U.S. Securities and Exchange Commission
Washington, D.C. 20549
Amendment No. 2
Form 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 2004 Commission File Number 1-13776
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GreenMan Technologies, Inc.
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(Exact name of small business issuer as specified in its charter)
Delaware 71-0724248
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7 Kimball Lane, Building A, Lynnfield, MA 01940
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (781) 224-2411
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(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Number of shares outstanding as of August 1, 2004
Common Stock, $.01 par value: 19,072,963 shares
1
GreenMan Technologies, Inc.
Form 10-QSB
Quarterly Report
June 30, 2004
Table of Contents
PART I - FINANCIAL INFORMATION Page
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Item 1. Financial Statements (*)
Unaudited Consolidated Balance Sheets as of June 30, 2004 and
September 30, 2003 3
Unaudited Consolidated Statements of Operations for the
three and nine months ended June 30, 2004 and 2003 4
Unaudited Consolidated Statement of Changes in
Stockholders' Equity for the nine months ended June 30, 2004 5
Unaudited Consolidated Statements of Cash Flows for the nine
months ended June 30, 2004 and 2003 6
Notes to Unaudited Consolidated Financial Statements 7-16
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 17-27
Item 3. Controls and Procedures 27
PART II - OTHER INFORMATION
Item 2. Changes in Securities 28-29
Item 4. Submission of Matters to a Vote of Security Holders 29
Item 6. Exhibits and Reports on Form 8-K 30-31
Signatures 32
* The financial information at September 30, 2003 has been taken from
audited financial statements at that date and should be read in
conjunction therewith. All other financial statements are unaudited.
2
GreenMan Technologies, Inc.
Unaudited Consolidated Balance Sheets
June 30, September 30,
2004 2003
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents .......................................................... $ 3,229,981 $ 990,745
Accounts receivable, trade, less allowance for doubtful accounts
of $170,177 and $148,031 as of June 30, 2004 and September 30, 2003 ............ 3,743,553 3,368,435
Insurance claim receivable ......................................................... -- 634,172
Note receivable officers ........................................................... -- 179,172
Product inventory .................................................................. 943,531 112,419
Other current assets ............................................................... 1,244,451 1,119,872
------------ ------------
Total current assets ......................................................... 9,161,516 6,404,815
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Property, plant and equipment, net ................................................... 10,837,314 11,249,706
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Other assets:
Deferred loan costs ................................................................ 676,514 221,931
Goodwill, net ...................................................................... 3,413,894 3,413,894
Customer relationship intangibles, net ............................................. 225,425 234,875
Deferred income taxes .............................................................. 270,000 270,000
Other .............................................................................. 473,846 299,699
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Total other assets ........................................................... 5,059,679 4,440,399
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$ 25,058,509 $ 22,094,920
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, current ............................................................. $ 1,773,749 $ 3,748,663
Convertible notes payable, current ................................................. 2,709,248 --
Accounts payable ................................................................... 4,288,636 4,350,643
Accrued expenses, other ............................................................ 1,495,642 1,384,652
Notes payable related parties, current ............................................. -- 520,000
Obligations under capital leases, current .......................................... 279,729 423,228
------------ ------------
Total current liabilities .................................................... 10,547,004 10,427,186
Notes payable, related parties, non-current portion ................................ 723,320 975,000
Notes payable, non-current portion ................................................. 3,283,777 5,726,958
Convertible notes payable, non-current portion ..................................... 2,791,860 --
Obligations under capital leases, non-current portion .............................. 3,001,427 1,986,828
Deferred gain on sale leaseback transaction ........................................ 428,226 --
------------ ------------
Total liabilities ............................................................ 20,775,614 19,115,972
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Stockholders' equity:
Preferred stock, $1.00 par value, 1,000,000 shares authorized, none outstanding .... -- --
Common stock, $.01 par value, 30,000,000 shares authorized, 19,072,963 shares
and 16,061,939 shares issued and outstanding at June 30, 2004 and
September 30, 2003 .............................................................. 190,729 160,619
Additional paid-in capital ......................................................... 31,818,154 28,778,002
Accumulated deficit ................................................................ (27,725,988) (25,914,673)
Notes receivable, common stock ..................................................... -- (45,000)
------------ ------------
Total stockholders' equity ................................................... 4,282,895 2,978,948
------------ ------------
$ 25,058,509 $ 22,094,920
============ ============
See accompanying notes to unaudited consolidated financial statements.
3
GreenMan Technologies, Inc.
Unaudited Consolidated Statements of Operations
Three Months Ended Nine Months Ended
June 30, June 30, June 30, June 30,
2004 2003 2004 2003
------------ ------------ ------------ ------------
Net sales ................................................ $ 8,059,103 $ 7,159,221 $ 21,770,118 $ 21,271,112
Cost of sales ............................................ 6,684,326 6,215,540 18,908,514 18,346,376
------------ ------------ ------------ ------------
Gross profit ............................................. 1,374,778 943,681 2,861,604 2,924,736
------------ ------------ ------------ ------------
Operating expenses:
Selling, general and administrative .................. 1,120,754 1,297,240 3,356,590 4,128,773
------------ ------------ ------------ ------------
Operating profit (loss) .................................. 254,023 (353,559) (494,986) (1,204,037)
------------ ------------ ------------ ------------
Other income (expense):
Interest and financing costs ......................... (588,568) (347,618) (1,494,476) (1,052,319)
Casualty income (loss), net .......................... -- (151,267) 202,813 (151,267)
Gain (loss) on disposal of assets, net ............... -- (112,082) -- (112,082)
Other, net ........................................... (1,279) (6,317) (24,666) 13,062
------------ ------------ ------------ ------------
Other income (expense), net ...................... (589,847) (617,284) (1,316,329) (1,302,606)
------------ ------------ ------------ ------------
Net loss before income taxes ............................. (335,824) (970,843) (1,811,315) (2,506,643)
Income tax provision ..................................... -- -- -- (550)
------------ ------------ ------------ ------------
Net loss ................................................. $ (335,824) $ (970,843) $ (1,811,315) $ (2,507,193)
============ ============ ============ ============
Net loss per share - basic and diluted ................... $ (0.02) $ (0.06) $ (0.11) $ (0.16)
============ ============ ============ ============
Weighted average shares outstanding - basic and diluted .. 17,070,728 15,821,764 16,533,288 15,734,269
============ ============ ============ ============
See accompanying notes to unaudited consolidated financial statements.
4
GreenMan Technologies, Inc.
Unaudited Consolidated Statement of Changes in Stockholders' Equity
Nine Months Ended June 30, 2004
Notes
Additional Receivable
Common Stock Paid In Accumulated Common
Shares Amount Capital Deficit Stock Total
----------- --------- ------------ ------------ -------- -----------
Balance, September 30, 2003 ................ 16,061,939 $ 160,619 $ 28,778,002 $(25,914,673) $(45,000) $ 2,978,948
Beneficial conversion discount on
convertible notes payable ................ -- -- 218,226 -- -- 218,226
Common stock issued upon exercise of
options and warrants ..................... 252,666 2,526 147,909 -- -- 150,435
Common stock issued upon conversion of
notes payable and accrued interest ....... 1,093,612 10,936 926,128 -- -- 937,064
Repayment of notes receivable, common
stock and accrued interest ............... (36,717) (367) (43,881) -- 45,000 752
Common stock issued in connection with
lease buyout ............................. 50,000 500 43,500 -- -- 44,000
Sale of common stock and warrants .......... 1,594,211 15,942 1,525,111 -- -- 1,541,053
Common stock and warrants issued for
investment banking services rendered ..... 57,252 573 103,267 -- -- 103,840
Warrants issued with convertible debt ...... -- -- 119,892 -- -- 119,892
Net loss for the nine months ended
June 30, 2004 ............................ -- -- -- (1,811,315) -- (1,811,315)
----------- --------- ------------ ------------ -------- -----------
Balance, June 30, 2004 ..................... 19,072,963 $ 190,729 $ 31,818,154 $(27,725,988) $ -- $ 4,282,895
=========== ========= ============ ============ ======== ===========
See accompanying notes to unaudited consolidated financial statements.
5
GreenMan Technologies, Inc.
Unaudited Consolidated Statements of Cash Flow
Nine Months Ended
June 30,
2004 2003
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Cash flows from operating activities:
Net loss ............................................................................. $(1,811,315) $(2,507,193)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation ......................................................................... 1,650,479 1,632,953
Loss on disposal of property, plant and equipment .................................... 6,719 148,484
Casualty loss ........................................................................ -- 75,267
Amortization ......................................................................... 365,980 83,543
Decrease (increase) in assets:
Accounts receivable .............................................................. (375,118) 797,145
Insurance claim receivable ....................................................... 634,172 --
Product inventory ................................................................ (831,112) (314,658)
Other current assets ............................................................. (124,579) 142,803
(Decrease) increase in liabilities:
Accounts payable ................................................................. (37,987) 1,068,861
Accrued expenses ................................................................. 327,008 410,772
----------- -----------
Net cash (used for) provided by operating activities ......................... (195,753) 1,537,977
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Cash flows from investing activities:
Purchase of property and equipment ................................................... (807,469) (2,411,663)
Proceeds of sale of property and equipment ........................................... 1,444,580 250,000
Repayment of notes receivable ........................................................ -- 200,000
(Increase) decrease in notes receivable, officers .................................... (7,848) (5,144)
Decrease (increase) in other assets .................................................. (174,147) (219,460)
----------- -----------
Net cash provided by (used for) investing activities ......................... 455,116 (2,186,267)
----------- -----------
Cash flows from financing activities:
Decrease (increase) in deferred financing costs ...................................... (557,017) (31,139)
Net advances under line of credit .................................................... 1,298,131 341,990
Repayment of notes payable ........................................................... (4,213,803) (1,186,480)
Proceeds from notes payable .......................................................... 3,998,686 1,724,967
Proceeds from notes payable, related parties ......................................... 575,000 --
Proceeds from convertible notes payable .............................................. 375,000 --
Principal payments on obligations under capital leases ............................... (337,177) (291,327)
Cash received upon exercise of stock options ......................................... 7,800 46,598
Net proceeds on sale of common stock ................................................. 833,253 180,000
----------- -----------
Net cash provided by financing activities .................................... 1,979,873 784,607
----------- -----------
Net increase (decrease) in cash .......................................................... 2,239,236 (136,317)
Cash and cash equivalents at beginning of period ......................................... 990,745 780,497
----------- -----------
Cash and cash equivalents at end of period ............................................... 3,229,981 $ 916,814
=========== ===========
Supplemental cash flow information:
Machinery and equipment acquired under capital leases .................................. $ 1,400,000 $ 279,300
Common stock issued upon exercise of convertible notes payable and accrued interest .... 937,064 --
Common stock issued upon conversion of notes payable and accrued interest .............. 707,800 --
Common stock issued upon exercise of stock options applied to notes payable ............ 142,635 --
Common stock issued in connection with lease buyout .................................... 44,000 --
Notes receivable, officer applied against notes payable, related party and accrued ..... 187,000 --
Common stock received in payoff of notes receivable, officer ........................... 44,249 --
Deferred gain on sale lease back transaction ........................................... 437,337 --
Interest paid .......................................................................... 1,725,063 997,003
Taxes paid ............................................................................. -- 550
See accompanying notes to unaudited consolidated financial statements
6
GreenMan Technologies, Inc.
