U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
(Mark One)
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended September 30, 2005
OR
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
Commission File Number 1-13776
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GreenMan Technologies, Inc.
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(Name of small business issuer 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 (781) 224-2411
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Securities registered pursuant to Section 12 (b) of the Exchange Act:
Title of each class Name of each exchange on which registered
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Common Stock, $ .01 par value American Stock Exchange
-----------------------------
(Title of each class)
Check whether the issuer is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act |_|
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes |X| No |_|
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B in this form, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. |X|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). |_|
1
The issuer's revenues for the fiscal year ended September 30, 2005 were
$22,075,236.
The aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked price of such common equity, as of March 31,
2006 was $3,994,325.
As of March 31, 2006, 19,225,352 shares of common stock of issuer were
outstanding.
Transitional Small Business Disclosure Format (check one) Yes |_| No |X|
2
GREENMAN TECHNOLOGIES, INC.
INDEX
Page
PART I
Item 1. Business 4
Item 2. Properties 6
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
PART II
Item 5. Market for the Registrants Common Equity, Related 7
Stockholder Matters and Small Business Issuer's
Purchases of Equity Securities
Item 6. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
Item 7. Financial Statements 18
Item 8. Changes in and Disagreements with Accountants on 18
Accounting and Financial Disclosure
Item 8A. Disclosure Controls and Procedures 18
PART III
Item 9. Directors, Executive Officers, and Key Employees 18
Item 10. Executive Compensation 20
Item 11. Security Ownership of Certain Beneficial Owners and 22
Management and Related Stockholder Matters
Item 12. Certain Relationships and Related Transactions 23
Item 13. Exhibits and Reports on Form 8-K 25
Item 14. Principal Accountant Fees and Services 30
Signatures 59
Exhibits
3
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-KSB contains forward-looking statements
regarding future events and the future results of GreenMan Technologies, Inc.
that are based on current expectations, estimates, forecasts, and projections
and the beliefs and assumptions of our management. Words such as "expect,"
"anticipate," "target," "goal," "project," "intend," "plan," "believe," "seek,"
"estimate," "will," "likely," "may," "designed," "would," "future," "can,"
"could" and other similar expressions that are predictions of or indicate future
events and trends or which do not relate to historical matters are intended to
identify such forward-looking statements. These statements are based on
management's current expectations and beliefs and involve a number of risks,
uncertainties, and assumptions that are difficult to predict; consequently
actual results may differ materially from those projected, anticipated, or
implied.
PART I
Item 1. Description of Business
General
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. We are in the business of collecting, processing and
marketing scrap tires in whole, shredded or granular form. We are headquartered
in Lynnfield, Massachusetts and operate tire processing operations in
California, Iowa and Minnesota.
Recent Developments
In September 2005, due to the magnitude of our continued operating losses,
our Board of Directors approved separate plans to divest the operations of our
Georgia and Tennessee subsidiaries and dispose of their respective assets.
Accordingly, we have classified their respective results of operations as
discontinued operations for all periods presented in the accompanying
consolidated financial statements.
In September 2005 we entered into an agreement under which all Tennessee
scrap tire collection contracts and certain other contracts with suppliers of
waste tires and contracts to supply whole tires to certain cement kilns in the
southeastern region of the United States were assigned to a company owned by a
former employee. We received no cash consideration for these assignments and
recorded a $1,334,849 non-cash loss (including $918,450 associated with goodwill
written off) on disposal of the operations at September 30, 2005. The aggregate
losses associated with the discontinued operations of our Tennessee subsidiary
included in the results for the fiscal year ended September 30, 2005 were
approximately $3.1 million.
During the quarter ended December 31, 2005, we substantially curtailed
operations at our Georgia subsidiary. As a result, we wrote down the carrying
value of all Georgia operating assets to their estimated fair value at September
30, 2005 and recorded a non-cash loss on disposal of $4,631,102 (including
$1,253,748 of goodwill written off) net of a gain on settlement of our Georgia
facility lease of $586,451. The aggregate losses associated with the
discontinued operations of our Georgia subsidiary included in the results for
the fiscal year ended September 30, 2005 were approximately $8.3 million. During
the quarter ended March 31, 2006, we completed the sale of substantially all
Georgia operating assets to two separate parties and received $405,000 in
aggregate cash. In addition, the party to one of these transactions agreed to
terminate several material supply and equipment lease agreements as well as a
December 2005 letter of intent containing an exclusive option to acquire certain
operating assets of the party.
In June 2005, our Wisconsin subsidiary sold all of its land and buildings
and all remaining Wisconsin operations were consolidated into our Minnesota
facility as of September 30, 2005.
Products and Services
Our tire processing operations are paid a fee to collect, transport and
process scrap tires (i.e. collection/processing revenue) in whole or two inch or
smaller rubber chips which are then sold (i.e. product revenue).
We collect scrap tires from three sources:
o local, regional and national tire stores;
o tire manufacturing plants; and
o illegal tire piles being cleaned-up by state, county and local
governmental entities;
The tires we collect are processed and sold:
o as tire-derived fuel used in lieu of coal by pulp and paper
producers, cement kilns and electric utilities;
4
o as an effective substitute for crushed stone in civil engineering
applications such as road beds, landfill construction or septic
field construction; or
o as crumb rubber (rubber granules) and used for playground and
athletic surfaces, running tracks, landscaping/groundcover
applications and bullet containment systems.
In some states where we previously had disposal contracts with cement
kilns, our whole tire operations were paid a fee by existing tire collectors to
dispose of whole tires at our location. We paid the cement kilns a fee to accept
the whole tires which they then use as an alternative fuel source to coal, while
also providing a source of iron oxide which is required in the cement making
process. As of September 30, 2005, we no longer have disposal contracts with
cement kilns.
Manufacturing/Processing
Our tire shredding operations currently have the capacity to process about
20 million passenger tire equivalents annually. We collected over 18.3 million
passenger tire equivalents in the fiscal year ended September 30, 2005
(excluding approximately 13.1 associated with our discontinued Georgia and
Tennessee operations), compared to approximately 17.5 million passenger tire
equivalents during the year ended September 30, 2004 (excluding approximately
13.1 associated with our curtailed Georgia and Tennessee operations). We
anticipate processing over 20 million passenger tire equivalents in fiscal 2006,
based on current processing volumes.
The method used to process tires is a series of commercially available
shredders that sequentially reduce tires from whole tires to two-inch chips or
smaller. Bead-steel is removed magnetically yielding a "95% wire-free chip."
This primary recycling process recovers approximately 60% of the incoming tire.
The remaining balance consists of un-saleable cross-contaminated rubber and
steel ("waste wire"), which we have historically disposed of at costs exceeding
$1 million annually. Our Iowa and Minnesota facilities further process the waste
wire residual into saleable components of rubber and steel which reduces
residual disposal costs and provides additional sources of revenue. In our Iowa
facility, rubber is further granulated into particles less than one-quarter inch
in size for use in the rapidly expanding athletic surfaces and playground
markets.
Raw Materials
We believe we will have access to a supply of tires sufficient to meet our
requirements for the foreseeable future. According to the latest information
available from the Rubber Manufacturers Association, in 2003 approximately 290
million passenger tire equivalents (approximately one per person per year) were
discarded in the United States ("current generation scrap tires") in addition to
an estimated several hundred million scrap passenger tire equivalents already
stockpiled in illegal tire piles. The Rubber Manufacturers Association estimates
that a total of approximately 233 million passenger tire equivalents are
currently recycled, of which approximately 130 million are burned as
tire-derived fuel; 55 million are used in civil engineering applications; and 48
million are used in various other applications such as crumb rubber production,
retreading and export. The approximately 57 million remaining passenger tire
equivalents are now added to landfills annually. Based on this and other data,
there appears to be an adequate supply of tires to meet our needs.
Customers
Our customers continue to consist of major tire manufacturers, local and
regional tire outlets, and state and local governments. We have many long-term,
stable relationships with our customers and we do not believe that the loss of
any individual customer would have a material adverse effect on our business.
During 2005, no single customer accounted for more than 10% of our total net
sales.
We do not have any long-term contracts which require any customer to
purchase any minimum amount of products or provide any minimum amount of tires.
There can be no assurance that we will continue to receive orders of the same
magnitude as in the past from existing customers or that we will be able to
market our current or proposed products to new customers.
Sales and Marketing
We continue to utilize in-house sales staff for securing new accounts and
marketing processed materials. This strategy maximizes revenue and concentrates
our sales/marketing efforts on highly focused initiatives. Sales/marketing
personnel have extensive experience in the tire recycling industry and in
industries where our processed materials are consumed.
Competition
We compete in a highly fragmented and decentralized market with a large
number of small competitors. Although we continue to believe there is an
opportunity for industry consolidation we have focused our attention on
strategic value-added vertical integration. Our strategy is to continue to
increase the number of passenger tire equivalents that we processes through
aggressive sales and marketing efforts as well as continuing to focus on
identifying and generating new marketing strategies for recycled tires and their
value added by-products.
5
Government Regulation
Our tire recycling and processing activities are subject to extensive and
rigorous government regulation designed to protect the environment. We do not
believe that our activities result in emission of air pollutants, disposal of
combustion residues, or storage of hazardous substances except in compliance
with applicable permits and standards. The establishment and operation of plants
for tire recycling, however, 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. We use our best efforts to keep abreast of changed or
new regulations for immediate implementation.
Protection of Intellectual Property Rights and Proprietary Rights
None of the equipment or machinery that we currently use or intend to use
in our current or proposed manufacturing activities is proprietary. Any
competitor can acquire equivalent equipment and machinery on the open market.
We have used the name "GreenMan" in interstate commerce since inception
and assert a common law right in and to such name.
Employees
As of September 30, 2005, we had 159 full time employees. We are not a
party to any collective bargaining agreements and consider the relationship with
our employees to be satisfactory.
Item 2. Description of Properties
Our Minnesota location consists of production facilities and office space
situated on approximately eight acres which we lease from a related party
pursuant to a March 2004 sale/leaseback arrangement. The lease expires in 2016,
but provides for two additional 4-year extensions. (See "Item 12. Certain
Relationships and Related Transactions - Related Party Transactions.")
Our Iowa location consists of production facilities and office space
situated on approximately four acres which we lease from a related party
pursuant to an April 2003 lease. The lease expires in 2013 and provides us with
a right of first refusal to purchase the land and buildings at fair market value
during the term of the lease. In addition, in March 2005 we executed a new lease
with the same related party for approximately three additional acres adjacent to
our Iowa facility. The lease expires in 2013. (See "Item 12. Certain
Relationships and Related Transactions - Related Party Transactions.")
Our California location consists of a disposal and production facility and
office space located in approximately 45,000 square feet of a building which we
lease from an unrelated third party pursuant to an April 2002 lease. The lease
expires in April 2007 but can be terminated by either party with 30 days prior
notice and provides for an additional 5-year extension.
We lease approximately 3,380 square feet of office space from an unrelated
third party for our corporate headquarters pursuant to a five-year lease that
expires in May 2008. In June 2004, we amended this lease to include an
additional 1,125 square feet of office space for an additional monthly rent of
$1,500.
In June 2005 we sold our Wisconsin facility for approximately $483,000 and
consolidated those operations into our Minnesota location, recording a gain of
approximately $123,608. We continued to lease the property through September 30,
2005 while we completed the consolidation with Minnesota.
In September 2005, we ceased operations at our Tennessee facility and
substantially curtailed operations at our Georgia location during the quarter
ended December 31, 2005. The Tennessee location consisted of production and
office space which we leased from an unrelated third party pursuant to a
September 2002 lease which expired in 2005. The Georgia location consists of
production facilities and office space which we lease pursuant to an April 2001
sale/leaseback arrangement which originally expired in 2021. In February 2006,
we renegotiated the lease to permit us to terminate the lease with 180 days
notice. Despite early termination, we will be obligated to continue to pay rent
until the earlier to occur of (1) the sale of the premises by the landlord; (2)
the date on which the landlord begins leasing the premises to a new tenant; or
(3) three years from the date on which we vacate the property. (See "Item 12.
Certain Relationships and Related Transactions - Related Party Transactions.")
During the period of February 16, 2006 to March 1, 2006, we completed the
sale of substantially all GreenMan of Georgia operating assets to two companies,
one which is co-owned by a former employee. In addition, we entered into a
sublease agreement with each party with respect to part of the premises located
in Georgia with a rolling six month commitment from each party.
6
We consider our properties in good condition, well maintained and
generally suitable to carry on our business activities for the foreseeable
future.
Item 3. Legal Proceedings
As of March 31, 2006, approximately 16 vendors of our GreenMan
Technologies of Georgia, Inc. and GreenMan Technologies of Tennessee, Inc.
subsidiaries had commenced legal action, primarily in the state courts of
Georgia, in attempts to collect approximately $1.6 million of past due amounts
included in liabilities related to discontinued operations on the consolidated
balance sheet, plus accruing interest, attorneys' fees, and costs, all relating
to various services rendered to these subsidiaries. The largest individual claim
is for approximately $650,000. As of March 31, 2006, 3 of these vendors had
secured judgments in their favor for an aggregate amount of approximately
$250,000. As previously noted, all of GreenMan Technologies of Tennessee, Inc.'s
assets were sold in September 2005 and substantially all of GreenMan
Technologies of Georgia, Inc.'s assets were sold as of March 1, 2006. All
proceeds from these sales were retained by our secured lender and these
subsidiaries have substantially no assets. We are therefore currently evaluating
the alternatives available to these subsidiaries.
GreenMan Technologies, Inc. was not a party to any of these vendor
relationships but several of the plaintiffs have filed suit against GreenMan
Technologies, Inc. While there can be no assurance that GreenMan Technologies,
Inc will not be named as a defendant in future proceedings, we believe that
GreenMan Technologies, Inc has valid defenses to any potential claims that may
be made against us, and we intend to defend against any such claims vigorously.
In addition to the foregoing, we are subject to routine claims from time
to time in the ordinary course of our business. We do not believe that the
resolution of any of the claims that are currently known to us will have a
material adverse effect on our company or on our financial statements.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of our shareholders during the
fourth quarter of the fiscal year ended September 30, 2005.
PART II
Item 5. Market for Common Equity, Related Stockholder Matters and Small
Business Issuer's Purchases of Equity Securities
Our common stock is traded on the American Stock Exchange ("the Exchange")
under the symbol "GRN".
7
On January 5, 2006 we were notified by the Exchange indicating we were not
in compliance with the Exchange's requirements for continued listing as set
forth in Sections 134 and 1101 of the Exchange's Company Guide with respect to
our failure to file our Annual Report on Form 10-KSB for the year ended
September 30, 2005 with the Securities and Exchange Commission.
In order to maintain our listing on the Exchange, we were required to, and
did, submit a plan by January 19, 2006 advising the Exchange of action we have
taken, or will take, that would bring our company into compliance with Sections
134 and 1101 of the Company Guide by no later than March 20, 2006. On February
2, 2006, we were notified that the Exchange had accepted our compliance plan and
had granted us an extension of time through March 20, 2006 to regain compliance
with the continued listing standards. Although we had made progress toward
compliance by March 20, 2006, we did not file our Annual Report by that date.
Although we remain subject to continued periodic review by the Exchange, the
Exchange has not notified us of its intention to initiate delisting proceedings
and, to our knowledge, the Exchange has not initiated such proceedings.
On February 14, 2006, we were notified by the Exchange that we are not in
compliance with the Exchange's requirements for continued listing set forth in
Section 1003(a)(i) of the Exchange's Company Guide because we did not meet the
$2,000,000 shareholders' equity requirement and because we reported losses from
continuing operations and/or net losses in two out of our three most recent
fiscal years.
In order to maintain our listing on the Exchange, we were required to, and
did, submit a plan by March 14, 2006 advising the Exchange of action we have
taken, or will take, that would bring us into compliance no later than February
14, 2007. We will be subject to delisting proceedings if the plan we submitted
is unacceptable to the Exchange or if we fail to make progress toward achieving
an acceptable plan.
The following table sets forth the range of the reported high and low
sales prices of our common stock for the years ended September 30, 2005 and
2004.
Common Stock
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High Low
---- ---
Fiscal 2004
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Quarter Ended December 31, 2003............. $1.80 $1.25
Quarter Ended March 31, 2004................ 1.60 1.07
Quarter Ended June 30, 2004................ 1.40 1.01
Quarter Ended September 30, 2004............ 1.54 1.14
Fiscal 2005
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Quarter Ended December 31, 2004............. $1.57 $1.11
Quarter Ended March 31, 2005................ 1.55 0.79
Quarter Ended June 30, 2005................ 0.94 0.44
Quarter Ending September 30, 2005........... 0.44 0.22
On March 31, 2006, the closing price of our common stock was $.30 per
share.
As of September 30, 2005, we estimate the approximate number of
stockholders of record of our common stock to be 2,500. This number excludes
individual stockholders holding stock under nominee security position listings.
We have not paid any cash dividends on our common stock since inception
and do not anticipate paying any cash dividends in the foreseeable future. In
addition, our agreements with Laurus Master Fund, Ltd. prohibit the payment of
cash dividends.
See "Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources -Additional Steps to
Increase Liquidity and "Refinancing of Our Credit Facility" for a description of
certain convertible promissory notes and warrants issued to Laurus. These notes
and warrants were exempt from registration under the Securities Act of 1933
pursuant to Section 4(2) of the Act.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations
In September 2005, due to the magnitude of continued operating losses, our
Board of Directors approved separate plans to divest the operations of our
Georgia and Tennessee subsidiaries and dispose of their respective assets.
Accordingly, we have classified their respective results of operations as
discontinued operations for all periods presented in the accompanying
consolidated financial statements.
8
Fiscal Year ended September 30, 2005 Compared to Fiscal Year ended
September 30, 2004
Net sales from continuing operations for the fiscal year ended September
30, 2005 were $22,075,236, a 16% increase, compared to last year's net sales
from continuing operations of $19,115,483. Our continuing operations processed
approximately 18.3 million passenger tire equivalents during the fiscal year
ended September 30, 2005, compared to approximately 17.5 million passenger tire
equivalents during the fiscal year ended September 30, 2004. The increase in
revenue was attributable to a 18% increase in overall product revenues, a 5%
increase in inbound scrap tires volume and a 4% increase in overall tipping fees
per passenger tire. Included in the fiscal 2005 results were approximately
$827,000 of revenue and 875,000 passenger tire equivalents associated with an
Iowa scrap tire cleanup project which was completed during fiscal 2005.
Overall end product sales increased 18% or $1,221,718 to $7,856,960 during
the fiscal year ended September 30, 2005, compared to $6,635,242 for the same
period last year. The increase in end product sales is attributable to stronger
crumb rubber and tire-derived fuel sales during the fiscal year ended September
30, 2005. The overall quality of revenue (revenue per passenger tire equivalent)
benefited from increased tire volumes and end product sales and a 4% increase in
tipping fees per passenger tire equivalent.
Gross profit for the fiscal year ended September 30, 2005 was $3,603,629
or 16% of net sales, compared to $3,908,768 or 20% of net sales for year ended
September 30, 2004. Our cost of sales increased $3,264,892 or 21% primarily due
to increased collection costs, reduced processing capacity and equipment
reliability issues at our California facility as well as unforeseen decreases in
inbound tire volumes in California due to severe weather conditions during the
first half of fiscal 2005.
Selling, general and administrative expenses for the fiscal year ended
September 30, 2005 increased $286,585 to $3,459,470 or 16% of net sales,
compared to $3,172,885 or 17% of net sales for the fiscal year ended September
30, 2004. The increase was primarily attributable to increased outside
professional expenses and travel.
During June 2005 our Wisconsin subsidiary reached an agreement with the
lessor of certain transportation equipment to buy-out the remaining term of the
lease. Management determined that the carrying value of the purchased
transportation equipment was impaired. We recorded an impairment loss amounting
to $57,183 associated with writing down the assets to their estimated fair value
based on replacement cost of similar equipment. In addition, due to the
magnitude of the fiscal 2005 losses, management determined that the carrying
value of corporate-wide goodwill to be impaired and accordingly wrote-off all
remaining goodwill recording an additional non-cash impairment loss of
$1,361,696.
As a result of the foregoing, we had and operating loss of $1,274,720 for
the fiscal year ended September 30, 2005 as compared to an operating income of
$735,883 for the fiscal year ended September 30, 2004.
Interest and financing costs for the fiscal year ended September 30, 2005
increased $1,000,353 to $2,408,896 (including $1,547,563 of non-cash deferred
financing costs), compared to $1,408,543 (including $456,671 of non-cash
deferred financing costs) during the fiscal year ended September 30, 2004. The
increase is primarily attributable to increased non-cash deferred financing
associated with the Laurus credit facility and an increase in borrowing rates.
