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 June 30, 2003 Commission File Number 1-13776
------------- -------
GreenMan Technologies, Inc.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 71-0724248
---------------------------- ----------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
7 Kimball Lane, Building A, Lynnfield, MA 01940
------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (781) 224-2411
--------------
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Number of shares outstanding as of August 19, 2003
Common Stock, $.01 par value, 16,033,833 shares
GreenMan Technologies, Inc.
Form 10-QSB
Quarterly Report
June 30, 2003
Table of Contents
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (*)
Unaudited Condensed Consolidated Balance Sheets as of
June 30, 2003 and September 30, 2002 3
Unaudited Condensed Consolidated Statements of Operations for the
three and nine months ended June 30, 2003 and 2002 4
Unaudited Condensed Consolidated Statement of Changes in
Stockholders' Equity for the nine months ended June 30, 2003 5
Unaudited Condensed Consolidated Statements of Cash Flows
for the nine months ended June 30, 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 16
PART II - OTHER INFORMATION
Item 2. Changes in Securities 17
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.
GreenMan Technologies, Inc.
Unaudited Condensed Consolidated Balance Sheets
June 30, September 30,
2003 2002
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents ......................................................... $ 916,814 $ 780,497
Accounts receivable, trade, less allowance for doubtful accounts of $85,145 and
$196,920 as of June 30, 2003 and September 30, 2002 ........................... 3,275,390 4,072,535
Equipment held for sale ........................................................... 163,333 213,333
Product inventory ................................................................. 448,188 133,530
Other current assets .............................................................. 1,009,120 1,151,923
------------ ------------
Total current assets ........................................................ 5,812,845 6,351,818
------------ ------------
Property, plant and equipment, net .................................................. 11,505,562 10,845,337
------------ ------------
Other assets:
Deferred loan costs ............................................................... 244,849 313,603
Goodwill .......................................................................... 3,413,894 3,413,894
Customer relationship intangibles, net ............................................ 238,025 247,475
Note receivable ................................................................... -- 200,000
Other ............................................................................. 805,555 581,117
------------ ------------
Total other assets .......................................................... 4,702,323 4,756,089
------------ ------------
$ 22,020,730 $ 21,953,244
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, current ............................................................ $ 4,212,447 $ 2,743,187
Accounts payable .................................................................. 3,645,508 2,576,647
Accrued expenses and other current liabilities .................................... 1,595,033 1,184,261
Obligations under capital leases, current ......................................... 417,987 345,090
------------ ------------
Total current liabilities ................................................... 9,870,975 6,849,185
Notes payable, related party ...................................................... 575,000 575,000
Notes payable, non-current portion ................................................ 6,201,147 6,789,932
Obligations under capital leases, non-current portion ............................. 2,091,076 2,176,000
------------ ------------
Total liabilities ........................................................... 18,738,198 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 June 30, 2003 and
20,000,000 shares authorized at September 30, 2002: 15,906,833 and 15,654,665
shares issued and outstanding at June 30, 2003 and September 30, 2002 .......... 159,068 156,547
Additional paid-in capital ......................................................... 28,697,787 28,473,710
Accumulated deficit ................................................................ (25,529,323) (23,022,130)
Notes receivable, common stock ..................................................... (45,000) (45,000)
------------ ------------
Total stockholders' equity .................................................. 3,282,532 5,563,127
------------ ------------
$ 22,020,730 $ 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 Nine Months Ended
June 30, June 30, June 30, June 30,
