U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 2003 Commission File Number 1-13776
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GreenMan Technologies, Inc.
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(Exact name of small business issuer as specified in its charter)
Delaware 71-0724248
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7 Kimball Lane, Building A, Lynnfield, MA 01940
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (781) 224-2411
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(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Number of shares outstanding as of May 15, 2003
Common Stock, $.01 par value, 15,795,054 shares
GreenMan Technologies, Inc.
Form 10-QSB
Quarterly Report
March 31, 2003
Table of Contents
PART I -- FINANCIAL INFORMATION Page
----
Item 1. Financial Statements (*)
Unaudited Condensed Consolidated Balance Sheets as of
March 31, 2003 and September 30, 2002 3
Unaudited Condensed Consolidated Statements of Operations
for the three and six months ended March 31, 2003 and 2002 4
Unaudited Condensed Consolidated Statement of Changes in
Stockholders' Equity for the six months ended March 31, 2003 5
Unaudited Condensed Consolidated Statements of Cash Flows
for the six months ended March 31, 2003 and 2002 6
Notes to Unaudited Condensed Consolidated Financial
Statements 7-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-15
Item 3. Controls and Procedures 15
PART II -- OTHER INFORMATION
Item 2. Changes in Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Certification Under Sarbanes-Oxley Act 16
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
* The financial information at September 30, 2002 has been taken from
audited financial statements at that date and should be read in
conjunction therewith. All other financial statements are unaudited.
2
GreenMan Technologies, Inc.
Unaudited Condensed Consolidated Balance Sheets
March 31, September 30,
2003 2002
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents ......................................... $ 596,855 $ 780,497
Accounts receivable, trade, less allowance for doubtful
accounts of $82,175 and $196,920 as of March 31, 2003 and
September 30, 2002 .............................................. 2,738,527 4,072,535
Equipment held for sale ........................................... 213,333 213,333
Product inventory ................................................. 593,317 133,530
Other current assets .............................................. 1,082,594 1,151,923
------------ ------------
Total current assets .......................................... 5,224,626 6,351,818
------------ ------------
Property, plant and equipment, net .................................. 11,402,844 10,845,337
------------ ------------
Other assets:
Deferred loan costs ............................................... 266,863 313,603
Goodwill, net ..................................................... 3,413,894 3,413,894
Customer relationship intangibles, net ............................ 241,175 247,475
Note receivable ................................................... -- 200,000
Other ............................................................. 720,089 581,117
------------ ------------
Total other assets ............................................ 4,642,021 4,756,089
------------ ------------
$ 21,269,491 $ 21,953,244
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, current ............................................ $ 2,716,975 $ 2,743,187
Accounts payable .................................................. 2,941,749 2,576,647
Accrued expenses .................................................. 1,406,436 1,184,261
Obligations under capital leases, current ......................... 420,693 345,090
------------ ------------
Total current liabilities ..................................... 7,485,853 6,849,185
Notes payable, related party .................................... 575,000 575,000
Notes payable, non-current portion .............................. 6,964,019 6,789,932
Obligations under capital leases, non-current portion ........... 2,097,642 2,176,000
------------ ------------
Total liabilities ............................................. 17,122,514 16,390,117
------------ ------------
Stockholders' equity:
Preferred stock, $1.00 par value, 1,000,000 shares authorized,
none outstanding ................................................ -- --
Common stock, $.01 par value, 30,000,000 shares authorized at
March 31, 2003 and 20,000,000 authorized at September 30, 2002:
15,736,840 and 15,654,665 shares issued and outstanding at
March 31, 2003 and September 30, 2002 ........................... 157,369 156,547
Additional paid-in capital ......................................... 28,593,088 28,473,710
Accumulated deficit ................................................ (24,558,480) (23,022,130)
Notes receivable, common stock ..................................... (45,000) (45,000)
------------ ------------
Total stockholders' equity .................................... 4,146,977 5,563,127
------------ ------------
$ 21,269,491 $ 21,953,244
============ ============
See accompanying notes to unaudited condensed consolidated financial statements
3
GreenMan Technologies, Inc.
