filing is to reorganize the Debtors so that they can operate profitably and resolve issues with their creditors. This endeavor includes, but is not limited to, integrating corporate governance and accounting, gathering the books and records of the Company and its Subsidiaries, arranging financing for operations going forward, and assessing corporate assets and liabilities.

The Company and its Subsidiaries intend to continue to manage their properties and operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.

2. Events Occurring in the Bankruptcy Case – DIP Financing, Avoiding

Conversion, Plan Filing.


a. Joint Administration.

The Honorable Brendan L. Shannon is presiding over the Debtors’ bankruptcy cases. The Bankruptcy Court entered an order of joint administration of the Debtors’ cases on May 11, 2009 (D.I. 21). Accordingly, these cases have been procedurally consolidated into the Pitt Penn Holding Company, Inc. Bankruptcy Case No. 09-11475 (BLS).

b. Retention of Professionals.

The Court has approved the Debtors’ retention of the following professionals pursuant to

11 U.S.C. § 327:

1. Pace Reich, P.C., general bankruptcy counsel (now withdrawn), Order entered July 2, 2009 (D.I. 130);

2. Loizides, P.A., Delaware bankruptcy counsel, Order

entered July 2, 2009 (D.I. 129); 3. Cozen & O’Connor, special litigation counsel, Order

entered July 7, 2009 (D.I. 136); 4. Thompson, Alexander & Forrester, LLP, special securities

litigation counsel, Order entered February 16, 2010 (D.I. 349);

5. Brian Weller, insurance adjuster, Order entered

February 16, 2010 (D.I. 346);

6. Hector F. Marquez-Somoza, collection counsel in Puerto Rico, Order entered August 24, 2010 (D.I. 519);

7. Kane Kessler, PC, replacement general bankruptcy counsel, conditionally approved at November 22, 2010 omnibus hearing; and

8. Pavia & Harcourt LLP, special litigation and general corporate counsel, Order entered January 20, 2011 (D.I. 644).

Pace Reich, P.C. was withdrawn as Debtors’ counsel by Order dated September 7, 2010 (main case order D.I. 526). Debtors have filed an application to retain Kane Kessler, PC as replacement counsel.

The Court has approved procedures for the approval of fee and expense requests of

professionals retained pursuant to 11 U.S.C. § 327. See Order entered July 7, 2009 (D.I. 138).


In addition, by Order entered July 17, 2009 (D.I. 143), the Bankruptcy Court approved procedures for the employment and compensation of ordinary course professionals, subject to a fee cap of no more than $15,000 per month. The following professionals have been retained pursuant to such Order:

1. Mandelbaum Salsburg, New Jersey litigation counsel, as of

July 21, 2009;

2. Ganfer & Shore, general corporate counsel, as of July 31, 2009;

3. Cohen & Grigsby PC, Pennsylvania local litigation counsel, as of July 31, 2009;

4. Peckar & Abramson PC, New York litigation counsel, as of February 15, 2010; and

5. Pavia & Harcourt LLP, special litigation and general corporate counsel, as of December 2010.

c. Debtor in Possession Financing and Use of Cash Collateral.

1. The First DIP Facility.

The Debtors sought to approve emergency debtor-in-possession financing by motion dated May 28, 2009 and for use of cash collateral from Omtammot LLC (the “First DIP Facility”) by motions dated May 28, 2009 (D.I. 56, 57). The Debtors sought to borrow up to $300,000 under the First DIP Facility on a superpriority basis under 11 U.S.C. § 364(c)(1). The Bankruptcy Court approved the use of interim financing under the First DIP Facility by order dated June 4, 2009 (D.I. 76). By Order dated September 1, 2009 (D.I. 192), the Bankruptcy Court approved the First DIP Facility on a permanent basis.

Debtors’ authority to borrow and to use cash collateral under the First DIP Facility was

originally authorized on August 31, 2009. By Order dated September 28, 2009 (D.I. 219), the Debtors’ authority to use cash collateral and to borrow under the First DIP Facility was extended through December 31, 2009. In addition, by Order dated September 28, 2009, the Bankruptcy Court approved a carve-out of Omtammot LLC’s superpriority claim in favor of professional fees. The Debtors have borrowed 100% of the availability under the First DIP Facility, the proceeds of which were used to finance the administration of these bankruptcy cases.

2. The Second DIP Facility.

By motion dated January 25, 2010 (D.I. 322), the Debtors sought interim and final Bankruptcy Court approval of additional DIP Financing from Omtammot II, LP (the “Second DIP Facility”) on a superpriority basis with limited priming liens under 11 U.S.C. §§ 364(c). The Second DIP Facility permitted Debtors to borrow up to $150,000 on an interim basis and up


to $500,000 on a final basis, with the understanding that the $500,000 cap could be increased to $1,500,000. The Bankruptcy Court approved the Second DIP Facility on an interim basis by Order dated January 28, 2010 (D.I. 329) and on a final basis by Order dated February 16, 2010 (D.I. 347).

The Second DIP Facility was set to expire on July 30, 2010. By motion dated July 22,

2010 (D.I. 495), Debtors sought an extension of the Second DIP Facility through January 31, 2011. This motion included a request to draw down a portion of an additional $500,000 on the Second DIP Facility. That motion (as modified by a supplemental motion) was granted by Order dated November 22, 2010 (D.I. 580). By motion dated January 3, 2011 (D.I. 618), Debtors sought an extension of the Second DIP Facility through July 31, 2011. This motion included a request to drawn down the final $550,000, if necessary, under the Second DIP Facility. That motion was granted by Order dated January 20, 2011 (D.I. 643).

d. GSL and Atlas Stay Relief Motions.

GSL filed a motion for relief from the automatic stay (filed in in re Pitt Penn Oil Company, LLC, Case No. 09-11476 (BLS) on May 8, 2009; D.I. 18) in order to take possession and sell certain of its alleged collateral located at the Debtors’ facility in Creighton, Pennsylvania. The GSL stay relief motion was granted by Memorandum Order dated May 26, 2009 (D.I. 54). It is the Debtors’ contention that GSL improperly took control and possession of the Debtors’ Creighton facility and has commenced an adversary action against GSL for damages and injunctive relief. GSL contests the Debtors’ position.

Atlas Waste Paper Corporation also requested relief from the automatic stay by motion

dated June 9, 2009 (D.I. 84) in order to recover certain equipment. The Debtors consented to the relief requested as reflected in the consensual Order dated July 7, 2009 (D.I. 133).

e. Allstate Lease.

Debtor Pitt Penn Oil Company LLC (“PPO”) assumed a lease of a certain boiler with Allstate Leasing, Inc. and Allstate Equipment Leasing (collectively, “Allstate”) by Order dated September 1, 2009 (D.I. 193). The rental payments under the Allstate lease are $2,012.94 per month. Allstate subsequently filed a motion to enforce its rights under the boiler lease and was awarded damages. PPO is now current under the Allstate lease.

f. Schedules, SOFAs and MORs.