Notes To Unaudited Consolidated Financial Statements
June 30, 2004
1. Business
GreenMan Technologies, Inc. (together with its subsidiaries, "we", "us" or
"our") was originally founded in 1992 and has been operated as a Delaware
corporation since 1995. Today, we comprise six operating locations that collect,
process and market scrap tires in whole, shredded or granular form. We are
headquartered in Lynnfield, Massachusetts and currently operate tire processing
operations in California, Georgia, Iowa, Minnesota, Tennessee and Wisconsin and
operate under exclusive agreements to supply whole tires used as alternative
fuel to cement kilns located in Florida, Georgia, Illinois, Missouri, Tennessee
and Texas.
2. Basis of Presentation
The consolidated financial statements include the accounts of GreenMan
Technologies, Inc. and our wholly-owned and majority-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
The financial statements are unaudited and should be read in conjunction
with the financial statements and notes thereto for the year ended September 30,
2003 included in our Annual Report on Form 10-KSB. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the Securities and Exchange Commission rules and
regulations, although we believe the disclosures which have been made are
adequate to make the information presented not misleading. The results of
operations for the periods reported are not necessarily indicative of those that
may be expected for a full year. In our opinion, all adjustments which are
necessary for a fair statement of operating results for the interim periods
presented have been made.
3. Net Loss Per Share
Basic earnings per share represents income available to common
stockholders divided by the weighted average number of common shares outstanding
during the period. Diluted earnings per share reflects additional common shares
that would have been outstanding if potentially dilutive common shares had been
issued, as well as any adjustment to income that would result from the assumed
conversion. Potential common shares that may be issued by us relate to
outstanding stock options and warrants (determined using the treasury stock
method) and convertible debt. Basic and diluted net loss per share are the same
for the three and nine months ended June 30, 2004 and 2003, since the effect of
the inclusion of all outstanding options, warrants and convertible debt would be
anti-dilutive.
4. Insurance Claim Receivable
On March 31, 2003, a portion of our Georgia facility and several pieces of
waste wire processing equipment were damaged by a fire.
In December 2003, we reached a settlement agreement with our insurance
carrier amounting to $1,029,885 of which $821,172 was applicable to losses
incurred during fiscal 2003. The settlement amount, net of direct costs
incurred, resulted in net casualty income of $431,594 during the fiscal year
ended September 30, 2003 and $112,082 during the quarter ended December 31,
2003, which is classified as other income in the accompanying statement of
operations. In December 2003 all remaining amounts associated with this
settlement were received.
7
GreenMan Technologies, Inc.
Notes To Unaudited Consolidated Financial Statements
June 30, 2004
5. Notes Receivable, Officers
In January 1998 we advanced $104,000 to an officer under an 8.5% secured
promissory note with both principal and interest due January 2001. This note was
amended on September 30, 2000 to extend the maturity until April 15, 2002
(subsequently extended to April 15, 2004) and increase the interest rate to
9.5%. On April 30, 2004 the remaining balance of $163,000, including interest,
was applied to offset obligations under our $400,000 September 30, 2003 note
payable due to the officer. (See Note 10).
In January 1999, we advanced two officers $55,000, in aggregate, under
8.5% secured promissory notes with both principal and interest due January 2002
(subsequently extended to January 2004). The proceeds were used to participate
in a private placement of our common stock and the loans are secured by 191,637
shares of common stock owned by the two officers. In June 2002, the two officers
repaid $5,000 each toward their respective then outstanding balances. On March
31, 2004, one officer repaid his then outstanding balance of $24,000 in full
settlement of all amounts due under his note. On May 11, 2004 the other officer
sold 36,717 shares of common stock valued at $44,248 back to us in full
settlement of all amounts due under his note. We subsequently cancelled these
shares, which reduced our total shares issued and outstanding.
6. Annual Assessment of Goodwill
We have elected to perform the required annual impairment test of our
goodwill on the last day of our fiscal third quarter. As of June 30, 2004, we
have concluded that goodwill is not impaired.
7. Management's Plans For Raising Additional Capital
As of June 30, 2004, we have incurred cumulative losses of $27,725,988,
and have a working capital deficiency of $1,385,488 at June 30, 2004. Our
liquidity had been significantly and adversely affected since our primary source
of working capital financing and long term debt, Southern Pacific Bank and its
wholly owned subsidiary Coast Business Credit, were closed by the Commissioner
of Financial Institutions of the State of California in February 2003. In
particular, we have had to significantly slow down or delay the implementation
of several growth initiatives, including establishing a new high volume tire
processing facility in Tennessee, shredding and screening upgrades in Georgia
and Minnesota, and the installation of our waste wire processing equipment in
Minnesota. These conditions have caused us to incur both significant expenses in
the short-term and have limitations on our ability to grow in the longer-term.
We understand that our continued existence is dependent on our ability to
achieve profitable status on a sustainable basis. During the past twelve months,
we have invested over $3 million in new equipment to increase processing
capacity at our Iowa, Minnesota, Georgia and Tennessee locations, and have
reconfigured our Wisconsin location to substantially reduce operating costs and
enhance our return on assets.
In addition, we have implemented and/or are in the process of implementing
the following actions:
A. Refinancing of Our Credit Facility
On June 30, 2004, we entered into a three-year, $9 million credit facility
with Laurus Master Fund, Ltd., consisting of a $5 million convertible, revolving
working capital line of credit and a $4 million convertible term loan. (See Note
9).
B. Private Placement of Investment Units
In December 2003, we commenced a private offering of investment units to
accredited investors through an investment bank in an effort to raise up to
$3,000,000. Our agreement with the investment bank expired on March 10, 2004,
and we did not receive any proceeds from the private placement of these units.
As a result, we wrote off approximately $130,000 of related deferred financing
costs during the quarter ended March 31, 2004.
8
GreenMan Technologies, Inc.
Notes To Unaudited Consolidated Financial Statements
June 30, 2004
7. Management's Plans For Raising Additional Capital - (Continued)
On April 9, 2004, we commenced a private offering of investment units.
Each unit consists of one share of our common stock and a warrant to purchase
0.5 shares of our common stock. As of June 30, 2004, when the offering was
terminated, we had sold 1,594,211 units (1,594,211 shares of our common stock
and warrants to purchase 797,105 additional shares of our common stock at prices
ranging from $1.56 to $2.06 per share) to investors, including our directors and
existing shareholders, for gross proceeds of $1,547,000. (See Note 11).
C. Related Party Notes Payable
See the discussion of certain notes payable to related parties at Note 10
"Notes Payable - Related Parties".
D. Convertible Note Payable
In December 2003, we entered into a note purchase agreement (the "Note
Agreement") with an accredited investor (the "Holder") and, pursuant thereto, we
issued a convertible note payable (the "Note") in the aggregate principal amount
of $375,000 and bearing interest at 10%, due December 22, 2004. The Note was
convertible at the option of the Holder at any time prior to maturity but the
Note shall automatically, and without action on the part of Holder, be converted
upon the closing of the offering of investment units described above into
investment units at a price equal to $1.07 per unit with each unit consisting of
one share of unregistered common stock and a warrant to purchase 1.5 shares of
common stock at an exercise price of $1.07 per share, exercisable six months
after issuance for a period of five years from date of issuance.
The terms of the Note Agreement reflected a beneficial conversion feature
amounting to $154,226 calculated at the date of issue of the Note as the
difference between the fair value of the common stock to be received upon
conversion and the proceeds of the Note to be allocated to the common stock
conversion option. The beneficial conversion feature was recorded as a debt
issuance discount and a corresponding credit to paid-in capital, and was being
amortized to interest expense over the term of the Note, or upon conversion. The
note and accrued interest of $11,854 was converted on June 24, 2004 into 369,331
shares of common stock and we issued warrants to purchase 553,997 shares of our
common stock and the remaining unamortized beneficial conversion discount of
approximately $77,000 was charged to interest expense.
Amortization expense for the three and nine months ended June 30, 2004 was
$115,670 and $154,226, respectively.
E. Sale and Leaseback of Real Estate
During March 2004, our Minnesota subsidiary sold all of its land and
buildings to an entity co-owned by an officer for $1,400,000, realizing a gain
of $437,337 which has been recorded as unearned income and classified as a non
current liability in the accompanying financial statements. Simultaneous with
the sale, we entered into an agreement to lease property back for a term of 12
years at an annual rent of $195,000, increasing to $227,460 over the term of the
lease. The gain will be recognized as income ratably over the term of the lease.
The lease has been classified as a capital lease, and provides for two
additional 4-year extensions. We used $875,000 of the proceeds to repay an
existing obligation to Bremer Business Finance.
9
GreenMan Technologies, Inc.
Notes To Unaudited Consolidated Financial Statements
June 30, 2004
8. Property, Plant and Equipment
Property, plant and equipment consists of the following:
June 30, September 30, Estimated
2004 2003 Useful Lives
------------ ------------ ------------
Land ........................................ $ 167,981 $ 504,346
Buildings ................................... 3,460,828 2,704,693 10-20 years
Machinery and equipment ..................... 9,747,215 9,526,045 5-10 years
Furniture and fixtures ...................... 269,307 284,484 3-5 years
Motor vehicles .............................. 6,056,277 5,904,050 3-10 years
------------ -----------
19,701,607 18,923,618
Less accumulated depreciation
and amortization (8,864,293) (7,673,912)
------------ -----------
Property, plant and equipment, net $ 10,837,314 $ 11,249,706
============ ===========
In April 2004, our Wisconsin subsidiary reached an agreement with the
lessor of certain processing equipment to buy-out the remaining term of the
lease. The lessor agreed to accept several pieces of idle equipment, 50,000
unregistered shares of our common stock (valued at $44,000), and cash, valued in
the aggregate at approximately $180,000, in full settlement of our capital lease
obligation with a carrying value of approximately $192,000 at March 31, 2004. We
recognized a gain of approximately $12,000 in connection with this transaction
during the quarter ended June 30, 2004.