Unaudited Condensed Consolidated Statements of Operations
Three Months Ended Six Months Ended
March 31, March 31, March 31, March 31,
2003 2002 2003 2002
------------ ------------ ------------ ------------
Net sales ........................................ $ 6,148,434 $ 5,560,649 $ 14,111,891 $ 11,869,423
Cost of sales .................................... 5,550,652 4,217,149 12,130,836 9,083,369
------------ ------------ ------------ ------------
Gross profit ..................................... 597,782 1,343,500 1,981,055 2,786,054
------------ ------------ ------------ ------------
Operating expenses:
Selling, general and administrative ........... 1,452,218 925,324 2,831,533 1,854,071
------------ ------------ ------------ ------------
Operating profit (loss) .......................... (854,436) 418,176 (850,478) 931,983
------------ ------------ ------------ ------------
Other income (expense):
Interest and financing costs .................. (334,748) (294,983) (704,701) (563,487)
Forgiveness of indebtedness ................... -- 60,811 -- 60,811
Other, net .................................... 8,405 25,014 19,379 32,253
------------ ------------ ------------ ------------
Other income (expense), net ................ (326,343) (209,158) (685,322) (470,423)
------------ ------------ ------------ ------------
Net income (loss) before income taxes ............ (1,180,779) 209,018 (1,535,800) 461,560
Income tax provision (benefit) ................... -- (5,000) 550 700
------------ ------------ ------------ ------------
Net income (loss) ................................ $ (1,180,779) $ 214,018 $ (1,536,350) $ 460,860
============ ============ ============ ============
Net income (loss) per share - basic ............. $ (0.08) $ 0.02 $ (0.10) $ 0.03
============ ============ ============ ============
Net income (loss) per share - diluted ............ $ (0.08) $ 0.01 $ (0.10) $ 0.03
============ ============ ============ ============
Weighted average shares outstanding - basic ...... 15,705,360 13,993,701 15,690,522 13,817,048
============ ============ ============ ============
Weighted average shares outstanding - diluted .... 15,705,360 14,676,905 15,690,522 14,078,490
============ ============ ============ ============
See accompanying notes to unaudited condensed consolidated financial statements.
4
GreenMan Technologies, Inc.
Unaudited Condensed Consolidated Statement of Changes in Stockholders' Equity
Six Months Ended March 31, 2003
Notes
Common Stock Additional Receivable
---------------------- Paid-in Accumulated Common
Shares Amount Capital Deficit Stock Total
---------- ---------- ------------- -------------- ---------- ------------
Balance, September 30, 2002 ................... 15,654,665 $ 156,547 $ 28,473,710 $ (23,022,130) $ (45,000) $ 5,563,127
Common stock issued upon exercise of stock
options .................................... 12,000 120 10,080 -- -- 10,200
Sale of common stock .......................... 70,175 702 109,298 -- -- 110,000
Net loss for the six months ended
March 31, 2003 ............................. -- -- -- (1,536,350) -- (1,536,350)
---------- ---------- ------------- -------------- ---------- ------------
Balance, March 31, 2003 ....................... 15,736,840 $ 157,369 $ 28,593,088 $ (24,558,480) $ (45,000) $ 4,146,977
========== ========== ============= ============== ========== ============
See accompanying notes to unaudited condensed consolidated financial statements.
5
GreenMan Technologies, Inc.
Unaudited Condensed Consolidated Statements of Cash Flow
Six Months Ended
March 31,
2003 2002
--------------------------
Cash flows from operating activities:
Net income (loss) .................................................. $(1,536,350) $ 460,860
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation ....................................................... 1,117,065 831,675
Loss on disposal of property, plant and equipment .................. 4,333 917
Amortization ....................................................... 62,702 42,990
Forgiveness of indebtedness ........................................ -- (60,811)
Decrease (increase) in operating assets:
Accounts receivable ............................................. 1,334,008 892,847
Product inventory ............................................... (459,787) --
Other current assets ............................................ 69,329 (179,780)
(Decrease) increase in operating liabilities:
Accounts payable ................................................ 365,102 (762,770)
Other current liabilities ....................................... 222,175 8,267
----------- -----------
Net cash provided by operating activities ..................... 1,178,577 1,234,195
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment ................................. (1,498,529) (1,240,496)
Decrease (increase) in other assets ................................ 57,386 (245,592)
----------- -----------
Net cash used for investing activities ........................ (1,441,143) (1,486,088)
----------- -----------
Cash flows from financing activities:
Deferred financing costs ........................................... (6,020) --
Net advances under line of credit .................................. (188,893) (1,203)
Repayment of notes payable ......................................... (859,219) (537,538)
Proceeds from notes payable ........................................ 1,195,987 314,349
Principal payments on obligations under capital leases ............. (183,131) (141,562)
Cash received upon exercise of stock options ....................... 10,200 46,941
Net proceeds on sale of common stock ............................... 110,000 1,050,000
----------- -----------
Net cash provided by financing activities ........................ 78,924 730,987
----------- -----------
Net increase (decrease) in cash ....................................... (183,642) 479,094
Cash and cash equivalents at beginning of period ...................... 780,497 428,075
----------- -----------
Cash and cash equivalents at end of period ............................ $ 596,855 $ 907,169
=========== ===========
Supplemental cash flow information:
Machinery and equipment acquired under capital leases ............... $ 180,376 $ 528,200
Interest paid ....................................................... 715,184 524,669
Note payable issued in connection with Preferred stock repurchase ... -- 1,500,000
Common stock issued in connection with acquisitions ................. -- 8,960
Taxes paid .......................................................... 550 --
See accompanying notes to unaudited condensed consolidated financial statements
6
GreenMan Technologies, Inc.