Following an extension of the deadline to file their schedules and statements of financial affairs, the Debtors filed these documents on June 1, 2009. The Debtors have also continued to file their monthly operating reports.

g. Bar Date and Claims Agent.

By Order dated July 7, 2009 (D.I. 134), the Bankruptcy Court established September 8, 2009 as the deadline to file proofs of claim, and November 2, 2009 as the deadline for governmental units to file proofs of claim. By Order dated July 7, 2009 (D.I. 135), Pace Reich,


P.C. was appointed as the Debtors’ claims agent. Debtors and Pace Reich, P.C. dispute whether Pace Reich, P.C. remains the Debtors’ claims agent.

h. U.S. Trustee’s Motion to Convert.

On December 11, 2009, the Office of the United States Trustee filed its motion to convert the Debtors’ cases to cases under Chapter 7 (D.I. 279). A hearing on the Motion to Convert was held on January 13, 2010. The Bankruptcy Court denied the Motion to Convert. However, the Bankruptcy Court required that the Debtors immediately pay all outstanding withholding taxes and that the Debtors file a plan of reorganization by January 25, 2010.

i. Plan Process.

The Debtors filed their original Plan on January 22, 2010 (D.I. 318). The accompanying disclosure statement was filed on February 22, 2010 (D.I. 358). The Debtors then sought Bankruptcy Court approval of the disclosure statement. Objections were received from Beryl Zyskind and the Office of the United States Trustee. Subsequently, as discussed above, a resolution was reached with Mr. Zyskind, the terms of which are incorporated into the Plan.

On May 25, 2010, Debtors filed their First Amended Consolidated Plan of

Reorganization (D.I. 444). On May 26, 2010, Debtors filed their First Amended Disclosure Statement and accompanying first amended plan (D.I. 447). Mr. Zyskind and the I.R.S. both raised certain informal objections to these documents.

j. Yale Settlement By motion dated December 10, 2010 (D.I. 601), Debtors filed a motion to approve a

$1 million settlement with Yale University. The settlement stems from stock that Mr. Mazzuto improperly gifted to Yale. Yale was not aware of any impropriety when receiving the stock. The Bankruptcy Court approved the settlement motion by Order dated December 28, 2010 (D.I. 601). On January 18, 2011, Debtors received the settlement funds.

3. Bankruptcy Litigation.

The Debtors have filed a number of actions in the Bankruptcy Court. They include the following:

• The Company is in active litigation against GSL of Ill., LLC (“GSL”), an entity which purports to be a secured creditor of the Company and PPO. GSL previously filed a replevin action in Pennsylvania state court. The relief obtained by GSL in that Pennsylvania state court action, the manner in which GSL and related parties have pursued such relief, and GSL’s conduct post-filing by the Company are currently being litigated before the Bankruptcy Court. Debtor, PPO, has filed a complaint against Norman Lynn, GSL of Illinois, BLN Capital, and Washington International Insurance. This action alleges conversion of more than $300,000 of debtor inventory and seeks the payment of normal and customary rent of the plant of $1,000 per day during a portion of time that GSL


has occupied the plant. It also seeks an accounting for the sale of assets under the company’s Replevin action. The initial complaint was amended to encompass damages from a fire that occurred at the plant while it was under the custody and control of GSL. The case is currently in discovery, but has been stayed pending the retention of replacement counsel for Pace Reich, P.C.

• Debtor, PPO, has filed a complaint against Koki Laboratories of Akron, OH and its owner John Piscitelli. This action is seeking to recover $599,819.77 of inventory held at Koki. Specifically, debtors allege that Koki and Piscitelli have either improperly converted to their own use, sold, or improperly delivered to third parties $502,093.52 of PPO’s inventory of raw materials and finished products. Debtor also alleges negligence with respect to manufacturing of product for a customer in Dubai and seeks $344,940.00 plus future profits due to the loss of the Dubai customer. Debtor is also seeking $824,000.00 with respect to a fraudulent transfer. The case is currently in discovery, but has been stayed pending the retention of replacement counsel for Pace Reich, P.C.

• Debtor, EMC, has filed a receivables claim against Precision Thermoplastics, Inc.

in the amount of $255,786.68 plus interest for payment of a receivable. A Settlement has been reached and submitted to the Court for approval. It calls for the payment of $100,000 to EMC. The settlement funds have been paid and the case has been closed.

• Debtor, PPO, has filed a receivable claim against Kupey Industries, San Juan, PR

in the amount of $239,614.59. Defendant has defaulted and debtor has been granted a default judgment. Debtors have retained collection counsel in Puerto Rico to collect on the judgment. Kupey is attempting to contest the validity of the default.

• Debtor, IEAM, has filed five adversary actions in the bankruptcy court. Those

actions have alleged that some 6,153,200 shares worth $31,535,425.50 were issued directly from the company’s transfer agent, Computershare, to the defendants at the direct instructions of either John D. Mazzuto or James W. Margulies, Esq. without requisite approval under the terms of an S-8 registration statement that was never effective. Each of the five defendants initially defaulted. After communication from counsel to four defendants, debtor IEAM has agreed to re-open the cases and is allowing defendants to answer. The status of those cases are as follows:

1. LNG Consulting and Lloyd Dohner received 585,000 shares with a value

of over $2.6 million from FY 2005 through FY 2008. Neither defendant responded; a default judgment has been entered. Debtors are in the process of attempting to collect on the judgment. Defendants wrote a letter contesting the validity of the default judgment.


2. Margulies Law received 3.428 million shares with a value of $17.97 million. Of that 2.6 million shares were issued in FY 2007 worth $14.0 million and 800,000 in FY 2008 worth $3.697 million. Margulies Law has responded. Litigation continues.

3. Susan Margulies (wife of James Margulies) received 450,000 shares worth

$1,922,500. Of that 100,000 shares worth $610,000 were issued in FY 2007 and 350,000 worth $1.3 million in FY 2008. On December 6, 2010, defendant filed a motion for judgment on the pleadings (Adv. D.I. 29) which Debtors have opposed. Litigation continues.

4. Brandywine received 1.2 million shares worth $6.6 million. Of that

800,000 shares worth $5.144 million were issued in FY 2007 and 400,000 shares worth $1.5 million in FY 2008. On February 1, 2010, defendant filed a motion to dismiss (Adv. D.I. 14) that was granted, with leave to amend, by Order dated May 11, 2010. IEAM filed its First Amended Complaint on June 25, 2010 (Adv. D.I. 24). Defendant filed a renewed motion to dismiss, to which Debtors objected, and which is now pending before the Bankruptcy Court. Litigation continues.

5. Randy Rosenthal (nominal owner of Brandywine and Margulies and

Levinson paralegal) received 490,050 shares worth $2.670 million. Of that 160,000 shares worth $700,000 were issued in FY 2005 and FY 2006. 330,000 shares worth $1.97 million were issued in FY 2007. The procedural history of this matter is identical to the Brandywine case described above.