2003 2002 2003 2002
------------ ------------ ------------ ------------
Net sales ...................................... $ 7,159,221 $ 7,175,533 $ 21,271,112 $ 19,044,483
Cost of sales .................................. 6,215,540 5,280,437 18,346,376 14,363,805
------------ ------------ ------------ ------------
Gross profit ................................... 943,681 1,895,096 2,924,736 4,680,678
------------ ------------ ------------ ------------
Operating expenses:
Selling, general and administrative ........ 1,297,240 1,133,028 4,128,773 2,983,369
------------ ------------ ------------ ------------
Operating profit (loss) ........................ (353,559) 762,068 (1,204,037) 1,697,309
------------ ------------ ------------ ------------
Other income (expense):
Interest and financing costs ............... (347,618) (338,537) (1,052,319) (902,024)
Forgiveness of indebtedness ................ -- 65,594 -- 126,405
Casualty loss, net ......................... (151,267) -- (151,267) --
Loss on disposal of assets, net ............ (112,082) -- (112,082) --
Other, net ................................. (6,317) (3,121) 13,062 25,770
------------ ------------ ------------ ------------
Other income (expense), net ............ (617,284) (276,064) (1,302,606) (749,849)
------------ ------------ ------------ ------------
Net income (loss) before income taxes .......... (970,843) 486,004 (2,506,643) 947,460
Income tax provision ........................... -- (55,000) (550) (55,600)
------------ ------------ ------------ ------------
Net income (loss) .............................. $ (970,843) $ 431,004 $ (2,507,193) $ 891,860
============ ============ ============ ============
Net income (loss) per share - basic ........... $ (0.06) $ 0.03 $ (0.16) $ 0.06
============ ============ ============ ============
Net income (loss) per share - diluted .......... $ (0.06) $ 0.02 $ (0.16) $ 0.06
============ ============ ============ ============
Weighted average shares outstanding - basic .... 15,821,764 15,082,778 15,734,269 14,238,958
============ ============ ============ ============
Weighted average shares outstanding - diluted .. 15,821,764 17,713,259 15,734,269 15,782,596
============ ============ ============ ============
See accompanying notes to unaudited condensed consolidated financial statements.
4
GreenMan Technologies, Inc.
Unaudited Condensed Consolidated Statement of Changes in Stockholders' Equity
Nine Months Ended June 30, 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 ......................................... 124,000 1,240 45,358 -- -- 46,598
Sale of common stock .............................. 128,168 1,281 178,719 -- -- 180,000
Net loss for the nine months ended June 30, 2003 .. -- -- -- (2,507,193) -- (2,507,193)
---------- -------- ----------- ------------ -------- -----------
Balance, June 30, 2003 ............................ 15,906,833 $159,068 $28,697,787 $(25,529,323) $(45,000) $ 3,282,532
========== ======== =========== ============ ======== ===========
See accompanying notes to unaudited condensed consolidated financial statements.
5
GreenMan Technologies, Inc.
Unaudited Condensed Consolidated Statements of Cash Flow
Nine Months Ended
June 30,
2003 2002
--------------------------
Cash flows from operating activities:
Net income (loss) ............................................................. $(2,507,193) $ 891,860
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation .................................................................. 1,632,953 1,311,302
Loss on disposal of property, plant and equipment ............................. 148,484 1,154
Non cash casualty loss ........................................................ 75,267 --
Common stock and warrants issued for services ................................. -- 12,000
Amortization .................................................................. 83,543 65,887
Forgiveness of indebtedness ................................................... -- (126,405)
Decrease (increase) in operating assets:
Accounts receivable ....................................................... 797,145 (328,625)
Product inventory ......................................................... (314,658) --
Other current assets ...................................................... 142,803 (350,705)
(Decrease) increase in operating liabilities:
Accounts payable .......................................................... 1,068,861 (423,299)
Other current liabilities ................................................. 410,772 60,455
----------- -----------
Net cash provided by operating activities ............................. 1,537,977 1,113,614
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment ............................................ (2,411,663) (2,918,022)
Proceeds on disposal of property and equipment ................................ 250,000 180,000