Notes To Unaudited Condensed Consolidated Financial Statements
March 31, 2003
1. Business
GreenMan Technologies, Inc. ("GreenMan" or the "Company") was founded in
1992 and today comprises six operating locations that collect, process and
market scrap tires in whole, shredded or granular form. We are headquartered in
Lynnfield, Massachusetts and currently operate size reduction operations in
California, Georgia, Iowa, Minnesota and Wisconsin and operate under exclusive
agreements to supply whole tires to cement kilns located in Florida, Georgia,
Illinois, Missouri, Tennessee and Texas.
In February 2003, GreenMan announced its intent to open a new high-volume
tire processing facility southeast of Nashville in LaVergne, Tennessee. GreenMan
will operate the facility under a new wholly-owned subsidiary, GreenMan
Technologies of Tennessee, Inc. Management estimates the LaVergne facility will
commence initial operations during May 2003 when the necessary processing
equipment has been installed.
In February 2003, management decided to reconfigure the operations of
GreenMan Technologies of Wisconsin from a low-volume size reduction facility to
a whole tire transfer station supplying compliant tires to a certain cement
kiln. The decision was made because the cement kiln has been and is anticipated
to continue consuming a majority of the scrap tires collected by GreenMan
Technologies of Wisconsin. Management intends to utilize the available Wisconsin
size reduction equipment at other GreenMan locations.
2. Basis of Presentation
The consolidated financial statements include the results of operations of
GreenMan Technologies, Inc. and its wholly-owned and majority-owned
subsidiaries. All significant intercompany accounts and transactions are
eliminated in consolidation.
The financial statements are unaudited and should be read in conjunction
with the financial statements and notes thereto for the year ended September 30,
2002 included in GreenMan's Annual Report on Form 10-KSB. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the Securities and Exchange Commission rules and
regulations, although management believes the disclosures which have been made
are adequate to make the information presented not misleading. The results of
operations for the periods reported are not necessarily indicative of those that
may be expected for a full year. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) which are necessary for a fair
statement of operating results for the interim periods presented have been made.
3. 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 potential 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 GreenMan relate to
outstanding stock options and warrants (determined using the treasury stock
method), preferred stock and convertible debt. Basic and diluted net loss per
share are the same for the six months ended March 31, 2003, since the effect of
the inclusion of all outstanding options and warrants would be anti-dilutive.
The assumed conversion of outstanding dilutive stock options, warrants and
preferred stock for the six months ended March 31, 2003 would increase the
shares outstanding but would not require an adjustment to income as a result of
the conversion.
7
GreenMan Technologies, Inc.
Notes To Unaudited Condensed Consolidated Financial Statements
March 31, 2003
3. Net Income (Loss) Per Share - (Continued)
Net loss per common share has been computed based on the following for the
three and six months ended March 31, 2002:
Three Months Six Months
Ended Ended
March 31, March 31,
2002 2002
----------- -----------
Net income applicable to common stock ............ $ 214,018 $ 460,860
=========== ===========
Average number of common shares outstanding ...... 13,993,701 13,817,048
Effect of dilutive options ....................... 683,204 261,442
----------- -----------
Average number of common shares outstanding
used to calculate diluted net income per share ... 14,676,905 14,078,490
=========== ===========
4. New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting 141, "Business Combinations" and Standard
(SFAS) No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 applies to
all business combinations with a closing date after June 30, 2001 and eliminates
the pooling-of-interests method of accounting and further clarifies the criteria
for recognition of intangible assets separately from goodwill. SFAS No. 142
eliminates the amortization of goodwill and indefinite-lived intangible assets
and initiates an annual review for impairment. Identifiable intangible assets
with a determinable useful life will continue to be amortized. GreenMan adopted
SFAS No. 142 effective October 1, 2001, which required GreenMan to cease
amortization of its remaining net goodwill balance and to perform an impairment
test of its existing goodwill based on a fair value concept. As of March 31,
2003 and September 30, 2002, GreenMan has net unamortized goodwill of
$3,413,894.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". This statement establishes standards for accounting for
obligations associated with the retirement of tangible long-lived assets, and is
effective for fiscal years beginning after June 15, 2002.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". This statement addresses financial
accounting and reporting for the impairment and disposal of long-lived assets,
and is effective for fiscal years beginning after December 15, 2001.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146 requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
SFAS No. 146 will be applied prospectively to any exit or disposal activities
initiated after December 31, 2002. GreenMan has adopted SFAS No. 143 and SFAS
No. 144 in the first quarter of fiscal 2003, such adoption did not impact its
financial position and results of operations. GreenMan does not expect the
future adoption of SFAS No. 146 to impact its financial position and results of
operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure", amending the disclosure
requirements for stock-based compensation. This statement requires prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reporting results.
8
GreenMan Technologies, Inc.