During the fiscal year ended September 30, 2004 we also recorded other
income of approximately $90,000 relating to a settlement for damaged product.
Based on the magnitude of our fiscal 2005 losses, we determined the
near-term realizability of a $270,000 non-cash deferred tax asset to be
uncertain and therefore have provided a valuation allowance on the entire amount
during the fiscal year ended September 30, 2005.
As a result of the foregoing, our net loss from continuing operations for
the fiscal year ended September 30, 2005 increased $3,476,140 to $4,053,534 or
$.21 per basic share, compared to a net loss of $577,394 or $.03 per basic share
for the fiscal year ended September 30, 2004. The estimated loss on disposal of
discontinued operations includes $1,334,849 relating to our Tennessee operations
and $4,631,102 in connection with our Georgia facility. Losses primarily relate
to the write-off of property, equipment, goodwill, an acquisition deposit and
costs of exit activities.
Loss from discontinued operations increased $3,085,977 to $5,153,224 for
fiscal year ended September 30, 2005 as compared to a net loss from discontinued
operations of $2,067,247 for last year.
Our net loss for the fiscal year ended September 30, 2005 increased
$12,528,068 to $15,172,709 as compared to a net loss of $2,644,641 for the
fiscal year ended September 30, 2004.
9
Liquidity and Capital Resources
As of September 30, 2005, we had $256,492 in cash and cash equivalents and
a working capital deficiency of $8,667,886. Our continued existence is dependent
on our ability to reduce our operating costs, negotiate more favorable terms
with existing secured creditors, refinance existing long term debt, secure
additional financing and achieve profitable status on a sustained basis.
The Consolidated Statements of Cash Flows reflect events in 2005 and 2004
as they affect our liquidity. During the fiscal year ended September 30, 2005,
net cash used for operating activities was $450,536. While our net loss was
$15,172,709 our overall cash flow was positively impacted by the following
non-cash expenses and changes to our working capital: $6,446,434 of depreciation
and amortization, $3,605,345 of non-cash net loss on disposal of fixed assets
(including capital leases), $3,591,077 of non-cash goodwill impairment, a
decrease in accounts receivable, product inventory and other current assets of
$1,243,190 in aggregate and an increase in accounts payable and accrued expenses
of $1,938,606 in aggregate.
During the fiscal year ended September 30, 2004, net cash used by
operating activities was $1,694,645. Our overall cash flow was negatively
impacted by our net loss of $2,644,641 as well as the following changes to our
working capital: a $1,015,500 increase to accounts receivable, a $555,420
increase in product inventory and an increase in accounts payable and accrued
expenses of $351,348 in aggregate. These uses of cash were partially offset by
the inclusion of $2,680,114 of depreciation and amortization (non-cash expenses)
and the receipt of a $634,172 insurance receivable during fiscal 2004.
Net cash used for investing activities was $987,991 for the fiscal year
ended September 30, 2005 reflecting the purchase of $1,596,093 of machinery and
equipment with a majority associated with the completion of our Georgia waste
wire processing equipment and new shredding capacity. This offset by $608,102 in
proceeds received from the sale of our Wisconsin property and miscellaneous
other equipment. The net cash used by investing activities for the fiscal year
ended September 30, 2004 was $212,532 reflecting the $1,400,000 of proceeds
received from the sale of our Minnesota real estate which offset the purchase of
$1,649,264 of property and equipment to increase capacity and efficiencies at
several of our operating locations.
Net cash provided by financing activities was $1,293,956 during the fiscal
year ended September 30, 2005 and was positively impacted by additional
availability under our Laurus and First American credit facilities. This
increase was offset by repayment of notes payable and convertible notes payable
of $2,002,404 in aggregate and capital leases of $538,848. Net cash provided by
financing activities was $1,426,219 during the fiscal year ended September 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
$4,726,894, including approximately $3,800,000 associated with the payoff of our
Minnesota real estate loan, WAMCO Credit Facility and Cryopolymers Leasing note
payable.
The financial statements have been prepared assuming we will continue as a
going concern. We have incurred substantial losses from operations, and have a
working capital deficiency of $8,667,886 at September 30, 2005. These factors
raise substantial doubt about our ability to continue as a going concern.
In order to reduce our operating costs, address our liquidity needs and
return to profitable status, we have implemented and/or are in the processing of
implementing the following actions:
Divestiture of Unprofitable Operations
Due to the magnitude of the continuing operating losses incurred by our
Georgia ($3.4 million) and Tennessee ($1.8 million) subsidiaries during fiscal
2005, our Board of Directors determined it to be in the best interest of our
company to discontinue all Southeastern operations and dispose of their
respective operating assets. A majority of the Tennessee operating losses were
due to rapid market share growth within the state by an undercapitalized
subsidiary, necessitating us to transport an increasing number of Tennessee
scrap tires to our Georgia facility for processing at significant transportation
and processing loss. A majority of the Georgia operating losses were due to (1)
the negative impact of processing a significant number of Tennessee sourced
tires; (2) a change in the specifications of our primary end market customers
requiring a smaller product resulting in reduced processing capacity and
significantly higher operating costs and (3) equipment reliability issues
resulting from aging equipment processing an increasing number of scrap tires.
On September 6, 2005 we entered into an agreement under which all
Tennessee scrap tire collection contracts and certain other contracts with
suppliers of waste tires and contracts to supply whole tires to certain cement
kilns in the southeastern region of the United States were assigned to a company
owned by a former employee. We received no cash consideration for these
assignments and recorded a $1,334,849 non-cash loss (including $918,450
associated with goodwill written off) on disposal of the operations in the year
ended September 30, 2005. The aggregate net losses including the loss on
disposal associated with the discontinued operations of our Tennessee subsidiary
included in the results for the fiscal year ended September 30, 2005 were
approximately $3.1 million.
10
On September 27, 2005, we adopted a plan to dispose of all Georgia
operations and during the quarter ended December 31, 2005, we substantially
curtailed operations at our Georgia subsidiary. As a result, we wrote down all
Georgia operating assets to their estimated fair market value at September 30,
2005 and recorded a non-cash loss on disposal of $4,631,102 (including
$1,253,748 associated with goodwill written off) net of a gain on settlement of
our Georgia facility lease of $586,137. The aggregate net losses including the
loss on disposal associated with the discontinued operations of our Georgia
subsidiary included in the results for the fiscal year ended September 30, 2005
were approximately $8.0 million. We completed the divestiture of all Georgia
operating assets as of March 1, 2006.
On February 17, 2006, we entered into an Asset Purchase Agreement with
Tires Into Recycled Energy and Supplies, Inc. ("TIRES"). Under the agreement, we
sold and assigned to TIRES certain assets, including (a) certain truck tire
processing equipment located at our Georgia facility; (b) certain rights and
interests in our contracts with suppliers of scrap truck tires; and (c) certain
intangible assets. TIRES agreed to assume all of our rights and obligations
under these contracts. We anticipate the transition of assigning the contracts
to be completed within 60 to 90 days. In addition, TIRES entered into a sublease
agreement with us with respect to part of the premises located in Georgia. We
received $155,000 from TIRES for these assets. As additional consideration,
TIRES agreed to terminate several material supply and equipment lease agreements
as well as terminating a December 2005 letter of intent between GreenMan and
TIRES containing an exclusive option to acquire certain operating assets of
TIRES.
On March 1, 2006, we entered into an Asset Purchase Agreement with MTR of
Georgia, Inc. ("MTR") a company co-owned by a former employee. Under the
agreement, we sold and assigned to MTR certain assets, including (a) certain
passenger tire processing equipment located at our Georgia facility; (b) certain
rights and interests in our contracts with suppliers of scrap passenger tires;
and certain intangible assets. MTR agreed to assume all of our rights and
obligations under these contracts. We anticipate the transition of assigning the
contracts to be completed within 60 to 90 days. In addition, MTR entered into a
sublease agreement with us with respect to part of the premises located in
Georgia. We received $250,000 from MTR for these assets. As additional
consideration, MTR has agreed to assume financial responsibility for disposing
of all scrap tires and scrap tire processing residual at the Georgia facility as
of the close. (See "Item 12. Certain Relationships and Related Transactions -
Related Party Transactions.")
We agreed with TIRES and MTR not to compete in the business of providing
whole tire waste disposal services or selling crumb rubber material (except to
existing GreenMan customers) within certain Southeastern states for a period of
three years.
Credit Facility Refinancing
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 and a $4 million convertible term note 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 prior credit facility 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. On March 22, 2005, the
credit facility was amended to permit us to maintain overadvances of up to
$2,000,000 under the line of credit through December 31, 2005 (subsequently
extended to April 30, 2006). In addition, the price at which the minimum
borrowing note and term loan are convertible into our common stock were
adjusted (See Note 7 of the consolidated financial statements). As of September
30, 2005, our overadvance was $1,980,250.
On July 20, 2005, we entered into a $1 million convertible term note with
a maturity date of June 30, 2007 and bearing interest at the prime rate
published in The Wall Street Journal from time to time plus 1.75% (8.5% at
September 30, 2005). Interest on the loan is payable monthly commencing August
1, 2005. Principal will be amortized over the term of the loan, commencing on
February 1, 2006 extended to May 1, 2006, with minimum monthly payments of
principal of $58,823.53. Laurus has the option to convert some or all of the
principal and interest payments into common stock at a price of $.33 (the
average closing price of our common stock on the American Stock Exchange for the
3-day period ending July 18, 2005) (the "Fixed Conversion Price"). In connection
with the Term Note, we also issued to the Laurus Funds an option to purchase up
to an aggregate of 2,413,571 shares of our common stock at an exercise price
equal to $0.01 per share.
On February 10, 2005, First American Bank renewed our Iowa subsidiary's
working capital line until February 10, 2006 (subsequently extended to May 1,
2006) and increased our maximum availability under the line of credit to
$800,000. In addition, First American agreed to increase our overall maximum
availability by an additional $350,000 to $1,150,000 through June 10, 2005 to
coincide with the performance of a significant scrap tire cleanup project which
was completed in April 2005.
Additional Steps to Increase Liquidity
Over the last several years, we have funded portions of our operating cash
flow from sales of equity securities, loans from officers and related parties,
increased borrowings and extending payments to our vendors.
11
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 nine 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 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 $1,547,800. We
used the net proceeds of this offering to commence re-establishing our Georgia
waste wire processing capacity and for general working capital purposes.
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
$187,000 of amounts due him to pay off notes receivable due our company and in
June 2004 applied approximately $114,000 of amounts due him, plus $21,000 of
accrued interest to exercise options to purchase 185,000 shares of our common
stock. At September 30, 2005, the remaining balance on these advances amounted
to $699,320.
Operating Performance Enhancements
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. In the last several years we have purchased secondary
equipment for our Georgia (damaged in the March 2003 fire; reestablished in
November 2004), 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 significantly reduced our residual disposal costs.
On March 31, 2003, a portion of our Georgia facility and several pieces of
waste wire processing equipment were damaged by a fire. 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
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 of approximately the quarter. We estimate that
during the year ended September 30, 2004, reduced end product revenue and excess
waste disposal costs of over $1 million were associated with the impact of the
March 31, 2003 fire. In November 2004, all previously damaged equipment was
re-installed and became operational.
In August 2004, we executed a non-binding letter of intent and escrow
agreement with Tires Into Recycled Energy and Supplies, Inc. ("TIRES"), a
leading crumb rubber processor in the United States. Pursuant to the escrow
agreement, we made a "good faith" payment amounting to $350,000, which was to be
applied toward the purchase price upon completion of the transaction. On
December 8, 2004, we executed a new letter of intent which superseded the August
letter of intent in which we (1) leased, with an option to buy, certain pieces
of tire processing equipment owned by TIRES (the "Equipment Leases"), (2)
entered a material supply agreement (the "MSA") and (3) were granted an
exclusive purchase option to acquire additional operating assets of TIRES. The
operating leases were executed in January 2005 but became effective in February
and March 2005 and provide for aggregate monthly payments of $25,300 over terms
ranging from 48 to 60 months.
We also agreed to allow TIRES to retain $101,378 of the "good faith"
payment to upgrade it's existing crumb rubber production capacity and used the
remaining $248,622 to prepare and move the leased equipment for our use.
Accordingly, during the quarter ended March 31, 2005, the $101,378 was expensed
when it was released from escrow and approximately $243,597 has been capitalized
and was being amortized over the lease terms which ranged from 48 to 60 months.
The remaining balance of $205,106 was written off as a cost of disposal of
discontinued operations.
Pursuant to the terms of the MSA, we were to supply agreed upon minimum
amounts of crumb rubber material to TIRES on a weekly basis. If we do not meet
the minimum weekly requirements, we are assessed a shortfall fee equal to 150%
of the purchase price for any shortfall tonnage. Due to unexpected equipment
downtime and delays in installing the additional rasper which was being leased
from TIRES, we were unable to meet the minimum material requirements during
various periods during fiscal 2005 and as a result, we recorded a shortfall
expense of approximately $382,000 during the fiscal year ended September 30,
2005. TIRES would purchase material was increased 15% for a period of 10 weeks.
In return for this short term consideration, we agreed to reduce our original
pricing by 8% on the first 30,000 tons of material purchased by TIRES subsequent
to the 10 week amendment period.
12
The exclusive purchase option to acquire additional operating assets of
TIRES was exercisable if predetermined financial performance criteria are met by
TIRES during the subsequent fifteen to twenty four month period after December
8, 2004. The ultimate purchase price was to be determined based on those
results. In return for the exclusive purchase option, we issued 127,389 shares
of our common stock (valued at $200,000) to TIRES. Had we exercised our
exclusive purchase option and closed a transaction, the value of the shares
would have been applied against the purchase price of the assets. If the
exclusive purchase option expired or we decided not to exercise the option,
TIRES would retain a sufficient number of our shares to equal $200,000 (as of
the date that the purchase option expires) and return the balance of such shares
of common stock to us. If at the time the purchase option expired, the value of
the shares was less than $200,000, we would have been required to issue a
sufficient number of additional shares to equal $200,000. If at the time the
purchase option expired, TIRES had not achieved the predetermined financial
performance criteria, TIRES would have had to return to us a sufficient number
of our shares to equal $200,000 at the time.
In February 2006 in conjunction with the discontinuance of our Georgia
operations, we agreed to sell and assign to TIRES (a) certain truck tire
processing equipment located at our Georgia facility; (b) certain rights and
interests in our contracts with suppliers of scrap truck tires; (c) certain
intangible assets; and (d) allowed TIRES to retain the 127,389 shares of our
common stock and in return received $155,000 in cash proceeds; agreed to
terminate the MSA, Equipment Leases and several other agreements previously
executed between the parties in addition to terminating a December 2004 letter
of intent and exclusive option. Accordingly, at September 30, 2005, included in
loss on disposal of discontinued operations is the $200,000 assigned to the
shares of common stock retained by TIRES.
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 have been adversely affected by the significant increases in
the cost of fuel. Additionally, because we rely on floating-rate debt for
certain financing arrangements, rising interest rates have had a negative effect
on our performance.
Based on our fiscal 2006 operating plan our available working capital and
our revenues from operations, we believe that borrowings from affiliated and
unaffiliated lenders including additional funding from Laurus will be necessary
to satisfy our cash requirements for the foreseeable future. If we are unable to
obtain additional financing, our ability to maintain our current level of
operations could be materially and adversely affected and we may be required to
adjust our operating plans accordingly or to discontinue our operations
altogether.
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 Note
10 to the Consolidated Financial Statements.
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.
Factors That May Affect Future Results
Risks Related to our Business
We have lost money in the past twelve consecutive quarters and will need
additional working capital, which if not received, may force us to curtail
operations.
We have incurred substantial losses from operations, and as of September
30, 2005, the Company had $256,492 in cash and cash equivalents and a working
capital deficiency of $8,667,886. These factors raise substantial doubt about
our ability to continue as a going concern. We understand our continued
existence is dependent on our ability to generate positive operating cash,
negotiate more favorable terms with existing secured and unsecured creditors,
refinance existing long term debt, secure additional financing and achieve
profitable status on a sustained basis. As more fully described below we have
discontinued our unprofitable Southeastern operations and have revaluated our
marketing and operating plans of our remaining operations. We are also presently
evaluating several financing alternatives which would allow us to refinance a
substantial amount of our short-term secured debt into long-term secured debt to
better align debt maturities with our long-term business plan. There can be no
assurance however, that we will be successful in refinancing at favorable terms,
if at all. Additionally, we must also be successful in completing our plan to
meet the minimum exchange listing requirements of the American Stock Exchange.
If we are unable to re-establish those requirements, our shares will be subject
to delisting which will substantially limit our stock's liquidity and impair our
ability to raise capital. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
Our liquidity has been significantly and adversely affected by continued
operating losses at our Southeastern operations. The divestiture of our
Tennessee operation in September 2005 will eliminate continued operating losses
which aggregated approximately $1.8 million during the fiscal year ended
September 30, 2005. In addition, during the quarter ended December 31, 2005, we
substantially curtailed operations at our Georgia subsidiary which during the
fiscal year ended September 30, 2005 incurred an operating loss of approximately
$3.4 million. During the quarter ended March 31, 2006 under a plan approved in
September 2005, we completed the sale of substantially all Georgia operating
assets to two separate parties and received $405,000 in aggregate cash. The
aggregate net losses (including losses from operations and losses on disposal)
associated with the discontinued operations of our Tennessee and Georgia
subsidiaries included in the results for the fiscal year ended September 30,
2005 were approximately $11.1 million or 73% of our total loss for the 2005
fiscal year.
We have invested substantial amounts of capital during the past several
years in new equipment to increase processing capacity at our Iowa, Minnesota
and Georgia locations, as well as consolidating our Wisconsin location into our
Minnesota operations during fiscal 2005 to substantially reduce operating costs
and maximize our return on assets. Our future operating plan focuses on
maximizing the performance of these three operations through our continuing
efforts to increase overall quality of revenue (revenue per passenger tire
equivalent) while remaining diligent with our ongoing cost reduction
initiatives. We will continue to evaluate each operation on its merits and
contribution to the corporation and we will continue to make the necessary
decisions to ensure the continued viability of GreenMan. During fiscal 2005, we
completed an evaluation of our corporate-wide inbound collection infrastructure
and determined that we would no longer provide certain levels of service and
products at existing rates in certain markets and therefore implemented price
increases where warranted and terminated service in situations where price
increases were not an alternative. As a result, we experienced a 4% increase in
overall tipping fees (fees we are paid to collect and dispose of scrap tires)
during fiscal 2005 as compared to fiscal 2004. While these initiatives reduced
our overall inbound tire volume growth rate during fiscal 2005, we believe they
have and will continue to improve our performance through lower labor, parts and
maintenance costs. In addition, we continue to identify, and are currently
selling product into several new, higher-value markets as evidenced by an 18%
increase in end product revenue during fiscal 2005. We continue to experience
strong demand for our end products.
13
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 or
cease 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 which were amended
on March 22, 2005 to provide, among other things, the ability for us to maintain
overadvances of up to $2,000,000. On July 20, 2005, we borrowed an additional
$1 million from Laurus pursuant to a convertible term note 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 that remains unvacated, unbonded or unstayed for a
period of 30 business days;
o any form of bankruptcy or insolvency proceeding is instituted by or
against us;
o suspension of our common stock from our principal trading market for
five consecutive days or five days during any ten consecutive days;
and
o the occurrence of a change in control of our ownership.
As of September 30, 2005, we were in default of several covenants of the
notes and agreements. These defaults have been waived by Laurus. 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 will 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 will 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 will 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 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 will be adversely affected and we may
need to discontinue some or all of our operations. 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 will experience
dilution of their 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.
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.
14
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.
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, The loss of any key member of senior management 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.
15
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.
Notice of Non-Compliance with Certain American Stock Exchange Continued Listing
Standards
We have been notified by the American Stock Exchange (the "Exchange") of
non-compliance with several continued listing standards and maybe subject
delisting if we do not regain compliance within a timeframe agreed to by the
Exchange. We have submitted our plans to attain future compliance to the
Exchange and remain subject to continued periodic review and have not been
notified us of the Exchange's intention to initiate delisting proceedings and,
to our knowledge, the Exchange has not initiated such proceedings. If we are
unable to re-establish those requirements, our shares will be subject to
delisting which will substantially limit our stock's liquidity and impair our
ability to raise capital.
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 September 30, 2005, we have options and warrants to purchase
approximately 8,703,930 shares of common stock outstanding in addition to
$8,767,990 of convertible promissory notes. The principal amounts of these notes
are convertible into approximately 11,800,000 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 September 30, 2005,
approximately 13 million shares of our common stock were eligible for sale in
the public market. This represents approximately 68 percent of our outstanding
shares of common stock. After the effective date of the additional registration
statement we are required to file with respect to the Laurus credit facility
approximately 24,800,000 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.