Repayment of notes receivable ................................................. 200,000 --
Acquisition of businesses, net of cash acquired ............................... -- (719,600)
Decrease (increase) in other assets ........................................... (224,604) (736,158)
----------- -----------
Net cash used for investing activities ................................ (2,186,267) (4,193,760)
----------- -----------
Cash flows from financing activities:
Deferred financing costs ...................................................... (31,139) --
Net advances under line of credit ............................................. 341,988 412,196
Repayment of notes payable .................................................... (1,186,480) (537,538)
Proceeds from notes payable ................................................... 1,724,967 2,349,886
Principal payments on obligations under capital leases ........................ (291,327) (224,515)
Repayment of notes receivable, common stock ................................... -- 10,000
Cash received upon exercise of stock options and warrants ..................... 46,598 --
Net proceeds on sale of common stock .......................................... 180,000 1,846,940
----------- -----------
Net cash provided by financing activities ............................. 784,607 3,519,733
----------- -----------
Net increase (decrease) in cash ................................................... 136,317 439,587
Cash and cash equivalents at beginning of period .................................. 780,497 428,075
----------- -----------
Cash and cash equivalents at end of period ........................................ $ 916,814 $ 867,662
=========== ===========
Supplemental cash flow information:
Machinery and equipment acquired under capital leases ........................... $ 279,300 $ 528,200
Interest paid ................................................................... 997,003 843,682
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
June 30, 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, Tennessee 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 in LaVergne, Tennessee. GreenMan is operating the
facility under a new wholly-owned subsidiary, GreenMan Technologies of
Tennessee, Inc. and began shredding operations during July 2003 under limited
operating conditions.
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.
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. On April 1, 2003 GreenMan sold its majority interest in Able Tire
of Oklahoma, LLC, to the minority member for $50,000 and recognized a $71,000
loss.
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 three and nine months ended June 30, 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 three and nine months ended June 30, 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
June 30, 2003
3. Net Income (Loss) Per Share - (Continued)
Net income per common share has been computed based on the following for
the following periods:
Three Months Nine Months
Ended Ended
June 30, June 30,
2002 2002
----------- -----------
Net income applicable to common stock .............. $ 431,004 $ 891,860
=========== ===========
Average number of common shares outstanding ........ 15,082,778 14,238,958
Effect of dilutive options ......................... 2,630,481 1,543,638
----------- -----------
Average number of common shares outstanding
used to calculate diluted net income per share ... 17,713,259 15,782,596
=========== ===========
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 June 30, 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 reported results.
8
GreenMan Technologies, Inc.
Notes To Unaudited Condensed Consolidated Financial Statements
June 30, 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
fair 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 Nine Months Ended
June 30, June 30, June 30, June 30,
2003 2002 2003 2002
----------- ----------- ----------- -----------
Net income (loss) as reported ......................... $ (970,843) $ 431,004 $(2,507,193) $ 891,860
Less: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects ........ (4,014) (4,753) (15,932) (10,448)
----------- ----------- ----------- -----------
Pro forma net income (loss) ........................... $ (974,857) $ 426,251 $(2,523,125) $ 881,412
=========== =========== =========== ===========
Earnings per share:
Basic - as reported ............................... $ (0.06) $ 0.03 $ (0.16) $ 0.06
=========== =========== =========== ===========
Basic - pro forma ................................. $ (0.06) $ 0.03 $ (0.16) $ 0.06
=========== =========== =========== ===========
Diluted - as reported ............................. $ (0.06) $ 0.02 $ (0.16) $ 0.06
=========== =========== =========== ===========
Diluted - pro forma ............................... $ (0.06) $ 0.02 $ (0.16) $ 0.06