Notes To Unaudited Condensed Consolidated Financial Statements
March 31, 2003
5. Stock Options
The Company accounts for its stock-based employee compensation under the
recognition and measurement principles of APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. No stock-based employee
compensation cost is reflected in the results of operations, as all options
granted under those plans had an exercise price greater than or equal to the
market value of the underlying common stock on the date of the grant. Fair
values of stock options are determined using the Black-Scholes option pricing
model. The following table illustrates the effect on net income and earnings per
share had the Company applied the fair value recognition provisions of FASB
Statement No. 123, Accounting for Stock-Based Compensation, to stock-based
employee compensation:
Three Months Ended Six Months Ended
March 31, March 31, March 31, March 31,
2003 2002 2003 2002
------------- ------------- ------------- -------------
Net income (loss) as reported ........... $ (1,180,779) $ 214,018 $ (1,536,350) $ 460,860
Less: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects ............ (11,941) (5,696) (19,862) (5,696)
Pro forma net income (loss) ............. $ (1,192,720) $ 208,322 $ (1,556,212) $ 455,164
============= ============= ============= =============
Earnings per share:
Basic - as reported .................. $ (0.08) $ 0.02 $ (0.10) $ 0.03
============= ============= ============= =============
Basic - pro forma .................... $ (0.08) $ 0.01 $ (0.10) $ 0.03
============= ============= ============= =============
Diluted - as reported ................ $ (0.08) $ 0.01 $ (0.10) $ 0.03
============= ============= ============= =============
Diluted - pro forma .................. $ (0.08) $ 0.01 $ (0.10) $ 0.03
============= ============= ============= =============
6. Property, Plant and Equipment
Property, plant and equipment consists of the following:
March 31, September 30, Estimated
2003 2002 Useful Lives
------------ ------------ ----------
Land ................................. $ 336,365 $ 336,365
Buildings ............................ 2,403,373 2,245,891 10-20 years
Machinery and equipment .............. 8,970,593 7,875,139 5-10 years
Furniture and fixtures ............... 277,878 169,721 3-5 years
Motor vehicles ....................... 5,531,832 5,410,434 3-10 years
Construction in progress ............. 968,618 848,515
------------ ------------
18,488,659 16,886,065
Less accumulated depreciation
and amortization ................. (7,085,815) (6,040,728)
------------ ------------
Property, plant and equipment, net ... $ 11,402,844 $ 10,845,337
============ ============
On March 31, 2003, a portion of GreenMan Technologies of Georgia's
facility and several pieces of equipment were damaged by a fire. The Company
believes that the damage will be adequately covered by insurance and is still
assessing the full extent of the damage and developing plans for replacing
equipment and reestablishing its waste wire processing capabilities at this
location.
On April 28, 2003, GreenMan was notified that the Company's property
insurance policy, which expires on June 21, 3003, will not be renewed by its
current carrier. GreenMan is currently evaluating several alternatives. Although
GreenMan currently believes that it will be able to obtain property coverage
prior to the expiration of its existing coverage, no assurances can be given
that such new coverage will be secured in the near future, on terms favorable to
the Company, or at all.
9
GreenMan Technologies, Inc.
Notes To Unaudited Condensed Consolidated Financial Statements
March 31, 2003
7. Credit Facility
On February 7, 2003, Southern Pacific Bank ("SPB") and its wholly owned
subsidiary Coast Business Credit ("CBC") were closed by the Commissioner of
Financial Institutions of the State of California. The Federal Deposit Insurance
Corporation ("FDIC") was appointed receiver of SPB and its subsidiaries. Prior
to its closure, CBC had been GreenMan's principal source of working capital
financing and long term debt. GreenMan is in compliance with all covenants and
other terms of its financing agreement with CBC.
On February 13, 2003, the FDIC notified GreenMan that its existing line of
credit will remain available for a minimum of six months under existing terms
and conditions, and that, subject to continued compliance with all financing
covenants, GreenMan would be permitted to draw an additional $300,000 under the
line of credit in addition to amounts currently outstanding. GreenMan believes
that the liquidity available under the line of credit will be sufficient to fund
its operations over this period, but recognizes that it must refinance its CBC
obligations in the near future. GreenMan is currently evaluating several
refinancing alternatives. Although GreenMan currently believes that it will be
able to refinance all of its CBC obligations within the period permitted by the
FDIC, no assurances can be given that such refinancing will be concluded in the
near future, on terms favorable to the Company, or at all. As of March 31, 2003,
the unamortized balance of deferred financing charges relating to this
obligation was $219,975.
8. Segment Information
GreenMan operates in one business segment, the collecting, shredding and
marketing of scrap tires to be used as feedstock for tire derived fuel (TDF),
civil engineering projects and/or for further processing into crumb rubber.
