UNITED STATES
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 the Quarter Ended December 31, 2005
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 (IRS Employer
of incorporation or organization) Identification No.)
7 Kimball Lane, Building A
Lynnfield, Massachusetts 01940
------------------------------------------------------------
(Address of principal executive offices, including zip code)
(781) 224-2411
------------------------------------------------
(Issuer's telephone number, including area code)
Check whether the issuer (1) 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
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act.):
|_| YES |X| NO
There were 19,998,387 shares outstanding of the issuer's Common Stock, $0.01 par
value, at May 1, 2006.
GreenMan Technologies, Inc.
Form 10-QSB
Quarterly Report
December 31, 2005
Table of Contents
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements (*)
Unaudited Consolidated Balance Sheets as of December 31, 2005 and
September 30, 2005 3
Unaudited Consolidated Statements of Operations for the three
months ended December 31, 2005 and 2004 4
Unaudited Consolidated Statement of Changes in Stockholders'
Deficit for the three months ended December 31, 2005 5
Unaudited Consolidated Statements of Cash Flows for the three
months ended December 31, 2005 and 2004 6
Notes to Interim Unaudited Consolidated Financial Statements 7-16
Item 2. Management's Discussion and Analysis or Plan of Operation 17-25
Item 3. Controls and Procedures 26
PART II - OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits and Reports on Form 8-K 26
Signatures 27
* The financial information at September 30, 2005 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.
Consolidated Balance Sheets
December 31, September 30,
2005 2005
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents .................................... $ 119,520 $ 256,492
Accounts receivable, trade, less allowance for doubtful
accounts of $235,124 and $219,354 as of December 31, 2005
and September 30, 2005 ..................................... 2,162,458 2,968,766
Product inventory ............................................ 354,422 173,043
Other current assets ......................................... 589,792 642,813
Assets related to discontinued operations .................... 1,097,086 2,037,613
------------ ------------
Total current assets ...................................... 4,323,278 6,078,727
------------ ------------
Property, plant and equipment, net ............................. 5,882,986 6,342,252
------------ ------------
Other assets:
Deferred loan costs .......................................... 367,715 430,158
Customer relationship intangibles, net ....................... 202,756 206,455
Other ........................................................ 50,309 62,360
------------ ------------
Total other assets ........................................ 620,780 698,973
------------ ------------
$ 10,827,044 $ 13,119,952
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable, current ....................................... $ 750,058 $ 836,381
Notes payable, line of credit ................................ 457,688 619,950
Convertible notes payable, current ........................... 1,866,192 1,305,361
Convertible notes payable, line of credit .................... 3,072,755 3,585,281
Accounts payable ............................................. 2,364,903 2,458,772
Accrued expenses, other ...................................... 967,410 1,089,479
Obligations under capital leases, current .................... 146,039 169,367
Liabilities related to discontinued operations ............... 4,675,574 4,682,022
------------ ------------
Total current liabilities ................................. 14,300,619 14,746,613
Notes payable, related parties, non-current portion .......... 699,320 699,320
Notes payable, non-current portion ........................... 2,109,550 2,237,044
Convertible notes payable, non-current portion ............... 1,516,767 1,802,896
Obligations under capital leases, non-current portion ........ 1,354,103 1,369,192
Deferred gain on sale leaseback transaction .................. 370,522 379,633
Liabilities related to discontinued operations ............... 568,659 571,425
------------ ------------
Total liabilities ......................................... 20,919,540 21,806,123
------------ ------------
Stockholders' deficit:
Preferred stock, $1.00 par value, 1,000,000 shares
authorized, none outstanding ............................... -- --
Common stock, $.01 par value, 40,000,000 shares
authorized, 19,225,352 shares issued and outstanding
at December 31, 2005 and September 30, 2005 ................ 192,253 192,253
Additional paid-in capital ................................... 34,853,599 34,853,599
Accumulated deficit .......................................... (45,138,348) (43,732,023)
------------ ------------
Total stockholders' deficit ............................... (10,092,496) (8,686,171)
------------ ------------
$ 10,827,044 $ 13,119,952
============ ============
See accompanying notes to consolidated financial statements.
3
GREENMAN TECHNOLOGIES, INC.