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 31 percent of our outstanding common stock as of September 30,
2005. 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.
16
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. In addition, our agreements with Laurus prohibit
the payment of cash dividends. 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.
Environmental Liability
There are no known material environmental violations or assessments.
Recent Accounting Pronouncements
SFAS No. 123R, Share Based Payment - An Amendment to SFAS Nos. 123 and 95
- This standard includes the following changes to current accounting for share
based payments:
o All companies would be required to recognize compensation expense
for share-based payment arrangements including stock options.
o All companies must recognize the expense in operations and cannot
bury the effects in the financial statement footnotes as currently
allowed. The cost would be recognized over the requisite service
period (generally the vesting period).
o All companies would be required to estimate how many options will
actually vest. The ability under the current rules to assume 100%
vesting and record forfeitures as they occur will not be permitted.
o The ED still requires public companies (including Small Business
filers) to value employee stock awards at fair value on the date of
grant. However, the ED prefers a "lattice model" in lieu of what
most companies use today, the Black-Scholes model, a "closed-form
model."
o Private companies would be required to follow either (a) the fair
value method at grant date consistent with public company
accounting, or (b) the intrinsic value method (the excess, if any,
of the fair value of the stock over the exercise price) at each
reporting date until the option is settled or exercised. The
so-called "minimum value" method (essentially a simplified version
of the Black-Scholes model) currently permitted would no longer be
an acceptable valuation model.
o Stock option awards with graded vesting would be treated as separate
awards for each vesting date. The ability to treat such awards as a
single award, as currently permitted, would longer be allowed. This
would lead to more expense up-front and less in later years.
In April 2005, the Securities and Exchange Commission released Staff
Accounting Bulletin ("SAB") No. 107, "Share-Based Payment " the adoption of a
new rule that amended the compliance date for Statement of Financial Accounting
Standard ("SFAS") No. 123 (R), " Share-Based Payment", which establishes
standards for transactions in which an entity exchanges its equity instruments
for goods or services. SFAS No. 123 (R) was to be effective for the interim or
annual reporting periods beginning on or after June 15, 2005, but SAB No. 107
amended the effective date for implementing SFAS No. 123 (R) to the beginning of
the next fiscal year that begins after December 15, 2006, for small business
issuers. We will continue to provide the pro forma disclosure provisions of SFAS
No. 123, " Accounting for Stock-Based Compensation ," as amended by SFAS No. 148
" Accounting for Stock-Based Compensation-Transition and Disclosure-an amendment
to FASB Statement No. 123" in the Notes to the Consolidated Financial
Statements. Management has not yet determined what effect adoption of this
standard will have on our financial condition and results of operations.
17
In May 2005, the Financial Accounting Standards Board issued SFAS No. 154,
"Accounting Changes and Error Corrections" (SFAS 154). SFAS 154 is a replacement
of Accounting Principles Board No. 20, "Accounting Changes" and FASB Statement
No. 3 "Reporting Accounting Changes in Interim Financial Statements." SFAS 154
provides guidance on the accounting for and reporting of accounting changes and
error corrections. It establishes retrospective application as the required
method for reporting a change in accounting principle. SFAS 154 provides
guidance for determining whether retrospective application of a change in
accounting principle is impracticable and for reporting a change when
retrospective application is impracticable. The reporting of a correction of an
error by restating previously issued financial statements is also addressed by
SFAS 154. SFAS 154 is effective for accounting changes and corrections of errors
made in fiscal years beginning after December 31, 2005. This pronouncement is
not expected to have a material effect on our financial statements.
Item 7. Financial Statements
For information required with respect to this Item 7, see "Consolidated
Financial Statements" on pages F-1 through F-58 of this report.
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
None
Item 8A. 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 September 30, 2005. 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 September 30, 2005, 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 September 30, 2005 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
PART III
Item 9. Directors, Executive Officers and Key Employees
Our directors and executive officers are as follows:
Name Age Position
---- --- --------
Maurice E. Needham ......... 65 Chairman of the Board of Directors
Robert H. Davis ............ 63 Chief Executive Officer; President;
Director
Charles E. Coppa ........... 42 Chief Financial Officer; Treasurer;
Secretary
Dr. Allen Kahn.............. 84 Director
Lew F. Boyd ................ 59 Director
Lyle Jensen................. 54 Director
Nicholas DeBenedictis....... 46 Director
18
Each director is elected for a period of one year at the annual meeting of
stockholders and serves until his or her successor is duly elected by the
stockholders. The officers are appointed by and serve at the discretion of the
Board of Directors. Each outside director receives a fee of $2,500 per board
meeting. Each outside director also participates in the Non-Employee Director
Stock Option Plan.
We have established an Audit Committee consisting of Messrs. Jensen
(Chair) and Boyd and Dr. Kahn, and a Compensation Committee consisting of
Messrs. Boyd (Chair) and Jensen. Our Board of Directors has determined that Mr.
Jensen is an "audit committee financial expert" within the meaning given that
term by Item 401(e) of Regulation S-B and that Mr. Jensen is "independent"
within the meaning given to that term by Item 7(d)(3)(iv) of Schedule 14A under
the Exchange Act. On April 12, 2006, Mr. Jensen resigned as Chairman of the
Audit Committee and as a member of the Compensation Committee and Mr.
DeBenedictis became the interim Chairman of the Audit Committee and joined the
Compensation Committee.
MAURICE E. NEEDHAM has been Chairman since June 1993. From June 1993 to
July 21, 1997, Mr. Needham also served as Chief Executive Officer. He also
serves as a Director of Comtel Holdings, an electronics contract manufacturer
since April 1999. He previously served as Chairman of Dynaco Corporation, a
manufacturer of electronic components which he founded in 1987. Prior to 1987,
Mr. Needham spent 17 years at Hadco Corporation, a manufacturer of electronic
components, where he served as President, Chief Operating Officer and Director.
ROBERT H. DAVIS has been Chief Executive Officer and a Director since July
1997. On April 12, 2006, Mr. Davis resigned as Chief Executive Officer and
Director of GreenMan. Prior to joining us, Mr. Davis served as Vice President of
Recycling for Browning-Ferris Industries, Inc. of Houston, Texas ("BFI") since
1990. As an early leader of BFI's recycling division, Mr. Davis grew that
operation from startup to $650 million per year in profitable revenues. A
25-year veteran of the recycling industry, Mr. Davis has also held executive
positions with Fibres International, Garden State Paper Company, and SCS
Engineers, Inc. Mr. Davis currently serves as a Director and Audit Committee
member of Waste Connections, Inc., the fourth largest solid waste management
company in the United States.
CHARLES E. COPPA has served as Chief Financial Officer, Treasurer and
Secretary since March 1998. From October 1995 to March 1998, he served as
Corporate Controller. Mr. Coppa was Chief Financial Officer and Treasurer of
Food Integrated Technologies, a publicly-traded development stage company from
July 1994 to October 1995. Prior to joining Food Integrated Technologies, Inc.,
Mr. Coppa served as Corporate Controller for Boston Pacific Medical, Inc., a
manufacturer and distributor of disposable medical products, and Corporate
Controller for Avatar Technologies, Inc., a computer networking company.
ALLEN KAHN, M.D., has been a Director since March 2000. Dr. Kahn operated
a private medical practice in Chicago, Illinois, which he founded in 1953 until
his retirement in October 2002. Dr. Kahn has been actively involved as an
investor in "concept companies" since 1960. From 1965 through 1995 Dr. Kahn
served as a member of the Board of Directors of Nease Chemical Company
(currently German Chemical Company), Hollymatic Corporation and Pay Fone Systems
(currently Pay Chex, Inc.).
LEW F. BOYD has been a Director since August 1994. Mr. Boyd is the founder
and since 1985 has been the Chief Executive Officer of Coastal International,
Inc., an international business development and executive search firm,
specializing in the energy and environmental sectors. Previously, Mr. Boyd had
been Vice President/General Manager of the Renewable Energy Division of Butler
Manufacturing Corporation and had served in academic administration at Harvard
and Massachusetts Institute of Technology.
LYLE JENSEN has been a Director since May 2002. On April 12, 2006, Mr.
Jensen became GreenMan's Chief Executive Officer. Mr. Jensen was previously
Executive Vice President/Chief Operations Officer of Auto Life Acquisition
Corporation, an automotive aftermarket leader of fluid maintenance equipment.
Prior to that he was a Business Development and Operations consultant after
holding executive roles as Chief Executive Officer and minority owner of Comtel
and Corlund Electronics, Inc. He served as President of Dynaco Corporation from
1988 to 1997; General Manager of Interconics from 1984 to 1988 and various
financial and general management roles within Rockwell International from 1973
to 1984.
NICHOLAS DEBENEDICTIS has been a Director since September 2005. Mr.
DeBenedictis has been an Independent Investment Advisor for the past nine years
and has over 16 years of experience in the financial markets and securities
business including positions with E.W. Smith Securities, Smith Barney, and
Janney Montgomery Scott
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Exchange Act requires our directors and executive
officers, and persons who own more than 10% of our common stock, to file with
the Securities and Exchange Commission initial reports of ownership of our
common stock and other equity securities on Form 3 and reports of changes in
such ownership on Form 4 and Form 5. Officers, directors and 10% stockholders
are required by the Securities and Exchange Commission regulations to furnish us
with copies of all Section 16(a) forms they file.
19
To the best of management's knowledge, based solely on review of the
copies of such reports furnished to us during and with respect to, our most
recent fiscal year, and written representation that no other reports were
required, all Section 16(a) filing requirements applicable to our officers and
directors have been complied with.
Code of Ethics
On May 28, 2005, we adopted a code of ethics which applies to our
principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions. We have posted
our code of ethics on our corporate website, www.greenman.biz.
Item 10. Executive Compensation
The following table summarizes the compensation paid or accrued for
services rendered during the fiscal years ended September 30, 2005, 2004 and
2003, to our Chief Executive Officer and our Chief Financial Officer. We did not
grant any restricted stock awards or stock appreciation rights or make any
long-term plan payouts during the periods indicated.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term
------------------- Compensation
Securities
Name and Fiscal Other Annual Underlying All Other
Principal Position Year Salary Bonus Compensation (1) Options (2) Compensation
------------------ ---- ------ ----- ---------------- ----------- ------------
Robert H. Davis ................ 2005 $ 230,000 $ -- $ 23,802 -- $ --
Chief Executive Officer 2004 230,000 -- 21,468 -- --
2003 230,000 -- 19,900 -- --
Charles E. Coppa ............... 2005 $ 130,000 $ -- $ 8,396 -- $ --
Chief Financial Officer 2004 130,000 -- 22,906 60,000 --
2003 130,000 -- 9,343 -- --
(1) Represents payments made to or on behalf of Messrs. Davis and Coppa for
health, life and disability insurance and auto allowances.
(2) The fiscal 2005 grant represents options granted to Mr. Coppa in August
2004 and were subsequently cancelled in March 2005.
Options/SAR Grants Table
There were no stock options granted during the year ended September 30,
2005 to the executives named in the Summary Compensation Table above.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth information concerning the value of
unexercised options as of September 30, 2005 held by the executives named in the
Summary Compensation Table above.
Shares Number of Securities Underlying Value of Unexercised
Acquired Value Unexercised Options In-the-Money Options
on Exercise (1) Realized (2) at September 30, 2005 (3) at September 30, 2005 (2)
--------------- ------------ -------------------------- --------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
Robert H. Davis ............ -- $ -- 696,500 63,000 $ -- $ --
Charles E. Coppa ........... -- -- 354,500 13,000 $ -- $ --
(1) There were no options exercised during the fiscal year ended September 30,
2005.
(2) Assumes that the value of shares of common stock is equal to $.23 per
share, which was the closing bid price on the American Stock Exchange on
September 30, 2005.
20
(3) The options granted to the executive officers became exercisable
commencing July 17, 1998 in the case of Mr. Davis, December 30, 1997 and
in the case of Mr. Coppa at an annual rate of 20% of the underlying shares
of our common stock. The options granted to Mr. Davis pursuant to his
April 1999 employment agreement vest over a seven-year period.
Employment Agreements
In April 1999, we entered into a three-year employment agreement with Mr.
Davis pursuant to which Mr. Davis receives a salary of $230,000 per annum. The
agreement automatically renews for three additional years upon each anniversary,
unless notice of non-renewal is given by either party, and provides for payment
of twelve months salary as a severance payment for termination without cause.
Any increases will be made at the discretion of our Board of Directors upon the
recommendation of the Compensation Committee. The agreement also provides for
Mr. Davis to receive incentive compensation based on the following formula:
Consolidated Net Income Incentive Cumulative
Before Income Taxes Compensation Rate Maximum
------------------- ----------------- -------
$0 - $1,000,000 5% $ 50,000
$1,000,001 - $2,000,000 7.5% 125,000
$2,000,001+ 2.5% 125,000+
No bonus was payable for fiscal 2005, 2004 or 2003.
In June 1999, we entered into a two-year employment agreement with Mr.
Coppa pursuant to which Mr. Coppa currently receives a salary of $130,000 per
annum. The agreement automatically renews for two additional years upon each
anniversary, unless notice of non-renewal is given by either party. Any
increases or bonuses will be made at the discretion of our Board of Directors
upon the recommendation of the Compensation Committee. The agreement provides
for payment of twelve months salary as a severance payment for termination
without cause.
In June 2003, we entered into a three-year employment agreement with Mr.
Needham pursuant to which Mr. Needham receives a salary of $90,000 per annum.
The agreement automatically renews for three additional years upon each
anniversary, unless notice of non-renewal is given by either party. Any
increases or bonuses will be made at the discretion of our Board of Directors
upon the recommendation of the Compensation Committee. The agreement provides
for payment of twelve months salary as a severance payment for termination
without cause.
Stock Option Plan
Our 1993 Stock Option Plan (the "2003 Plan") was established to provide
options to purchase shares of common stock to our employees, officers, directors
and consultants. In March 2001, our stockholders approved an increase to the
number of shares authorized under the 1993 Plan to 3,000,000 shares. The 1993
Plan expired on June 10, 2004.
On March 18, 2005, our Board of Directors adopted the 2005 Stock Option
Plan (the "2005 Plan"), which was subsequently approved by our stockholders on
June 16, 2005. The 2005 Plan replaced the 1993 Plan. In April 2004, our Board
adopted a replacement stock option plan (the "2004 Plan") but did not submit it
for ratification by our stockholders. The 2004 Plan was terminated by our Board
on March 18, 2005, and all options granted under that plan have been terminated.
Options granted under the 2005 Plan may be either options intended to qualify as
"incentive stock options" under Section 422 of the Internal Revenue Code of
1986, as amended; or non-qualified stock options.
Incentive stock options may be granted under the 2005 Plan to employees,
including officers and directors who are employees. Non-qualified options may be
granted to our employees, directors and consultants. The 2005 Plan is
administered by our Board of Directors, which has the authority to determine:
o the persons to whom options will be granted;
o the number of shares to be covered by each option;
o whether the options granted are intended to be incentive stock
options;
o the manner of exercise; and
o the time, manner and form of payment upon exercise of an option.
21
Incentive stock options granted under the 2005 Plan may not be granted at
a price less than the fair market value of our common stock on the date of grant
(or less than 110% of fair market value in the case of persons holding 10% or
more of our voting stock). Non-qualified stock options may be granted at an
exercise price established by our Board which may not be less than 85% of fair
market value of our shares on the date of grant. Because current tax laws
adversely impact recipients of non-qualified stock options granted at less than
fair market value, however, we do not expect to make such grants. Incentive
stock options granted under the 2005 Plan must expire no more than ten years
from the date of grant, and no more than five years from the date of grant in
the case of incentive stock options granted to an employee holding 10% or more
of our voting stock.
As of September 30, 2005, there were 1,660,356 options granted and
outstanding under the 1993 Plan of which 1,578,156 options were exercisable at
prices ranging from $0.38 to $1.80. No options have been granted under the 2005
Plan as of September 30, 2005.
Non-Employee Director Stock Option Plan
Our 1996 Non-Employee Director Stock Option Plan is intended to promote
our interests by providing an inducement to obtain and retain the services of
qualified persons who are not officers or employees to serve as members of our
Board of Directors. The Board of Directors has reserved 60,000 shares of common
stock for issuance under Non-Employee Director Stock Option Plan.
Each person who was a member of the Board of Directors on January 24,
1996, and who was not an officer or employee, was automatically granted an
option to purchase 2,000 shares of common stock. In addition, after an
individual's initial election to the Board of Directors, any director who is not
an officer or employee and who continues to serve as a director will
automatically be granted on the date of the Annual Meeting of Stockholders an
additional option to purchase 2,000 shares of common stock. The exercise price
per share of options granted under the Non-Employee Director Stock Option Plan
is 100% of the fair-market value of the common stock on the business day
immediately prior to the date of the grant and each option is immediately
exercisable for a period of ten years from the date of the grant.
As of September 30, 2005, options to purchase 38,000 shares of our common
stock have been granted under the 1996 Non-Employee Director Stock Option Plan,
of which 28,000 are outstanding and exercisable at prices ranging from $0.38 to
$1.95.
Employee Benefit Plan
In August 1999, we implemented a Section 401(k) plan for all eligible
employees. Employees are permitted to make elective deferrals of up to 15% of
employee compensation and employee contributions to the 401(k) plan are fully
vested at all times. We may make discretionary contributions to the 401(k) plan
which become vested over a period of five years. We did not make any
discretionary contributions to the 401(k) plan during the fiscal years ended
September 30, 2005 and 2004.
Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The following tables set forth certain information regarding beneficial
ownership of our common stock as of September 30, 2005:
o by each of our directors and executive officers;
o by all of our directors and executive officers as a group; and
o by each person (including any "group" as used in Section 13(d) of
the Securities Exchange Act of 1934) who is known by us to own
beneficially 5% or more of the outstanding shares of common stock.
Unless otherwise indicated below, to the best of our knowledge, all
persons listed below have sole voting and investment power with respect to their
shares of common stock, except to the extent authority is shared by spouses
under applicable law. As of September 30, 2005, 19,225,352 shares of our common
stock were issued and outstanding.
22
Security Ownership of Management and Directors
Number of Shares Percentage
Name (1) Beneficially Owned (2) of Class (2)
-------- ---------------------- ------------
Dr. Allen Kahn (3)................................. 3,441,470 17.73%
Maurice E. Needham (4)............................. 2,381,960 11.74%
Robert H. Davis (5)................................ 1,400,200 7.03%
Charles E. Coppa (6)............................... 670,710 3.43%
Lew F. Boyd (7).................................... 364,588 1.88%
Nicholas DeBenedictis (8).......................... 74,000 *
Lyle Jensen (9).................................... 22,800 *
---------
All officers and directors as a group (7 persons).. 8,355,728 38.56%
* Less than 1%
Security Ownership of Certain Beneficial Owners
Number of Shares Percentage
Name (1) Beneficially Owned of Class
-------- ------------------ --------
Laurus Master Fund, Ltd. (10)...................... 1,001,727 4.99%
----------
(1) Except as noted, each person's address is care of GreenMan Technologies,
Inc., 7 Kimball Lane, Building A, Lynnfield, Massachusetts 01940.
(2) Pursuant to the rules of the Securities and Exchange Commission, shares of
common stock that an individual or group has a right to acquire within 60
days pursuant to the exercise of options or warrants are deemed to be
outstanding for the purpose of computing the percentage ownership of such
individual or group, but are not deemed to be outstanding for the purpose
of computing the percentage ownership of any other person shown in the
table.
(3) Includes 180,533 shares of common stock issuable pursuant to immediately
exercisable stock options and warrants.
(4) Includes 1,066,365 shares of common stock issuable pursuant to immediately
exercisable stock options. Also includes 59,556 shares of common stock
owned by Mr. Needham's wife.
(5) Includes 696,500 shares of common stock issuable pursuant to immediately
exercisable stock options.
(6) Includes 354,500 shares of common stock issuable pursuant to immediately
exercisable stock options.
(7) Includes 124,394 shares of common stock issuable pursuant to immediately
exercisable stock options.
(8) Includes 70,000 shares of common stock owned by Mr. DeBenedictis's wife
(9) Includes 22,500 shares of common stock issuable pursuant to immediately
exercisable stock options.