9. Notes Payable/Credit Facilities
On May 14, 1999, we issued a $1,100,000 sixty-month note payable to
Cryopolymers Leasing, Inc., bearing interest at 7.75% with monthly payments of
$7,553 and a balloon payment due June 2004. The note was personally guaranteed
by three of our officers and was paid in full on June 30, 2004 with proceeds
from the Laurus Credit Facility.
On May 6, 2002, Republic Services converted $750,000 of the principal
amount of the February 14, 2002 promissory note into 300,000 unregistered shares
of our common stock valued at $750,000. We issued Republic Services a promissory
note for the remaining balance on the February 14, 2002 promissory note in the
principal amount of $743,750 bearing interest at 10% and due in March 2007. As
of June 30, 2004, 13 payments totaling $114,818 were past due in connection with
this note. We received a waiver of default from Republic Services through June
30, 2004 at which time the outstanding principal amounted to $703,125 and as of
July 26, 2004, all past due payments have been made and the promissory note is
current.
First American Credit Facility
On April 4, 2002, our Iowa subsidiary executed a five-year, $1,185,000
secured term note and a one year $300,000 working capital line of credit
(secured with all Iowa assets) with First American Bank ("First American"). The
proceeds of this term note were used in connection with the acquisition of UT
Tire Recyclers, Inc in April 2002.
On February 13, 2003, our Iowa subsidiary amended its existing term debt
with First American under the terms of a five-year, $1,760,857 secured term
note. The note is payable in sixty monthly installments of $34,660 and is
secured with all Iowa assets. They also renewed their working capital line of
credit which was increased to $500,000. The line of credit has been subsequently
extended to January 20, 2005 and First American temporarily increased the
maximum availability under the line of credit to $650,000 through September 30,
2004. The term note bears interest at 7.5% and the line of credit bears interest
at the prime rate plus 1%.
10
GreenMan Technologies, Inc.
Notes To Unaudited Consolidated Financial Statements
June 30, 2004
9. Notes Payable/Credit Facilities - (Continued)
Coast Business Credit/WAMCO Credit Facility
On January 31, 2001 our Minnesota and Georgia subsidiaries, collectively
secured a $7 million five-year, asset-based credit facility (the "Credit
Facility") from Coast Business Credit ("Coast"), the proceeds of which were used
principally for the purpose of refinancing their existing credit facility.
On February 7, 2003, Southern Pacific Bank ("SPB") and its wholly owned
subsidiary Coast were closed by the Commissioner of Financial Institutions of
the State of California. The Federal Deposit Insurance Company ("FDIC") was
appointed receiver of SPB and its subsidiaries.
On May 16, 2003, we were notified by the FDIC that Waco Asset Management
Co.31, Ltd., ("WAMCO"), an affiliate of First City Financial Company, had
purchased a pool of loans from the FDIC that included our Credit Facility. We
were notified that WAMCO would continue to honor the original terms of the
Credit Facility. On June 30, 2004, all amounts due WAMCO were paid in full with
proceeds from the Laurus Credit Facility and the unamortized deferred financing
charges of $122,927 were charged to interest expense.
Laurus Credit Facility
On June 30, 2004, we entered into a $9 million credit facility with Laurus
Master Fund, Ltd., ("Laurus") consisting of a $5 million convertible, revolving
working capital line of credit (the "Line of Credit") and a $4 million
convertible term note (the "Note"). At closing, we borrowed $4 million under the
term loan and $2 million under the line of credit, and used approximately
$1,860,000 of the proceeds to repay the outstanding indebtedness under our
existing credit facility with WAMCO and approximately $1,070,000 to repay in
full the indebtedness due Cryopolymers Leasing. Additional proceeds of the
financing were used to increase working capital and to pay certain costs and
fees associated with this transaction including a $425,000 placement fee paid to
our investment bank.
The Line of Credit has a three-year term. Borrowings bear interest at the
prime rate published in The Wall Street Journal from time to time plus 1.0%
(5.0% at June 30, 2004), and are convertible into shares of our common stock at
the option of Laurus. Except for downward adjustments provided in the credit
facility terms described below, the interest rate shall not be below 5%. Subject
to certain limitations, Laurus will have the right, but not the obligation, to
convert the first $1 million of borrowings under the line of credit into our
common stock at a price of $1.31 (a 10% premium over the 22-day trailing average
closing price of our common stock on the American Stock Exchange on June 30,
2004). The conversion price for each subsequent $1 million of borrowings will be
adjusted upward so that the conversion price will always reflect a 10% premium
over the 22-day trailing average closing price computed on each $1 million
traunch. The amount we may borrow at any time under the line of credit is
limited to 90% of eligible accounts receivable (90 days or less) and 50% of
eligible finished goods inventory, subject to certain limitations. The Line of
Credit requires us to maintain a minimum borrowing of $1,000,000.
In connection with the Line of Credit, we issued Laurus a warrant to
purchase up to 990,000 shares of our common stock at prices ranging from $1.63
to $2.29. The warrant, valued at $82,731, is immediately exercisable, has a term
of ten years and allows for cashless exercise at the option of Laurus, and does
not contain any "put" provisions.
Net proceeds received from advances made under the line at closing were
allocated to the Line of Credit and the warrant based on their relative fair
values resulting in a discount on the Line of Credit amounting to $186,700 which
will be amortized to interest expense over the three-year term of the borrowing
or immediately upon conversion.
11
GreenMan Technologies, Inc.
Notes To Unaudited Consolidated Financial Statements
June 30, 2004
9. Notes Payable/Credit Facility - (Continued)
The Term Note also has a three-year term and bears interest at the prime
rate published in The Wall Street Journal from time to time plus 1.0% (5.0% at
June 30, 2004), with interest payable monthly. Except for downward adjustments
provided in the credit facility terms described below, the interest rate shall
not be below 5%. Principal will be amortized over the term of the loan,
commencing on November 1, 2004, with minimum monthly principal payments of
$125,000. Laurus has the option to convert some or all of the principal and
interest payments into common stock at a fixed conversion price of $1.25
reflecting a 5% premium over the 22-day trailing average closing price of our
common stock on the American Stock Exchange on June 30, 2004. ("Fixed Conversion
Price"). Subject to certain limitations, regular payments of principal and
interest will be automatically payable in common stock if the 5-day average
closing price of the common stock immediately preceding a payment date is
greater than or equal to 110% of the Fixed Conversion Price.
In connection with the Term Note, we issued Laurus a warrant to purchase
up to 390,000 shares of our common stock at prices ranging from $1.56 to $2.18.
The warrant, valued at $37,161, is immediately exercisable, has a term of ten
years and allows for cashless exercise at the option of Laurus, and does not
contain any "put" provisions.
Net proceeds received from issuance of the Term Note amounted to
$3,788,950 and were allocated to the Term Note and the warrant based on their
relative fair values. The note contained a beneficial conversion feature of
$64,000 at issuance based on the intrinsic value of the shares into which the
note is convertible, and a debt issue discount amounting to $248,200. The
beneficial conversion discount was recorded as paid-in-captial and will be
amortized to interest expense along with the debt discount over the three-year
term of the note or ratably upon any partial conversion.
We will be required to pay a premium of 2% of the amount of each principal
payment made in cash under the line of credit and/or the term note. In addition,
we will be required to pay a penalty of 20% of the then-outstanding balance of
the term note if we prepay that note.
The interest rate under each of the notes is subject to downward
adjustment on a monthly basis (but not to less than 0%). The downward adjustment
will be in the amount of 200 basis points (2.0%) for each incremental 25%
increase in the average closing price of our common stock over the then
applicable conversion price of the note for the five-day period preceding such
monthly determination date if we have at that time registered for resale all of
the shares of our common stock underlying the notes and warrants we are issuing
to Laurus in this transaction, or 100 basis points (1.0%) for each incremental
25% increase in the average closing price of our common stock over the then
applicable conversion price of the note for the five-day period preceding such
monthly determination date if we have not at that time registered for resale all
of such shares.
The credit facility is secured by a first-priority security interest in
substantially all of our assets, including the capital stock of our active
subsidiaries. Our active subsidiaries have guaranteed our obligations to Laurus
and have granted Laurus a security interest in their assets to secure this
guarantee.
We incurred investment banking costs amounting to $559,000, including
$455,000 in cash and $103,840 in the form of 57,252 shares of our unregistered
common stock valued at $75,000 and warrants to purchase up to 270,000 shares of
our common stock valued at $28,840. The warrants are immediately exercisable,
have a term of five years and have exercise prices ranging from $1.64 to $2.29.
Total debt issuance costs incurred in connection with securing the Laurus
Credit Facility amounted to approximately $661,000 of deferred financing costs
which will be amortized to interest expense over the three year term.
Additionally, a management fee amounting to $315,000 was paid to Laurus from the
closing proceeds, and was recorded as a debt discount to be amortized to
interest expense over the three year term.
12
GreenMan Technologies, Inc.
Notes To Unaudited Consolidated Financial Statements
June 30, 2004
9. Notes Payable/Credit Facility - (Continued)
We have agreed to register for resale under the Securities Act of 1933 the
shares of common stock issuable to Laurus upon conversion of borrowings under
the credit facility and upon exercise of the warrants. Pursuant to this
agreement, we filed a registration statement on Form SB-2 with the Securities
and Exchange Commission on July 30, 2004. This statement has not yet become
effective.
The amount of our common stock Laurus may hold at any given time is
limited to no more than 4.99% of our outstanding capital stock and no more than
25% of our aggregate daily trading volume determined over the five-day period
prior to the date of determination. These limitations may be waived by Laurus on
90 days' prior notice, or without notice if we are in default.
The conversion price applicable to each of the notes and the exercise
price of each of the warrants is subject to downward adjustment if we issue
shares of our common stock (or common stock equivalents) at a price per share
less than the applicable conversion or exercise price. There are exceptions for
issuances of stock and options to our employees and for certain other ordinary
course stock issuances.