Consolidated Statements of Operations
Three Months Ended
December 31,
2005 2004
------------ ------------
Net sales ............................................ $ 5,111,861 $ 5,167,645
Cost of sales ........................................ 3,793,195 4,431,753
------------ ------------
Gross profit ......................................... 1,318,666 735,892
Operating expenses:
Selling, general and administrative ............... 1,004,643 855,187
------------ ------------
Operating income (loss) from continuing operations ... 314,023 (119,295)
------------ ------------
Other income (expense):
Interest and financing costs, net ................. (951,473) (323,874)
Other, net ........................................ (22,585) (1,823)
------------ ------------
Other (expense), net ............................ (974,058) (325,697)
------------ ------------
Loss from continuing operations before income taxes .. (660,035) (444,992)
Provision for income taxes ........................... -- (270,000)
------------ ------------
Loss from continuing operations ...................... (660,035) (714,992)
------------ ------------
Discontinued operations:
Loss on disposal of discontinued operations ....... (8,818) --
Loss from discontinued operations ................. (737,472) (1,089,845)
------------ ------------
(746,290) (1,089,845)
------------ ------------
Net loss ............................................ $ (1,406,325) $ (1,804,837)
============ ============
Loss from continuing operations per share - basic .... $ (0.03) $ (0.04)
Loss on disposal of discontinued operations
per share - basic .................................. -- --
Loss from discontinued operations per share - basic .. (0.04) (0.05)
------------ ------------
Net loss per share - basic ........................... $ (0.07) $ (0.09)
============ ============
Weighted average shares outstanding .................. 19,225,352 19,106,195
============ ============
See accompanying notes to unaudited consolidated financial statements.
4
GREENMAN TECHNOLOGIES, INC.
Unaudited Consolidated Statement of Changes in Stockholders' Deficit
Three Months Ended December 31, 2005
Additional
Common Stock Paid In Accumulated
Shares Amount Capital Deficit Total
---------- -------- ----------- ------------ ------------
Balance, September 30, 2005 ....... 19,225,352 $192,253 $34,853,599 $(43,732,023) $ (8,686,171)
Net loss for the three months
ended December 31, 2005 ........ -- -- -- (1,406,325) (1,406,325)
---------- -------- ----------- ------------ ------------
Balance, December 31, 2005 ....... 19,225,352 $192,253 $34,853,599 $(45,138,348) $(10,092,496)
========== ======== =========== ============ ============
See accompanying notes to unaudited consolidated financial statements.
5
GREENMAN TECHNOLOGIES, INC.
Unaudited Consolidated Statements of Cash Flow
Three Months Ended
December 31,
2005 2004
----------- -----------
Cash flows from operating activities:
Net loss ................................................... $(1,406,325) $(1,804,837)
Adjustments to reconcile net income to net cash provided by
operating activities:
Increase in valuation allowance on deferred tax asset ...... -- 270,000
Loss on disposal of property, plant and equipment .......... 55,806 17,321
Depreciation ............................................... 405,818 576,402
Amortization of non-cash financing costs ................... 654,847 91,930
Amortization of customer relationships ..................... 3,699 13,096
Gain on sale leaseback ..................................... (9,111) (12,148)
Decrease (increase) in assets:
Accounts receivable ...................................... 1,615,741 623,150
Product inventory ........................................ (181,379) (50,002)
Equipment held for sale .................................. 39,332 --
Other current assets ..................................... 45,980 38,265
Other assets ............................................. 12,053 (2,963)
Increase (decrease) in liabilities:
Accounts payable ......................................... (22,905) 1,019,245
Accrued expenses and other ............................... (169,183) (98,030)
----------- -----------
Net cash provided by operating activities ............. 1,044,373 681,429
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment ......................... (46,754) (756,487)
Proceeds from the sale of property and equipment ........... 60,000 --
----------- -----------
Net cash provided by (used for) investing activities .... 13,246 (756,487)
----------- -----------
Cash flows from financing activities:
(Increase) in deferred financing costs ..................... -- (13,170)
Net payments under line of credit .......................... (162,262) (100,050)
Proceeds from notes payable ................................ -- 36,000
Repayment of notes payable ................................. (246,882) (230,887)
Repayment of convertible notes payable ..................... (125,000) (125,000)
Net (payments) advances on convertible notes payable,
line of credit ........................................... (705,229) 373,191
Principal payments on obligations under capital leases ..... (54,020) (77,801)
----------- -----------
Net cash used for financing activities ................. (1,293,393) (137,717)
----------- -----------
Net (decrease) in cash and cash equivalents ................... (235,774) (212,775)
Cash and cash equivalents at beginning of period including
$108,724 and $247, respectively, of cash related to
discontinued operations ..................................... 365,216 509,787
----------- -----------
Cash and cash equivalents at end of period, including $9,922
and $193, respectively, of cash related to
discontinued operations ..................................... $ 129,442 $ 297,012
=========== ===========
Supplemental cash flow information:
Shares issued to acquire exclusive purchase option .......... $ -- $ 200,000
Interest paid ............................................... 304,921 320,967
Taxes paid .................................................. -- 4,227
See accompanying notes to unaudited interim consolidated financial statements
6
GREENMAN TECHNOLOGIES, INC.
Notes to Interim Consolidated Financial Statements
Quarter Ended December 31, 2005 and 2004
(Unaudited)
1. Business
GreenMan Technologies, Inc. (together with its subsidiaries "we", "us" or
"our") was originally founded in 1992 and has been operated as a Delaware
corporation since 1995. Today, we comprise three operating locations that
collect, process and market scrap tires in whole, shredded or granular form. We
are headquartered in Lynnfield, Massachusetts and currently operate tire
processing operations in California, Iowa and Minnesota.