(10) Laurus holds (i) warrants to purchase up to 1,380,000 shares of common
stock that are exercisable at exercise prices ranging from $1.56 to $2.29
per share and options to purchase up to 2,413,571 shares of common stock
that are exercisable within 60 days (subject to the following sentence) at
$.01 per share, (ii) a $4 million convertible term note that is
convertible into 3,954,000 shares of common stock at conversion prices
ranging from $.79 to $.93 per share, (iii) a $4,268,000 convertible
working capital note that is convertible into 4,776,000 shares of common
stock at conversion prices ranging from $.79 to $.93 per share, and (iv)
$1 million minimum borrowing note that is convertible into 3,030,000
shares of common stock at a conversion price of $.33 per share. These
warrants are not exercisable, and these notes are not convertible, to the
extent that (a) the number of shares of our common stock held by Laurus
and (b) the number of shares of our common stock issuable upon exercise of
the warrants and conversion of the notes would result in beneficial
ownership by Laurus of more than 4.99% of our outstanding shares of common
stock. Laurus may waive these provisions, or increase or decrease that
percentage, with respect to the warrants and/or the notes on 90 days'
prior notice to us, or without notice if we are in default under the
notes. Laurus beneficially owns 1,001,727 shares of our common stock
issuable pursuant to underlying warrants, options and the notes that are
exercisable or convertible. Laurus' address is 825 Third Avenue, 14th
Floor, New York, New York 10022.
Common Stock Authorized for Issuance Under Equity Compensation Plans
For descriptions of equity compensation plans under which our common stock
is authorized for issuance as of September 30, 2005, see Note 12 ("Stockholders'
Equity") of the Consolidated Financial Statements contained herein. For
additional information concerning certain compensation arrangements, not
approved by stockholders, under which options to purchase common stock may be
issued, see "Executive Compensation - Employment Agreements', above, and
"Certain Relationships and Transactions - Stock Issuances: Stock Options;
Warrants", below.
Item 12. Certain Relationships and Related Transactions
Stock Issuances; Stock Options; Warrants
On May 18, 2004, Mr. Jensen was granted options to purchase 75,000 shares
of our common stock under the 2004 Plan at an exercise price of $1.05 per share.
This plan and the related options were subsequently terminated in March 2005.
23
On June 24, 2004, Messrs. Needham and Kahn collectively purchased 669,871
units (669,871 shares of our common stock and warrants to purchase 334,936
additional shares of our common stock at prices ranging from $1.56 to $1.86 per
share) pursuant to the terms of our April 9, 2004 private placement of
investment units. 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
On August 4, 2004, Messrs. Needham, Coppa and Kahn were collectively
granted options to purchase 180,000 shares of our common stock under the 2004
Plan at an exercise price of $1.24 per share. This plan and the related options
were subsequently terminated in March 2005.
During fiscal 2004, Messrs. Needham, Davis and Coppa, collectively
exercised options and warrants to purchase 223,538 shares of unregistered common
stock at exercise prices ranging from $0.38 to $0.94 per share for gross
proceeds of $150,435.
Loans; Personal Guarantees
In January 1998, we advanced Mr. Davis $104,000 under an 8.5% secured loan
agreement with both principal and interest due January 2001. This note was
amended on September 30, 2000 to extend the maturity of the note 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 Mr. Davis.
In January 1999, we advanced Messrs. Davis and Coppa $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 were
secured by 191,637 shares of common stock owned by Messrs. Davis and Coppa. In
June 2002, they repaid $5,000 each toward their respective then outstanding
balances. On March 31, 2004, Mr. Davis's remaining balance of $24,000 including
interest, was applied to offset obligations under our $400,000 September 30,
2003 note payable to him. On May 11, 2004, Mr. Coppa 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.
Dr. Kahn 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 warrants were
exercisable for a period of five years to purchase 125,000 shares of our common
stock at exercise prices ranging from $.31 to $.50 per share. 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, Dr. Kahn 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, Dr. Kahn again agreed to extend the
maturity of each note for an additional twenty-four months from their extended
maturity dates which range from October 2005 to February 2005. On February 16,
2004, Dr. Kahn converted these two 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. The warrants were exercised by
Dr. Kahn during fiscal 2003.
Dr. Kahn has also loaned us $200,000 under the terms of a November 2000
unsecured promissory note which bears interest at 12% per annum with interest
due monthly and the principal due in November 2001. In June 2001, Dr. Kahn
agreed to extend the maturity date of the note for an additional twelve months
from its original maturity. In September 2002, Dr. Kahn again agreed to extend
the maturity of the note until November 2004. In June 2004, Dr. Kahn agreed to
extend the maturity of this note until the earlier of when all amounts due under
the Laurus credit facility have been repaid or June 30, 2007.
During the period of June to August 2003, two immediate family members of
Mr. Needham loaned us a total of $400,000 under the terms of two-year, unsecured
promissory notes which bear interest at 12% per annum with interest due
quarterly and the principal due upon maturity. 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 investment
units and each received 113,636 units (113,636 shares of our common stock and
warrants to purchase 56,818 additional shares of our common stock at $1.80 per
share) in these transactions. At September 30, 2005, the remaining balance due
on these advances amounted to $400,000.In addition, the two individuals agreed
to extend the maturity of the remaining balance of these notes until the earlier
of when all amounts due under the Laurus credit facility have been repaid or
June 30, 2007.
In September 2003, Mr. Davis 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 due March 31, 2005
(subsequently extended to September 30, 2004). In 2004, Mr. Davis applied
approximately $114,000 of the balance due him plus $21,000 of accrued interest
to exercise options to purchase 185,000 shares of common stock as noted above.
In addition, he agreed to extend the maturity of the remaining balance of this
note until the earlier of when all amounts due under the Laurus credit facility
have been repaid or June 30, 2007. At September 30, 2005, the remaining balance
due on this note amounted to $99,320.
24
In October 2003, Mr. Needham 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, Mr. Needham advanced us an additional $250,000
under substantially similar notes that were due in June 2004. Mr. Needham 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 (see above).
Related Party Transactions
We rent several pieces of equipment on a monthly basis from Valley View
Farms, Inc. ("Valley View Farms") and Maust Asset Management, LLC, ("Maust Asset
Management"), two companies co-owned by one of our employees. In January 2005,
we entered into three equipment lease agreements with Maust Asset Management.
Under the terms of the three new leases, we are required to pay between $1,500
and $2,683 per month rental and have the ability to purchase the equipment at
the end of the lease for between $12,000 and $16,000. Rent expense associated
with payments made to the two companies for the fiscal years ended September 30,
2005 and 2004 was $170,940 and $248,560, respectively.
In July 2002, our Minnesota subsidiary entered into a four-year equipment
lease with Valley View Farms. Under the terms of the lease, the subsidiary is
required to pay rent of $4,394 per month and has the ability to purchase the
equipment at the end of the lease at approximately 40% of its original value.
The lease is classified as a capital lease at September 30, 2005 with an
equipment value of $146,670.
In April 2003, our Iowa subsidiary entered into a ten-year lease agreement
with Maust Asset Management for our Iowa facility. Under the terms of the lease,
monthly rent payments of $8,250 are required for the first five years,
increasing to $9,000 per month for the remaining five years. The lease also
provides us a right of first refusal to purchase the land and buildings at fair
market value during the term of the lease. Maust Asset Management acquired the
property from the former lessor. In April 2005, our Iowa subsidiary entered into
an eight-year lease agreement with Maust Asset Management for approximately 3
acres adjacent to our existing Iowa facility. Under the terms of the lease,
monthly rent payments of $3,500 are required. For the fiscal years ended
September 30, 2005 and 2004, payments made in connection with these leases
amounted to $123,000 and $111,483, respectively.
During March 2004, our Minnesota subsidiary sold all of its land and
buildings to an entity co-owned by one of our employees 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 the 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 is being recognized as income
ratably over the term of the lease. The lease provides for two additional 4-year
extensions. The lease is classified as a capital lease at September 30, 2005
with an equipment value of $1,400,000. For the fiscal years ended September 30,
2005 and 2004, payments made in connection with this lease amounted to $236,298
and $145,379.
On September 30, 2003, Mart Management, Inc., our Georgia subsidiary's
landlord, loaned us $100,000 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 due September 30, 2005. In June 2004, Mart
Management agreed to invest the entire $100,000 principal balance of the
unsecured promissory note plus accrued interest of $7,300 into the April 2004
private placement of investment units and received 121,932 Units in this
transaction.
All transactions, including loans, between us and our officers, directors,
principal stockholders, and their affiliates are approved by a majority of the
independent and disinterested outside directors on the Board of Directors.
Management believes these transactions were consummated on terms no less
favorable to us than could be obtained from unaffiliated third parties.
Item 13. Exhibits and Reports on Form 8-K
The following exhibits are filed with this document:
Item 13. Exhibits and Reports on Form 8-K
25
The following exhibits are filed with this document:
Exhibit No. Description
----------- -----------
2.1 (17) Asset Purchase Agreement dated February 17, 2006
between GreenMan Technologies of Georgia, Inc.,
GreenMan Technologies, Inc. and Tires Into
Recycled Energy and Supplies, Inc.
2.2 (17) Asset Purchase Agreement dated March 1, 2006
between GreenMan Technologies of Georgia, Inc.,
GreenMan Technologies, Inc. and MTR of Georgia,
Inc.
2.3 (17) Amendment No. 1 to Lease Agreement dated February
28, 2006 between GreenMan Technologies of
Georgia, Inc. and Mart Management, Inc.
3.1 (10) -- Restated Certificate of Incorporation as filed
with the Secretary of State of the State of
Delaware on May 1, 2003, as amended
3.2 (2) -- By-laws of GreenMan Technologies, Inc.
4.1 (2) -- Specimen certificate for Common Stock of GreenMan
Technologies, Inc.
4.2 (14) -- Securities Purchase Agreement, dated June 30,
2004, by and between GreenMan Technologies, Inc.
and Laurus Master Fund, Ltd.
4.3 (14) -- 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 (14) -- 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 (14) -- Secured Convertible Minimum Borrowing Note, dated
June 30, 2004, made by GreenMan Technologies,
Inc. to Laurus Master Fund, Ltd.
4.6 (14) -- Secured Revolving Note, dated June 30, 2004, made
by GreenMan Technologies, Inc. to Laurus Master
Fund, Ltd.
4.7 (14) -- Secured Convertible Term Note, dated June 30,
2004, made by GreenMan Technologies, Inc. to
Laurus Master Fund, Ltd.
4.8 (14) -- Common Stock Purchase Warrant, dated June 30,
2004, issued to Laurus Master Fund, Ltd.
4.9 (14) -- Common Stock Purchase Warrant, dated June 30,
2004, issued to Laurus Master Fund, Ltd.
4.10 (14) -- Term Note Registration Rights Agreement, dated
June 30, 2004, by and between GreenMan
Technologies, Inc. and Laurus Master Fund, Ltd.
4.11 (14) -- Minimum Borrowing Note Registration Rights
Agreement, dated June 30, 2005, by and between
GreenMan Technologies, Inc. and Laurus Master
Fund, Ltd.
4.12 (14) -- 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 (14) -- Stock Pledge Agreement, dated June 30, 2004, by
and among GreenMan Technologies, Inc. and Laurus
Master Fund, Ltd.
4.14 (14) -- 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 (14) -- Escrow Agreement dated June 30, 2004, among
GreenMan Technologies, Inc., Laurus Master Fund,
Ltd., and Loeb & Loeb LLP, as Escrow Agent
4.16 (10) -- Securities Purchase Agreement, dated July 20,
2005, by and between GreenMan Technologies,
Inc. and Laurus Master Fund, Ltd.
4.17 (10) -- Secured Convertible Term Note, dated July 20,
2005, made by GreenMan Technologies, Inc. to
Laurus Master Fund, Ltd.
4.18 (10) -- Term Note Registration Rights Agreement, dated
July 20, 2005 by and between GreenMan
Technologies, Inc. and Laurus Master Fund, Ltd.
4.19 (10) -- Option Agreement, dated July 20, 2005 by and
between GreenMan Technologies, Inc. and Laurus
Master Fund, Ltd.
4.20 (10) -- Funds Escrow Agreement, dated July 20, 2005 by
and between GreenMan Technologies, Inc., Laurus
Master Fund, Ltd. And Loeb and Loeb, LLP, as
Escrow Agent
4.21 (10) -- Reaffirmation and Ratification Agreement, dated
July 20, 2005 by and between GreenMan
Technologies, Inc. and certain of its
subsidiaries, in favor of Laurus Master Fund, Ltd
4.22 (10) -- Waiver Agreement by Republic Services of Georgia,
LP dated July 31, 2005
26
10.1 (2) -- 1993 Stock Option Plan
10.2 (15) -- 2005 Stock Option Plan
10.3 (2) -- Form of confidentiality and non-disclosure
agreement for executive employees
10.4 (4) -- Employment Agreement between GreenMan
Technologies, Inc. and Robert H. Davis
10.5 (1) -- Promissory Note issued by Robert H. Davis dated
January 9, 1998 in favor of GreenMan
Technologies, Inc.
10.6 (1) -- Promissory Note issued by Robert H. Davis dated
January 4, 1999 in favor of GreenMan
Technologies, Inc.
10.7 (1) -- Extension Agreement dated September 30, 2000
between GreenMan Technologies, Inc. and Robert H.
Davis
10.8 (1) -- Extension Agreement dated September 30, 2001
between GreenMan and Robert H. Davis
10.9 (4) -- Employment Agreement between GreenMan
Technologies, Inc. and Charles E. Coppa
10.10 (9) -- Promissory Note issued by Charles E. Coppa dated
January 4, 1999 in favor of GreenMan
Technologies, Inc.
10.11 (1) -- Convertible Note Payable issued October 27, 1999
by GreenMan Technologies, Inc. to Dr. Allen Kahn
10.12 (1) -- Convertible Note Payable issued November 23, 1999
by GreenMan Technologies, Inc. to Dr. Allen Kahn
10.13 (1) -- Convertible Note Payable issued February 18, 2000
by GreenMan Technologies, Inc. to Dr. Allen Kahn
10.14 (1) -- Promissory note issued November 17, 2000 by
GreenMan Technologies, Inc. to Dr. Allen Kahn
10.15 (1) -- Extension Agreement dated September 30, 2000
between GreenMan Technologies, Inc. and Dr. Allen
Kahn
10.16 (1) -- Extension Agreement dated June 27, 2001 between
GreenMan Technologies, Inc and Dr. Allen Kahn
10.17 (12) -- $75,000 Promissory Note issued by GreenMan
Technologies, Inc. to Maurice E. Needham dated
October 22, 2003
10.18 (13) -- $100,000 Promissory Note issued by GreenMan
Technologies, Inc. to Maurice E. Needham dated
January 13, 2004
10.19 (13) -- $100,000 Promissory Note issued by GreenMan
Technologies, Inc. to Maurice E. Needham dated
January 26, 2004
10.20 (13) -- $50,000 Promissory Note issued by GreenMan
Technologies, Inc. to Maurice E. Needham dated
February 6, 200
10.21 (13) -- $100,000 Promissory Note issued by GreenMan
Technologies, Inc. to Joyce Ritterhauss dated
March 10, 2004
10.22 (13) -- $50,000 Promissory Note issued by GreenMan
Technologies, Inc. to Richard Ledet dated March
12, 2004
10.23 (13) -- $100,000 Promissory Note issued by GreenMan
Technologies, Inc. to Barbara Morey dated March
18, 2004
10.24 (13) -- Purchase Agreement dated February 21, 2004
between GreenMan Technologies of Minnesota, Inc.
and Earl Fisher
10.25 (13) -- Commercial Lease Agreement dated March 25, 2004
between GreenMan Technologies of Minnesota, Inc.
and Two Oaks, LLC.
10.26 (13) -- Extension Agreement dated March 31, 2004 between
GreenMan Technologies, Inc. and Robert H. Davis
and Nancy Karfilis-Davis
27
10.27 (13) -- Waiver agreement by Republic Services of Georgia,
LP
10.28 (5) -- Loan and Security Agreement dated January 31,
2001 by and among Coast Business Credit, GreenMan
Technologies of Minnesota, Inc. and GreenMan
Technologies of Georgia, Inc.
10.29 (5) -- Secured Promissory Note dated January 31, 2001 in
the amount of $2,044,000 executed by GreenMan
Technologies of Minnesota, Inc. and GreenMan
Technologies of Georgia, Inc. payable to Coast
Business Credit
10.30 (5) -- Secured Promissory Note dated January 31, 2001 in
the amount of $822,250 executed by GreenMan
Technologies of Minnesota, Inc. and GreenMan
Technologies of Georgia, Inc. payable to Coast
Business Credit
10.31 (5) -- Secured Promissory Note dated January 31, 2001 in
the amount of $812,250 executed by GreenMan
Technologies of Minnesota, Inc. and GreenMan
Technologies of Georgia, Inc. payable to Coast
Business Credit
10.32 (5) -- Secured Promissory Note dated January 31, 2001 in
the amount of $1,000,000 executed by GreenMan
Technologies of Minnesota, Inc. and GreenMan
Technologies of Georgia, Inc. payable to Coast
Business Credit
10.33 (5) -- Security Agreement-Continuing Guaranty dated
January 31, 2001 between GreenMan Technologies
Inc. and Coast Business Credit
10.34 (5) -- Loan Agreement dated March 29, 2001 between
GreenMan Technologies of Minnesota, Inc. Bremer
Business Finance Corporation
10.35 (5) -- Real Estate Term Note dated January 31, 2001 in
the amount of $822,250 executed by GreenMan
Technologies of Minnesota, Inc. in favor of
Bremer Business Finance Corporation
10.36 (5) -- Mortgage, Security Agreement, Fixture Financing
Statement and Assignment of Leases and Rents
executed by GreenMan Technologies of Minnesota,
Inc. to Bremer Business Finance Corporation.
10.37 (6) -- Purchase and Sale Agreement By and Between
GreenMan Technologies of Georgia, Inc. and WTN
Realty Trust dated April 2, 2001
10.38 (6) -- Lease Agreement By and Between WTN Realty Trust
to GreenMan Technologies of Georgia, Inc. dated
April 2, 2001
10.39 (6) -- $200,000 Promissory Note by WTN Realty Trust to
GreenMan Technologies of Georgia, Inc. dated
April 2, 2001
10.40 (6) -- Purchase and Sale Agreement By and Between
Technical Tire Recycling, Inc. and Tennessee Tire
Recyclers, Inc. dated April 16, 2001
10.41 (6) -- $180,000 Promissory Note by Technical Tire
Recycling, Inc. to Tennessee Tire Recyclers, Inc.
dated April 16, 2001
10.42 (6) -- Corporate Guarantee by GreenMan Technologies,
Inc. of $180,000 note to Tennessee Tire
Recyclers, Inc. dated April 16, 2001
10.43 (7) -- Stock Repurchase Agreement by and between
GreenMan Technologies, Inc. and Republic Services
of Georgia, LP, dated February 14, 2002
10.44 (7) -- $1,500,000 Promissory Note by GreenMan
Technologies, Inc. to Republic Services of
Georgia, LP dated February 14, 2002
10.45 (8) -- Stock Repurchase Agreement by and between
GreenMan Technologies, Inc. and Republic Services
of Georgia, LP dated May 6, 2002
10.46 (8) -- $750,000 Promissory Note by GreenMan
Technologies, Inc. to Republic Services of
Georgia, LP dated May 6, 2002
10.47 (9) -- Extension Agreement dated September 23, 2002
between GreenMan and Dr. Allen Kahn.
10.48 (3) -- Employment Agreement dated April 1, 2003 between
GreenMan Technologies, Inc. and Maurice E. Needham
10.49 (3) -- Lease - Business Property agreement dated April
1, 2003 between GreenMan Technologies of Iowa,
Inc. and Maust Asset Management, LLC
28
10.50 (3) -- Guaranty dated September 12, 2003 by GreenMan
Technologies, Inc. of obligations of GreenMan
Technologies of Iowa, Inc. under the Lease -
Business Property with Maust Asset Management, LLC
10.51 (3) -- $100,000 Promissory Note by GreenMan
Technologies, Inc. to Joyce Ritterhauss dated
June 23, 2003
10.52 (3) -- $100,000 Promissory Note by GreenMan
Technologies, Inc. to Joyce Ritterhauss dated
June 26, 2003
10.53 (3) -- $100,000 Promissory Note by GreenMan
Technologies, Inc. to Barbara Morey dated June
26, 2003.
10.54 (3) -- $100,000 Promissory Note by GreenMan
Technologies, Inc. to Barbara Morey dated August
26, 2003
10.55 (3) -- $100,000 Promissory Note by GreenMan
Technologies, Inc. to Mart Management, Inc. dated
September 30, 2003
10.56 (3) -- $400,000 Promissory Note by GreenMan
Technologies, Inc. to Robert H. Davis and Nancy
Karfilis Davis dated September 30, 2003
10.57 (3) -- Waiver agreement by Republic Services of Georgia, LP
10.58 (16) -- Amendment No. 1 and Waiver dated March 22, 2005
by and among GreenMan Technologies, Inc. and
certain of its subsidiaries, in favor of Laurus
Master Fund, Ltd.