• Since at least February 2008, counsel to debtors advised then current management that they were under an affirmative obligation to preserve all company files, including electronic correspondence. That request has not been followed in every instance. No apparent action was taken to preserve various e-mail servers or certain other records. Certain officers and consultants used e-mail accounts where the internet service provider (ISP) was not under contract to one of the debtors. In its effort to recover original documents and records from former officers, employees, consultants, or others; debtors have generally made requests for the voluntary turnover of files and records belonging to the debtors. In certain instances the current management has been forced to file turnover motions under Section 542 of the bankruptcy code. Prior to February 15, 2010, management has made three such requests. They were to Mr. John D. Mazzuto, Dennis O’Neill, and James W. Margulies, Esq. Documents have been received from all of those respondents. Current management is continuing to review the document production.

• After reviewing the production of documents from James Margulies, debtors filed

a contempt motion for Mr. Margulies failure to turn over original corporate records as requested and directed. While the major focus of the motion was Mr. Margulies’ failure to turn over QuickBooks records covering any period beyond


March 31, 2007, there are a number of other issues in dispute. In an affidavit supplied to the court Mr. Margulies has contended he has no additional records. Management disputes that affidavit.

• The hearing on the contempt motion was adjourned. In the interim, Debtor

deposed Mr. Margulies on April 20, 2010. During the course of that Deposition, Mr. Margulies admitted that, despite an instruction to preserve documents: (1) all of his outgoing emails had been deleted; (2) certain incoming emails had been deleted; (3) original company paper files had not been turned over; (4) certain original electronic files had been removed from his office computers; and (5) certain interactive electronic files, specifically Quick Books and excel spreadsheets, had not been turned over.

• In addition Mr. Margulies testified that IEAM had made use of a Margulies and

Levinson IOLTA account at a Cleveland bank and a Margulies Law Group IOLTA account at a brokerage firm. The Debtors have demanded Mr. Margulies turn over a complete accounting of both accounts, particularly with respect to the distributions from those accounts. As of May 26, 2010 the Debtors are still waiting for Mr. Margulies to comply.

• On February 16, 2010, management filed a turnover motion (subsequently

withdrawn) with respect to David Zazoff and ZA Consulting. Management may file additional turnover motions.

• On July 29, 2010, Debtors filed a motion to compel the production of documents

from NASDAQ OMX Group, Inc. (D.I. 496). That motion was granted by Order dated August 23, 2010 (D.I. 518). NASDAQ has complied with the motion. Debtors are reviewing the document production.


from PNC Bank f/k/a National City Bank (D.I. 497). That motion was granted by Order dated August 23, 2010 (D.I. 517). PNC Bank f/k/a National City Bank has partially complied with the motion. Debtors are reviewing the initial document production. Debtors will be requesting additional production of missing documents.


from Wachovia Bank. (D.I. 498). That motion was granted by Order dated August 23, 2010 (D.I. 516). Wachovia Bank has partially complied with the motion. Debtors are reviewing the initial document production. Debtors will be requesting additional production of missing documents.

• On August 30, 2010, Debtors filed a motion to compel the production of documents from Ilene Engelberg (D.I. 520). That motion was granted by Order dated October 8, 2010 (D.I. 545). Engelberg filed a motion to vacate that Order on or about November 5, 2010 (D.I. 562), to which Debtors have objected.


Debtors filed their own motion to enforce on November 12, 2010 (D.I. 564). The hearing on the motion to enforce and motion to vacate have been continued from time to time. Ms. Engelberg has made certain of her computer files available for inspection but this matter has not yet been finally resolved.

• In addition to Margulies and Levinson, Debtors used the services of three primary

law firms. Shortly after the filing of bankruptcy, Debtors requested the turnover of the Company’s original files from each of the three additional firms. Their responses were as follows:

1. Baker & McKenzie – Debtors first requested the turnover of all files from

Baker & McKenzie prior to the filing of bankruptcy. A partner of Baker & McKenzie acted as outside general counsel to the Debtors. In addition, Baker & McKenzie acted as securities counsel and litigation counsel in a variety of matters until the indictment of one of its partners on securities fraud charges in October 2007. Those charges were unrelated to IEAM and concerned activities which occurred prior to his arrival at Baker & McKenzie. During its tenure as counsel, Baker & McKenzie billed an aggregate of $1,745,957.89. Baker & McKenzie has not filed a proof of claim in the bankruptcy case. After significant discussion, Baker & McKenzie, through its outside counsel, provided Debtors with copies of certain paper and electronic files. The Debtors are reviewing the document production.

2. Greenbaum Rowe allowed the Company to inspect files and produced files

of required files on August 9, 2009.

3. Holland & Knight acted as litigation counsel in the Trinity Bui matter and succeeded Baker & McKenzie as securities counsel in October 2007. They billed IEAM an aggregate of $1,656,032.27 in fees. Of this amount $1,473, 149.03 was for the Trinity Bui litigation. An additional $182,883.24 was for acting as the Company’s securities counsel. Holland & Knight has filed a proof of claim for approximately $298,977.42. Based on Debtors’ requests, Holland & Knight provided detailed billing records. However, when Debtors requested the production of selected files and reports related to Holland & Knight’s activities as securities counsel, Holland & Knight refused to produce any documents and amended its proof of claim to note that it was subject to an attorney’s lien. Debtors require the return of all documents, particularly those related to securities advice, and are currently considering how to proceed.

V. THE PLAN OF REORGANIZATION.

A. Plan Summary Introduction.

1. Plan Settlements.


The Plan will implement the terms of (a) the Zyskind Settlement; (b) the DIP Loan

Settlement and (c) the compromise and settlement between the Debtors and OMTAMMOT, LLC with respect to the Prepetition Lender Claims (the “Prepetition Loan Settlement”). To the extent necessary, the Plan constitutes a motion for approval of the Zyskind Settlement, the DIP Loan Settlement and the Prepetition Loan Settlement pursuant to Bankruptcy Rule 9019 and Bankruptcy Code section 1123(b)(3)(A) and consistent with Bankruptcy Code section 1129. The Confirmation Order will constitute an order of the Bankruptcy Court finding and determining that the Zyskind Settlement, the DIP Loan Settlement and the Prepetition Loan Settlement are (i) in the best interests of the Debtors and their estates, (ii) fair, equitable and reasonable, (iii) made in good faith and (iv) approved by the Bankruptcy Court.

2. Limited Consolidation.

For the purposes of consummating the Plan, including for purposes of voting,

Confirmation and distributions to be made under the Plan, the Debtors will seek authority under Bankruptcy Code section 105 consolidating the Debtors solely with respect to Claimants who hold Class D General Unsecured Claims. The Plan will serve as a motion seeking entry of an order consolidating the Debtors, solely with respect to Class D General Unsecured Claims for such limited purposes.