Subject to applicable cure periods, amounts borrowed from Laurus are
subject to acceleration upon certain events of default, including: (i) any
failure to pay when due any amount we owe to Laurus; (ii) any material breach by
us of any other covenant made to Laurus; (iii) any misrepresentation made by us
to Laurus in the documents governing the credit facility; (iv) the institution
of certain bankruptcy and insolvency proceedings by or against us; (v) the entry
of certain monetary judgments against us that are not paid or vacated for a
period of 30 business days; (vi) suspensions of trading of our common stock;
(vii) any failure to deliver shares of common stock upon conversions under the
credit facility; (viii) certain defaults under agreements related to any of our
other indebtedness; and (ix) changes of control of our company. Substantial fees
and penalties are payable to Laurus in the event of default.
10. Notes Payable - Related Party
Convertible Notes Payable - Related Party
One of our directors was owed $300,000 under the terms of an October 1999
private offering of 10% convertible notes and warrants and $75,000 under the
terms of a February 2000 offering of 11% convertible notes and warrants. The
convertible notes originally matured twelve months after issuance and were
payable in cash or unregistered shares of our common stock at a conversion price
of $1.00 per share. In September 2000 and June 2001, the director agreed to
extend the maturity date of each note for an additional twelve months from their
original maturity. In return for the June 2001 extension, we agreed to reduce
the conversion price to $.75 per share. In September 2002, the director again
agreed to extend the maturity of each note for an additional twenty-four months
from their extended maturity dates which range from October 2004 to February
2005.
On February 16, 2004, the director converted both notes, including
$375,000 of principal and $168,210 of accrued interest into 724,281 shares of
our unregistered common stock pursuant to the amended terms noted above.
Notes Payable - Related Party
During the period from June to August 2003, two immediate family members
of an officer loaned us $400,000 in aggregate, under the terms of two year,
unsecured notes payable which bear interest at 12% per annum with interest due
quarterly and the principal due upon maturity through August 2005. In March
2004, these same individuals loaned us an additional $200,000 in aggregate,
under similar terms with the principal due upon maturity March 2006. These
individuals each agreed to invest the entire $100,000 principal balance of their
June 2003 notes ($200,000 in aggregate) into the April 2004 private placement of
Units and each received 113,636 Units in these transactions. At June 30, 2004,
the remaining balance due on these advances amounted to $400,000.
13
GreenMan Technologies, Inc.
Notes To Unaudited Consolidated Financial Statements
June 30, 2004
10. Notes Payable - Related Party - (Continued)
In September 2003, an officer loaned us $400,000 under the terms of a
September 30, 2003 unsecured promissory note which bears interest at 12% per
annum with interest due quarterly and the principal originally due March 31,
2004 (subsequently extended to September 30, 2004). In connection with the April
15, 2004 maturity of a note receivable from this officer, we offset
approximately $163,000 of amounts due from him against this note payable (See
Note 5). During the quarter ended June 30, 2004, the same officer applied
approximately $114,000 of amounts due him to exercise options to purchase
144,000 shares of our common stock. At June 30, 2004, the remaining balance due
the officer was approximately $123,000.
In October 2003, one of our officers loaned us $75,000 under the terms of
an October 22, 2003 unsecured promissory note payable which bears interest at
12% per annum with interest due quarterly and the principal due June 30, 2004.
During January and February 2004, the same officer advanced us an additional
$250,000 under substantially similar notes that are also due in June 2004. This
officer agreed to invest all unpaid principal and interest under these advances
amounting to approximately $350,000 into the April 2004 private placement of
units and received 339,806 units in this transaction.
11. Common Stock Offering
On April 9, 2004, we commenced a private offering of investment units to
accredited investors. Each unit consists of one share of our common stock and a
warrant to purchase 0.5 shares of our common stock. The purchase price of the
units equaled 80% of the average closing bid price of our common stock during
the ten days preceding the date each investor's subscription for units became a
binding commitment. The warrants are exercisable at any time between the ninth
month and the third year after the date of issuance at an exercise price equal
to 150% of the closing bid price of our common stock on the day preceding such
date. In addition, in accordance with American Stock Exchange rules, units
purchased by officers, directors or affiliates were made at 100% of the closing
bid price of our common stock on the day preceding the date such investor's
subscription for units became a binding commitment.
As of June 30, 2004, when the offering was concluded, we had sold
1,594,211 units (1,594,211 shares of our common stock and warrants to purchase
797,105 additional shares of our common stock at prices ranging from $1.56 to
$2.06 per share) to investors, including our directors and existing
shareholders, for gross proceeds of $1,547,800. We used the net proceeds of this
offering to re-establish our Georgia waste wire processing capacity and for
general working capital purposes during the seasonally slower portion of our
fiscal year
12. Stock Options
We apply Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for stock options issued to our employees and
directors. Had the compensation cost for the stock options issued to our
employees and directors been determined based on the fair value at the grant
dates consistent with Statement of Financial Accounting Standards No. 123, the
net loss and net loss per share would have been adjusted to the pro forma
amounts indicated below:
Three Months Ended Nine Months Ended
June 30, June 30, June 30, June 30,
2004 2003 2004 2003
Net loss as reported ................................... $(335,824) $(970,483) $(1,811,315) $(2,507,193)
Less: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects .......... (22,066) (4,014) (61,757) (15,932)
--------- --------- ----------- -----------
Pro forma net loss ..................................... $(357,890) $(974,497) $(1,873,072) $(2,523,125)
========= ========= =========== ===========
Earnings per share:
Basic - as reported ................................ $ (0.02) $ (0.06) $ (0.11) $ (0.16)
========= ========= =========== ===========
Basic - pro forma .................................. $ (0.02) $ (0.06) $ (0.11) $ (0.16)
========= ========= =========== ===========
14
GreenMan Technologies, Inc.
Notes To Unaudited Consolidated Financial Statements
June 30, 2004
12. Stock Options - (Continued)
Our 1993 Stock Option Plan was established to provide options to purchase
shares of common stock to employees, officers, directors and terminated on June
10, 2004. As of June 30, 2004, there were approximately 1,670,000 options
granted and outstanding under the 1993 Stock Option Plan of which approximately
1,430,000 options were exercisable at prices ranging from $0.38 to $1.80.
In April 2004, our Board of Directors adopted, subject to shareholder
approval, a 2004 Stock Option Plan under similar terms and conditions as the
1993 Stock Option Plan, and have reserved 2 million shares of common stock for
future issuance under the Plan. As of June 30, 2004, there were 358,000 options
granted and outstanding under the 2004 Stock Option Plan. No such options are
currently exercisable and no such options will become exercisable unless the
adoption of this plan is ratified by our stockholders.
Other Options and Warrants
During January 2004, several individuals exercised 117,852 warrants using
a net exercise feature, and were issued 29,128 shares of our unregistered common
stock.
During the months of February and June 2004, several officers and
directors exercised 223,538 options, in aggregate to purchase unregistered
shares of our common stock at prices ranging from $.38 to $.94 per share for
gross proceeds of $150,435.
13. Income Taxes
Previously, we had recorded a full valuation allowance on the net
operating loss carry forwards and other components of the deferred tax assets
based on our expected ability to realize the benefit of those assets. In the
year ending September 30, 2002, we reduced the valuation allowance by $270,000
based on our net income before taxes in the year then ending as well as expected
net income before income taxes for the next fiscal year.
During the past twelve months we have implemented several initiatives
which will allow us to increase our overall revenue with no further capital
investment. We are currently selling product into several new, higher-value
markets. In response to growing crumb rubber demand, we have doubled the crumb
rubber processing capacity at our California facility. The implementation of our
waste wire processing equipment in Iowa and Minnesota during fiscal 2003 has
reduced our residual disposal costs and provided for increased revenue through
the sale of the steel by-product and premium prices paid for crumb rubber
feedstock. In addition, on-going efforts to reduce selling, general and
administrative costs have resulted in an almost $800,000 reduction in these
costs during the nine months ended June 30, 2004.
As noted previously, on June 30, 2004, we completed a $9 million financing
with Laurus and have earmarked over $1 million for full implementation of our
new high-volume tire processing facility in Tennessee. We anticipate the
facility to be operational during the second quarter of fiscal 2005 thus
eliminating over $80,000 per month of excess transportation costs necessitated
by transporting tires to our Georgia location for processing. In addition, our
Georgia waste wire processing equipment which was damaged by a fire in March
2003 is scheduled to be on-line in October 2004. Based on historical results and
current Iowa and Minnesota performance of similar equipment, we anticipate our
performance will be enhanced by almost $300,000 per quarter in the form of new
product revenue and reduced disposal expenses in Georgia.
In light of the nature and character of losses sustained during the prior
eighteen months and the performance enhancing initiatives described above, we
have evaluated the realizability of the deferred tax asset and concluded that
based on projected net income in future years, it is more likely than not, this
deferred asset will be realized through utilization of net operating loss
carryforwards in the future. The remaining net operating loss carry forwards and
other components of the net deferred tax asset continue to have a full valuation
allowance. We will evaluate the realizability of these deferred tax assets each
quarter.
15
14. Subsequent Event
On July 1, 2004, we acquired certain assets of American Tire Disposal,
Inc. ("ATD") a southern California based company in the business of collecting
and marketing scrap tires for approximately $117,000 in assumed liabilities and
forgiveness of trade payables due to us. We will consolidate ATD's business into
our existing California operations.
On July 14, 2004, we were notified that our Director's and Officer's
liability insurance policy, which expires on October 1, 2004, will not be
renewed by its current carrier. We are currently evaluating several
alternatives. Although we currently believe we will be able to obtain Director's
and Officer's Liability insurance coverage prior to the expiration of its
existing coverage, no assurances can be given that such new coverage will be
secured in the near future, on favorable terms, or at all.
16
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following information should be read in conjunction with the unaudited
consolidated financial statements and the notes thereto included in Item 1 of
the Quarterly Report, and the audited consolidated financial statements and
notes thereto and Management's Discussion and Analysis of Financial Condition
and Results of Operations contained in our Form 10-KSB filed for the year ended
September 30, 2003.
Results of Operations
Three Months ended June 30, 2004 Compared to the Three Months ended
June 30, 2003
Net sales for the three months ended March 31, 2004 were $8,059,103, a 13%
increase, compared to last year's net sales of $7,159,221. The increase was
primarily attributable to a 17% increase in inbound tire volumes and a 15%
increase in overall product revenues during the quarter ended June 30, 2004. We
processed over 8 million passenger tire equivalents during the three months
ended June 30, 2004, compared to approximately 6.8 million passenger tire
equivalents during the quarter ended June 30, 2003.