=========== =========== =========== ===========
6. Property, Plant and Equipment
Property, plant and equipment consists of the following:
June 30, September 30, Estimated
2003 2002 Useful Lives
------------ ------------ -------------
Land .................................. $ 504,346 $ 336,365 10-20 years
Buildings ............................. 2,604,939 2,245,891 5-10 years
Machinery and equipment ............... 9,710,962 7,875,139 3-5 years
Furniture and fixtures ................ 279,561 169,721 3-10 years
Motor vehicles ........................ 5,595,626 5,410,434
Construction in progress .............. 218,078 848,515
------------ ------------
18,913,512 16,886,065
Less accumulated depreciation
and amortization .................. (7,407,950) (6,040,728)
------------ ------------
Property, plant and equipment, net .. $ 11,505,562 $ 10,845,337
============ ============
On March 31, 2003, a portion of GreenMan Technologies of Georgia's
facility and several pieces of waste wire processing equipment were damaged by a
fire. The Company believes that the damage will be adequately covered by
insurance and is in the final stages of assessing the full extent of the damage
in conjunction with its insurance carrier. As of June 30, 2003, damaged
equipment and parts with a net book value of approximately $75,000 have been
written off and the Company has incurred $175,000 of expenses associated with
the fire, including $162,000 of excess waste wire disposal. These amounts have
been offset by a $99,000 advance received from the insurance company but
management has not recognized any additional offsetting insurance proceeds
expected to be received until the amounts are paid or approved in writing by our
insurance carrier. Management estimates these amounts recoverable for losses
incurred through the quarter ended June 30, 2003 should be sufficient, at a
minimum, to recover the expenses recorded thus far;
9
GreenMan Technologies, Inc.
Notes To Unaudited Condensed Consolidated Financial Statements
June 30, 2003
6. Property, Plant and Equipment - (Continued)
however, no assurances can be given on the amount of the recovery until the
matter is settled by our insurance company.
In April, 2003, GreenMan was notified that the Company's property
insurance policy, which expires on June 21, 2003, would not be renewed by its
current carrier. GreenMan successfully renewed it's property insurance policy
prior to expiration.
On April 1, 2003, GreenMan Technologies of Wisconsin acquired the land and
buildings previously being leased for $362,900. The seller issued a sixty seven
month note payable with payments during the first eight months aggregating
$76,500 with monthly payments of $2,885.81, including interest at 8% commencing
December 1, 2003 with the remaining principal due November 1, 2008.
In May 2003, GreenMan Technologies of Iowa entered into a five-year real
estate operating lease with Maust Asset Management Company, LLC ("Maust Asset
Management"), a company co-owned by an officer of the Company. Under the terms
of the lease, GreenMan Technologies of Iowa is required to pay $7,000 per month
rental and has the ability to extend the term of the lease for an additional two
(5) year terms at a mutually agreed upon rate. Maust Asset Management acquired
the property from the Company's former lessor.
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 under a January 2001 credit facility agreement (
the "Credit Facility").
On May 15, 2003, the FDIC notified GreenMan that Waco Asset Management
Company, 31 Ltd., ("WAMCO") had purchased the Credit Facility. GreenMan believes
that the liquidity available under the line of credit will be sufficient to fund
its operations, but recognizes that it must refinance its Credit Facility
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 Credit Facility obligations 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 June 30, 2003, the unamortized
balance of deferred financing charges relating to this obligation was $200,566.
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 June 30, 2003, the
Company has sold 1,458,511 shares of unregistered common stock to investors,
including existing shareholders, for gross proceeds of $2,133,633. 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. In May 2003, two directors of
the Company exercised options to purchase 112,000 of unregistered shares of
common stock at exercise prices ranging from $.31 to $.45 per share for gross
proceeds of $46,598.
10. Subsequent Events
On July 14, 2003, GreenMan was notified that the Company's Director's and
Officer's liability insurance policy, which expires on October 1, 2003, 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 Director's and Officer's Liability insurance coverage prior to the
expiration of 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.