B. Classification and Treatment of Claims and Interests. In accordance with Bankruptcy Code section 1123(a)(1), the DIP Loan Claims,

Administrative Claims and Priority Tax Claims have not been classified, and the respective treatment of such unclassified Claims is set forth in Article V.B.1 below. All Claims and Interests other than the DIP Loan Claims, Administrative Claims, and Priority Tax Claims have been placed in the Classes set forth in Article V.B.2 below.

GSL was a secured creditor, whose security was limited to the value of its equipment,

when PPH filed for protection under Chapter 11. GSL has not yet submitted a report of its August 2009 auction and prior sales. It is impossible for IEAM to determine whether GSL’s secured claims satisfied by the sale. To the extent that there excess proceeds, they would revert to the Debtor. To the extent there was a deficiency, it is the Debtor’s position that the deficiency would become an unsecured claim and be added to Class D Claims.

With the exception of Omtammot’s claims, the GSL claim is the only secured claim of

which Debtors are aware.

1. Treatment of Unclassified Claims Under the Plan.

a. DIP Loan Claims. Pursuant to the DIP Loan Settlement, on or before the Effective Date, each holder of an

Allowed DIP Loan Claim shall receive in full satisfaction, settlement, release and discharge of, and in exchange for, its Allowed DIP Loan Claim an amount of Preferred A Shares of


Reorganized IEAM (the “Preferred A Shares”) equal to one (1) Preferred A Share for each one dollar ($1.00) of Allowed DIP Loan Claims. Each Preferred A Share shall accrue interest at a rate of seven percent (7%) per annum from the Effective Date until payment, and such interest shall accrue and shall only be payable upon payment via the liquidation preference outlined in the succeeding sentence. The Preferred A Shares shall have a liquidation preference equal to one dollar ($1.00) for each Preferred A Share plus all interest accrued thereon from the Effective Date through the date of payment. The Preferred A Shares shall have a liquidation preference over the Preferred B Shares of Reorganized IEAM (the “Preferred B Shares”), the Preferred C Shares of Reorganized IEAM (the “Preferred C Shares”) and any newly issued Common Stock. The Preferred A Shares may be convertible to additional shares of New Common B Stock of Reorganized IEAM (the “New Common B Stock”) (at a conversion rate equal to 30 million Shares of New B Common Stock divided by the aggregate amount of issued Preferred A Shares) at any time upon the sole discretion of the holder of the Series A Preferred Stock. The Preferred A shares will be voting shares.

b. Administrative Claims.

Except to the extent that an Allowed Administrative Claim has been paid prior to the

Effective Date, each holder of an Allowed Administrative Claim shall receive payment of the amount of such Allowed Administrative Claim in Cash on the Effective Date, or as soon as reasonably practicable thereafter, or immediately after entry of an order approving an application therefor if after the Effective Date, in full satisfaction, settlement, release and discharge of, and in exchange for, such Allowed Administrative Claim.

c. Priority Tax Claims.

Except to the extent that an Allowed Priority Tax Claim has been paid prior to the

Effective Date, each holder of an Allowed Priority Tax Claim shall receive in full satisfaction, settlement, release and discharge of, and in exchange for, such Allowed Priority Tax Claim, equal monthly payments over a period of five (5) years from the Effective Date in an aggregate principal amount equal to the face amount of such Allowed Priority Tax Claim, with interest on the unpaid portion thereof at the rate of interest determined under applicable nonbankruptcy law as of the calendar month in which the Plan is confirmed.

2. Treatment of Classified Claims and Interests Under the Plan.

a. Class A. Non-Tax Priority Claims.

Except to the extent that an Allowed Non-Tax Priority Claim has been paid prior to the

Effective Date, each holder of an Allowed Non-Tax Priority Claim shall receive in full satisfaction, settlement, release and discharge of, and in exchange for, such Allowed Non-Tax Priority Claim, payment of the amount of such Non-Tax Priority Claim in Cash on the Effective Date or as soon as reasonably practicable thereafter.


Non-Tax Priority Claims are Unimpaired under the Plan and are accordingly not entitled to vote on the Plan. The Debtors estimate that Allowed Non-Tax Priority Claims will be in the approximate aggregate amount of $102,864.00.

b. Class B. Convenience Claims.

On the Effective Date, or as soon as reasonably practicable thereafter, each holder of an

Allowed Convenience Claim shall receive in full satisfaction, settlement, release and discharge of, and in exchange for, such Allowed Convenience Claim, payment of the amount of such Allowed Convenience Claim in Cash.

Convenience Claims are Unimpaired under the Plan and are accordingly not entitled to

vote on the Plan. The Debtors estimate that Allowed Convenience Claims will be in the approximate aggregate amount of $160,000.00.

c. Class C. Prepetition Lender Secured Claims.

The Allowed Prepetition Lender Secured Claims shall be bifurcated into a secured and

unsecured portion pursuant to Bankruptcy Code section 506. Pursuant to the Prepetition Loan Settlement, OMTAMMOT, LLC and the Debtors have agreed that the value of the Debtors' property subject to liens securing the Allowed Prepetition Lender Secured Claims is Two Million Two Hundred Thousand Dollars ($2,200,000).

The Pitt Penn Oil facility, based on the last written appraisal done in June of 2006, was

appraised for $2,633,000. This appraisal was requested, by the lender, for the purpose of asset valuation while securing credit lending. It would be reasonable to assume, since the property is in the Northern Allegheny Development corridor that the property value has increased by an average of eight percent per year up until last year. This would add 30 percent to the value making the facility worth approximately $3,400,000. While GSL, a secured creditor, was in possession of the facility a fire occurred on September 9th, 2009. These damages would reduce the present value of the building. The structural damages may involve approximately 35 percent of the building reducing the net present value to $2,200,000. There are some additional damages but they are more cosmetic and should not affect the valuation as would the structural repairs that are required. As the insurance company has not accepted coverage, nor tendered an offer, it is impossible to determine the certainty and the amount of funding that is forthcoming. However, once those funds are recovered and the repairs are completed, this facility should exceed the full value of the appraised amount of $3,400,000 due to the newer construction and modernization. In addition to the devaluation caused by the fire, the debtor (GSL) also removed piping, conduit and catwalks that were not part of their collateral. This amount of stolen materials may exceed $100,000. A suit has been filed to recover these damages but neither the exact sum of these funds, nor the timing of their receipt, can accurately be included in the present valuation.

The inventory that was located, at the facility in Creighton, had an estimated value of over $1,000,000 (book value). This valuation anticipated an active and ongoing marketplace for the use of these products. However, since GSL took over the facility, there was a theft of approximately $245,000 of raw product inventory ( as described by GSL) and, after we were


given access to assess our inventory, we found an additional amount of inventory missing. We feel this amount is in excess of $400,000. We are unable to be specific on these amounts since our original records were taken by GSL. The remaining inventory is either smoked damaged from the fire or is of little value because it is raw materials for specific private labeled products that we no longer contract for. The value of our inventory that was in the Koki plant, in Ohio that was approximately $600,000 was found to be short by $503,000 when we inventoried those items one year ago. We feel, after having agents sell whatever was salvageable, and evaluating the balance of inventory in both plants that the present value of inventory that remains is less than $100,000. The recovery of the stolen inventory, while uncertain, could be substantial.