9. Stockholders' Equity
Increase in Authorized Shares of Common Stock
On February 20, 2003, the stockholders of the Company approved an
amendment to the Company's Certificate of Incorporation to increase the number
of authorized shares of common stock from 20,000,000 to 30,000,000.
Common Stock Transactions
In February 2002, GreenMan commenced a private offering of unregistered
common stock in an effort to raise up to $2,000,000 in gross proceeds
(subsequently increased to $3,000,000 in August 2002). As of March 31, 2003, the
Company has sold 1,400,518 shares of unregistered common stock to investors,
including existing shareholders, for gross proceeds of $2,063,633. The investors
have been granted limited registration rights to cause the Company to register
the common stock for resale in the event that GreenMan registers shares of
common stock for its own account. The investors have agreed not to sell or
transfer the shares for a period of at least 18 months after issuance.
In December 2002, 12,000 qualified options to purchase unregistered shares
of common stock were exercised at $.85 per share.
10. Subsequent Events
Due to the uncertain impact of certain pending Oklahoma scrap tire
legislation, management determined that it was in the Company's best interest to
divest its interest in Able Tire of Oklahoma, LLC a joint venture formed in
January 2002. Therefore, on April 1, 2003 GreenMan sold its majority interest in
Able Tire of Oklahoma, LLC, to the minority member for $50,000. In connection
with the sale, GreenMan sold certain processing equipment previously leased to
the joint venture to the minority member for $200,000 in the form of a sixty day
note receivable. The Company incurred a loss of approximately $30,000 with these
transactions.
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following information should be read in conjunction with the unaudited
condensed consolidated financial statements and the notes thereto included in
Item 1 of the Quarterly Report, and the audited consolidated financial
statements and notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in GreenMan's Form
10-KSB filed for the year ended September 30, 2002.
Results of Operations
Three Months ended March 31, 2003 Compared to the Three Months ended
March 31, 2002
Net sales for the three months ended March 31, 2003 increased 11% or
$587,785 to $6,148,434 as compared to $5,560,649 for the three months ended
March 31, 2002. The increase was primarily attributable to the inclusion of the
operations of two new subsidiaries formed in connection with fiscal 2002
acquisitions and the majority owned joint venture formed in fiscal 2002 and, to
a lesser extent, to increased end product sales which accounted for 23% of
consolidated revenues for the three months ended March 31, 2003 as compared to
14% for the same period last year. GreenMan processed 6.0 million passenger tire
equivalents during the three months ended March 31, 2003, as compared to 5.4
million passenger tire equivalents for the three months ended March 31, 2002.
The overall quality of revenue (revenue per passenger tire equivalent) improved
slightly due to improved end product sales which offset a 12% reduction in
tipping fees and lower tire volumes in certain markets in response to current
economic conditions, world events and the completion of several large on-going
tire pile cleanups during the summer of 2002. In addition, adverse weather in
the mid-west slowed incoming tire volumes and material flow and delayed
shipments of over one million pounds of crumb rubber into the third quarter as
job sites were not able to accept the material.
Gross profit for the three months ended March 31, 2003 was $597,782 or 10%
of net sales as compared to $1,343,500 or 24% of net sales for the three months
ended March 31, 2002. This reduction was attributable to: (1) the completion of
several tire pile cleanups during fiscal 2002 which have historically provided
additional tire volumes and profitability during this seasonally slower quarter;
(2) previously reported corporate-wide insurance cost increases of more than
$135,000 per quarter as well as increased fuel, transportation costs and repair
and maintenance costs; (3) $126,000 of increased raw material costs incurred by
GreenMan Technologies of Iowa resulting from the need to supplement crumb rubber
feedstock requirements externally during this period of seasonally lower inbound
volumes; (4) more than $120,000 of excessive transportation costs necessitated
by processing Tennessee-sourced tires at GreenMan Technologies of Georgia until
the previously announced Nashville facility commences operation; (5) more than
$75,000 in lost profitability due to boiler problems experienced at two large
TDF customers and (6) approximately $45,000 of operating inefficiencies
associated with the transition of GreenMan Technologies of Wisconsin to a whole
tire transfer station which is anticipated to be completed during the fourth
quarter;
Selling, general and administrative expenses for the quarter ended March
31, 2003 were $1,452,218 or 24% of net sales as compared to $925,324 or 17% of
net sales for the three months ended March 31, 2002. The increase is primarily
attributable to the inclusion of the operations of the two new subsidiaries and
joint venture formed in fiscal 2002. In addition, the results for the quarter
ended March 31, 2003 include approximately $80,000 associated with the initial
startup activities associated with the recently announced Tennessee operation.
GreenMan incurred an operating loss of $854,436 for the three months ended
March 31, 2003 as compared to an operating profit of $418,176 or 8% of net sales
for the same period in 2002.
Interest and financing expenses increased approximately $40,000 during the
quarter ended March 31, 2003 as a result of increased borrowings associated with
fiscal 2002 acquisitions and recent equipment upgrades.