10.59 (18) -- Lease -- Business Property agreement dated March 1,
2005 between GreenMan Technologies of Iowa, Inc. and
Maust Asset Management, LLC
10.60 (18) -- Lease -- Motor Vehicle agreement dated January 1, 2005
between GreenMan Technologies of Minnesota, Inc. and
Maust Asset Management, LLC
10.61 (18) -- Lease -- Motor Vehicle agreement dated January 1, 2005
between GreenMan Technologies of Minnesota, Inc. and
Maust Asset Management, LLC
10.62 (18) -- Lease -- Motor Vehicle agreement dated January 1, 2005
between GreenMan Technologies of Minnesota, Inc. and
Maust Asset Management, LLC
10.63 (18) -- Waiver dated April 8, 2006 by and among GreenMan
Technologies, Inc. and Laurus Master Fund, Ltd.
21.1 (18) -- List of All Subsidiaries
31.1 (18) Certification of Chief Executive Officer pursuant
to Rule 13a-14(a) or Rule 15d-14(a)
31.2 (18) Certification of Chief Financial Officer pursuant
to Rule 13a-14(a) or Rule 15d-14(a)
32.1 (18) Certification of Chief Executive Officer under 18
U.S.C Section 1350
32.2 (18) Certification of Chief Financial Officer under 18
U.S.C Section 1350
----------
(1) Filed as an Exhibit to GreenMan Technologies, Inc.'s Form 10-KSB for the
Fiscal Year Ended September 30, 2001 and incorporated herein by reference.
(2) Filed as an Exhibit to GreenMan Technologies, Inc.'s Registration
Statement on Form SB-2 No. 33-86138 and incorporated herein by reference.
(3) Filed as an Exhibit to GreenMan Technologies, Inc.'s Form 10-KSB for the
Fiscal Year Ended September 30, 2003 and incorporated herein by reference.
(4) Filed as an Exhibit to GreenMan Technologies, Inc.'s Form 10-QSB for the
Quarter Ended December 31, 2000 and incorporated herein by reference.
(5) Filed as an Exhibit to GreenMan Technologies, Inc.'s Form 10-QSB for the
Quarter Ended March 31, 2001 and incorporated herein by reference.
(6) Filed as an Exhibit to GreenMan Technologies, Inc.'s Form 10-QSB for the
Quarter Ended June 30, 2001 and incorporated herein by reference.
(7) Filed as an Exhibit to GreenMan Technologies, Inc.'s Form 10-QSB for the
Quarter Ended March 31, 2002 and incorporated herein by reference.
(8) Filed as an Exhibit to GreenMan Technologies, Inc.'s Form 10-QSB for the
Quarter Ended June 30, 2002 and incorporated herein by reference.
(9) Filed as an Exhibit to GreenMan Technologies, Inc.'s Form 10-KSB for the
Fiscal Year Ended September 30, 2002 and incorporated herein by reference
(10) Filed as an Exhibit to GreenMan Technologies, Inc.'s Form 10-QSB for the
Quarter Ended June 30, 2005 and incorporated herein by reference.
29
(11) Filed as an Exhibit to GreenMan Technologies, Inc.'s Form 10-QSB for the
Quarter Ended June 30, 2003 and incorporated herein by reference.
(12) Filed as an Exhibit to GreenMan Technologies, Inc.'s Form 10-QSB for the
Quarter Ended December 31, 2003 and incorporated herein by reference.
(13) Filed as an Exhibit to GreenMan Technologies, Inc.'s Form 10-QSB for the
Quarter Ended March 31, 2004 and incorporated herein by reference.
(14) Filed as an Exhibit to GreenMan Technologies, Inc.'s Registration
Statement on Form SB-2 (File No. 333-117819), and incorporated herein by
reference.
(15) Filed as an Exhibit to GreenMan Technologies, Inc.'s definitive proxy
statement dated May 19, 2005 with respect to the Annual meeting held on
June 16, 2005, and incorporated herein by reference.
(16) Filed as an Exhibit to GreenMan Technologies, Inc.'s Form 8-K dated March
22, 2005 and filed March 28, 2005, and incorporated herein by reference.
(17) Filed as an Exhibit to GreenMan Technologies, Inc.'s Form 8-K dated
February 17, 2006 and filed March 6, 2006, and incorporated herein by
reference.
(18) Filed herewith.
(b) Reports on Form 8-K.
Item 14. Principal Accountant Fees and Services
In addition to audit services, Wolf & Company, P.C. also provided certain
non-audit services to us during the fiscal year ended September 30, 2005. The
Audit Committee has considered whether the provision of these additional
services is compatible with maintaining the independence of Wolf & Company, P.C.
Audit Fees. The aggregate fees billed for professional services rendered by Wolf
& Company, P.C. for (1) the audit of our financial statements as of and for the
fiscal year ended September 30, 2005 and (2) the review of the financial
statements included our company's Form 10-QSB filings for fiscal 2005 were
$220,000. The aggregate fees billed for professional services rendered by Wolf &
Company, P.C. for (1) the audit of our financial statements as of and for the
fiscal year ended September 30, 2004 and (2) the review of the financial
statements included in our Form 10-QSB filings for fiscal 2004 were $190,300.
Audit-Related Fees. The aggregate fees billed in fiscal 2005 and 2004 for
assurance and related services rendered by Wolf & Company, P.C. that are
reasonably related to the performance of the audit or review of our financial
statements, were $6,600 and $6,000, respectively. Services rendered in this
category consisted of (i) financial accounting and reporting consultations, and
(ii) participation in board and audit committee meetings and (iii) assurance
services on specific transactions. Tax Fees. The aggregate fees billed in fiscal
2005 and 2004 for professional services rendered by Wolf & Company, P.C. for tax
compliance, tax advice and tax planning were $27,750 and $20,500, respectively.
All Other Fees. There were no fees billed in fiscal 2005 and 2004 for
products and services provided by Wolf & Company, P.C., other than services
reported above.
Pre-Approval Policies and Procedures. The Audit Committee has adopted
policies which provide that our independent auditors may only provide those
audit and non-audit services that have been pre-approved by the Audit Committee,
subject, with respect to non-audit services, to a de minimis exception
(discussed below) and to the following additional requirements: (1) such
services must not be prohibited under applicable federal securities rules and
regulations, and (2) the Audit Committee must make a determination that such
services would be consistent with the principles that the independent auditor
should not audit its own work, function as part of management, act as an
advocate of our company, or be a promoter of our company's stock or other
financial interests. The chairman of the Audit Committee has the authority to
grant pre-approvals of permitted non-audit services between meetings, provided
that any such pre-approval must be presented to the full Audit Committee at its
next scheduled meeting.
During fiscal 2005, all of the non-audit services provided by Wolf &
Company, P.C. were pre-approved by the Audit Committee. Accordingly, the Audit
Committee did not rely on the de minimis exception noted above. This exception
waives the pre-approval requirements for non-audit services if certain
conditions are satisfied, including, among others, that such services are
promptly brought to the attention of and approved by the Audit Committee prior
to the completion of the audit.
30
GreenMan Technologies, Inc.
Index to Consolidated Financial Statements
Page
----
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets as of September 30, 2005 and 2004 F-3
Consolidated Statements of Operations for the Years Ended September 30,
2005 and 2004 F-4
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for
the Years Ended September 30, 2005 and 2004 F-5
Consolidated Statements of Cash Flows for the Years Ended September 30,
2005 and 2004 F-6
Notes to Consolidated Financial Statements F-8
31
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
GreenMan Technologies, Inc.
Lynnfield, Massachusetts
We have audited the accompanying consolidated balance sheets of GreenMan
Technologies, Inc. and subsidiaries as of September 30, 2005 and 2004 and the
related consolidated statements of operations, changes in stockholders' equity
(deficit) and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of GreenMan Technologies, Inc.
and subsidiaries as of September 30, 2005 and 2004 and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
As discussed in Note 1 to the financial statements, the Company has
continued to incur substantial losses from operations and has a working capital
deficiency of $8,667,886 at September 30, 2005. This raises substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 1. The accompanying
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Wolf & Company, P.C.
------------------------
Wolf & Company, P.C
Boston, Massachusetts
December 30, 2005 except for Note 9 as to which the date is February 28, 2006,
Note 4, as to which the date is March 1, 2006, Note 7 as to which the date is
April 8, 2006 and Note 18 as to which the date is April 12, 2006.
32
GreenMan Technologies, Inc.
Consolidated Balance Sheets
September 30, September 30,
2005 2004
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents ................................................................ $ 256,492 $ 509,787
Accounts receivable, trade, less allowance for doubtful accounts of
$219,354 and $120,592 as of September 30, 2005 and September 30, 2004 .................. 2,968,766 2,955,247
Product inventory ........................................................................ 173,043 667,839
Other current assets ..................................................................... 642,813 720,008
Assets related to discontinued operations ................................................ 2,037,613 2,074,274
------------ ------------
Total current assets ............................................................... 6,078,727 6,927,155
------------ ------------
Property, plant and equipment, net ......................................................... 6,342,252 7,542,322
------------ ------------
Other assets:
Deferred loan costs ...................................................................... 430,158 626,233
Goodwill, net ............................................................................ -- 1,361,696
Customer relationship intangibles, net ................................................... 206,455 253,725
Deferred tax asset ....................................................................... -- 270,000
Other .................................................................................... 62,360 469,002
Assets related to discontinued operations ................................................ -- 6,171,623
------------ ------------
Total other assets ................................................................. 698,973 9,152,279
------------ ------------
$ 13,119,952 $ 23,621,756
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable, current ................................................................... $ 836,381 $ 1,002,464
Notes payable, line of credit ............................................................ 619,950 500,000
Convertible notes payable, current ....................................................... 1,305,361 1,270,929
Convertible notes payable, line of credit ................................................ 3,585,281 1,814,042
Accounts payable ......................................................................... 2,458,772 1,955,910
Accrued expenses, other .................................................................. 1,089,479 816,788
Obligations under capital leases, current ................................................ 169,367 266,227
Liabilities related to discontinued operations ........................................... 4,682,022 2,822,925
------------ ------------
Total current liabilities .......................................................... 14,746,613 10,449,285
Notes payable, related parties, non-current portion ...................................... 699,320 699,320
Notes payable, non-current portion ....................................................... 2,237,044 3,134,060
Convertible notes payable, non-current portion ........................................... 1,802,896 2,434,205
Obligations under capital leases, non-current portion .................................... 1,369,192 1,576,669
Deferred gain on sale leaseback transaction .............................................. 379,633 419,115
Liabilities related to discontinued operations ........................................... 571,425 1,522,303
------------ ------------
Total liabilities .................................................................. 21,806,123 20,234,957
------------ ------------
Stockholders' equity (deficit):
Preferred stock, $1.00 par value, 1,000,000 shares authorized, none outstanding .......... -- --
Common stock, $.01 par value, 40,000,000 and 30,000,000 shares authorized,
19,225,352 shares and 19,072,963 shares issued and outstanding at September 30,
2005 and 2004 ............................................................................ 192,253 190,729
Additional paid-in capital ............................................................... 34,853,599 31,755,384
Accumulated deficit ...................................................................... (43,732,023) (28,559,314)
------------ ------------
Total stockholders' equity (deficit) ............................................... (8,686,171) 3,386,799
------------ ------------
$ 13,119,952 $ 23,621,756
============ ============
See accompanying notes to consolidated financial statements.
33
GreenMan Technologies, Inc.
Consolidated Statements of Operations
Years Ended September 30,
2005 2004
------------ ------------
Net sales .......................................................................... $ 22,075,236 $ 19,115,483
Cost of sales ...................................................................... 18,471,607 15,206,715
------------ ------------
Gross profit ....................................................................... 3,603,629 3,908,768
Operating expenses:
Selling, general and administrative .............................................. 3,459,470 3,172,885
Impairment loss - goodwill ....................................................... 1,361,696 --
Impairment loss - long lived assets .............................................. 57,183 --
------------ ------------
4,878,349 3,172,885
------------ ------------
Operating income (loss) from continuing operations ................................. (1,274,720) 735,883
------------ ------------
Other income (expense):
Interest and financing costs, net ................................................ (2,408,896) (1,408,543)
Casualty income, net ............................................................. -- 90,047
Other, net ....................................................................... (12,992) (20,582)
(Loss) gain on disposal of assets, net ........................................... (82,181) 25,801
------------ ------------
Other (expense), net ......................................................... (2,504,069) (1,313,277)
------------ ------------
Loss from continuing operations before income taxes ................................ (3,778,789) (577,394)
Provision for income taxes ......................................................... (274,745) --
------------ ------------
Loss from continuing operations .................................................... (4,053,534) (577,394)
------------ ------------
Discontinued operations:
Loss on disposal of discontinued operations ...................................... (5,965,951) --
Loss from discontinued operations ................................................ (5,153,224) (2,067,247)
------------ ------------
(11,119,175) (2,067,247)
------------ ------------
Net loss .......................................................................... $(15,172,709) $ (2,644,641)
============ ============
Loss from continuing operations per share-basic .................................... $ (0.21) $ (0.03)
Loss on disposal of discontinued operations per share-basic ........................ (0.31) --
Loss from discontinued operations per share-basic .................................. (0.27) (0.12)
------------ ------------
Net loss per share-basic ........................................................... $ (0.79) $ (0.15)
------------ ------------
Weighted average shares outstanding ................................................ 19,188,674 17,173,421
============ ============
See accompanying notes to consolidated financial statements.
34
GreenMan Technologies, Inc.
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
Years Ended September 30, 2005 and 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
Common stock issued in connection with
private placement ..................... 1,594,211 15,942 1,482,166 -- -- 1,498,108
Common stock and warrants issued for
investment banking services rendered .. 57,252 573 103,267 -- -- 103,840
Warrants issued with convertible debt ... -- -- 100,067 -- -- 100,067
Net loss for the year ended
September 30, 2004 .................... -- -- -- (2,644,641) -- (2,644,641)
----------- --------- ------------ ------------ -------- ------------
Balance, September 30, 2004 ............. 19,072,963 $ 190,729 $ 31,755,384 $(28,559,314) $ -- $ 3,386,799
Common stock issued in connection with
a potential acquisition ............... 127,389 1,274 198,726 -- -- 200,000
Beneficial conversion discount on
convertible notes payable ............. -- -- 2,879,989 -- -- 2,879,989
Common stock issued upon conversion of
notes payable ......................... 25,000 250 19,500 -- -- 19,750
Net loss for the year ended
September 30, 2005 .................... -- -- -- (15,172,709) -- (15,172,709)
----------- --------- ------------ ------------ -------- ------------
Balance, September 30, 2005 ............. 19,225,352 $ 192,253 $ 34,853,599 $(43,732,023) $ -- $ (8,686,171)
=========== ========= ============ ============ ======== ============
See accompanying notes to consolidated financial statements
35
GreenMan Technologies, Inc.
Consolidated Statements of Cash Flows
Years Ended September 30,
2005 2004
------------ -----------
Cash flows from operating activities:
Net loss ................................................................ $(15,172,709) $(2,644,641)
Adjustments to reconcile net income to net cash provided by
operating activities:
Increase in valuation allowance on deferred tax asset ................... 270,000 --
Loss on disposal of property, plant and equipment ....................... 4,157,482 5,284
Gain on capital lease settlement, net ................................... (552,137) --
Impairment loss ......................................................... 3,591,077 --
Depreciation ............................................................ 2,425,801 2,210,293
Amortization of non-cash financing costs ................................ 1,547,562 456,671
Amortization of customer relationships .................................. 47,270 13,150
Gain on sale leaseback .................................................. (39,482) --
Loss on acquisition deposit ............................................. 200,000 --
Decrease (increase) in assets:
Accounts receivable ................................................... 261,900 (1,015,500)
Insurance receivable .................................................. -- 634,172
Product inventory ..................................................... 494,796 (555,420)
Equipment held for sale ............................................... (539,332) --
Other current assets .................................................. 486,494 (245,722)
Other assets .......................................................... 432,136 (201,584)
Increase (decrease) in liabilities:
Accounts payable ...................................................... 1,366,876 (192,151)
Accrued expenses ...................................................... 571,730 (159,197)
------------ -----------
Net cash (used for ) operating activities .......................... (450,536) (1,694,645)
------------ -----------
Cash flows from investing activities:
Purchase of property and equipment ...................................... (1,596,093) (1,649,264)
Proceeds on sale of property and equipment ............................ 608,102 1,444,580
Increase in notes receivable, officer ................................. -- (7,848)
------------ -----------
Net cash used for investing activities ............................. (987,991) (212,532)
------------ -----------
Cash flows from financing activities:
(Increase) in deferred financing costs .................................. (60,209) (624,910)
Net advances under line of credit ....................................... 119,950 --
Proceeds from notes payable ............................................. 492,643 507,131
Repayment of notes payable .............................................. (1,502,404) (4,726,894)
Proceeds from notes payable, related parties ............................ -- 575,000
Proceeds from convertible term notes payable ............................ 1,000,000 4,060,000
Repayment of convertible term notes payable ............................. (500,000) --
Net advances on convertible notes payable, line of credit ............... 2,282,824 1,469,978
Principal payments on obligations under capital leases .................. (538,848) (632,194)
Cash received upon exercise of stock options and warrants ............... -- 7,800
Net proceeds on the sale of common stock ................................ -- 790,308
------------ -----------
Net cash provided by financing activities .......................... 1,293,956 1,426,219
------------ -----------
Net (decrease) in cash and cash equivalents ............................... (144,571) (480,958)
Cash and cash equivalents at beginning of year ............................ 509,787 990,745
------------ -----------
Cash and cash equivalents at end of year, including $108,724 and $0,
respectively, of cash related to discontinued operations ................ $ 365,216 $ 509,787
============ ===========
See accompanying notes to consolidated financial statements.
36
GreenMan Technologies, Inc.
Consolidated Statements of Cash Flows
Years Ended September 30,
2005 2004
---------- ----------
Supplemental cash flow information:
Machinery and equipment acquired under capital leases .............................. $ 478,476 $1,400,000
Machinery and equipment acquired through transfer of deposits ...................... 247,874 --
Shares issued upon conversion of convertible notes payable and accrued interest .... 19,750 937,064
Beneficial conversion discount recognized on convertible debt ...................... 2,879,979 --
Shares issued to acquire exclusive purchase option ................................. 200,000 --
Capital lease net settlement ....................................................... 700,000 --
Shares issued upon conversion of notes payable and accrued interest ................ -- 707,800
Shares issued upon exercise of stock options applied to notes payable .............. -- 142,635
Shares issued in connection with lease buyout ...................................... -- 44,000
Notes receivable, officer applied to notes payable, related party and
accrued interest ................................................................. -- 163,000
Shares received in payoff of subscription notes receivable, officer ................ -- 44,248
Shares issued for investment banking services ...................................... -- 75,000
Interest paid ...................................................................... 1,360,447 1,509,446
See accompanying notes to consolidated financial statements.
37
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of GreenMan
Technologies, Inc. and our wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Nature of Operations, Risks, and Uncertainties
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 three 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, Iowa and Minnesota.
The financial statements have been prepared assuming we will continue as a
going concern. We have incurred substantial losses from operations, and as of
September 30, 2005, the Company had $256,492 in cash and cash equivalents and a
working capital deficiency of $8,667,886. These factors raise substantial doubt
about our ability to continue as a going concern. We understand our continued
existence is dependent on our ability to generate positive operating cash,
negotiate more favorable terms with existing secured and unsecured creditors,
refinance existing long term debt, secure additional financing and achieve
profitable status on a sustained basis. As more fully described below we have
discontinued our unprofitable Southeastern operations and have revaluated our
marketing and operating plans of our remaining operations. We are also presently
evaluating several financing alternatives which would allow us to refinance a
substantial amount of our short-term secured debt into long-term secured debt to
better align debt maturities with our long-term business plan. There can be no
assurance however, that we will be successful in refinancing at favorable terms,
if at all. Additionally, we must also be successful in completing our plan to
meet the minimum exchange listing requirements of the American Stock Exchange.
If we are unable to re-establish those requirements, our shares will be subject
to delisting which will substantially limit our stock's liquidity and impair our
ability to raise capital. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
Our liquidity has been significantly and adversely affected by continued
operating losses at our Southeastern operations. The divestiture of our
Tennessee operation in September 2005 will eliminate continued operating losses
which aggregated approximately $1.8 million during the fiscal year ended
September 30, 2005. In addition, during the quarter ended December 31, 2005, we
substantially curtailed operations at our Georgia subsidiary which during the
fiscal year ended September 30, 2005 incurred an operating loss of approximately
$3.4 million. During the quarter ended March 31, 2006 under a plan approved in
September 2005, we completed the sale of substantially all Georgia operating
assets to two separate parties and received $405,000 in aggregate cash. The
aggregate net losses (including losses from operations and losses on disposal)
associated with the discontinued operations of our Tennessee and Georgia
subsidiaries included in the results for the fiscal year ended September 30,
2005 were approximately $11.1 million or 73% of our total loss for the 2005
fiscal year.