On the Effective Date, or as soon as reasonably practicable thereafter, the Prepetition

Loan Collateral shall be liquidated and all the proceeds thereof shall be remitted to OMTAMMOT, LLC in full satisfaction, settlement, release and discharge of, and in exchange for, the secured portion of the Allowed Prepetition Lender Secured Claims. The Allowed deficiency Claim of OMTAMMOT, LLC shall be treated as a Class D Claim.

Prepetition Lender Secured Claims are Impaired under the Plan and are accordingly entitled to vote on the Plan. Pursuant to the terms of the Prepetition Loan Settlement, Prepetition Lender Secured Claims will be Allowed in the aggregate amount of $2,200,000.00.

d. Class D. General Unsecured Claims.

On the Effective Date, or as soon as reasonably practicable thereafter, each holder of an Allowed General Unsecured Claim shall receive in full satisfaction, settlement, release and discharge of, and in exchange for, such Allowed General Unsecured Claim:

(i) Cash in an amount equal to the lesser of (A) two percent (2%) of the amount of

such Allowed General Unsecured Claim or (B) $200,000.00 to be distributed Pro Rata to the holders of Class D Claims; plus an amount of Preferred B Shares to be issued on a Pro Rata basis equal to the greater of (A) ninety-eight percent (98%) of the amount of such Allowed General Unsecured Claim or (B) the total amount of all Allowed General Unsecured Claims in Class D less $200,000.00. One (1) Preferred B Share shall be issued on account of each one dollar ($1.00) of Allowed General Unsecured Claims. The Preferred B Shares shall not accrue interest or otherwise be convertible. The Preferred B Shares shall have a liquidation preference equal to one dollar ($1.00) for each Preferred B Share. The Preferred B Shares shall have a liquidation preference over the Preferred C Shares and any newly issued Common Stock. When the net cash balances of Reorganized IEAM are equal to or greater than the preference amounts of Preferred A Shares and Preferred B Shares, Reorganized IEAM may in its sole discretion liquidate the Preferred B Shares. In addition, the holders of Preferred B Shares may require Reorganized IEAM to liquidate the Preferred B Shares.

When the net cash balances of Reorganized IEAM are equal to or greater than the

preference amounts of Preferred A Shares and Preferred B Shares, Reorganized IEAM may in its sole discretion liquidate the Preferred B Shares in whole or in part. In addition, the holders of Preferred B Shares may require Reorganized IEAM to liquidate the Preferred B Shares. When


the cash and cash equivalents of litigation and asset recovery are in excess of 140% of the combined book value of the DIP Loan, Series A, Series B and Series C preferred.

General Unsecured Claims are Impaired under the Plan and are accordingly entitled to

vote on the Plan. The Debtors estimate that Allowed General Unsecured Claims will be in the approximate aggregate amount of $11,219,388.00.

e. Class E. Existing IEAM Interests.

The Existing IEAM Interests shall be deemed cancelled and extinguished as of the Effective Date. On, or as soon as reasonably practicable after the Effective Date, each holder of an Allowed Existing IEAM Interest shall receive its Pro Rata share of 30 million shares of New Common B Stock, to be issued by Reorganized IEAM.

Existing IEAM Interests are Impaired under the Plan and are accordingly entitled to vote

on the Plan. The Debtors estimate that liquidation preference of Allowed Existing IEAM Interests will be in the approximate aggregate amount of $0.00.

f. Class F. Subordinated Claims.

To the extent that monetary damages are assessed against any of the Debtors arising from

any claim for damages for the purchase or sale of any securities of any of the Debtors, and to the extent such damages are not paid by any insurance, in accordance with the provisions of 510(b) of the Code, such monetary damages shall treated by the issuance of Preferred C Shares. One (1) Preferred C Share shall be issued on account of each one dollar ($1.00) of Allowed Subordinated Claims. The Preferred C Shares will not accrue interest or otherwise be convertible; however, the Preferred C Shares shall have a liquidation preference over New Common Shares of Reorganized IEAM. Preferred C shares will be voting shares.

Subordinated Claims are Impaired under the Plan and are accordingly entitled to vote on

the Plan. The Debtors estimate that Allowed Subordinated Claims will be in the approximate aggregate amount of $0.00.

g. Class G. Non-IEAM Interests.

All Non-IEAM Interests shall be deemed cancelled and extinguished as of the Effective Date, and the holders of all Non-IEAM Interests shall not receive or retain any property or interest in property under the Plan on account of such Non-IEAM Interests.

Non-IEAM Interests are Impaired under the Plan and are not entitled to vote on the Plan.

C. Limited Consolidation. The Debtors believe that absent the compromises and settlements embodied in the

Prepetition Loan Settlement, the holders of General Unsecured Claims and Interests would not


be entitled to receive any distributions under the Plan due to the valuation of the Debtors’ prepetition secured debt. Therefore, for the purposes of consummating the Plan, including for purposes of voting, Confirmation and distributions to be made under the Plan, the Debtors respectfully request that the Court deem the Plan to serve as a motion under Bankruptcy Code section 105 consolidating the Debtors solely with respect to Claimants who hold Class D General Unsecured Claims and solely for the limited purposes described herein. In addition to the compromises and settlements embodied in the Prepetition Loan Settlement, the Debtors believe that the limited consolidation sought under the Plan is further warranted by the widespread disregard of corporate formalities, fraudulent reporting and other extensive misconduct engaged in by members of the Debtors’ former management as detailed in Article IV of this Disclosure Statement.

The Debtors have been organized in a holding company structure. As noted in Section

IV of both the Debtors’ Initial Disclosure Statement and the Debtors’ First Amended Disclosure Statement, IEAM’s organizational history was last described in a Form 10-KSB Amendment 1-FY 2006, Filed December 28, 2007. That document disclosed the following:

• IEAM originally operated as a holding company with four (4) wholly owned

subsidiaries, Pitt Penn Holding Inc., a Delaware corporation ("PPH"), EMC Packaging, Inc., a Delaware corporation ("EMC"), Unifide Industries Limited Liability Company, a New Jersey limited liability company ("Unifide"), and Todays Way Manufacturing, LLC, a New Jersey limited liability company ("Todays Way").

• PPH, through its wholly owned subsidiary Pitt Penn Oil Co., LLC, an Ohio

limited liability company (“Pitt Penn”), was a leading manufacturer, marketer and seller of automotive chemicals and additives.

The commentary in both Disclosure Statements indicates that prior management’s

compliance with appropriate Corporate Governance procedures was virtually nonexistent. Current management has been required to file turnover motions and a contempt motion to secure basic corporate records including documents relating to a variety of inter-company loans and obligations.

While the vast majority of the Debtors collective claims relate to transactions occurring at the Corporate Parent, there are a vast number of unsecured claims payable to trade creditors at the subsidiary level.