GreenMan's net loss for the quarter ended March 31, 2003 was $1,180,779,
or $.08 per share as compared to net income of $214,018, or $.02 per share for
the quarter ended March 31, 2002.
11
Six Months ended March 31, 2003 Compared to the Six Months ended March 31, 2002
Net sales for the six months ended March 31, 2003 increased 19% or
$2,242,468 to $14,111,891 as compared to $11,869,423 for the six months ended
March 31, 2002. The increase was primarily attributable to the inclusion of the
operations of three new subsidiaries formed in connection with fiscal 2002
acquisitions and the majority owned joint venture formed in fiscal 2002 and, to
a lesser extent, to increased end product sales which accounted for 20% of
consolidated revenues for the six months ended March 31, 2003 as compared to 13%
for the same period last year. GreenMan processed 14 million passenger tire
equivalents during the six months ended March 31, 2003, as compared to 11.2
million passenger tire equivalents for the six months ended March 31, 2002. The
overall quality of revenue (revenue per passenger tire equivalent) benefited
from increased end product sales but decreased 4% overall as a result of a 14%
reduction in tipping fees and lower tire volumes in certain markets in response
to current economic conditions, world events, and the completion of several
large on-going tire pile cleanups during the summer of 2002. In addition,
adverse weather in the mid-west slowed incoming tire volumes and material flow
and delayed shipments of over one million pounds of crumb rubber into the third
quarter as job sites were not able to accept the material.
Gross profit for the six months ended March 31, 2003 was $1,981,055 or 14%
of net sales as compared to $2,786,054 or 23% of net sales for the six months
ended March 31, 2002. This reduction was attributable to: (1) previously
reported corporate-wide insurance cost increases of more than $135,000 per
quarter as well as increased fuel, transportation costs and repair and
maintenance costs; (2) $261,000 of increased raw material costs incurred by
GreenMan Technologies of Iowa resulting from the need to supplement crumb rubber
feedstock requirements externally during this period of seasonally lower inbound
volumes; (3) more than $240,000 of excessive transportation costs necessitated
by processing Tennessee sourced tires at GreenMan Technologies of Georgia until
the Nashville facility commences operation; (4) the completion of several tire
pile cleanups during fiscal 2002; (5) approximately $150,000 relating to costs
specifically associated with operational disruptions and increased
transportation costs due to a complete shredding equipment upgrade at GreenMan
of Iowa which was completed in February 2003; (6) over $75,000 in lost
profitability due to boiler problems experienced at two large TDF customers and
(7) approximately $105,000 relating to operating and startup losses associated
with a new kiln relationship, which was terminated December 31, 2002 and the
commercialization of our roofing shingle project.
Selling, general and administrative expenses for the six months ended
March 31, 2003 were $2,831,533 or 20% of sales as compared to $1,854,071 or 16%
of sales for the six months ended March 31, 2002. The results for the six months
ended March 31, 2003, include the operations of three new subsidiaries formed in
connection with fiscal 2002 acquisitions and the majority owned joint venture
formed in fiscal 2002. In addition, the March 31, 2003 results include
approximately $55,000 of costs relating to GreenMan's specialty waste
initiatives, which have been curtailed at this point and approximately $115,000
associated with the initial startup activities associated with the recently
announced Tennessee operation.
GreenMan reported an operating loss of $850,478 for the six months ended
March 31, 2003 as compared to an operating profit of $931,983 for the six months
ended March 31, 2002.
GreenMan reported a net loss of $1,536,350 or $.10 per basic share for the
six months ended March 31, 2003 as compared to net income of $460,860 or $.03
per basic share for the six months ended March 31, 2002.
12
Liquidity and Capital Resources
As of March 31, 2003, the Company had $596,855 in cash and cash
equivalents and a working capital deficiency of $2,261,227. Management
understands that the continued, successful sales and marketing of the Company's
services and products, the introduction of new products and re-establishing
continued profitability from operations will be critical to the Company's future
liquidity.
During the past four years, GreenMan has divested and/or closed under
performing non-core operations and eliminated the use of non-conventional
financing methods that had contributed over $18.7 million of GreenMan's
cumulative losses. As a result of these divestitures and by implementing a very
focused business plan and adding businesses, relationships and product lines
that complement our core business of scrap tire management, GreenMan has been
profitable during the past two fiscal years. However, GreenMan believes that it
will be necessary to raise additional financing to fund continued growth.