We have invested substantial amounts of capital during the past several
years in new equipment to increase processing capacity at our Iowa, Minnesota
and Georgia locations, as well as consolidating our Wisconsin location into our
Minnesota operations during fiscal 2005 to substantially reduce operating costs
and maximize our return on assets. Our future operating plan focuses on
maximizing the performance of these three operations through our continuing
efforts to increase overall quality of revenue (revenue per passenger tire
equivalent) while remaining diligent with our ongoing cost reduction
initiatives. We will continue to evaluate each operation on its merits and
contribution to the corporation and we will continue to make the necessary
decisions to ensure the continued viability of GreenMan. During fiscal 2005, we
completed an evaluation of our corporate-wide inbound collection infrastructure
and determined that we would no longer provide certain levels of service and
products at existing rates in certain markets and therefore implemented price
increases where warranted and terminated service in situations where price
increases were not an alternative. As a result, we experienced a 4% increase in
overall tipping fees (fees we are paid to collect and dispose of scrap tires)
during fiscal 2005 as compared to fiscal 2004. While these initiatives reduced
our overall inbound tire volume growth rate during fiscal 2005, we believe they
have and will continue to improve our performance through lower labor, parts and
maintenance costs. In addition, we continue to identify, and are currently
selling product into several new, higher-value markets as evidenced by an 18%
increase in end product revenue during fiscal 2005. We continue to experience
strong demand for our end products.
38
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
1. Summary of Significant Accounting Policies - (Continued)
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the amounts of revenues and expenses recorded during the
reporting period. Actual results could differ from those estimates. Such
estimates relate primarily to the estimated lives of property and equipment, the
value of goodwill and other intangible assets, the valuation reserve on deferred
taxes and the value of equity instruments issued. The amount that may be
ultimately realized from assets and liabilities could differ materially from the
values recorded in the accompanying financial statements as of September 30,
2005.
In particular, discontinued operations include management's best estimate
of the amounts to be realized and liabilities to be incurred in connection with
the discontinuing of our Georgia and Tennessee operations. The amounts the
Company will ultimately realize could differ materially from the amounts
estimated in arriving at the loss on disposal of the discontinued operations.
Cash Equivalents
Cash equivalents include short-term investments with original maturities
of three months or less.
Accounts Receivable
Accounts receivable are carried at original invoice amount less an
estimate made for doubtful accounts. Management determines the allowance for
doubtful accounts by regularly evaluating past due individual customer
receivables and considering a customer's financial condition, credit history,
and the current economic conditions. Individual accounts receivable are written
off when deemed uncollectible, with any future recoveries recorded as income
when received.
Product Inventory
Inventory consists primarily of crumb rubber and is valued at the lower of
cost or market on the first-in first-out (FIFO) method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation and
amortization expense is provided on the straight-line method. Expenditures for
maintenance, repairs and minor renewals are charged to expense as incurred.
Significant improvements and major renewals that extend the useful life of
equipment are capitalized.
Deferred Loan Costs
Deferred loan costs are amortized into interest expense over the life of
the related financing arrangement and represent costs incurred in connection
with financing at the corporate level and our wholly-owned subsidiary in Iowa.
Revenue Recognition
We have two sources of revenue: processing revenue which is earned from
the collection, transportation and processing of scrap tires and product revenue
which is earned from the sale of tire chips, crumb rubber and steel. Revenues
from product sales are recognized when the products are shipped and
collectability is reasonably assured. Revenues derived from the collection,
transporting and processing of tires are recognized when processing of the tires
has been completed.
Income Taxes
Deferred tax assets and liabilities are recorded for temporary differences
between the financial statement and tax bases of assets and liabilities using
the currently enacted income tax rates expected to be in effect when the taxes
are actually paid or recovered. A deferred tax asset is also recorded for net
operating loss and tax credit carry forwards to the extent their realization is
more likely than not. The deferred tax expense for the period represents the
change in the deferred tax asset or liability from the beginning to the end of
the period.
39
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
1. Summary of Significant Accounting Policies - (Continued)
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", encourages all entities to adopt a fair value based
method of accounting for employee stock compensation plans, whereby compensation
cost is measured at the grant date based on the value of the award and is
recognized over the service period, which is usually the vesting period.
However, it also allows an entity to continue to measure compensation cost of
those plans using the intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", whereby compensation cost is the excess, if any, of the quoted
market price of the stock at the grant date (or other measurement date) over the
amount an employee must pay to acquire the stock. Stock options issued under our
stock option plans generally have no intrinsic value at the grant date, and
under Accounting Principles Board Opinion No. 25 no compensation cost is
recognized for them. 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:
Year Ended Year Ended
September 30,2005 September 30,2004
----------------- -----------------
Net loss as reported .......................... $(15,172,709) $(2,644,641)
Add: Compensation recognized under APB No.25 .. -- --
Less: Compensation recognized under FAS 123 ... (52,306) (81,306)
------------ -----------
Pro forma net loss ............................ $(15,225,015) $(2,725,947)
============ ===========
Net loss per share:
Basic and diluted- as reported .............. $ (0.79) $ (0.15)
============ ===========
Basic and diluted - pro forma ............... $ (0.79) $ (0.16)
============ ===========
The fair value of each option grant during the year ended September 30,
2005 under the 1996 Non-Employee Director Stock Option Plan was estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions; dividend yield of 0%; risk-free interest rates of
4.5%; expected volatility of 57% and expected life of 5 years.
The fair value of each option grant during the year ended September 30,
2004 under the 2004 Stock Option Plan and the 1996 Non-Employee Director Stock
Option Plan is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions; dividend
yields of 0%; risk-free interest rates of 4.5%; expected volatility ranging from
44% to 61% and expected lives of 5 years.
Intangible Assets
In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets",
and SFAS No. 144, "Accounting for The Impairment or Disposal of Long-Lived
Assets" we review intangibles for impairment annually, or more frequently if an
event occurs or circumstances change that would more likely than not reduce the
fair value of our intangible assets below their carrying value. The impairment
test for goodwill requires us to estimate the fair value of our overall business
enterprise.
In addition to goodwill, intangible assets include customer relationships
acquired in current or past business acquisitions which are being amortized on a
straight-line basis over a period of ten to twenty years, commencing on the date
of the acquisition. The impairment test for customer relationships requires us
to review original relations for continued retention. Amortization expense
associated with customer relationships amounted to $47,266 including $22,653 of
impairment charges and $13,150 for the fiscal years ended September 30, 2005 and
2004 respectively. Accumulated amortization was $77,544 and $30,275 at September
30, 2005 and 2004 respectively. Amortization of customer relationships is
expected to be $24,613 per year during the next five years.
We have elected to perform the required annual impairment test of our
goodwill on the last day of our fiscal third quarter at which time no impairment
was determined to exist. Due to our decision to dispose of our Georgia and
Tennessee operations at September 30, 2005, goodwill associated with these
operations totaling $2,172,198 were written off as part of the loss on disposal
of such discontinued operations during the fourth quarter. In addition, due to
the magnitude of the resultant fiscal 2005 losses, management determined in the
fourth quarter that the carrying value of corporate-wide goodwill was impaired
at September 30, 2005 and accordingly wrote-off all remaining goodwill recording
a non-cash impairment loss of $1,361,696.
40
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
1. Summary of Significant Accounting Policies - (Continued)
Long-Lived Assets
In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 144, long-lived assets to be held and used are analyzed for impairment
whenever events or changes in circumstances indicate the carrying amount of an
asset may not be recoverable. SFAS No. 144 relates to assets that can be
amortized and the life can be determinable. We evaluate at each balance sheet
date whether events and circumstances have occurred that indicate possible
impairment. If there are indications of impairment, we use future undiscounted
cash flows of the related asset or asset grouping over the remaining life in
measuring whether the assets are fully recoverable. In the event such cash flows
are not expected to be sufficient to recover the recorded asset values, the
assets are written down to their estimated fair value. Long-lived assets to be
disposed of are reported at the lower of carrying amount or fair value of asset
less the cost to sell.
Net Income 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 years ended September 30, 2005 and 2004, since the effect of the
inclusion of all outstanding options, warrants and convertible debt would be
anti-dilutive.
New Accounting Pronouncements
SFAS No. 123R, Share Based Payment - An Amendment to SFAS Nos. 123 and 95
- This standard includes the following changes to current accounting for share
based payments:
o All companies would be required to recognize compensation expense
for share-based payment arrangements including stock options.
o All companies must recognize the expense in operations and cannot
bury the effects in the financial statement footnotes as currently
allowed. The cost would be recognized over the requisite service
period (generally the vesting period).
o All companies would be required to estimate how many options will
actually vest. The ability under the current rules to assume 100%
vesting and record forfeitures as they occur will not be permitted.
o The ED still requires public companies (including Small Business
filers) to value employee stock awards at fair value on the date of
grant. However, the ED prefers a "lattice model" in lieu of what
most companies use today, the Black-Scholes model, a "closed-form
model."
o Private companies would be required to follow either (a) the fair
value method at grant date consistent with public company
accounting, or (b) the intrinsic value method (the excess, if any,
of the fair value of the stock over the exercise price) at each
reporting date until the option is settled or exercised. The
so-called "minimum value" method (essentially a simplified version
of the Black-Scholes model) currently permitted would no longer be
an acceptable valuation model.
o Stock option awards with graded vesting would be treated as separate
awards for each vesting date. The ability to treat such awards as a
single award, as currently permitted, would longer be allowed. This
would lead to more expense up-front and less in later years.
In April 2005, the Securities and Exchange Commission released Staff
Accounting Bulletin ("SAB") No. 107, "Share-Based Payment" the adoption of a
new rule that amended the compliance date for Statement of Financial Accounting
Standard ("SFAS") No. 123 (R), "Share-Based Payment", which establishes
standards for transactions in which an entity exchanges its equity instruments
for goods or services. SFAS No. 123 (R) was to be effective for the interim or
annual reporting periods beginning on or after June 15, 2005, but SAB No. 107
amended the effective date for implementing SFAS No. 123 (R) to the beginning of
the next fiscal year that begins after December 15, 2005, for small business
issuers. We will continue to provide the pro forma disclosure provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation," as amended by SFAS No. 148
"Accounting for Stock-Based Compensation-Transition and Disclosure-an amendment
to FASB Statement No. 123" in the notes to the consolidated financial
statements. Management has not yet determined what effect adoption of this
standard will have on our financial condition and results of operations.
41
In May 2005, the Financial Accounting Standards Board issued SFAS No.
154, "Accounting Changes and Error Corrections" (SFAS 154). SFAS 154 is a
replacement of Accounting Principles Board No. 20, "Accounting Changes" and FASB
Statement No. 3 "Reporting Accounting Changes in Interim Financial Statements."
SFAS 154 provides guidance on the accounting for and reporting of accounting
changes and error corrections. It establishes retrospective application as the
required method for reporting a change in accounting principle. SFAS 154
provides guidance for determining whether retrospective application of a change
in accounting principle is impracticable and for reporting a change when
retrospective application is impracticable. The reporting of a correction of an
error by restating previously issued financial statements is also addressed by
SFAS 154. SFAS 154 is effective for accounting changes and corrections of errors
made in fiscal years beginning after December 31, 2005. This pronouncement is
not expected to have a material effect on our financial statements.
2. Acquisition of Businesses
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 $172,000 in assumed liabilities,
forgiveness of trade payables due to us and cash. We have consolidated ATD's
business into our existing California operations. The acquisition was accounted
for as a purchase in accordance with SFAS No. 141 "Business Combinations" and
accordingly the results of their operations since the date of acquisition are
included in the consolidated financial statements. The total consideration paid
exceeded the fair value of the net assets acquired by $152,000 resulting in the
recognition of $120,000 of goodwill and $32,000 assigned to customer
relationships. Customer relationships are being amortized over an estimated
useful life of 10 years on a straight-line basis and will be evaluated annually.
3. 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 8).
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 were 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 agreed to apply his then outstanding balance of $24,000
against obligations under our $400,000 September 30, 2003 note payable due to
the officer. (See Note 8). On May 11, 2004 the other officer sold 36,717 shares
of common stock valued at $44,000 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.
42
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
4. Discontinued Operations
Due to the magnitude of the continuing operating losses incurred by our
Georgia ($3.4 million) and Tennessee ($1.8 million) subsidiaries during fiscal
2005, management determined it to be in the best interest of GreenMan to
discontinue all Southeastern operations and dispose of their respective
operating assets. A majority of the Tennessee operating losses were due to rapid
market share growth within the state by an undercapitalized subsidiary,
necessitating us to transport an increasing number of Tennessee scrap tires to
our Georgia facility for processing at significant transportation and processing
loss. A majority of the Georgia operating losses were due to (1) the negative
impact of processing a significant number of Tennessee sourced tires; (2) a
change in the specifications of our primary end market customers requiring a
smaller product resulting in reduced processing capacity and significantly
higher operating costs and (3) equipment reliability issues resulting from aging
equipment processing an increasing number of scrap tires.
On September 6, 2005 we entered into an agreement under which all
Tennessee scrap tire collection contracts and certain other contracts with
suppliers of waste tires and contracts to supply whole tires to certain cement
kilns in the southeastern region of the United States were assigned to a Company
owned by a former employee. We received no cash consideration for these
assignments and recorded a $1,334,849 non-cash loss (including $918,450
associated with goodwill written off) on disposal of the operations at September
30, 2005. The aggregate net losses including the loss on disposal associated
with the discontinued operations of our Tennessee subsidiary included in the
results for the fiscal year ended September 30, 2005 were approximately $3.1
million.
On September 27, 2005, we adopted a plan to dispose of all Georgia
operations and during the quarter ended December 31, 2005, we substantially
curtailed operations at our Georgia subsidiary. As a result, we wrote down all
Georgia operating assets to their estimated fair market value at September 30,
2005 and recorded a non-cash loss on disposal of $4,631,102 (including
$1,253,748 associated with goodwill written off) net of a gain on settlement of
our Georgia facility lease of $586,137 (see Note 9). The aggregate net losses
including the loss on disposal associated with the discontinued operations of
our Georgia subsidiary included in the results for the fiscal year ended
September 30, 2005 were approximately $8.0 million. We completed the divestiture
of all Georgia operating assets as of March 1, 2006.
On February 17, 2006, we entered into an Asset Purchase Agreement with
Tires Into Recycled Energy and Supplies, Inc. ("TIRES"). Under the agreement, we
sold and assigned to TIRES certain assets, including (a) certain truck tire
processing equipment located at our Georgia facility; (b) certain rights and
interests in our contracts with suppliers of scrap truck tires; and (c) certain
intangible assets. TIRES agreed to assume all of our rights and obligations
under these contracts. We anticipate the transition of assigning the contracts
to be completed within 60 to 90 days. In addition, TIRES entered into a sublease
agreement with us with respect to part of the premises located in Georgia. We
received $155,000 from TIRES for these assets. As additional consideration,
TIRES agreed to terminate several material supply and equipment lease agreements
as well as terminating a December 2005 letter of intent between GreenMan and
TIRES containing an exclusive option to acquire certain operating assets of
TIRES (see Note 6).
On March 1, 2006, we entered into an Asset Purchase Agreement with MTR of
Georgia, Inc. ("MTR") a company co-owned by a former employee. Under the
agreement, we sold and assigned to MTR certain assets, including (a) certain
passenger tire processing equipment located at our Georgia facility; (b) certain
rights and interests in our contracts with suppliers of scrap passenger tires;
and certain intangible assets. MTR agreed to assume all of our rights and
obligations under these contracts. We anticipate the transition of assigning the
contracts to be completed within 60 to 90 days. In addition, MTR entered into a
sublease agreement with us with respect to part of the premises located in
Georgia. We received $250,000 from MTR for these assets. As additional
consideration, MTR has agreed to assume financial responsibility for disposing
of all scrap tires and scrap tire processing residual at the Georgia facility as
of the close.
We agreed with TIRES and MTR not to compete in the business of providing
whole tire waste disposal services or selling crumb rubber material (except to
existing GreenMan customers) within certain Southeastern states for a period of
three years.
43
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
4. Discontinued Operations - (Continued)
The major classes of assets and liabilities associated with discontinued
operations were:
September 30, September 30,
2005 2004
---------- ----------
Assets related to discontinued operations:
Cash ............................................................ $ 108,724 $ --
Accounts receivable, net ........................................ 1,153,269 1,428,688
Equipment held for resale ....................................... 539,332 --
Other current assets ............................................ 236,288 645,586
---------- ----------
Total current ................................................. 2,037,613 2,074,274
Property ,plant and equipment (net) ............................. -- 3,973,931
Goodwill ........................................................ -- 2,172,198
Other ........................................................... -- 25,494
---------- ----------
Total non-current ............................................. -- 6,171,623
---------- ----------
Total assets related to discontinued operations ............... $2,037,613 $8,245,897
========== ==========
Liabilities related to discontinued operations:
Accounts payable ................................................ $3,066,596 $2,202,582
Notes payable, current .......................................... 435,926 174,926
Accrued expenses, other ......................................... 707,706 408,667
Capital leases, current ......................................... 326,794 36,750
Lease payable, current .......................................... 145,000 --
---------- ----------
Total current ................................................. 4,682,022 2,822,925
Notes payable, non-current ...................................... 16,425 224,087
Capital leases, non-current ..................................... -- 1,298,216
Lease payable, non-current ...................................... 555,000 --
---------- ----------
Total non-current ............................................. 571,425 1,522,303
---------- ----------
Total liabilities related to discontinued operations .......... $5,253,447 $4,345,228
========== ==========
Net sales and (loss) from discontinued operations were as follows:
September 30, September 30,
2005 2004
------------- --------------
Net sales from discontinued operations....................... $11,605,866 $11,661,698
(Loss) from discontinued operations.......................... (5,153,224) (2,067,247)
5. Property, Plant and Equipment
Property, plant and equipment consists of the following:
September 30, September 30, Estimated
2005 2004 Useful Lives
------------ ------------ ------------
Land ........................................ $ -- $ 167,981
Buildings and improvements .................. 1,749,907 1,901,113 10-20 years
Machinery and equipment ..................... 7,401,613 6,569,804 5-10 years
Furniture and fixtures ...................... 199,934 177,875 3-5 years
Motor vehicles .............................. 3,598,098 3,972,113 3-10 years
Construction in process ..................... 42,638 231,301
------------ ------------
12,992,190 13,020,187
Less accumulated deprecation and
amortization .............................. (6,649,938) (5,477,865)
------------ ------------
Property, plant and equipment, net .......... $ 6,342,252 $ 7,542,322
============ ============
44
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
5. Property, Plant and Equipment - (Continued)
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 the 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 mortgage on the property.
On April 1, 2003, our Wisconsin subsidiary acquired the land and buildings
in which it operates for $362,900 under a sixty-seven month promissory note with
aggregate payments of $76,500 over the first eight months. Thereafter,
commencing December 1, 2003, the note requires monthly payments of $2,886,
including interest at 8% per annum with the remaining principal balance due on
November 1, 2008. 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 fiscal year ended September 30, 2004.
In June 2005, we sold all our Wisconsin land and buildings for
approximately $483,000, realizing a gain of $123,608. We used approximately
$284,000 of the proceeds to repay an existing obligation on the property and
simultaneous with the sale, entered into an agreement to lease the property back
for a period of 90 days. We consolidated all remaining Wisconsin operations into
our Minnesota facility during the quarter ending September 30, 2005. In addition
during the quarter ended June 30, 2005, our Wisconsin subsidiary reached an
agreement with the lessor of certain transportation equipment to buy-out the
remaining term of the lease. The lessor agreed to accept approximately $190,000
in full settlement of our capital lease obligation with a carrying value of
approximately $156,000, resulting in a loss of approximately $34,000 in
connection with this transaction. In addition, management determined that the
carrying value of the purchased transportation equipment was impaired.
Accordingly, we recorded an impairment loss amounting to $57,183 during the
quarter ended June 30, 2005 based on the estimated fair value based on
replacement cost of similar equipment and reduced the remaining estimated useful
life to 24 months.
Depreciation and amortization expense for the fiscal years ended September
30, 2005 and 2004 was $2,425,801 and $2,210,293 respectively including
depreciation and amortization from discontinued operations of $853,739 and
$742,415, respectively.
6. Acquisition Deposit
In August 2004, we executed a non-binding letter of intent and escrow
agreement with Tires Into Recycled Energy and Supplies, Inc. ("TIRES"), a
leading crumb rubber processor in the United States. Pursuant to the escrow
agreement, we made a "good faith" payment amounting to $350,000, which was to be
applied toward the purchase price upon completion of the transaction. On
December 8, 2004, we executed a new letter of intent which superseded the August
letter of intent in which we (1) leased, with an option to buy, certain pieces
of tire processing equipment owned by TIRES (the "Equipment Leases"), (2)
entered a material supply agreement (the "MSA") and (3) were granted an
exclusive purchase option to acquire additional operating assets of TIRES. The
operating leases were executed in January 2005 but became effective in February
and March 2005 and provide for aggregate monthly payments of $25,300 over terms
ranging from 48 to 60 months.