Overall end product sales increased approximately $301,000 to $2,279,000
during the quarter ended June 30, 2004, compared to $1,978,000 for the same
period last year, despite our Georgia waste wire processing equipment being
off-line since April 2003. The increase in end product sales is attributable to
implementation of our waste wire processing equipment in the Midwest during the
second half of fiscal 2003 and stronger crumb rubber and tire derived fuel sales
during the quarter ended June 30, 2004.
Gross profit for the quarter ended June 30, 2004 was $1,374,778 or 17% of
net sales, compared to $943,681 or 13% of net sales for the quarter ended June
30, 2003. The improvement is primarily due to increased inbound tire volumes and
stronger overall product revenues. We realized this increase in gross profit
while continuing to absorb an estimated $540,000 of excess transportation and
disposal costs and reduced end product revenue resulting from the delayed
implementation of our Tennessee facility and Georgia waste wire equipment.
Selling, general and administrative expenses for the quarter ended June
30, 2004 decreased $176,486 to $1,120,754 or 14% of net sales, compared to
$1,297,240 or 18% of net sales for the quarter ended June 30, 2003. The
reduction is due to a focused effort to reduce corporate wide expenses.
As a result of the foregoing, we had an operating profit of $254,023 for
the quarter ended June 30, 2004 as compared to an operating loss of $353,559 for
the quarter ended June 30, 2003.
Interest and financing costs for the quarter ended June 30, 2004 increased
$240,950 to $588,568, compared to $347,618 for the quarter ended June 30, 2003.
The increase was primarily attributable to the inclusion of approximately
$238,000 of deferred financing costs which were writen off during the quarter
ended June 30, 2004.
In addition to the disruption of operations and lost revenues caused by
the March 2003 fire, we also incurred additional direct costs relating to
damaged equipment and excess disposal costs totaling approximately $151,000, net
of partial insurance recovery of $99,000 during the quarter ended June 30, 2003.
We also incurred a net loss of approximately $112,000 associated with the
divestiture of under-performing assets, unrelated to the fire during the same
quarter.
As a result of the foregoing, our net loss for the quarter ended June 30,
2004 decreased $635,019 or 65% to $335,824 or $.02 per basic share, compared to
a net loss of $970,843 or $.06 per basic share for quarter ended June 30, 2003.
17
Nine Months ended June 30, 2004 Compared to the Nine Months ended June 30, 2003
Net sales for the nine months ended June 30, 2004 were $21,770,118, a 2%
increase, compared to last year's net sales of $21,271,112, which included
approximately $1,357,000 of net sales associated with our majority owned joint
venture which was divested on April 1, 2003 and two kiln relationships
terminated during fiscal 2003. We processed approximately 22.4 million passenger
tire equivalents during the nine months ended June 30, 2004, compared to
approximately 21 million passenger tire equivalents during the nine months ended
June 30, 2003.
Overall end product sales increased approximately $990,000 to $5,851,000
during the nine months ended June 30, 2004, compared to $4,861,000 for the same
period last year, despite our Georgia waste wire processing equipment being
off-line since April 2003. The 20% increase in end product sales is attributable
to implementation of our waste wire processing equipment in the Midwest during
the second half of fiscal 2003 and stronger crumb rubber and tire derived fuel
sales during the nine months ended June 30, 2004. The overall quality of revenue
(revenue per passenger tire equivalent) benefited from increased tire volumes
and end product sales, which offset a 6.6% reduction in tipping fees resulting
from lower tipping fees in certain markets.
Gross profit for the nine months ended June 30, 2004 was $2,861,604 or 13%
of net sales, compared to $2,924,736 or 14% of net sales for nine months ended
June 30, 2003. The gross profit for the nine months ended June 30, 2004 reflects
the fact we continue to absorb an estimated $1,570,000 of excess transportation
and disposal costs and reduced end product revenue resulting from the delayed
implementation of our Tennessee facility and Georgia waste wire equipment
Selling, general and administrative expenses for the nine months ended
June 30, 2004 decreased $772,182 to $3,356,590 or 15% of net sales, compared to
$4,128,773 or 19% of net sales for the nine months ended March 31, 2003. The
reduction is due to a focused effort to reduce corporate wide expenses and the
elimination of expenses associated with our majority owned joint venture which
was divested in April 2003.
As a result of the foregoing, our operating loss for the nine months ended
June 30, 2004 decreased 59% or $709,051 to $494,986, compared to an operating
loss of $1,204,037 for the nine months ended June 30, 2003.
Interest and financing costs for the nine months ended June 30, 2004
increased $442,157 to $1,494,476, compared to $1,052,319 for the nine months
ended June 30, 2003. The increase was primarily attributable to the inclusion of
approximately $407,000 of deferred financing costs associated with our fiscal
2004 financing efforts.
In addition to the lost product revenues caused by the March 2003 fire at
our Georgia facility, we also incurred additional direct costs relating to
excess disposal costs totaling approximately $95,000, which were offset by an
insurance recovery of $207,873 received during the nine months ended June 30,
2004 and approximately $151,000, net of partial insurance recovery of $99,000
during the nine months ended June 30, 2003. During the nine months ended June
30, 2004 we also recorded other income of approximately $90,000 relating to a
settlement for damaged product.
As a result of the foregoing, our net loss for the nine months ended June
30, 2004 decreased $695,878 or 28% to $1,811,315 or $.11 per basic share,
compared to a net loss of $2,507,193 or $.16 per basic share for nine months
ended June 30, 2003.
18
Liquidity and Capital Resources
As of June 30, 2004, we had $3,229,981 in cash and cash equivalents and a
working capital deficiency of $1,385,488. We understand that the continued,
successful sales and marketing of our services and products, the introduction of
new products, raising additional growth capital and re-establishing continued
profitability from operations will be critical to our future liquidity.
The Consolidated Statements of Cash Flows reflect events in 2004 and 2003
as they affect our liquidity. During the nine months ended June 30, 2004, net
cash used for operating activities was $195,753 which reflects a net loss of
$1,811,315, a $831,112 increase in product inventory and a $375,118 increase in
accounts receivable, which is typical as we enter our seasonally strongest
fiscal fourth quarter and increased prepaid expenses and parts inventories and a
net loss from operations. Positively impacting cash flows for the nine months
ended June 30, 2004 was depreciation of $1,650,479, amortization, and the
receipt of $922,092 of insurance proceeds. During the nine months ended June 30,
2003, net cash provided by operating activities was $1,537,977. Cash flows
during this period were positively impacted by depreciation, amortization, a
$797,145 decrease in accounts receivable and an increase in accounts payable and
accrued expenses of $1,479,633 in the aggregate which offset a $314,658 increase
in product inventory.
Net cash provided by investing activities was $455,116 for the nine months
ended June 30, 2004 reflecting the $1,444,580 of proceeds received from the sale
of our Minnesota real estate which offset the purchase of $807,469 of property
and equipment. The net cash used by investing activities for the nine months
ended June 30, 2003 was $2,186,267 reflecting significant investments made for
the purchase of property and equipment to increase capacity and efficiencies at
several of our operating locations.
Net cash provided by financing activities was $1,979,873 during the nine
months ended June 30, 2004 and was positively impacted by the new Laurus Credit
Facility and the completion of the April 2004 private placement of investment
units which collectively generated approximately $6,833,000 of new cash flow
before expenses. These increases were offset by repayment of notes payable of
$4,213,803, including approximately $3,800,000 associated with the payoff of our
Minnesota real estate loan, WAMCO Credit Facility and Cryopolymers Leasing note
payable. Positively affecting cash flows from financing activities for both
periods were proceeds from the issuance of notes payable to unrelated and
related parties.
Refinancing of Our Credit Facility
Our liquidity had been significantly and adversely affected since our
primary source of working capital financing and long term debt, Southern Pacific
Bank and its wholly owned subsidiary Coast Business Credit, were closed by the
Commissioner of Financial Institutions of the State of California in February
2003. In particular, we have had to significantly slow down or delay the
implementation of several growth initiatives, including establishing a new high
volume tire processing facility in Tennessee, shredding and screening upgrades
in Georgia and Minnesota, and the installation of our waste wire processing
equipment in Minnesota. These conditions have caused us to incur both
significant expenses in the short-term and have limitations on our ability to
grow in the longer-term.
On June 30, 2004, we entered into a three-year, $9 million credit facility
with Laurus Master Fund, Ltd., consisting of a $5 million convertible, revolving
working capital line of credit and a $4 million convertible term loan. At
closing, we borrowed $4 million under the term loan and $2 million under the
line of credit, and used approximately $1,860,000 of the proceeds to repay the
outstanding indebtedness under our existing credit facility with WAMCO and
approximately $1,070,000 to repay in full the indebtedness due Cryopolymers
Leasing. Additional proceeds of the financing were used to increase working
capital and to pay closing fees associated with the Laurus transaction in the
aggregate amount of approximately $825,000. (See Note 9).
19
Additional Steps to Increase Liquidity
Over the last several years, we have funded portions of our operating cash
flow and growth from sales of equity securities and loans from officers and
related parties.
In a private placement commencing in February 2002 and ending September
30, 2003, we sold 1,458,511 shares of our common stock to investors, including
existing shareholders, for gross proceeds of $2,133,603. A majority of the
proceeds of this offering were used to acquire certain tire recycling operations
and assets.
In December 2003, we issued a 10% convertible note due December 2004 in
the aggregate principal amount of $375,000 to an investor. The note was
convertible at the option of the holder at any time prior to maturity into
investment units at a price equal to $1.07 per unit with each unit consisting of
one share of common stock and a warrant to purchase 1.5 shares of common stock
at an exercise price of $1.07 per share, exercisable six months after issuance
for a period of five years from date of issuance. The note was converted on June
24, 2004 into 369,331 shares of common stock and we issued warrants to purchase
553,997 shares of our common stock. When originally issued, this note reflected
a beneficial conversion feature amounting to $154,226 and, upon conversion, the
remaining unamortized beneficial conversion discount of approximately $77,000
was charged to interest expense.