In order to better position GreenMan for the future, management has
implemented the following actions:
Operating Performance Enhancements
Historically, GreenMan's tire shredding operations were able to recover
and sell approximately 65% of a processed tire with the balance disposed of as
waste wire residual (cross-contaminated rubber and steel) at an annual cost in
excess of $1,000,000. During the past two fiscal years, we have installed
equipment at our Georgia, Wisconsin and Iowa facilities to further process the
waste wire residual into saleable components of rubber and steel to provide new
sources of revenue and reduce disposal costs. Following a February 2003 decision
to reconfigure GreenMan Technologies of Wisconsin operations, waste wire
processing equipment in Wisconsin was taken off line in March 2003 with the
intention of moving it to GreenMan's Minnesota operation. GreenMan Technologies
of Georgia's waste wire processing equipment was damaged in the March 2003 fire
however, and therefore we anticipate increased disposal costs and reduced
product revenue in Georgia until the equipment is repaired (which is currently
estimated to be complete by August 2003). Management intends to seek
reimbursement for these extra costs and forgone profits through its business
interruption insurance. Management delayed the relocation of the Wisconsin waste
wire processing equipment to Minnesota as originally planned in order to
evaluate whether to temporarily deploy it instead in Georgia to temporarily
replace the damaged equipment; however in May 2003, management identified
several alternative methods which they believe will satisfy the needs of its
Georgia customer base on an interim basis and have therefore initiated the
relocation of the Wisconsin equipment to Minnesota.
During the fourth quarter of fiscal 2002, GreenMan initiated a $1.5
million equipment upgrade to its Des Moines, Iowa tire processing facility. We
completely replaced all tire shredders with more efficient, higher volume
equipment and installed a waste wire processing equipment line which will reduce
waste wire disposal costs while increasing our capacity to produce over 20
million pounds of rubber feedstock per year for our crumb rubber operations. The
internalization of crumb rubber feedstock supply and production via our new
processing equipment will eliminate over $250,000 in estimated annual
transportation costs necessitated by sourcing crumb rubber feedstock from other
GreenMan locations. Additionally, these actions position us to better meet the
growing market demand for our products and services. During the July to December
timeframe, we experienced inevitable one-time operational disruptions as well as
increased transportation costs associated with temporarily diverting a
significant portion of Iowa tires to our Minnesota plant during the equipment
installation. These disruptive factors negatively impacted earnings in the first
quarter of fiscal 2003 by approximately $150,000.
The capital investment in Iowa is being funded by a combination of
internal cash flow and long term debt provided by both an existing lender, First
American Bank of Des Moines, Iowa and the State of Iowa.
13
Private Offering of Common Stock
In February 2002, GreenMan commenced a private offering of unregistered
common stock in an effort to raise up to $2,000,000 in gross proceeds
(subsequently increased to $3,000,000 in August 2002). As of March 31, 2003, the
Company has sold 1,400,518 shares of unregistered common stock to investors,
including existing shareholders, for gross proceeds of $2,063,663. The investors
have been granted limited registration rights to cause the Company to register
the common stock for resale in the event that GreenMan registers shares of
common stock for its own account. The investors have agreed not to sell or
transfer the shares for a period of at least 18 months after issuance. A
majority of the proceeds of this offering were used to acquire certain tire
recycling operations and assets during fiscal 2002.
Credit Facility
On February 7, 2003, Southern Pacific Bank ("SPB") and its wholly owned
subsidiary Coast Business Credit ("CBC") were closed by the Commissioner of
Financial Institutions of the State of California. The Federal Deposit Insurance
Corporation ("FDIC") was appointed receiver of SPB and its subsidiaries. Prior
to its closure, CBC had been GreenMan's principal source of working capital
financing and long term debt. GreenMan is in compliance with all covenants and
other terms of its financing agreement with CBC.
On February 13, 2003, the FDIC notified GreenMan that its existing line of
credit will remain available for a minimum of six months under existing terms
and conditions, and that, subject to continued compliance with all financing
covenants, GreenMan would be permitted to draw an additional $300,000 under the
line of credit in addition to amounts currently outstanding. GreenMan believes
that the liquidity available under the line of credit will be sufficient to fund
its operations over this period, but recognizes that it must refinance its CBC
obligations in the near future. GreenMan is currently evaluating several
refinancing alternatives. Although GreenMan currently believes that it will be
able to refinance all of its CBC obligations within the period permitted by the
FDIC, no assurances can be given that such refinancing will be concluded in the
near future, on terms favorable to the Company, or at all. As of March 31, 2003,
the unamortized balance of deferred financing charges relating to this
obligation was $219,975.
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 Affecting Future Results
There are several factors which may effect the future operating results of
GreenMan, including:
o the ability to secure new corporate wide property insurance prior to the
June 21, 2003 expiration;
o the ability to refinance, on acceptable terms, GreenMan's obligations to
CBC in light of its February 7, 2003 shutdown by the FDIC;
o the ability re-establish its Georgia waste wire processing capabilities in
a timely manner and reach a satisfactory resolution with the insurance
carriers;
o the ability to realize the anticipated benefits associated with the
re-configuration of GreenMan's Wisconsin operations into a transfer
station;
14
o a significant part of GreenMan's business strategy entails future
acquisitions, or significant investments in businesses that offer
complementary products, services and technologies. Any acquisition of a
business is accompanied by certain risks including, but not limited to:
- the ability to integrate future acquisitions without significant
disruption of the Company's ongoing business;
- distraction of management from the Company's on-going business;
- overpaying for the entity or assets acquired; and
- the dilutive impact to existing shareholder's stock positions and
earnings per share common stock from the potential issuance of
common stock or rights to purchase common stock used in future
acquisitions.
o general economic conditions.