We have also agreed to allow TIRES to retain $101,378 of the "good faith"
payment to upgrade it's existing crumb rubber production capacity and have used
the remaining $248,622 to prepare and move the leased equipment for our use.
Accordingly, during the quarter ended March 31, 2005, the $101,378 was expensed
when it was released from escrow and approximately $243,597 has been capitalized
and was being amortized over the lease terms which ranged from 48 to 60 months.
The remaining balance of $205,306 was written off as a cost of disposal of
discontinued operations.
Pursuant to the terms of the MSA, we were to supply agreed upon minimum
amounts of crumb rubber material to TIRES on a weekly basis. If we do not meet
the minimum weekly requirements, we are assessed a shortfall fee equal to 150%
of the purchase price for any shortfall tonnage. Due to unexpected equipment
downtime and delays in installing the additional rasper which was being leased
from TIRES, we were unable to meet the minimum material requirements during
various periods during fiscal 2005 and as a result, we recorded a shortfall
expense of approximately $382,000 during the fiscal year ended September 30,
2005.
45
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
6. Acquisition Deposit - (Continued)
TIRES would purchase material was increased 15 percent for a period of 10
weeks. In return for this short term consideration, we agreed to reduce our
original pricing by 8% on the first 30,000 tons of material purchased by TIRES
subsequent to the 10 week amendment period.
The exclusive purchase option to acquire additional operating assets of
TIRES was exercisable if predetermined financial performance criteria are met by
TIRES during the subsequent fifteen to twenty four month period after December
8, 2004. The ultimate purchase price was to be determined based on those
results. In return for the exclusive purchase option, we issued 127,389 shares
of our common stock (valued at $200,000) to TIRES. Had we exercised our
exclusive purchase option and closed a transaction, the value of the shares
would have been applied against the purchase price of the assets. If the
exclusive purchase option expired or we decided not to exercise the option,
TIRES would retain a sufficient number of our shares to equal $200,000 (as of
the date that the purchase option expires) and return the balance of such shares
of common stock to us. If at the time the purchase option expired, the value of
the shares were less than $200,000, we would have been required to issue a
sufficient number of additional shares to equal $200,000. If at the time the
purchase option expired, TIRES had not achieved the predetermined financial
performance criteria, TIRES would have had to return to us a sufficient number
of our shares to equal $200,000 at the time.
In February 2006 in conjunction with the discontinuance of our Georgia
operations (See Note 4), we agreed to sell and assign to TIRES (a) certain truck
tire processing equipment located at our Georgia facility; (b) certain rights
and interests in our contracts with suppliers of scrap truck tires; (c) certain
intangible assets; and (d) allowed TIRES to retain the 127,389 shares of our
common stock and in return received $155,000 in cash proceeds; agreed to
terminate the MSA, Equipment Leases and several other agreements previously
executed between the parties in addition to terminating a December 2004 letter
of intent and exclusive option. Accordingly, at September 30, 2005, included in
loss on disposal of discontinued operations is the $200,000 assigned to the
shares of common stock retained by TIRES.
7. Credit Facility/Notes Payable
Republic Services of Georgia
On May 6, 2002, Republic Services of Georgia, Limited Partnership ("RSLP")
converted $750,000 of the principal amount of a February 14, 2002 promissory
note into 300,000 unregistered shares of our common stock (valued at $750,000)
and we issued a promissory note for the remaining principal balance of $743,750
bearing interest at 10% and due in March 2007.
As of June 30, 2005, 9 payments totaling $76,042 were past due and on July
31, 2005, RSLP agreed to waive any and all existing defaults and defer all
interest and principal payments due through June 2006 at which time all interest
and principal payments under the promissory note that are otherwise due and
payable on or before that date will be incorporated into an new promissory note,
payable in 48 monthly installments commencing July 2006 and bearing interest at
10% per annum.
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 $33,425 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%.
On February 10, 2005, First American renewed our working capital line
until February 10, 2006 (subsequently extended to May 1, 2006) and increased our
maximum availability under the line of credit to $800,000. In addition, First
American agreed to increase our overall maximum availability by an additional
$350,000 to $1,150,000 through June 10, 2005 to coincide with the performance of
a significant scrap tire cleanup project which was completed in April 2005.
WAMCO Credit Facility
On May 16, 2003, we were notified by the Federal Deposit Insurance Company
(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
including several we had outstanding with the Coast Business Credit, which,
along with it's parent were closed by the Commissioner of Financial Institutions
of the State of California in February 2003. 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.
46
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
7. Credit Facility/Notes Payable - (Continued)
Convertible Notes 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 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 $18,854 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. The remaining unamortized beneficial conversion discount of
approximately $77,000 was charged to interest expense.
Amortization expense for the year ended September 30, 2004 was $154,226.
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 and a $4 million convertible term note 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 prior credit facility 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. On March 22, 2005, the
credit facility was amended to permit us to maintain overadvances of up to
$2,000,000 under the line of credit through December 31, 2005. In addition, the
price at which the minimum borrowing note and term loan are convertible into our
common stock were adjusted as noted below.
The line of credit has a three-year term. Borrowings generally bear
interest at the prime rate published in The Wall Street Journal from time to
time plus 1.0% (7.75% at September 30, 2005), 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%. The amount we may borrow at any time under the line of credit
is generally limited to 90% of eligible accounts receivable (90 days or less)
and 50% of eligible finished goods inventory, subject to certain limitations.
Until December 31, 2005, (subsequently extended to April 30, 2006) however, we
will be permitted to maintain overadvances of up to $2,000,000 under the line of
credit. All overadvances outstanding from time to time will bear interest, in
addition to the interest otherwise required, at a rate equal to 2% per annum on
the amount of the overadvance. In the event that at any time we have outstanding
overadvances of more than $2,000,000, or if any overadvance remains outstanding
on or after April 30, 2006, the excess or overdue overadvance will bear
interest, in addition to that otherwise required, at a rate equal to 2% per
month for all times such amounts are outstanding. The line of credit requires us
to maintain a minimum borrowing of $1,000,000. As of September 30, 2005, our
overadvance was $1,980,250.
Subject to certain limitations, Laurus will have the right, but not the
obligation, to convert the first $1,000,000 of borrowings under the line of
credit into our common stock at a revised price of $.79 (85% of the average
closing price of our common stock for the five days immediately prior to the
March 22, 2005 amendment to the credit facility which was $.93) The original
conversion price of the revolving note determined at June 30, 2004 was $1.31.
The conversion price for each subsequent $1,000,000 of borrowings will be
adjusted to the higher of $.93 or a 10% premium over the 22-day trailing average
closing price computed on each $1,000,000 increments. We will determine at that
time if any new beneficial conversion factor exists. During the year ended
September 30, 2005, Laurus converted $19,750 under the line of credit and was
issued 25,000 shares of common stock.
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.
47
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
7. Credit Facility/Notes Payable - (Continued)
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. As a result of the change in conversion price
pursuant to the terms of the March 22, 2005 amendment, we have determined the
minimum borrowing note contains a beneficial conversion feature of $598,717. The
beneficial conversion amount was recorded as paid-in-capital and will be
amortized to interest expense at $59,872 per month through December 31, 2005 or
ratably upon any partial conversion.
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% (7.75% at
September 30, 2005), 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 is being amortized over the term of the
loan, commencing on November 1, 2004, with minimum monthly principal payments of
$125,000. Pursuant to the terms of the March 22, 2005 amendment, however
principal payments otherwise due from December 1, 2004 through June 30, 2005
have been deferred and are payable in full on the maturity date of the term
note, together with all other amounts due and payable on that date. In addition,
Laurus has agreed to defer principal payments otherwise due from November 1,
2005 through May 1, 2006, which are also payable in full at maturity.
Laurus has the option to convert some or all of the principal and interest
payments into common stock at a revised fixed conversion price of $.93 (the
average closing price of our common stock for the five days immediately prior
the March 22, 2005 amendment), provided, that the first $1,000,000 of borrowings
under the term note is convertible into common stock at a price of $.79 (85% of
the average closing price of our common stock for the five days immediately
prior to the amendment). The original conversion price of the term note
determined at June 30, 2004 was $1.25. 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 such 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
original beneficial conversion amount was recorded as paid in capital 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. As a result of the
change in conversion price pursuant to the terms of the March 22, 2005
amendment, we have determined the term note's beneficial conversion feature
increased $1,485,594 to $1,549,594. The additional beneficial conversion amount
was recorded as paid-in-capital with $567,429 (the portion associated with the
first $1,000,000 of borrowings) being amortized to interest expense at $56,743
per month through December 31, 2005 or ratably upon any partial conversion with
the remaining balance of $918,165 amortized at $32,792 per month over the
remaining 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 these
guarantees.
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.
48
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
7. Credit Facility/Notes Payable - (Continued)
Total debt issuance costs incurred in connection with securing the credit
facility amounted to approximately $674,000 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.
On July 20, 2005, we entered into a $1 million convertible term note (the
"Term Note") and related agreements with Laurus. The Term Note has a maturity
date of June 30, 2007 and bears interest at the prime rate published in The Wall
Street Journal from time to time plus 1.75% (8.5% at September 30, 2005).
Interest on the loan is payable monthly commencing August 1, 2005. Principal
will be amortized over the term of the loan, commencing on February 1, 2006,
with minimum monthly payments of principal of $58,823.53. Laurus has the option
to convert some or all of the principal and interest payments into common stock
at a price of $.33 (the average closing price of our common stock on the
American Stock Exchange for the 3-day period ending July 18, 2005) (the "Fixed
Conversion Price"). In connection with the Term Note, we also issued Laurus an
option to purchase up to an aggregate of 2,413,571 shares of our common stock at
an exercise price equal to $0.01 per share. This option, valued at $401,738, is
immediately exercisable, has a term of ten years, 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 $955,000 and were allocated
to the term note and the warrant based on their relative fair values. The note
contained a beneficial conversion feature of $393,939 at issuance based on the
intrinsic value of the shares into which the note is convertible, resulting in a
total debt issue discount, including the value of the options, of $795,677. The
beneficial conversion amount will be recorded as paid in capital and will be
amortized to interest expense along with the debt conversion discount over the
two year term of the note or ratably upon any partial conversion. 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 Term Note and
upon exercise of the option. The Term Note contains repayment penalties and
interest adjustments similar to the notes issued to Laurus under the June 2004
credit facility. The Term Note borrowings are also secured by a first security
interest in substantially all of our assets and those of our subsidiaries.
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. To date, we have
registered 3,801,237 shares of common stock for resale by Laurus. That number
represents the largest number of shares we were permitted to list on the
American Stock Exchange without first obtaining the approval of our
stockholders.
We are required to file an additional registration statement with respect
to the resale of the balance of shares that we currently expect to be required
to issue to Laurus in connection with the credit facility. That registration
statement cannot be declared effective unless and until our stockholders approve
the issuance of such shares. On June 16, 2005, our stockholders approved the
issuance of up to 7,380,000 shares of our common stock to Laurus. 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 was previously subject to downward adjustment on a
"full ratchet" basis if we issued shares of our common stock (or common stock
equivalents) at a price per share less than the applicable conversion or
exercise price. On April 8, 2006, Laurus agreed to retroactively eliminate their
rights to enforce these provisions. There were 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 any monetary judgment or similar final process against us for more than
$50,000 that remain unvacated, unbonded or unstayed for a period of 30 business
days; (vi) suspensions of trading of our common stock from our principal trading
market for five consecutive days or five days during any ten consecutive days;
(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; (ix) changes of control of our company. Substantial fees and
penalties are payable to Laurus in the event of default.
49
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
7. Credit Facility/Notes Payable - (Continued)
As of September 30, 2005, we were in default of several covenants of notes
and agreements. These defaults have been waived by Laurus.
September 30, September 30,
Notes payable consists of the following at: 2005 2004
----------- -----------
Line of credit, First American, secured by all assets of GreenMan of Iowa, bearing
interest at prime plus 1.0% (7.75% at September 30, 2005) ................................. $ 619,950 $ 500,000
Term note payable, Republic Services of Georgia, LP, interest only at 10% through July
2006 at which time the outstanding balance will be payable in 48 monthly installments
including interest at 10% due July 2010 ................................................... 717,370 656,250
Term note payable, First American, secured by assets of GreenMan of Iowa, due in equal
monthly installments of $33,425 including interest at 7.5% through February 2008 .......... 742,811 1,220,315
Term note payable, State of Iowa, secured by certain assets of GreenMan of Iowa, due in
quarterly installments of $8,449 including interest at 1.5% with the remaining
principal balance due November 2012 ....................................................... 250,811 280,666
Term note payable, State of Iowa, secured by certain assets of GreenMan of Iowa, due in
32 quarterly installments of $6,920 including interest at 3% through October 2012 ......... 174,193 196,234
Term note payable, Sun Country Bank, secured by all assets of GreenMan of California, due
in monthly installments of $6,607 including interest at 5.75% with the remaining
principal balance due March 2011 .......................................................... 378,644 438,600
Term note payable, Andrew and Karen Gundrum, secured by real estate of GreenMan of
Wisconsin, due in monthly installments of $9,563 for eight months and monthly
installments of $2,886 including interest at 8% for sixty months .......................... -- 292,980
Other term notes payable and assessments, secured by various equipment with interest
rates ranging from 0% to 11.26% and requiring monthly installments from $598 to $9,765 .... 809,596 1,051,479
----------- -----------
3,693,375 4,636,524
Less current portion ........................................................................ (1,456,331) (1,502,464)
----------- -----------
Notes payable, non-current portion ........................................................ $ 2,237,044 $ 3,134,060
=========== ===========
September 30, September 30,
Convertible notes payable consists of the following at: 2005 2004
----------- -----------
Line of credit, Laurus, secured by eligible accounts receivable and inventory of
GreenMan of Georgia, Minnesota and Tennessee, and bearing interest at prime
plus 1.0% (7.75% at September 30, 2005), net of discount of $977,834 and $171,724 ......... $ 3,290,155 $ 1,814,042
Term note payable, Laurus, secured by machinery and equipment of GreenMan of Georgia,
Minnesota and Tennessee, due in 33 monthly installments of $125,000 plus
interest at prime plus 1.0% (7.75% at September 30, 2005) due June 30, 2007,
net of discount of $361,026 and $294,866 .................................................. 3,138,974 3,705,134
Term note payable, Laurus, secured by machinery and equipment of GreenMan
Technologies of Georgia, Minnesota and Tennessee, due in 17 monthly
installments of $58,824 plus interest at prime plus 1.75% (8.5% at
September 30, 2005) commencing February 1, 2006, net of discount of $735,593 .............. 264,409 --
----------- -----------
6,693,538 5,519,176
Less current portion ........................................................................ (4,890,642) (3,084,971)
----------- -----------
Convertible notes payable, non-current portion .............................................. $ 1,802,896 $ 2,434,205
=========== ===========
50
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
7. Credit Facility/Notes Payable - (Continued)
The following is a summary of maturities of all notes payable at September 30,
2005:
Years Ending September 30,
2006 ....................................... $1,456,331
2007 ....................................... 922,004
2008 ....................................... 444,992
2009 ....................................... 409,832
2010 ....................................... 258,307
2011 and thereafter......................... 201,909
----------
$3,693,375
==========
The following is a summary of maturities of all convertible notes payable at
September 30, 2005:
Years Ending September 30, Gross Discount Net
-------------------------- ----- -------- ---
2006 ....................................... $6,267,991 $1,377,349 $4,890,642
2007........................................ 2,500,000 697,104 1,802,896
2008 and thereafter......................... -- -- --
---------- ---------- ----------
$8,767,991 $2,074,453 $6,693,538
========== ========== ==========
Interest expense on the lines of credit and notes payable for the years
ended September 30, 2005 and 2004 amounted to $710,442 and $363,478,
respectively.
8. Notes Payable - Related Party
Notes Payable, Related Party consists of the following:
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. Subsequently, the director agreed to extend the maturity
date of each note several times and in June 2001 we agreed to reduce the
conversion price to $.75 per share. 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.
Note Payable-Related Party
In November 2000, we borrowed $200,000 from the same director who held the
convertible notes referred to above. This unsecured note payable bears interest
at 12% per annum with interest due monthly and the principal due originally in
November 2001. Subsequently, the director agreed to extend the maturity date of
each note several times and in June 2005, agreed to extend the maturity of this
note until the earlier of when all amounts due under the Laurus credit facility
(See Note 7) have been repaid or June 30, 2007.
During the period of June to August 2003, two immediate family members of
an officer loaned us a total of $400,000 under the terms of two-year, unsecured
promissory notes which bear interest at 12% per annum with interest due
quarterly and the principal due upon maturity. 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 investment
units and each received 113,636 units in these transactions. At September 30,
2005, the remaining balance due on these advances amounted to $400,000. In
addition, the two individuals agreed to extend the maturity of the remaining
balance of these notes until the earlier of when all amounts due under the
Laurus credit facility have been repaid or June 30, 2007.
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 due March 31, 2004
(subsequently extended to September 30, 2004). In 2004, the officer applied
approximately $114,000 of the balance due him and accrued interest of
approximately $21,000 to exercise options to purchase 185,000 shares of common
stock. In addition, he agreed to extend the maturity of the remaining balance of
this note until the earlier of when all amount due under the Laurus credit
facility have been repaid or June 30, 2007. At September 30, 2005, the remaining
balance due on this note amounted to $99,320 (See Note 3).
51
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
8. Notes Payable - Related Party
On September 30, 2003, our Georgia subsidiary's landlord, loaned us
$100,000 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
due September 30, 2004. In June 2004, the landlord agreed to invest the entire
$100,000 principal balance of the unsecured promissory note plus accrued
interest of $7,300 into the April 2004 private placement of investment units and
received 121,932 units in this transaction.
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 notes
amounting to approximately $350,000 into the April 2004 private placement of
units and received 339,806 units in these transactions.
The following is a summary of maturities of all related party notes
payable at September 30, 2005:
Years Ending September 30,
--------------------------
2006 ................................... $ --
2007.................................... 699,320
---------
$ 699,320
=========
Total interest expense for related party notes amounted to $83,918 and
$143,727, for the fiscal years ended September 30, 2005 and 2004, respectively.
Total accrued interest due related parties amounted to $98,739 and $49,820 at
September 30, 2005 and 2004, respectively.
9. Capital Leases
We lease various facilities and equipment under capital lease agreements
with terms ranging from 36 months to 240 months and requiring monthly payments
ranging from $348 to $17,642. Assets acquired under capital leases with an
original cost of $2,529,832 and $4,411,461 and related accumulated amortization
of $1,016,987 and $1,319,717 are included in property, plant and equipment at
September 30, 2005 and 2004, respectively. Amortization expense for the years
ended September 30, 2005 and 2004 amounted to $237,054 and $350,857
respectively.
In July 2002, our Minnesota subsidiary entered into a four-year equipment
lease with a company co-owned by an employee for equipment valued at $146,670.
Under the terms of the lease, we are required to pay $4,394 per month rental and
have the ability to purchase the equipment at the end of the lease at
approximately 40% of original value. The lease is classified as a capital lease.
In March 2004, our Minnesota subsidiary leased back their property from a
company co-owned by an employee under a twelve-year lease requiring an annual
rental of $195,000, increasing to $227,460 over the term of the lease. The lease
can be renewed for two additional four-year periods. The lease has been
classified as a capital lease with a value of $1,400,000 (See Note 5).
On February 28, 2006, we amended our Georgia lease agreement whereby we
obtained the right to terminate the original lease, which had a remaining term
of approximately fifteen years, by providing the landlord with six months
notice. In the event of such termination, we will be obligated to continue to
pay rent until the earlier to occur of (1) the sale by the landlord of the
premises; (2) the date on which a new tenant takes over; or (3) three years from
the date on which we vacate the property. As a result of the amendment and our
decision to dispose of our Georgia operations, we wrote off the unamortized
balance of $1,427,053 associated with the leased land and buildings and
improvements as a cost of disposal of discontinued operations at September 30,
2005. This loss was partially offset by a $586,137 gain on settlement of the
remaining capital lease obligations due and is included in the loss on disposal
of discontinued operations at September 30, 2005 (See Note 4).