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 June 30, 2003 Compared to the Three Months ended
June 30, 2002
Net sales for the three months ended June 30, 2003 were $7,159,221
compared to last year's net sales of $7,175,533, which included approximately
$328,000 of net sales and 383,000 passenger tire equivalents associated with
GreenMan's majority owned joint venture which was divested on April 1, 2003. In
addition, several large tire pile cleanup projects accounting for 10% of the
total passenger tire equivalents processed during the three months ended June
30, 2002 were completed during June 2002. These decreases were offset by the
inclusion of the California operations, which were acquired in July 2002 as well
as increased end product sales which accounted for 27% of consolidated revenues
for the three months ended June 30, 2003 as compared to 15% for the same period
last year. GreenMan processed 6.9 million passenger tire equivalents during the
three months ended June 30, 2003, as compared to 7.1 million passenger tire
equivalents for the three months ended June 30, 2002. The overall quality of
revenue (revenue per passenger tire equivalent) improved due to improved end
product sales which offset an 8% reduction in tipping fees and lower tire
volumes in certain markets due to the completion of several large on-going tire
pile cleanups during the spring of 2002.
Gross profit for the three months ended June 30, 2003 was $943,681 or 13%
of net sales as compared to $1,895,096 or 26% of net sales for the three months
ended June 30, 2002. The decrease was attributable to: (1) the completion of
several large tire pile cleanups during June 2002; (2) decreased product revenue
in Georgia as a result of the March 31, 2003 waste wire processing equipment
fire and which management estimates to exceed $300,000; (3) more than $200,000
of excess transportation costs necessitated by processing Tennessee-sourced
tires at our Georgia facility until the announced Nashville area facility
commences full operation; (4) approximately $170,000 of operating inefficiencies
associated with the transition of Wisconsin operations from a size reduction
facility to a whole tire transfer station, which is anticipated to be completed
during the fourth quarter; (5) previously reported corporate-wide insurance cost
increases of more than $135,000 per quarter; and (6) more than $50,000 in lost
profitability due to boiler problems experienced at two large tire derived fuel
("TDF") customers and which were corrected during June 2003.
Selling, general and administrative expenses for the quarter ended June
30, 2003 were $1,297,240 or 18% of net sales as compared to $1,133,028 or 16% of
net sales for the three months ended June 30, 2002. The increase is primarily
attributable to inclusion of GreenMan's California operation which was acquired
in fiscal 2002 as well as approximately $72,000 associated with the initial
startup of GreenMan's Tennessee operation.
In addition to the disruption of operations and lost revenues caused by
the March 2003 fire, the Company also incurred additional direct costs relating
to damaged equipment and excess disposal costs totaling approximately $151,000,
net of partial insurance recovery of $99,000. The Company also incurred a net
loss of approximately $112,000 associated with the divestiture of
under-performing assets, unrelated to the fire during the quarter ended June 30,
2003.
GreenMan's net loss for the quarter ended June 30, 2003 was $970,843 or
$.06 per basic share as compared to net income of $431,004 or $.03 per basic
share for the quarter ended June 30, 2002, which included $65,594 of other
income associated with forgiveness of debt.
11
Nine Months ended June 30, 2003 Compared to the Nine Months ended June 30,2002
Net sales for the nine months ended June 30, 2003 increased 12% or
$2,226,629 to $21,271,112 as compared to $19,044,483 for the nine months ended
June 30, 2002, which included approximately $444,000 of net sales associated
with GreenMan's majority owned joint venture which was divested on April 1,
2003. In addition, several large tire pile cleanup projects accounting for 11%
of the total passenger tire equivalents processed during the nine months ended
June 30, 2002 were completed. The increase was primarily attributable to the
inclusion of operations of three new subsidiaries formed in connection with
fiscal 2002 acquisitions and the majority owned joint venture formed in fiscal
2002, as well as increased end product sales which accounted for 23% of
consolidated revenues for the nine months ended June 30, 2003 as compared to 14%
for the same period last year. GreenMan processed 21 million passenger tire
equivalents during the nine months ended June 30, 2003, as compared to 18.4
million passenger tire equivalents for the nine months ended June 30, 2002. The
overall quality of revenue (revenue per passenger tire equivalent) benefited
from increased end product sales but decreased 2% overall as a result of a 15%
reduction in tipping fees and lower tire volumes in certain markets due to
current economic conditions, world events and the completion of several large
on-going tire pile cleanups during the spring of 2002.