Current management believes that because of a secured borrowing of more than

$4.6 million and the lack of collateral at the subsidiary level, unsecured creditors below the parent level would have zero recovery in the absence of substantive consolidation.

Unless an objection to such limited consolidation is filed with the Court by any party in

interest and served on the Debtors and OMTAMMOT, LLC on or before five (5) days before the voting deadline (or such other date as ordered by the Bankruptcy Court), an order authorizing limited consolidation to the extent described herein may be entered by the Bankruptcy Court. If


any objections are timely filed, a hearing with respect to such objections shall be held at or prior to the Confirmation Hearing at the direction of the Bankruptcy Court.

D. General Provision Applicable to All Classes.

Notwithstanding any other provision of the Plan specifying a date or time for the

distribution of any payment to any holder of a Claim or Interest, payments and distributions in respect of any Claim or Interest which at such date or time is disputed, unliquidated or contingent shall not be made until such Claim or Interest becomes an Allowed Claim or Allowed Interest, whereupon such payments shall be made promptly in accordance with Article 3.12 of the Plan. Except as otherwise explicitly provided in the Plan, nothing shall affect the Debtors’, Reorganized IEAM’s or any party in interest’s rights or defenses, both legal and equitable, with respect to any Claims, and the rights of such Persons to object to the allowance of any Claim is expressly preserved in the Plan.

E. Treatment of Contested Claims and Claims Arising Under Section 502(c).

No payment will be made on the disputed portion of a claim until thirty (30) days after

the claim is allowed by non-appealable Order of the Bankruptcy Court. Any claims subject to Section 502(c) of the Bankruptcy Code shall be estimated and allowed to the extent provided in the Plan for claims in the same class. Claims arising under Section 502(c) include contingent or unliquidated claims, which if not fixed or liquidated would unduly delay the administration of this proceeding, and right to payment arising from a right to an equitable remedy for breach of performance.

VI. PAYMENTS UNDER THE PLAN.

Because the Debtors’ assets after the Plan is consummated will likely exceed their

liabilities the shares of stock will have some value. However, the Debtors desire that if they are successful in the future that their creditors will be able to benefit from that success.

A. Transfers of the Stock of Reorganized IEAM.

Section 1145 of the Bankruptcy Code provides an exemption from registration, pursuant

to the Securities Act of 1933, of the stock being issued pursuant to the Plan. Although the Debtors believe that the holders of Claims and Interests who receive such stock as a distribution pursuant to the Plan are entitled to transfer such stock to third parties without any additional regulatory compliance, holders of Claims and Interests under the Plan should seek appropriate legal advice in determining their stock transfer rights.

B. Ownership of Shares After Distribution Under the Plan.

If the Plan is confirmed, the corporate charter of IEAM will be amended to authorize the

necessary shares of Preferred and New Common Stock to comply with the terms of the Plan.


The Debtors estimate that Reorganized IEAM will issue approximately 30,000,000 shares of the new common stock to current shareholders of the common stock of IEAM. It will also issue approximately 2,000,000 shares Preferred A stock, 13,000,000 shares of Preferred B and an unknown number of shares of Preferred C.

VII. MEANS FOR IMPLEMENTATION OF THE PLAN

A. Continued Corporate Existence and Reorganization of IEAM. The Debtors shall continue to exist as the Reorganized Debtors after the Effective Date as

separate legal entities, in accordance with the applicable laws in the respective jurisdictions in which they are incorporated or otherwise organized and pursuant to their respective corporate governance documents. In addition, the corporate governance documents of each Reorganized Debtor shall be amended to authorize and effect the issuance of the new stock or other respective corporate interests necessary to maintain the corporate structure of the Reorganized Debtors. On the Effective Date, all remaining assets of each Debtor shall be transferred and vest in each respective Reorganized Debtor.

B. Disbursement.

All distributions under the Plan on account of Allowed Claims and/or Interests shall be made by the Debtors or the Reorganized Debtors. The Debtors may, in their sole discretion, make distributions to any Class of creditors or interest holders in advance of the time provided for in the Plan.

C. Default.

No default by any Debtor under the Plan shall be deemed to have occurred until forty-five (45) days after such Debtor receives written notice of its failure to make a payment required under the Plan or if, prior to the expiration of such 45-day period, the Debtor makes such payment. Except as noted above, no Claimant shall receive interest on account of such Claimant’s Allowed Claims.

D. Cash Payments.

All Cash payments to be made on or after the Effective Date provided for in the Plan shall be made from Cash in the Debtors’ bank or operating accounts on the Effective Date. All other Cash payments shall be made from the operating proceeds of Reorganized IEAM.

E. Borrowing.

Reorganized IEAM may borrow such additional amounts under the 2010 Debtor In Possession Loan or under such other facilities as agreed to by the proposed lender, Reorganized IEAM, and the holders of the Preferred A Shares as deemed necessary to fund all payments due on or after the Effective Date.


F. Preservation and Pursuit of Causes of Action, Including Avoidance Actions.

Except as otherwise provided in the Plan, the Confirmation Order, or in any contract, agreement or other document entered into in connection with the Plan, in accordance with Bankruptcy Code section 1123(b), on the Effective Date, each Debtor or Reorganized Debtor shall retain all of the respective Causes of Action, including all Avoidance Actions, that such Debtor or Reorganized Debtor may hold against any Person, including, but not limited to, those Causes of Action set forth in Schedule A attached to the Plan. The Debtors or Reorganized Debtors may enforce, sue on, settle, or compromise all such Causes of Action, or may decline to do any of the foregoing with respect to any such Causes of Action. The failure of the Debtors to specifically list any Causes of Action in the Plan or in Schedule A to the Plan does not, and will not be deemed to, constitute a waiver or release by the Debtors of such Causes of Action, and the Debtors and Reorganized Debtors shall retain the right to pursue additional Causes of Action. The Debtors or Reorganized Debtors, or their respective successors, may pursue all such retained Causes of Action as appropriate, in accordance with the best interests of the Reorganized Debtors or their successors who retain such actions in accordance with applicable law and consistent with the terms of the Plan.

VIII. REJECTION AND ASSUMPTION OF EXECUTORY CONTRACTS AND

UNEXPIRED LEASES. The Plan provides that except as otherwise provided in the Plan, or in any contract,

agreement or other document entered into in connection with the Plan, as of the Confirmation Date each of the Debtors shall be deemed to have rejected all executory contracts and unexpired leases other than those specifically assumed on or before the Confirmation Date or that are otherwise subject to a motion to assume that is pending on or before the Confirmation Date, pursuant to Bankruptcy Code section 1123(b)(2).

If the rejection of an executory contract or unexpired lease gives rise to a Rejection

Damages Claim, such Rejection Damages Claim shall be forever barred and shall not be enforceable against the applicable Debtor or its estate, or their respective successors or properties unless a Proof of Claim shall be filed with the Clerk of the Court, within thirty (30) days after the Claim is deemed rejected. If a Rejection Damages Claim becomes an Allowed Claim then it shall be classified as a General Unsecured Claim pursuant to the Plan.