In April 2004, we commenced a private offering of investment units to
accredited investors, each unit consisting of one share of our common stock and
a warrant to purchase 0.5 shares of our common stock. As of June 30, 2004, when
the offering concluded, we had sold 1,594,211 units (1,594,211 shares of our
common stock and warrants to purchase 797,105 additional shares of our common
stock at prices ranging from $1.56 to $2.06 per share) to investors, including
our directors and existing shareholders, for gross proceeds of $1,547,800. We
used the net proceeds of this offering to re-establish our Georgia waste wire
processing capacity and for general working capital purposes during the
seasonally slower portion of our fiscal year.
From June 2003 through March 2004, several of our officers and members of
their families loaned us an aggregate of $1,345,000. These advances bear
interest at 12% and mature at various times through March 2006. In April 2004,
several of these individuals agreed to invest approximately $550,000 of the
amounts due them under the terms of their loans into the private placement
described above. In April 2004, one of our officers applied approximately
$163,000 of amounts due him to pay off a note receivable due our company and in
June 2004 applied approximately $114,000 of amounts due him to exercise options
to purchase 144,000 shares of our common stock. At June 30, 2004, the remaining
balance on these advances amounted to approximately $523,320. (See Note 9).
Operating Performance Enhancements
During the past five years, we have terminated under-performing operations
and initiatives and eliminated the use of non-conventional financing methods
that had contributed over $18.7 million to our accumulated deficit. In order to
position our company to be stronger, more profitable and to enhance shareholder
value in the future, we began initiatives during fiscal 2003 to upgrade existing
operations, expand into new geographic locations to maximize existing
transportation and marketing infrastructures, and continue to identify better
and more profitable uses for existing and new products.
Historically, our tire shredding operations were able to recover and sell
approximately 60% of a processed tire with the balance disposed of as waste wire
residual (cross-contaminated rubber and steel) at an annual cost exceeding
$1,000,000 in prior years. We have purchased secondary equipment for our Georgia
(damaged in the March 2003 fire), Iowa and Minnesota facilities to further
process the waste wire residual into saleable components of rubber and steel
that not only provide new sources of revenue but also reduced residual disposal
costs.
20
During the fourth quarter of fiscal 2002, we initiated a $1.5 million
equipment upgrade to our Des Moines, Iowa tire processing facility. We
completely replaced all tire shredders with more efficient, higher volume
equipment and installed a waste wire processing equipment line that will reduce
waste wire disposal costs while increasing our capacity to produce over 20
million pounds of rubber feedstock per year for our internal crumb rubber
operations. From July through December 2002, we experienced inevitable one-time
operational disruptions during the equipment installation. Additionally, we
incurred increased transportation costs because a significant portion of Iowa
tires were diverted to our Minnesota plant for processing during the upgrade.
These disruptive factors negatively impacted earnings in the first quarter of
fiscal 2003 by approximately $150,000. Additionally, we believe that these
actions position us to better meet the growing market demand for our products
and services as evidenced by the fact that Iowa crumb product shipments have
increased almost three-fold during the fiscal year ended September 30, 2003,
compared to the same period last year. The capital investment in Iowa was funded
by a combination of internal cash flow and long-term debt provided by First
American Bank of Des Moines, Iowa and the State of Iowa.
On March 31, 2003, a portion of our Georgia facility and several pieces of
waste wire processing equipment were damaged by a fire. We therefore will
continue to incur increased disposal costs and reduced product revenue in
Georgia into our fourth fiscal quarter, when the equipment is currently expected
to be re-installed and operational. As of September 30, 2003, damaged equipment
and parts with a net book value of approximately $179,000 have been written off
and we have incurred $225,000 of expenses associated with the fire, including
$211,000 of excess waste wire disposal. In December 2003 we reached a $1.03
million settlement with our insurance carrier in connection with the claims
associated with the fire and have received all remaining amounts due under this
insurance claim. During the quarter ended December 31, 2003, we recognized
$207,873 of casualty income associated with the insurance settlement before
related costs.
We estimate that during the nine months ended June 30, 2004, reduced end
product revenue and excess waste disposal costs of approximately $870,000 were
associated with the impact of the March 31, 2003 fire. We anticipate that these
conditions will continue into our fourth fiscal quarter, when the equipment is
expected to be repaired and returned to operative status.
Following the February 2003 decision to reconfigure our Wisconsin
operations, waste wire processing equipment in Wisconsin was taken off line in
March 2003 with the intention of moving it to our Minnesota operation. We had
originally delayed the relocation of the equipment to Minnesota in order to
evaluate whether to deploy it in Georgia to temporarily replace the damaged
equipment; however in May 2003 we decided to relocate the Wisconsin equipment to
Minnesota as planned. The Minnesota waste wire processing equipment began
initial operation in July 2003. We estimate this equipment will reduce disposal
expense by over $160,000 per year, while providing new sources of revenue and
much needed material feedstock for our Iowa crumb rubber operations. In addition
to the existing waste wire processing equipment, we invested an additional
$250,000 in new support equipment and infrastructure improvements. These capital
investments were funded by internal cash flow.
In addition, during the first half of fiscal 2003, several new pieces of
shredding and screening equipment were installed at our Minnesota and Georgia
locations in order to meet increased demand for more lucrative smaller
tire-derived fuel material in the Midwest and Southeast. These capital
investments, which exceeded $525,000, were funded by internal cash flow.
Effects of Inflation and Changing Prices
Generally, we are exposed to the effects of inflation and changing prices.
Primarily because the largest component of our collection and disposal costs is
transportation, we are adversely affected by significant increases in the cost
of fuel. Additionally, because we rely on floating-rate debt for certain
financing arrangements, rising interest rates would have a negative effect on
our performance.
Based on our fiscal 2004 operating plan, we believe that available working
capital together with revenues from operations, the sale of common stock and
units pursuant to the April 2004 private placement, loans from affiliated and
unaffiliated lenders and the financing from Laurus will satisfy our cash
requirements for the foreseeable future.
21
Other Matters That Have Impacted Our Liquidity
New Market Development Initiatives
The July 2002 acquisition of a scrap tire business in Azusa, California
marked our first location in the western portion of the United States. We have
devoted significant resources during the past twelve months to expand and
enhance our California market position in order to provide a solid foundation
for future growth and sustainable profitability.
On July 1, 2004, we acquired certain assets of American Tire Disposal,
Inc. ("ATD") a southern California based company in the business of collecting
and marketing scrap tires for approximately $117,000 in assumed liabilities and
forgiveness of trade payables due to us. We will consolidate ATD's business into
our existing California operations.
In February 2003, we announced our intent to open a new high-volume tire
processing facility in LaVergne, Tennessee as a result of experiencing
significant market share growth during the last two years. Historically, we
transported all Tennessee-sourced tires to our Georgia facility to be processed.
We anticipated that a majority of the funding to implement this initiative would
come from our principal lender, which unfortunately was closed by the
Commissioner of Financial Institutions of the State of California in February
2003, shortly after we received verbal approval to move forward. In July 2003,
our Tennessee facility began processing local tires on a limited basis using
excess and idle equipment from various other locations. We have earmarked over
$1 million of proceeds from the Laurus credit facility to purchase necessary
equipment for our Tennessee initiative and anticipate the facility to be
operational no later than our second quarter of fiscal 2005. When the Tennessee
facility is fully operational, we estimate the cost savings realized by
processing Tennessee-sourced tires locally instead of transporting them to
Georgia should exceed $80,000 per month.
Also in February 2003, we decided to reconfigure the operations of our
Wisconsin facility from an unprofitable low-volume size reduction facility to a
whole tire transfer station supplying compliant tires to a cement kiln. The
decision was made because the cement kiln is anticipated to continue consuming a
majority of the scrap tires collected by our Wisconsin facility. As of June 30,
2004, our on-going efforts to increase tire volume and reduce expenses in
Wisconsin have resulted in a $400,000 reduction in that facility's year-to-date
expenses compared to the same period last year.
During fiscal 2003 we invested over $1.5 million developing and/or
reconfiguring our California, Tennessee and Wisconsin operations. These
investments have come in the form of new internally financed capital equipment
and the funding of new market development initiatives.
We believe that our current cash position and current credit facilities
combined with internally generated cash flow will satisfy our cash requirements
for the foreseeable future.
Off-Balance Sheet Arrangements
We lease various facilities and equipment under cancelable and
non-cancelable short and long term operating leases which are described in
Footnote 10 to the Audited Consolidated Financial Statements contained in our
annual report on Form 10-KSB.
Cautionary Statement
Information contained or incorporated by reference in this document
contains "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, which statements can be identified by
the use of forward-looking terminology such as "may," "will," "would," "can,"
"could," "intend," "plan," "expect," "anticipate," "estimate" or "continue" or
the negative thereof or other variations thereon or comparable terminology. The
following matters constitute cautionary statements identifying important factors
with respect to such forward-looking statements, including certain risks and
uncertainties that could cause actual results to differ materially from those in
such forward-looking statements.
22
Factors That May Affect Future Results
Risks Related to our Business
We have lost money in the past six consecutive quarters and may need additional
working capital, which if not received, may force us to curtail operations.
We have experienced six consecutive quarters of net losses. While
management has identified several significant non-recurring charges which have
contributed to these losses, the continued, successful sales and marketing of
our services and products, the introduction of new products and the
re-establishment of profitable operations will be critical to our future
liquidity. If we are unable to return to profitability before our cash is
depleted, we will need to seek additional capital. There can be no assurance
that we will be profitable in the future or, if we are not, that we will be able
to obtain additional capital on terms and conditions acceptable to us or at all.
We have substantial indebtedness to Laurus Master Fund secured by substantially
all of our assets. If an event of default occurs under the secured notes issued
to Laurus, Laurus may foreclose on our assets and we may be forced to curtail
our operations or sell some of our assets to repay the notes.
On June 30, 2004, we entered into a $9 million credit facility with Laurus
pursuant to secured promissory notes and related agreements. Subject to certain
grace periods, the notes and agreements provide for the following events of
default (among others):
o failure to pay interest and principal when due;
o an uncured breach by us of any material covenant, term or condition
in any of the notes or related agreements;
o a breach by us of any material representation or warranty made in
any of the notes or in any related agreement;
o any money judgment or similar final process is filed against us for
more than $50,000;
o any form of bankruptcy or insolvency proceeding is instituted by or
against us; and
o suspension of our common stock from our principal trading market for
five consecutive days or five days during any ten consecutive days.
In the event of a future default under our agreements with Laurus, Laurus
may enforce its rights as a secured party and we may lose all or a portion of
our assets, be forced to materially reduce our business activities or cease
operations.