Gross profit for the nine months ended June 30, 2003 was $2,924,736 or 14%
of net sales as compared to $4,680,678 or 25% of net sales for the nine months
ended June 30, 2002. The decrease was attributable to: (1) the completion of
several large tire pile cleanups completed during June 2002; (2) more than
$440,000 of excess transportation costs necessitated by processing
Tennessee-sourced tires at our Georgia facility until the announced Nashville
area facility commences full operation; (3) previously reported corporate-wide
insurance cost increases of more than $135,000 per quarter; (4) $260,000 of
increased raw material costs incurred by GreenMan Technologies of Iowa resulting
from the need to supplement crumb rubber feedstock requirements externally
during the $1.5 million facility rebuild period and the winter months when
seasonally inbound volumes are lower; (5) decreased product revenue in Georgia
as a result of the March 31, 2003 waste wire processing equipment fire and which
management estimates to exceed $300,000; (6) approximately $250,000 of operating
inefficiencies associated with the transition of Wisconsin operations from a
size reduction facility to a whole tire transfer station which is anticipated to
be completed during the fourth quarter; (7) 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; (8) over $125,000 in lost
profitability due to boiler problems experienced at two large TDF customers and
which were corrected in June 2003; and (9) 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 nine months ended
June 30, 2003 were $4,128,773 or 19% of sales as compared to $2,983,369 or 16%
of sales for the nine months ended June 30, 2002. The results for the nine
months ended June 30, 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 June 30, 2003 year-to-date
results include approximately $55,000 of costs relating to GreenMan's curtailed
specialty waste initiatives and approximately $228,000 associated with the
initial startup of the recently announced Tennessee operation.
In addition to the disruption of operations and lost revenues caused by
the March 2003 fire, the Company also incurred additional direct costs relating
to damaged equipment and excess disposal costs totaling approximately $151,000,
net of partial insurance recovery of $99,000. The Company also incurred a net
loss of approximately $112,000 associated with the divestiture of
under-performing assets during the quarter ended June 30, 2003.
GreenMan reported a net loss of $2,507,193 or $.16 per basic share for the
nine months ended June 30, 2003 as compared to net income of $891,860 or $.06
per basic share for the nine months ended June 30, 2002, which included $126,405
of other income associated with forgiveness of debt.
12
Liquidity and Capital Resources
As of June 30, 2003, the Company had $916,814 in cash and cash equivalents
and a working capital deficiency of $4,058,130. Management understands that the
continued, successful sales and marketing of the Company's services and
products, the introduction of new products, raising additional growth capital
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 previous 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 60% 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. We have installed equipment at our Georgia, Iowa and
Minnesota (as of July 2003) 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 a 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 October 2003). As of June 30, 2003, GreenMan has recorded over
$250,000 of additional fire related costs prior to recognition of a partial
insurance recovery of $99,000 and exclusive of forgone product revenues
associated with recovered rubber and steel. 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 deploy it instead in Georgia to temporarily replace the
damaged equipment; however in May 2003 management decided to relocate the
Wisconsin equipment to Minnesota. The Minnesota waste wire processing equipment
began initial operation in July 2003 which management estimates will reduce
annual disposal expense by over $160,000 per year, and provide new sources of
revenue and much needed material feedstock for our Iowa crumb rubber operations.
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 internal crumb rubber
operations. 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 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 as evidenced by the fact
that Iowa crumb product shipments have increased five-fold on a fiscal-year-to
-date basis through July 2003 as compared to the same period last year. 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
New Market Development Initiatives
The July 2002 acquisition of Azusa, California based Unlimited Tire
Technologies, Inc. marked GreenMan's first location in the western portion of
the United States. Management has devoted significant resources during the past
twelve months to expand and enhance GreenMan's California market position in
order to provide a solid foundation for future growth and sustainable
profitability.