GreenMan's plans and objectives are based on assumptions that it will be
successful in receiving additional financing to fund future growth and that
there will be no material adverse change in GreenMan's operations or business.
There can be no assurance that GreenMan will obtain such financing on acceptable
terms. Any failure to secure new corporate wide property insurance prior to the
June 21, 2003 expiration of our current policy would constitute a default under
our credit agreement with CBC and may make the refinancing of the obligations
more difficult or impossible.
Assumptions relating to the foregoing involve judgments with respect to,
among other things, future economic, competitive and market conditions, all of
which are difficult or impossible to predict accurately and many of which are
beyond the control of GreenMan. As a result, there can be no assurance that
GreenMan will be able to achieve or sustain profitability on a quarterly or
annual basis. In light of the significant uncertainties inherent in GreenMan's
business, forward-looking statements made in this report should not be regarded
as a representation by GreenMan or any other person that the objectives and
plans of GreenMan will be achieved.
Item 3. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Based on evaluation
as of a date within 90 days of the filing date of this Quarterly Report on Form
10-QSB, GreenMan's principal executive officer and principal financial officer
have concluded that GreenMan's disclosure controls and procedures (as defined in
Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the
"Exchange Act")) are effective to ensure that information required to be
disclosed by the Company in reports that it files or submits under the Exchange
Act is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms.
(b) Changes in internal controls. There were no significant changes in
GreenMan's internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
15
PART II - OTHER INFORMATION
Item 2. Changes in Securities
During the six months ended March 31, 2003 the Company issued 70,175
shares of its common stock in connection with a private placement of
shares of common stock for gross proceeds of $110,000. Exemption
from registration for these transactions is claimed under Rule 506
of Regulation D promulgated under the Securities Act of 1933, as
amended (the "Securities Act").
In December 2002 the company issued 12,000 shares of its common
stock upon exercise of qualified stock options for gross proceeds of
$10,200. Exemption from registration for this transaction is claimed
under Section 4(2) of the Securities Act of 1933, as amended.
Item 4. Submission of Matters to a Vote of Security Holders
The Company conducted a Special Meeting in Lieu of an Annual
Meeting of Stockholders on February 20, 2003. The matters
considered at the meeting were the election of five members of
the Board of Directors; approval of an amendment to the Company's
Certificate of Incorporation to increase the number of authorized
shares of the Company's Common Stock from 20,000,000 to
30,000,000; and ratification of a proposal for the selection of
the firm of Wolf & Company, P.C. as independent auditors for the
fiscal year ending September 30, 2003.
The results of each vote was as follows:
For Against Abstain
---------- ------- -------
Vote 1 - Election of the
Board of Directors
Maurice E. Needham.................... 12,385,494 66,150 N/A
Robert H. Davis....................... 12,385,494 66,150 N/A
Lew Boyd.............................. 12,385,494 66,150 N/A
Dr. Allen Kahn........................ 12,385,494 66,150 N/A
Lyle Jensen........................... 12,386,594 65,050 N/A
Vote 2 - Increase
authorized shares of Common
Stock from 20,000,000 to 30,000,000 .... 12,272,123 117,113 62,408
Vote 3 - Proposal to ratify
the selection of Wolf & Company, P.C.
as independent auditors for
the fiscal year ending
September 30, 2003 ..................... 12,425,634 22,650 3,360
Item 5. Certification Under Sarbanes-Oxley Act
Our chief executive officer and chief financial officer have
furnished to the Securities and Exchange Commission the
certification with respect to this Report that is required by
Section 906 of the Sarbanes-Oxley Act of 2002.
16
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 3 Restated Certificate of Incorporation as filed with the
Secretary of State of the State of Delaware on May 1, 2003
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the quarter ended March 31, 2003.
17
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934 , the
Registrant certifies that it has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
By: GreenMan Technologies, Inc.
/s/ Robert H. Davis
-------------------
Robert H. Davis
Chief Executive Officer
By: GreenMan Technologies, Inc.
/s/ Charles E. Coppa
--------------------
Chief Financial Officer, Treasurer,
Secretary
18
I, Robert H. Davis, President and Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of GreenMan
Technologies, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 15, 2003
-------------------
Robert H. Davis
President and Chief Executive Officer
19
CERTIFICATION
I, Charles E. Coppa, Chief Financial Officer and Treasurer, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of GreenMan
Technologies, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 15, 2003
-------------------
Charles E. Coppa
Chief Financial Officer and Treasurer
20