IX. ALLOWED AMOUNT OF CLAIMS AND INTERESTS. A. Generally. A Claim against or Interest in one or more of the Debtors may be recognized as follows:

(1) the listing of a Claim by a Debtor in its Schedules, where such scheduled Claim is not listed as: (a) disputed, (b) contingent or (c) unliquidated; or (2) the filing of a Proof of Claim or Proof of Interest by the holder of such Claim or Interest in the time, form and manner approved by the Bankruptcy Court.


By order of the Bankruptcy Court, September 8, 2009 was fixed as the last day for the filing of Proofs of Claim by non-governmental creditors against the Debtors. For governmental creditors, the bar date was set as November 2, 2009. Due notice of this date was furnished to all creditors, Interest holders and other parties in interest. If a Claimant whose Claim has been scheduled by one of the Debtors timely files a Proof of Claim, the Proof of Claim supersedes the Claim of the Claimant as scheduled by that Debtor, unless objected to by the Debtors.

Pursuant to Rule 3003(b)(1) of the Bankruptcy Rules, a Debtor's Schedule of Liabilities

constitutes prima facie evidence of the validity and amount of scheduled Claims. However, if timely objected to, such Claims will be Disallowed or Allowed in amounts fixed by Order of the Bankruptcy Court.

B. Administrative Claims. All Administrative Claim requests, other than Professional fee claims, must be filed with

the Court and served on the Debtors or the Reorganized Debtors and their respective counsel, as applicable, no later than forty-five (45) days after the Effective Date. In the event that the Debtors or the Reorganized Debtors object to an Administrative Claim, the Court shall determined the Allowed amount of such Administrative Claim.

C. Professional Fee Claims. All final requests for compensation or reimbursement of fees and expenses pursuant to

Bankruptcy Code sections 327, 328, 330, 331, 503(b) or 1103 for services rendered to the Debtors prior to the Effective Date must be filed with the Bankruptcy Court and served on the Debtors or the Reorganized Debtors and their respective counsel, as applicable, no later than forty-five (45) days after the Effective Date, unless otherwise ordered by the Bankruptcy Court. Objects to applications of such Professionals or other entities for compensation or reimbursement of fees and expenses must be filed and served on the Debtors or the Reorganized Debtors and their respective counsel, as applicable, and the requesting Professional or other entity no later than forty-five (45) days (or such longer period as may be allowed by order of the Bankruptcy Court) after the date on which the applicable application for compensation or reimbursement was served. X. TAX CONSEQUENCES.

If the Debtors’ Plan is confirmed by the Bankruptcy Court, there may be tax consequences which could affect individual holders of Claims or Interests. The tax consequences of the treatment of several Classes of Claims and Interests under the Plan are uncertain. Accordingly, holders of Claims and Interests are urged to consult with an independent tax advisor regarding such implications and how they may affect such individual holders based on their individual circumstances.

XI. DISCHARGE OF DEBTORS; INJUNCTION

A. Discharge Upon Confirmation.


Pursuant to Section 1141 of the Bankruptcy Code, upon Confirmation of the Plan and

vesting of all assets, except as otherwise expressly provided under the Plan, the Debtors will be discharged of all claims and liabilities that arose prior to the Confirmation Date.

B. Discharge Injunction. All entities which have held, hold, or may hold Claims against any of the Debtors, are

permanently enjoined, on and after the Effective Date, from (a) commencing or continuing in any manner any action or other proceeding of any kind with respect to any such Claim, (b) the enforcement, attachment, collection or recovery by any manner or means of any judgment, award, decree or order against any of the Debtors on account of any such Claim, (c) creating, perfecting or enforcing any encumbrance of any kind against any of the Debtors or against the property or interest in property of any of the Debtors on account of any such Claim, (d) asserting any right of setoff, subrogation or recoupment of any kind against any obligation to or from any of the Debtors or against the property or interests in property of any of the Debtors and (e) commencing or continuing in any manner any action or other proceeding of any kind with respect to any Claim.

XII. JURISDICTION OF BANKRUPTCY COURT AFTER CONFIRMATION.

The Bankruptcy Court shall retain jurisdiction of the chapter 11 cases for the purposes of

Bankruptcy Code sections 105(a), 1127 and 1142(b) and for the following additional purposes: (i) To hear and determine all Objections to the allowance or disallowance of any and

all Claims or Interests;

(ii) To hear and determine all motions to estimate Claims; (iii) To hear and determine all motions to subordinate any and all Claims or Interests; (iv) To hear and determine all matters relating to the assumption and rejection of any

executory contract or unexpired lease, including, but not limited to, any cure payments or Claims for rejection damages arising therefrom;

(v) To determine applications for allowance of compensation and reimbursement of

expenses by Professionals; (vi) To enforce and interpret the Plan, to resolve any disputes arising under or in

connection with the Plan, to effectuate payments under the Plan and/or to compel performance of any Person in accordance with the provisions of the Plan.

(vii) To correct any defect, to cure any omission or to reconcile any inconsistency in the Plan or in the Confirmation Order as may be necessary or advisable to carry out the intents and/or purposes of the Plan;


(viii) To determine such other matters and for such other purposes as may be provided in the Confirmation Order or otherwise deemed appropriate to accomplish its intents and purposes;

(ix) To enforce all orders, judgments, injunctions, releases, exculpations,

indemnifications and rulings entered in connection with the Case and the Plan; purposes;

(x) To recover all assets of the Debtors and property of the Debtors’ estates; (xi) To adjudicate all Litigation Cases and Causes of Action brought in the

Bankruptcy Court either prior to or subsequent to the Effective Date; and (xi) To enter a Final Order closing the chapter 11 cases.

XIII. LIQUIDATION ANALYSIS AND DISCUSSION.

The purpose of this section is to provide an analysis of a hypothetical liquidation of all of the Debtors’ assets by a disinterested trustee in bankruptcy under the provisions of Chapter 7 of the Bankruptcy Code. A Chapter 7 liquidation of the Debtors would provide that all of the Debtors’ property would be sold for cash, and payments would be made to creditors in accordance with the priorities set forth in section 507 of the Bankruptcy Code, and then to general unsecured creditors and interest holders. A Chapter 7 liquidation would take more time and in this case could take several years to complete all potential litigation. A disinterested trustee would need time to learn about the assets and affairs of the Debtors before he/she could make a distribution to creditors. There is no way to quantify the additional amount of time before a distribution could be made. In addition, a Chapter 7 trustee may wish to conduct an investigation into the Debtors’ affairs, and may retain attorneys and accountants to render assistance in such investigation. The fees and disbursements of the Chapter 7 trustee and his or her attorneys and accountants would be treated as administrative expenses of the Chapter 7 phase of this case, which have a priority over all other administrative expenses and claims of creditors. Thus, a Chapter 7 liquidation would almost certainly increase the costs of the bankruptcy, although there is no way to quantify the extra costs. The trustee's investigation would likely reveal the existence of potential lawsuits that could be commenced against certain creditors to recover preferential payments made by the Debtors within the 90 days prior to the filing of the Chapter 11 petitions. The trustee may also commence other lawsuits in an effort to increase the amount of money available for distribution to creditors.