We may require additional funding to sustain and grow our business, which
funding may not be available to us on favorable terms or at all. If we do not
obtain funding when we need it, our business may be adversely affected. In
addition, if we have to sell securities in order to obtain financing, the rights
of our current holders may be adversely affected.
We may have to seek additional outside funding sources to satisfy our
future financing demands if our operations do not produce the level of revenue
we require to maintain and grow our business. We will also need funding to
pursue acquisitions. We cannot assure you that outside funding will be available
to us at the time that we need it and in the amount necessary to satisfy our
needs, or, that if such funds are available, they will be available on terms
that are favorable to us. If we are unable to secure financing when we need it,
our business may be adversely affected. If we have to issue additional shares of
common stock or securities convertible into common stock in order to secure
additional funding, our current stockholders may experience dilution of their
23
ownership of our shares. In the event that we issue securities or instruments
other than common stock, we may be required to issue such instruments with
greater rights than those currently possessed by holders of our common stock.
In March 2003, a portion of our Georgia facility and several pieces of equipment
were damaged by fire; as a result we have experienced increased disposal costs
and reduced product revenue in Georgia.
On March 31, 2003, a portion of our Georgia facility and several pieces of
waste wire processing equipment were damaged by a fire, which resulted in
increased disposal costs and reduced product revenue in Georgia. We anticipate
that these conditions will continue into our fourth fiscal quarter, when the
equipment is expected to be repaired and returned to operative status. No
assurance can be given, however, that we will be able to re-establish our
Georgia waste wire processing capabilities in a timely manner.
We may not realize the anticipated benefits associated with the establishment of
our Tennessee operations.
In February 2003, as a result of experiencing significant market share
growth during the last two years, we announced our intent to open a new
high-volume tire processing facility in LaVergne, Tennessee. Historically, we
have transported all Tennessee-sourced tires to our Georgia facility for
processing. In July 2003, we began processing tires on a limited basis in
Tennessee utilizing excess and idle equipment from various GreenMan
subsidiaries. Until we are successful in purchasing the appropriate high-volume
shredding and ancillary equipment for our Tennessee facility, we will continue
to incur excess transportation costs necessitated by transporting
Tennessee-sourced tires to Georgia instead of processing them locally. We have
allocated over $1 million of proceeds from the Laurus credit facility to
purchase equipment for our Tennessee facility and anticipate that the facility
will be operational no later than our second quarter of fiscal 2005. No
assurance can be given, however, that we will be able to open this facility in a
timely manner.
We may not realize the anticipated benefits associated with the reconfiguration
of our Wisconsin operations.
In February 2003, we decided to reconfigure the operations of our
low-volume Wisconsin size reduction facility to a whole tire transfer station
supplying compliant tires to a cement kiln. The cement kiln consumes a majority
of the scrap tires collected by the Wisconsin facility. We do not have a
long-term supply contract with the cement kiln and there can be no assurance
that we will realize the anticipated benefits associated with the
reconfiguration of these operations.
Improvement in our business depends on our ability to increase demand for our
products and services.
Adverse events or economic or other conditions affecting markets for our
products and services, potential delays in product development, product and
service flaws, changes in technology, changes in the regulatory environment and
the availability of competitive products and services are among a number of
factors that could limit demand for our products and services.
Our business is subject to extensive and rigorous government regulation; failure
to comply with applicable regulatory requirements could substantially harm our
business.
Our tire recycling activities are subject to extensive and rigorous
government regulation designed to protect the environment. The establishment and
operation of plants for tire recycling are subject to obtaining numerous permits
and compliance with environmental and other government regulations. The process
of obtaining required regulatory approvals can be lengthy and expensive. The
Environmental Protection Agency and comparable state and local regulatory
agencies actively enforce environmental regulations and conduct periodic
inspections to determine compliance with government regulations. Failure to
comply with applicable regulatory requirements can result in, among other
things, fines, suspensions of approvals, seizure or recall of products,
operating restrictions, and criminal prosecutions. Furthermore, changes in
existing regulations or adoption of new regulations could impose costly new
procedures for compliance, or prevent us from obtaining, or affect the timing
of, regulatory approvals.
24
The market in which we operate is highly competitive, fragmented and
decentralized and our competitors may have greater technical and financial
resources.
The market for our services is highly competitive, fragmented and
decentralized. Many of our competitors are small regional or local businesses.
Some of our larger competitors may have greater financial and technical
resources than we do. As a result, they may be able to adapt more quickly to new
or emerging technologies and changes in customer requirements, or to devote
greater resources to the promotion and sale of their services. Competition could
increase if new companies enter the markets in which we operate or our existing
competitors expand their service lines. These factors may limit or prevent any
further development of our business.
Our success depends on the retention of our senior management and other key
personnel.
Our success depends largely on the skills, experience and performance of
our senior management, particularly, Robert H. Davis, our Chief Executive
Officer; Charles E. Coppa, our Chief Financial Officer; Mark T. Maust, our
Midwest Regional Vice President; Thomas A. Carter, our Southeastern Regional
Vice President; and James C. Dodenhoff, our Western Regional Vice President. The
loss of any of these personnel could have a material adverse effect on our
business, financial condition and results of operations.
Seasonal factors may affect our quarterly operating results.
Seasonality may cause our total revenues to fluctuate. We typically
process fewer tires during the winter and experience a more pronounced volume
reduction in severe weather conditions. In addition, a majority of our crumb
rubber is used for playground and athletic surfaces, running tracks and
landscaping/groundcover applications which are typically installed during the
warmer portions of the year. Similar seasonal or other patterns may develop in
our business.
Inflation and Changing Prices may hurt our business.
Generally, we are exposed to the effects of inflation and changing prices.
Primarily because the largest component of our collection and disposal costs is
transportation, we are adversely affected by significant increases in the cost
of fuel. Additionally, because we rely on floating-rate debt for certain
financing arrangements, rising interest rates would have a negative effect on
our financial performance.
If we acquire other companies or businesses, we will be subject to risks that
could hurt our business.
A significant part of our business strategy entails future acquisitions,
or significant investments in, businesses that offer complementary products and
services. Promising acquisitions are difficult to identify and complete for a
number of reasons. Any acquisitions completed by our company may be made at
substantial premiums over the fair value of the net assets of the acquired
companies, and competition may cause us to pay more for an acquired business
than its long-term fair market value. There can be no assurance that we will be
able to complete future acquisitions on terms favorable to us or at all. In
addition, we may not be able to integrate future acquired businesses, at all or
without significant distraction of management from our ongoing business. In
order to finance acquisitions, it may be necessary for us to issue shares of our
capital stock to the sellers of the acquired businesses and/or to seek
additional funds through public or private financings. Any equity or debt
financing, if available at all, may be on terms which are not favorable to us
and, in the case of an equity financing or the use of our stock to pay for an
acquisition, may result in dilution to our existing stockholders.
25
As we grow, we are subject to growth related risks.
We are subject to growth-related risks, including capacity constraints and
pressure on our internal systems and personnel. In order to manage current
operations and any future growth effectively, we will need to continue to
implement and improve our operational, financial and management information
systems and to hire, train, motivate, manage and retain employees. We may be
unable to manage such growth effectively. Our management, personnel or systems
may be inadequate to support our operations, and we may be unable to achieve the
increased levels of revenue commensurate with the increased levels of operating
expenses associated with this growth. Any such failure could have a material
adverse impact on our business, operations and prospects. In addition, the cost
of opening new facilities and the hiring of new personnel for those facilities
could significantly decrease our profitability, if the new facilities do not
generate sufficient additional revenue.
Risks Related to the Securities Market
Our stock price may be volatile, which could result in substantial losses for
our shareholders.
Our common stock is thinly traded and an active public market for our
stock may not develop. Consequently, the market price of our common stock may be
highly volatile. Additionally, the market price of our common stock could
fluctuate significantly in response to the following factors, some of which are
beyond our control:
o changes in market valuations of similar companies;
o announcements by us or by our competitors of new or enhanced
products, technologies or services or significant contracts,
acquisitions, strategic relationships, joint ventures or capital
commitments;
o regulatory developments;
o additions or departures of senior management and other key
personnel;
o deviations in our results of operations from the estimates of
securities analysts; and
o future issuances of our common stock or other securities.
We have options, warrants and convertible promissory notes currently
outstanding. Exercise of these options and warrants, and conversions of these
promissory notes will cause dilution to existing and new shareholders. Future
sales of common stock by Laurus and our existing stockholders could result in a
decline in the market price of our stock.
As of June 30, 2004, we have options and warrants to purchase
approximately 6,806,359 shares of common stock outstanding in addition to
$6,000,000 of convertible promissory notes. The principal and interest amounts
of these notes are convertible into approximately 4,727,000 shares of common
stock. The exercise of our options and warrants, and the conversion of these
promissory notes, will cause additional shares of common stock to be issued,
resulting in dilution to investors and our existing stockholders. As of June 30,
2004, approximately 11,000,000 shares of our common stock were eligible for sale
in the public market. This represents approximately 58 percent of our
outstanding shares of common stock. After the effective date of our registration
statement on Form SB-2 filed on July 30, 2004, approximately 18,300,000 shares
of our common stock will be eligible for resale in the public market. Sales of a
significant number of shares of our common stock in the public market could
result in a decline in the market price of our common stock, particularly in
light of the illiquidity and low trading volume in our common stock.
26
Our directors, executive officers and principal stockholders own a significant
percentage of our shares, which will limit your ability to influence corporate
matters.
Our directors, executive officers and other principal stockholders owned
approximately 39 percent of our outstanding common stock as of June 30, 2004.
Accordingly, these stockholders could have a significant influence over the
outcome of any corporate transaction or other matter submitted to our
stockholders for approval, including mergers, consolidations and the sale of all
or substantially all of our assets and also could prevent or cause a change in
control. The interests of these stockholders may differ from the interests of
our other stockholders. In addition, limited number of shares held in public
float effect the liquidity of our common stock. Third parties may be discouraged
from making a tender offer or bid to acquire us because of this concentration of
ownership.
We have never paid dividends on our capital stock, and we do not anticipate
paying any cash dividends in the foreseeable future.
We have paid no cash dividends on our capital stock to date and we
currently intend to retain our future earnings, if any, to fund the development
and growth of our businesses. As a result, capital appreciation, if any, of our
common stock will be shareholders' sole source of gain for the foreseeable
future.
Anti-takeover provisions in our charter documents and Delaware law could
discourage potential acquisition proposals and could prevent, deter or delay a
change in control of our company.