The following is a schedule of the future minimum lease payments under the
capital leases together with the present value of net minimum lease payments at
September 30, 2005:
Years Ending
September 30,
-------------
2006 ................................... $ 316,983
2007.................................... 251,864
2008 ................................... 217,762
2009.................................... 216,738
2010.................................... 223,796
2011 and thereafter..................... 1,249,113
-----------
Total minimum lease payments ............... 2,476,256
Less amount representing interest .......... (937,697)
-----------
Present value of minimum lease payments .... $ 1,538,559
===========
For the years ended September 30, 2005 and 2004, interest expense on
capital leases amounted to $199,182 and $376,650, respectively.
52
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
10. Commitments and Contingencies
Employment Agreements
We have employment agreements with three of our officers, which provide
for base salaries, participation in employee benefit programs and severance
payments for termination without cause (See Note 18).
Rental Agreements
Our Iowa subsidiary leases a facility located on approximately 4 acres of
land under a 10-year lease commencing in April 2003 from Maust Asset Management
Company, LLC ("Maust Asset Management"), a company co-owned by one of our
employees. Under the terms of the lease, monthly rental payments of $8,250 are
required for the first five years increasing to $9,000 per month for the
remaining five years. The lease also provides a right of first refusal to
purchase the land and buildings at fair market value during the term of the
lease. Maust Asset Management acquired the property from the former lessor. In
April 2005, our Iowa subsidiary entered into an eight-year lease agreement with
Maust Asset Management for approximately 3 acres adjacent to our existing Iowa
facility. Under the terms of the lease, monthly rent payments of $3,500 are
required.
Our California subsidiary leases approximately 45,000 square feet of a
building situated on approximately 1.5 acres of land for $1,250 per month. The
lease expires in April 2007 but can be terminated by either party with 30 days
prior notice and provides for an additional 5 year extension.
Our Tennessee subsidiary leased a facility of approximately 26,000 square
feet located on approximately 2 acres of land under a three-year agreement for
$10,222 per month which expired on September 30, 2005, subsequent to our
September divesture of all Tennessee operating assets.
We lease approximately 3,380 square feet of office space in Lynnfield,
Massachusetts at a monthly rental of $5,070 under a five-year lease that expires
in May 2008. In June 2004, we amended this lease to include an additional 1,125
square feet of office space for additional monthly rent of $1,500.
For the years ended September 30, 2005 and 2004, total rental expense in
connection with all non-cancellable real estate leases amounted to $340,004 and
$302,004 respectively, including $123,000 per year associated with related-party
leases.
We also rent various vehicles and equipment from third parties under
non-cancellable operating leases with monthly rental payments ranging from $263
to $1,620 and with terms ranging from 48 to 84 months. In addition, we rent
several pieces of equipment on a monthly basis from a company co-owned by an
employee at monthly rentals ranging from $263 to $1,295. In January 2005, we
entered into three new equipment lease agreements with Maust Asset Management in
which we are required to pay between $1,500 and $2,683 per month rental and have
the ability to purchase the equipment at the end of the lease for between
$12,000 and $16,000.
For the fiscal years ended September 30, 2005 and 2004, total rent expense
in connection with non-cancellable vehicle and equipment leases amounted to
$93,062 and $78,177, respectively, of which, $51,149 and $15,786 were to related
parties during the fiscal years ended September 30, 2005 and 2004, respectively.
The total future minimum rental commitment at September 30, 2005 under the
above operating leases are as follows:
Year ending September 30: Real Estate Equipment Total
----------- --------- -----
2006 ........................... $ 234,840 $ 84,806 $ 319,646
2007 ........................... 227,340 68,199 295,539
2008 ........................... 204,630 19,416 224,046
2009 ........................... 150,000 -- 150,000
2010 ........................... 150,000 -- 150,000
2011 and thereafter ............ 378,500 -- 378,500
---------- ---------- ----------
$1,345,310 $ 172,421 $1,517,731
========== ========== ==========
Litigation
As of March 31, 2006, approximately 16 vendors of our GreenMan
Technologies of Georgia, Inc. and GreenMan Technologies of Tennessee, Inc.
subsidiaries had commenced legal action, primarily in the state courts of
Georgia, in attempts to collect approximately $1.6 million of past due amounts,
plus accruing interest, attorneys' fees, and costs, all relating to various
services rendered to these subsidiaries. The largest individual claim is for
approximately $650,000. As of March 31, 2006, 3 of these vendors had secured
judgments in their favor for an aggregate of approximately $250,000. As
previously noted, all of GreenMan Technologies of Tennessee, Inc.'s assets were
sold in September 2005 and substantially all of GreenMan Technologies of
Georgia, Inc.'s assets were sold as of March 1, 2006. All proceeds from these
sales were retained by our secured lender and these subsidiaries have no
substantial assets. We are therefore currently evaluating the alternatives
available to these subsidiaries.
GreenMan Technologies, Inc. was not a party to any of these vendor
relationships and none of the plaintiffs have filed suit against GreenMan
Technologies, Inc. While there can be no assurance that GreenMan Technologies,
Inc will not be named as a defendant in future proceedings, we believe that
GreenMan Technologies, Inc has valid defenses to any potential claims that may
be made against us, and we intend to defend against any such claims vigorously.
In addition to the foregoing, we are subject to routine claims from time
to time in the ordinary course of our business. We do not believe that the
resolution of any of the claims that are currently known to us will have a
material adverse effect on our company or on our financial statements.
53
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
11. Stockholders' Equity
Increase in Authorized Shares of Common Stock
On June 16, 2005, our stockholders approved an amendment to our Rested
Certificate of Incorporation to increase the number of authorized shares of our
common stock from 30,000,000 to 40,000,000.
Elimination of the Description of Class A Convertible Preferred Stock
On June 16, 2005, our stockholders approved an amendment to our Restated
Certificate of Incorporation to eliminate the description of Class A Convertible
Preferred Stock due to the fact no such shares were authorized for issuance
under the Restated Certificate of Incorporation.
Private Offering of Common Stock
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.
Other Common Stock Transactions
On February 16, 2004, a director converted two convertible notes,
including $375,000 of principal and $168,210 of accrued interest into 724,281
shares of our unregistered common stock (See Note 8).
In April 2004, we issued 50,000 shares of unregistered stock (valued at
$44,000) to the lessor of certain processing equipment leased by our Wisconsin
subsidiary as partial consideration in a lease buy-out transaction.
On June 24, 2004, we issued 369,331 shares of common stock upon the
conversion of a December 23, 2003 note payable in the principal amount of
$375,000 and accrued interest of $18,854 (See Note 7).
On June 30, 2004, we issued 57,252 shares of our unregistered common stock
valued at $75,000 for investment banking services in conjunction with the Laurus
financing (See Note 7).
1993 Stock Option Plan
The 1993 Stock Option Plan was established to provide stock options to our
employees, officers, directors and consultants. On March 29, 2001, our
stockholders approved an increase to the number of shares authorized under the
Plan to 3,000,000. This plan expired in June 2004.
During the period of February 2004 to June 2004, two directors and an
officer, collectively exercised options and warrants to purchase 223,538 shares
of unregistered common stock at exercise prices ranging from $0.38 to $0.94 per
share for gross proceeds of $150,435.
54
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
11. Stockholders' Equity - (Continued)
Stock options and activity is summarized as follows:
Year Ended Year Ended
September 30, 2005 September 30, 2004
--------------------------- --------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
--------- -------------- ----------- -----------
Outstanding at beginning of period 1,670,356 $ .87 1,983,894 $ .91
Granted -- -- -- --
Canceled (10,000) 1.58 (90,000) .53
Exercised -- -- (223,538) .67
---------- ----------
Outstanding at end of period 1,660,356 .86 1,670,356 .87
========== ==========
Exercisable at end of period 1,578,156 .85 1,498,356 .87
========== ==========
Reserved for future grants at end of
period -- --
========== ==========
Weighted average fair value of options
granted during the period $ -- $ --
Information pertaining to options outstanding under the plan at September 30,
2005 is as follows:
Options Outstanding Options Exercisable
------------------------------------ ----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
------ ----------- ---- ----- ----------- -----
$ .38 - .53 540,462 4.8 $.48 509,462 $.49
$ .81 - 1.09 1,041,894 3.3 .99 1,021,894 .99
$ 1.35 - $1.80 78,000 5.6 1.80 46,800 1.80
1,660,356 3.9 $.86 1,578,156 $.85
2004 and 2005 Stock Option Plans
On April 21, 2004, our Board of Directors adopted the 2004 Stock Option
Plan (the "2004 Plan") subject to ratification by our stockholders. During May
and August 2004, the Board granted options to purchase 538,000 shares of our
common stock under the 2004 Plan at prices ranging from $1.05 to $1.24 and
having a weighted average fair value of $.32 per share. Subsequently, the Board
chose not to submit the 2004 Plan for ratification by our stockholders and the
plan and all granted options were terminated by our Board on March 18, 2005, and
all options granted under that plan have been terminated.
In addition, on March 18, 2005, our Board of Directors adopted the 2005
Stock Option Plan (the "2005 Plan"), which was subsequently approved by our
stockholders on June 16, 2005. The options granted under the 2005 Stock Option
Plan may be either options intended to qualify as "incentive stock options"
under Section 422 of the Internal Revenue Code of 1986, as amended; or
non-qualified stock options. No options have been granted under the 2005 Plan.
Non-Employee Director Stock Option Plan
Under the terms of our 1996 Non-Employee Director Stock Option Plan on a
non-employee director's initial election to the Board of Directors, they are
automatically granted an option to purchase 2,000 shares of our common stock.
Each person who was a member of the Board of Directors on January 24, 1996, and
was not an officer or employee, was automatically granted an option to purchase
2,000 shares of our common stock. In addition, after an individual's initial
election to the Board of Directors, any director who is not an officer or
employee and who continues to serve as a director will automatically be granted,
on the date of the annual meeting of stockholders, an option to purchase an
additional 2,000 shares of our common stock. The exercise price per share
55
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
11. Stockholders' Equity - (Continued)
of options granted under the Non-Employee Director Stock Option Plan is 100% of
the fair-market value of our common stock on the business day immediately prior
to the date of the grant and is immediately exercisable for a period of ten
years from the date of the grant.
The Board of Directors has reserved 60,000 shares of our common stock for
issuance under this plan and as of September 30, 2005, options to purchase
38,000 shares of our common stock have been granted of which 28,000 are
outstanding and exercisable at prices ranging from $0.38 to $1.95.
During the fiscal years ended September 30, 2005 and 2004, options were
granted to purchase 6,000 shares of common stock at $.51 per share and $1.10 per
share, respectively. The options are exercisable for a period of ten years. The
weighted average fair value of the options granted during the years ended
September 30, 2005 and 2004 were $.16 and $.37 per share, respectively.
Other Stock Options and Warrants
In January 2004, warrants to purchase 117,852 shares of our common stock
were exercised at pricing ranging from $1.00 to $1.50 using a net exercise
feature, and as a result, we issued 29,128 shares of our common stock.
On June 30, 2004, 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 and a warrant
to purchase up to 390,000 shares of our common stock at prices ranging from
$1.56 to $2.18. The warrants vest immediately and have a five-year term. In
addition, we issued a warrant to purchase up to 270,000 shares of our common
stock at prices ranging from $1.64 to $2.29 for investment banking services. The
warrants vest immediately and have a five-year term.
On July 20, 2005, we issued Laurus a warrant to purchase up to an
aggregate of 2,413,571 shares of our common stock at an exercise price equal to
$0.01 per share. This option, valued at $401,738, is immediately exercisable,
has a term of ten years, allows for cashless exercise at the option of Laurus,
and does not contain any "put" provisions.
Information pertaining to all other options and warrants granted and outstanding
is as follows:
Year Ended Year Ended
September 30, 2005 September 30, 2004
--------------------------- -------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
--------- ------------- ----------- ----------
Outstanding at beginning of period 4,756,003 $1.55 2,004,900 $1.28
Granted 2,413,571 .01 3,001,103 1.74
Canceled (154,000) 3.36 (132,148) 1.98
Exercised -- -- (117,852) 1.17
--------- ---------
Outstanding at end of period 7,015,574 .98 4,756,003 1.55
========= =========
Exercisable at end of period 6,985,574 .98 4,661,003 1.56
========= =========
Weighted average fair value of
options granted during the period $.30 $.14
Options Outstanding Options Exercisable
------------------------------------------- --------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
------------- ----------- ---------- ------------ ---------
$ .01 - 1.09 4,460,068 6.79 $.44 4,460,068 $.44
$ 1.50 - 4.50 2,522,106 5.93 1.88 2,492,106 1.88
$ 5.00 - 5.65 33,400 1.16 5.65 33,400 5.65
--------- ---------
7,015,574 6.45 $.98 6,985,574 $.98
========= =========
56
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
11. Stockholders' Equity - (Continued)
Common Stock Reserved
We have reserved common stock at September 30, 2005 as follows:
Stock option plans ................................... 1,710,356
Other stock options .................................. 1,147,500
Other warrants ....................................... 5,868,074
Shares issuable upon conversion of notes payable
and interest ....................................... 11,800,000
----------
20,525,930
==========
12. Employee Benefit Plan
Effective August 1999, we implemented a Section 401(k) plan for all
eligible employees. Employees are permitted to make elective deferrals of up to
15% of employee compensation and employee contributions to the 401(k) plan are
fully vested at all times. We may make discretionary contributions to the 401(k)
plan which become vested over a period of five years. There were no corporate
contributions to the 401(k) plan during the years ended September 30, 2005 and
2004, respectively.
13. Segment Information
We operate in one business segment, the collecting, processing and
marketing of scrap tires to be used as feedstock for tire derived fuel, civil
engineering projects and/or for further processing into crumb rubber.
14. Major Customers
During the fiscal years ended September 30, 2005 and 2004, no one customer
accounted for more than 10% of our consolidated net sales.
15. Income Taxes
The provision for income taxes was comprised of the following amounts for
the years ended:
September 30, September 30,
2005 2004
--------- ---------
Current:
Federal ................................ $ 270,000 $ --
State .................................. 4,745 550
--------- ---------
274,745 550
--------- ---------
Deferred federal and state taxes ........ -- --
--------- ---------
Total provision for income taxes ....... $ 274,745 $ 550
========= =========
The current state taxes result from income in states where we have no net
operating loss carry forwards. The provision for deferred income taxes reflect
the impact of "temporary differences" between amounts of assets and liabilities
recorded for financial reporting purposes and the amounts recorded for income
tax reporting purposes.
The difference between the statutory federal income tax rate of 34% and
the effective rate is primarily due to net operating losses incurred by us and
the provision of a valuation reserve against the related deferred tax assets.
The following differences give rise to deferred income taxes:
September 30, September 30,
2005 2004
----------- -----------
Net operating loss carry forwards ..... $11,835,000 $ 9,735,000
Differences in fixed asset bases ...... 522,000 (1,084,000)
Capital loss carryover ................ -- --
Other, net ............................ 1,296,000 (17,000)
----------- -----------
13,653,000 8,634,000
Valuation reserve ..................... (13,653,000) (8,364,000)
----------- -----------
Net deferred tax asset ................ $ 0 $ 270,000
=========== ===========
57
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
15. Income Taxes - (Continued)
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.
Based on the unforeseen magnitude of our quarterly and year to date
losses, we determined the near-term realizability of the $270,000 non-cash
deferred tax asset to be questionable and therefore provided a valuation
allowance on the entire amount during the first quarter of our fiscal year ended
September 30, 2005.
The change in the valuation reserve is as follows:
Year Ended Year Ended
September 30, September 30,
2005 2003
----------- -----------
Balance at beginning of period ............. $ 8,364,000 $ 7,783,000
Increase due to rate differentials
and current period operating results ..... 5,289,000 581,000
----------- -----------
Balance at end of period ................... $13,653,000 $ 8,364,000
=========== ===========
As of September 30, 2005, we had net operating loss carry forwards of
approximately $32,000,000. The Federal and state net operating loss carry
forwards expire in varying amounts beginning in 2013 and 2006, respectively. In
addition, we have Federal tax credit carry forwards of approximately $17,000
available to reduce future tax liabilities. The Federal tax credit carry
forwards expire beginning in 2013. Use of net operating loss and tax credit
carry forwards maybe subject to annual limitations based on ownership changes in
our common stock as defined by the Internal Revenue Code.
17. Fair Value of Financial Instruments
At September 30, 2005 and 2004, our financial instruments consist of notes
payable to banks and others, and convertible notes payable. Notes payable to
banks and others approximate their fair values as these instruments were
negotiated currently and bear interest at market rates. The fair value of the
$6,693,538 convertible notes payable is $8,767,991 at September 30, 2005 based
upon the intrinsic value of the conversion feature on that date (see Note 7).
18. Subsequent Events
American Stock Exchange Notices
On January 5, 2006 we were notified by the Exchange indicating we were not
in compliance with the Exchange's requirements for continued listing as set
forth in Sections 134 and 1101 of the Exchange's Company Guide with respect to
our failure to file our Annual Report on Form 10-KSB for the year ended
September 30, 2005 with the Securities and Exchange Commission.
In order to maintain our listing on the Exchange, we were required to, and
did, submit a plan by January 19, 2006 advising the Exchange of action we have
taken, or will take, that would bring our company into compliance with Sections
134 and 1101 of the Company Guide by no later than March 20, 2006. On February
2, 2006, we were notified that the Exchange had accepted our compliance plan and
had granted us an extension of time through March 20, 2006 to regain compliance
with the continued listing standards. Although we had made progress toward
compliance by March 20, 2006, we did not file our Annual Report by that date.
Although we remain subject to continued periodic review by the Exchange, the
Exchange has not notified us of its intention to initiate delisting proceedings
and, to our knowledge, the Exchange has not initiated such proceedings.
On February 14, 2006, we were notified by the Exchange that we are not in
compliance with the Exchange's requirements for continued listing set forth in
Section 1003(a)(i) of the Exchange's Company Guide because we did not meet the
$2,000,000 shareholders' equity requirement and because we reported losses from
continuing operations and/or net losses in two out of our three most recent
fiscal years.
In order to maintain our listing on the Exchange, we were required to, and
did, submit a plan by March 14, 2006 advising the Exchange of action we have
taken, or will take, that would bring us into compliance no later than February
14, 2007. We will be subject to delisting proceedings if the plan we submitted
is unacceptable to the Exchange or if we fail to make progress toward achieving
an acceptable plan.
Management Changes
On April 12, 2006, our Board of Directors named Lyle E. Jensen as
President and Chief Executive Officer succeeding Robert H. Davis, who resigned
those positions, and resigned as a member of our Board of Directors, on the same
day. Mr. Jensen has been a member of our Board of Directors since May 2002, and
served as the Chair of the Board's Audit Committee and as member of the Board's
Compensation Committee. Mr. Jensen will remain a member of the Board of
Directors, but will no longer serve on these committees. Nicholas DeBenedictis,
an outside Director has joined the Compensation Committee and will serve as our
interim Audit Committee Chair.
We entered into a five-year employment agreement with Mr. Jensen pursuant to
which Mr. Jensen will receive a base salary of $195,000 per year. The agreement
automatically renews for one additional year upon each anniversary, unless
notice of non-renewal is given by either party. The agreement maybe terminated
without cause on thirty days' notice but provides for payment of twelve months'
salary and certain benefits as a severance payment for termination without
cause. The agreement also provides for incentive compensation based certain the
attainment of certain financial and non-financial goals. Mr. Jensen will receive
a relocation allowance of up to $25,000 and a car allowance of $600 per month.
Mr. Jensen has been granted a qualified option under the 2005 Stock Option Plan
to purchase 500,000 shares of the our common stock, par value $.01 per share,
with an exercise price of $.28 per share. In addition, upon signing of his
employment agreement, Mr. Jensen agreed to purchase 500,000 unregistered shares
of our common stock at a price equal to the closing bid price of the common
stock on the date the agreement was executed. In conjunction with Mr. Davis's
resignation, we agreed to the payment of salary and certain benefits for a
subsequent twelve month period pursuant to certain contractual obligations.
See also notes 4, 7, 9.
58
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
GreenMan Technologies, Inc.
/s/ Lyle Jensen
------------------
Lyle Jensen
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant in the capacities and on the dates
indicated.
Signature Title(s) Date
--------- -------- ----
/s/ Maurice E. Needham Chairman of the Board April 20, 2006
----------------------
Maurice E. Needham
/s/ Lyle Jensen Chief Executive Officer, President April 20, 2006
--------------- and Director
Lyle Jensen
/s/ Charles E. Coppa Chief Financial Officer,
-------------------- Treasurer and Secretary
Charles E. Coppa (Principal Financial Officer and Principal
Accounting Officer) April 20, 2006
/s/ Lew F. Boyd Director April 20, 2006
---------------
Lew F. Boyd
/s/ Dr. Allen Kahn Director April 20, 2006
------------------
Dr. Allen Kahn
/s/ Nicholas DeBenedictis Director April 20, 2006
-------------------------
Nicholas DeBenedictis
59