One of the Debtors’ most valuable assets is the net operating loss carry forward which the

Debtors estimate to be in excess of $100,000,000. Because a Chapter 7 liquidation does not provide for debtor reorganization, this asset would be destroyed if the Chapter 11 cases were to be converted to cases under Chapter 7. In addition, the Debtors currently intend to continue litigation already commenced and to initiate substantial additional litigation. The Debtors believe that they are in far better position to realize on such litigation than a Chapter 7 trustee.


The only hard assets available for liquidation in a Chapter 7 liquidation would be the Debtors’ existing inventory, accounts receivable, and real estate. All of the proceeds of such hard assets are subject to the liens of the secured creditor and therefore would not be available to satisfy other Claims or Interests.

The proposed Plan currently provides that holders of General Unsecured Claims will

receive a distribution of the lesser of a 2% recovery in cash or pro rata share of $200,000.00 as well as the issuance of Class B preferred stock. After evaluating the differences between the Plan and a Chapter 7 liquidation, the Debtors believe that the Plan offers a more favorable treatment to General Unsecured Creditors. Although in a Chapter 7 liquidation lawsuits brought by a trustee may result in additional recoveries, a Chapter 7 liquidation of the Debtors would surely involve a delay in any distribution to creditors and the incurrence of additional costs of administering the bankruptcy.

It is most important to note that pursuant to the Prepetition Loan Settlement, the secured

creditor whose claim is in excess of $4,800,000.00 has agreed that it will receive only $2,200,000.00 and will take only the same Preferred B shares as all other general unsecured creditors for the balance of its Claim. In addition, pursuant to the DIP Loan Settlement, the Debtor-in-Possession lenders who by the confirmation date will have loaned to the Debtors up to $1,800,000.00 have agreed to take only Class A preferred shares and no cash whatsoever.

A. Liquidation Analysis/Miscellaneous Bankruptcy Provisions. As previously noted, the Debtors are organized in a holding company structure. IEAM,

the parent, is the direct owner of four subsidiaries, PPH, EMC, Unifide and Today’s Way. Of these four subsidiaries only EMC has had significant economic activity since January 2007. The vast majority of economic activity occurred at PPO, which is a 100% owned subsidiary of PPH.

Each of the Debtors is jointly and severally liable for the payment of a secured loan of

approximately $4.9 million. At the subsidiary level, proofs of claim totaling about $3.2 million have been filed on behalf of unsecured creditors.

At the parent level, a contingent claim of $50.0 million has been filed by Plaintiff

attorneys in the class action; in addition, unsecured creditors have filed proofs of claim of just under $13.4 million.

Administrative Claims of approximately $370,000 have also been filed. The breakdown is shown in the following table12:

12 This table includes claims filed through February 17, 2010, including at least 15 claims filed well beyond the bar date which will be objected to.


Proof of Claim

TotalProofs of

Contingent Claims Filed

Schedule D Creditors Holding Secured Claims

IEAM - 4,806,239.68 Pitt Penn Holding - 4,806,239.68 Pitt Penn Oil - 5,003,287.15 EMC - 4,806,239.68 Unifide - 4,982,039.68 Todays Way - 4,806,239.68

Schedule E Creditors Holding Unsecured Priority Claims

IEAM - - Pitt Penn Holding - 126,835.63 Pitt Penn Oil - 316,031.92 EMC - 3,630.19 Unifide - 441,256.30 Todays Way - 52,252.50

Schedule F Creditors Holding Unsecured Non-Priority Claims

IEAM 50,000,000.00 13,378,022.40 Pitt Penn Holding - 259,544.38 Pitt Penn Oil - 1,870,382.01 EMC - 236,969.02 Unifide - 855,342.34 Todays Way - 16,524.30

Total 50,000,000.00 16,616,784.45

Original Filings

Excluding the contingent claim, the total of unsecured Claims filed is just over $16.6 million. In addition to those claims, the Debtors have incurred additional obligations post filing, including DIP loans of $800,000, legal fees and deferred management compensation and expenses.

At this time, current management’s best estimates are that the net realizable value of

collateral will be $2.2 million. The vast majority of any recovery would be dependent on the success of complex litigation at the parent level involving the improper issuance of securities by former management.

In Chapter 7 liquidation, management estimates that the unsecured creditors of all of the

subsidiaries will not receive any recovery, as they may have no entitlement to litigation claims at the parent level. Further, as most of the Debtors’ creditors are trade creditors of PPO, if current management is successful in pursuing fire and other claims and reopens the Creighton facility, such trade creditors may benefit from future business.


While management is actively pursuing claims against the former EMC management, it is unlikely that any manufacturing of aerosol would be restarted at EMC. Management would utilize Spray Manufacturing to fulfill orders if, upon further review and analysis, management makes the determination that it would make economic sense to serve the Debtors’ former aerosol customers.

The ability of the holders of the remaining unsecured Claims at the parent level, which

total just under $13.4 million, to recover is dependent on recovery in the securities litigation. Current management also disputes the vast majority of these claims.

XIV. OPERATING PROJECTIONS.

At this juncture, it is still too early for the Debtors to provide operating projections which

have any degree of certainty. The Debtors also believe that the probability of inaccuracy at this time is not slight and therefore do not express any opinion as to a re-start date. Any re-start of operations depends heavily on the assessment and recovery of damages from the fire that occurred at the Creighton facility on September 3, 2009. The amount of damage and the recovery of damages, either from the insurance company or from GSL, et al., are a critical element of the Debtors’ ability to re-start operations at the Creighton facility. To a large extent, the Debtors’ ability to fund operations and to pay Claims is also highly dependent on the success of various adversary and other plenary actions.

The Debtors have filed a motion to retain the services of Thomas Alexander and

Forrester, LLP (“TAF”) to act as lead trial counsel in recovering claims. That retention application was approved by the Bankruptcy Court on February 16, 2010. Although TAF has a broad understanding of the Causes of Action against third parties, the Debtors are currently in the process of determining the litigation and negotiating strategy with respect to the Causes of Action. It has been, and continues to be, the intention of current management to advise potential defendants of the underlying facts and request the return of the proceeds of any and all improperly issued shares. One of the purposes in retaining TAF was to expedite this process and enhance the prospect of recovery.

XV. CONCLUSION.

In sum, the Debtors believe that the Plan offers their creditors more money sooner, and

that the creditors should accordingly vote to accept the Plan.

DATED: February 11, 2011

Industrial Enterprises of America, Inc.

By: /s/Robert L. Renck, Jr. Robert L. Renck, Jr.