Certain provisions of our Restated Certificate of Incorporation and
By-Laws could have the effect, either alone or in combination with each other,
of preventing, deterring or delaying a change in control of our company, even if
a change in control would be beneficial to our stockholders. Delaware law may
also discourage, delay or prevent someone from acquiring or merging with us.
Item 3 Controls and Procedures
Our management, with the participation of our chief executive officer and
chief financial officer, evaluated the effectiveness of our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934) as of June 30, 2004. In designing and evaluating our
disclosure controls and procedures, we recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving their objectives and management necessarily
applied its judgment in evaluating the cost-benefit relationship of possible
controls and procedures. Based on this evaluation, our chief executive officer
and chief financial officer concluded that as of June 30, 2004, our disclosure
controls and procedures were (1) designed to ensure that material information
relating to the company, including our consolidated subsidiaries, is made known
to our chief executive officer and chief financial officer by others within
those entities, particularly during the period in which this report was being
prepared and (2) effective, in that they provide reasonable assurance that
information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the SEC's rules and forms.
No change in our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal
quarter ended June 30, 2004 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
27
PART II - OTHER INFORMATION
Item 2. Changes in Securities
(c) Recent Sales of Unregistered Securities
On April 30, 2004, we issued 50,000 shares of our unregistered common
stock to a third party in connection with an equipment lease buyout. See
Note 8, "Property, Plant and Equipment" of Notes to Unaudited Condensed
Consolidated Financial Statements included in this report. The issuance of
these shares is exempt from registration under the Securities Act pursuant
to Section 4(2) of the Securities Act.
On February 16, 2004, we issued 724,281 shares of our unregistered common
stock to one of our directors upon conversion of $375,000 of principal and
$168,210 of accrued interest on a promissory note. See Note 9, "Notes
Payable - Related Party" of Notes to Unaudited Condensed Consolidated
Financial Statements included in this report. The issuance of these shares
is exempt from registration under the Securities Act pursuant to Section
4(2) of the Securities Act.
On June 26, 2004, we issued 369,331 shares of our unregistered common
stock to a third party upon conversion of $375,000 promissory note. See
Note 7, "Management's Plans for Raising Additional Capital" of Notes to
Unaudited Condensed Consolidated Financial Statements included in this
report. The issuance of these shares is exempt from registration under the
Securities Act pursuant to Section 4(2) of the Securities Act.
During the three months ended June 30, 2004 the Company issued 1,594,211
shares of our common stock and warrants to purchase 797,105 shares of our
common stock at prices ranging from $1.56 to $2.06 per share in connection
with a private placement of shares of common stock. The issuance of these
shares is exempt from registration under the Securities Act pursuant to
Section 4(2) of the Securities Act.
On June 30, 2004, we issued a $4 million secured convertible term note, a
$4 million convertible secured convertible revolving note and a $1 million
secured minimum borrowing note, to Laurus Master Fund, Ltd. for an
aggregate purchase price of $9 million. As part of the transaction, Laurus
was also issued ten-year warrants to purchase 1,380,000 shares of our
common stock at prices ranging from $1.56 to $2.29 per share. Amounts
outstanding under the term note are convertible into common stock at
Laurus's option at a conversion price initially equal to $1.25 per share.
In addition, subject to (i) having an effective registration statement
with respect to the shares of common stock underlying the term note, and
(ii) limitations based on trading volume of the common stock, scheduled
principal and interest payments under the term note will be made in shares
of common stock valued at the conversion price. Amounts outstanding under
the revolving and minimum borrowing notes are convertible to common stock
at Laurus's option at a conversion price initially equal to $1.31 per
share. The conversion prices under the notes are subject to equitable
adjustment for stock splits, stock dividends and similar events, and
"weighted average" adjustment for future stock issuances (other than stock
issuances in specifically excepted transactions). The issuance of these
securities is exempt from registration under the Securities Act pursuant
to Section 4(2) of the Securities Act.
On June 30, 2004, we issued 57,252 shares of our unregistered common stock
to a placement agent in connection Laurus funding transaction. See Note 9,
"Notes Payable/Credit Facility" of Notes to Unaudited Condensed
Consolidated Financial Statements included in this report. The issuance of
these shares is exempt from registration under the Securities Act pursuant
to Section 4(2) of the Securities Act.
We have issued options to purchase shares of our common stock from time to
time under our 1993 Stock Option Plan, our 2004 Stock Option Plan and our
1996 Non-Employee Director Stock Option. The exercise prices of such
options are equivalent to the fair market value of our common stock on the
respective grant dates. Such stock option grants, and the issuance of
shares of stock upon exercise of such options, are exempt from
registration under the Securities Act pursuant to Section 4(2) of the
Securities Act.
28
(e) Purchases of Equity Securities
(d) Maximum
(c) Total Number Number (or
of Shares Approximate Dollar
Purchased as Part Value) of Shares
(a) Total Number (b) Average of Publicly that May Yet Be
of Shares Price Paid Announced Purchased Under the
Period Purchased per Share Plans or Programs Plans or Programs
------ --------- --------- ----------------- -----------------
Month #1:
April 1 through April 30, 2004 0 N/A 0 N/A
Month #2:
May 1 through May 31, 2004 36,717(1) $1.2051 0 N/A
Month #3:
June 1through June 30, 2004 0 N/A 0 N/A
----------
(1) On May 11, 2004 one of our officers sold 36,717 shares of common
stock valued at $44,249 back to us in settlement of all amounts due
to us under a January 1999 promissory note. See We subsequently
cancelled these shares, which reduced our total shares issued and
outstanding. See Note 5, "Notes Receivable, Officers" of Notes to
Unaudited Condensed Consolidated Financial Statements included in
this report.
Item 4. Submission of Matters to a Vote of Security Holders
The Company conducted an Annual Meeting of Stockholders on April 21, 2004.
The matters considered at the meeting were the election of five members of
the Board of Directors and ratification of a proposal for the selection of
the firm of Wolf & Company, P.C. as our independent registered public
accounting firm for the fiscal year ending September 30, 2004.
The results of each vote was as follows:
For Against Abstain
---------- --------- ----------
Vote 1 - Election of the Board of Directors
Maurice E. Needham............................ 15,166,376 91,482 N/A
Robert H. Davis............................... 15,166,376 91,482 N/A
Lew Boyd...................................... 15,166,376 91,482 N/A
Dr. Allen Kahn................................ 15,166,376 91,482 N/A
Lyle Jensen................................... 15,166,376 91,482 N/A
Vote 2 - Proposal to ratify the selection of
Wolf & Company, P.C. as our independent
registered public accounting for the fiscal
year ending September 30, 2004................ 15,211,478 33,570 12,810
29
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 (1) 2004 Stock Option Plan.
4.2 (2) Securities Purchase Agreement, dated June 30, 2004,
by and between GreenMan Technologies, Inc. and
Laurus Master Fund, Ltd.
4.3 (2) Security Agreement, dated June 30, 2004, by and
among GreenMan Technologies, Inc. and certain of
its subsidiaries, in favor of Laurus Master Fund,
Ltd.
4.4 (2) Master Security Agreement, dated June 30, 2004, by
and among GreenMan Technologies, Inc. and certain
of its subsidiaries, in favor of Laurus Master
Fund, Ltd.
4.5 (2) Secured Convertible Minimum Borrowing Note, dated
June 30, 2004, made by GreenMan Technologies, Inc.
to Laurus Master Fund, Ltd.
4.6 (2) Secured Revolving Note, dated June 30, 2004, made
by GreenMan Technologies, Inc. to Laurus Master
Fund, Ltd.
4.7 (2) Secured Convertible Term Note, dated June 30, 2004,
made by GreenMan Technologies, Inc. to Laurus
Master Fund, Ltd.
4.8 (2) Common Stock Purchase Warrant, dated June 30, 2004,
issued to Laurus Master Fund, Ltd.
4.9 (2) Common Stock Purchase Warrant, dated June 30, 2004,
issued to Laurus Master Fund, Ltd.
4.10 (2) Term Note Registration Rights Agreement, dated June
30, 2004, by and between GreenMan Technologies,
Inc. and Laurus Master Fund, Ltd.
4.11 (2) Minimum Borrowing Note Registration Rights
Agreement, dated June 30, 2004, by and between
GreenMan Technologies, Inc. and Laurus Master Fund,
Ltd.
4.12 (2) Subsidiary Guarantee, dated June 30, 2004, by and
among GreenMan Technologies of Minnesota, Inc.,
GreenMan Technologies of Georgia, Inc., GreenMan
Technologies of Iowa, Inc., GreenMan Technologies
of Tennessee, Inc., GreenMan Technologies of
Wisconsin, Inc. and GreenMan Technologies of
California, Inc., in favor of Laurus Master Fund,
Ltd.
4.13 (2) Stock Pledge Agreement, dated June 30, 2004, by and
among GreenMan Technologies, Inc. and Laurus Master
Fund, Ltd.
4.14 (2) Subordination Agreement, dated June 30, 2004, by
and among Barbara Morey, Joyce Ritterhauss, Allen
Kahn, Robert Davis and Nancy Davis, in favor of
Laurus Master Fund, Ltd.
4.15 (2) Escrow Agreement dated June 30, 2004 among GreenMan
Technologies, Inc., Laurus Master Fund, Ltd., and
Loeb & Loeb LLP, as Escrow Agent
31.1 (1) Certification of Chief Executive Officer pursuant
to Rule 13a-14(a) or Rule 15d-14(a)
31.2 (1) Exhibit 31.2 Certification of Chief Financial
Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a)
32.1 (1) Certification of Chief Executive Officer under 18
U.S.C Section 1350
32.2 (1) Certification of Chief Financial Officer under 18
U.S.C Section 1350
30
(1) Filed herewith.
(2) Filed as an Exhibit to GreenMan Technologies, Inc.'s
Registration Statement on Form SB-2 (Commission File Number
333-117819) and incorporated herein by reference.
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed on July 7, 2004, covering
Item 2.03 (Creation of a Direct Financial Obligation or an
Obligation under an Off-Balance Sheet Arrangement of a Registrant).
Our press release dated July 6, 2004 was included as an exhibit
under Item 7.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant
certifies that it has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
By: GreenMan Technologies, Inc.
/s/ Robert H. Davis
-------------------
Robert H. Davis
Chief Executive Officer
By: GreenMan Technologies, Inc.
/s/ Charles E. Coppa
--------------------
Chief Financial Officer, Treasurer,
Secretary
32