In February 2003, GreenMan announced its intent to open a new high-volume
tire processing facility in LaVergne, Tennessee as a result of experiencing
significant market share growth during the last two years. The facility will be
operated under a new wholly-owned subsidiary, GreenMan Technologies of
Tennessee, Inc. Historically, GreenMan has transported all Tennessee-sourced
tires to GreenMan's Georgia facility to be processed. In July 2003, GreenMan's
Tennessee facility began processing local tires on a limited basis utilizing
excess and idle equipment from various GreenMan subsidiaries. Management is
evaluating several immediate financing alternatives to provide the capital
necessary to purchase all remaining equipment. When the Tennessee facility is
fully operational, management estimates the cost savings realized by processing
Tennessee-sourced tires locally instead of transporting them to Georgia should
exceed $70,000 per month.
Also, in February 2003, management decided to reconfigure the operations
of GreenMan Technologies of Wisconsin from an unprofitable 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 and
continue its efforts to increase Wisconsin tire volumes and reduce expenses in
order to reach profitability in the near term
During the past nine months, GreenMan has invested over $1.1 million
developing and or reconfiguring it's California, Tennessee and Wisconsin
operations. These investments have come in the form of new internally financed
capital equipment and the funding of new market development initiatives. While
these efforts are ongoing, management believes a majority of the investment
necessary to achieve near term profitability has been expended.
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 June 30, 2003, the
Company has sold 1,458,511 shares of unregistered common stock to investors,
including existing shareholders, for gross proceeds of $2,133,633. 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. A
majority of the proceeds of this offering were used to acquire certain tire
recycling operations and assets.
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 under a January 2001 credit facility agreement (
the "Credit Facility").
On May 15, 2003, the FDIC notified GreenMan that Waco Asset Management
Company, 31 Ltd., ("WAMCO") had purchased the Credit Facility. GreenMan believes
that the liquidity available under the line of credit will be sufficient to fund
its operations, but recognizes that it must refinance its Credit Facility
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 Credit Facility obligations 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 June 30, 2003, the unamortized
balance of deferred financing charges relating to this obligation was $200,566.
14
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 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;
o the ability to realize the anticipated benefits associated with the
establishment of GreenMan's Tennessee operations and mitigate the impact
on GreenMan's Georgia operations associated with the diverted tire
volumes;
o the ability to successfully renegotiate existing short and long term
obligations when necessary in order to maintain ongoing working
relationships with certain vendors in light of GreenMan's current working
capital deficit;
o the ability to secure new Director's and Officer's liability insurance
prior to the October 1, 2003 expiration;
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.
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.
15
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.
16
PART II - OTHER INFORMATION
Item 2. Changes in Securities
During the nine months ended June 30, 2003 the Company issued
128,168 unregistered shares of its common stock in connection with a
private placement of shares of common stock for gross proceeds of
$180,000. 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").
During the nine months ended June 30, 2003, the Company issued
124,000 unregistered shares of its common stock upon exercise of
qualified stock options and warrants for gross proceeds of $46,598.
Exemption from registration for this transaction is claimed under
Section 4(2) of the Securities Act of 1933, as amended.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 31.1 Certification of Chief Executive Officer under
Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2 Certification of Chief Financial Officer under
Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1 Certification of Chief Executive Officer under
185 U.S.C Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.2 Certification of Chief Financial Officer under
185 U.S.C Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
A Form 8-K was filed on May 16, 2003, under Item 7 "Financial
Statements and Exhibits" and Item 9 "Regulation FD Disclosure". The
Company's press release dated May 14, 2003, GreenMan Technologies,
Inc. Reports Second Quarter Results.
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