2. Basis of Presentation
The consolidated financial statements include the accounts of GreenMan
Technologies, Inc. and our wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The accompanying interim financial statements are unaudited and should be
read in conjunction with the financial statements and notes thereto for the year
ended September 30, 2005 included in our Annual Report on Form 10-KSB. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted pursuant to the
Securities and Exchange Commission rules and regulations, although we believe
the disclosures which have been made are adequate to make the information
presented not misleading, the results of operations for the interim periods
reported are not necessarily indicative of those that may be reported for a full
year. In our opinion, all adjustments which are necessary for a fair statement
of operating results for the interim periods presented have been made. Certain
reclassifications have been made to the 2005 interim consolidated financial
statements to conform to the current period presentation.
In September 2005, due to the magnitude of continued operating losses, our
Board of Directors approved separate plans to divest the operations of our
Georgia and Tennessee subsidiaries and dispose of their respective assets.
Accordingly, we have classified their respective results of operations as
discontinued operations for all periods presented in the accompanying
consolidated financial statements.
Nature of Operations, Risks, and Uncertainties
As of December 31, 2005, we had $119,520 in cash and cash equivalents and
a working capital deficiency of $9,977,341. We understand our continued
existence is dependent on our ability to generate positive operating cash flow,
negotiate more favorable terms with existing secured and unsecured creditors,
refinance existing long term debt, secure additional financing and achieve
profitable status on a sustained basis. We are presently evaluating several
financing alternatives which would allow us to refinance a substantial amount of
our short-term secured debt into long-term secured debt to better align debt
maturities with our long-term business plan. There can be no assurance, however,
that we will be successful in refinancing at favorable terms, if at all.
Additionally, we must successfully appeal a determination made by the American
Stock Exchange on April 25, 2006 to delist our common stock. We filed our
request for a hearing on April 28, 2006. Pursuant to the Exchange's Company
Guide, we expect that the delisting proceeding will be stayed pending the
outcome of our appeal and subject to the Exchange's ongoing review of our
status. We can provide no assurance, however, that our appeal will be successful
or that the Exchange will not suspend trading in our common stock prior to the
hearing. A final decision by the Exchange to delist our common stock would
substantially limit our stock's liquidity and impair our ability to raise
capital. (See Note 11) The financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
Our liquidity has been significantly and adversely affected by continued
operating losses at our Southeastern operations. The divestiture of our
Tennessee operation in September 2005 eliminated continued operating losses
which aggregated approximately $1.8 million during the fiscal year ended
September 30, 2005. In addition, during the quarter ended December 31, 2005, we
substantially curtailed operations at our Georgia subsidiary which during the
fiscal year ended September 30, 2005 incurred an operating loss of approximately
$3.4 million. During the quarter ended March 31, 2006, we completed the sale of
substantially all Georgia operating assets to two separate parties and received
$405,000 in aggregate cash.
7
GREENMAN TECHNOLOGIES, INC.
Notes to Interim Consolidated Financial Statements
Quarter Ended December 31, 2005 and 2004
(Unaudited)
2. Basis of Presentation - (Continued)
The aggregate net loss (including losses from operations and losses on
disposal) associated with the discontinued operations of our Georgia subsidiary
included in the results for the three months ended December 31, 2005 was
approximately $746,000 or 53% of our total loss for the quarter. The aggregate
net losses associated with the discontinued operations of our Tennessee and
Georgia subsidiaries included in the results for the fiscal quarter ended
December 31, 2004 was approximately $1,090,000 or approximately 60% of our total
loss for that period. The total net loss, including losses from operations and
losses on disposal associated with these subsidiaries during the fiscal year
ended September 30, 2005 was approximately $11.1 million or 73% of our total
loss for the 2005 fiscal year.
We have invested substantial amounts of capital during the past several
years in new equipment to increase processing capacity at our Iowa, Minnesota
and California locations, as well as consolidating our Wisconsin location into
our Minnesota operations during fiscal 2005 to substantially reduce operating
costs and maximize our return on assets. Our future operating plan focuses on
maximizing the performance of these three operations through our continuing
efforts to increase overall quality of revenue (revenue per passenger tire
equivalent) while remaining diligent with our ongoing cost reduction
initiatives. We will continue to evaluate each operation on its merits and
contribution to our business. During fiscal 2005, we completed an evaluation of
our corporate-wide inbound collection infrastructure and determined that we
would no longer provide certain levels of service and products at existing rates
in certain markets and therefore implemented price increases where warranted and
terminated service in situations where price increases were not an alternative.
As a result, we experienced a 4% increase in overall tipping fees (fees we are
paid to collect and dispose of scrap tires) during fiscal 2005 and a 13%
increase during the three months ended December 31, 2005 as compared to the same
period during fiscal 2004. While these initiatives reduced our overall inbound
tire volume growth rate during fiscal 2005 and the three months ended December
31, 2005, we believe they have and will continue to improve our performance
through lower labor, parts and maintenance costs. In addition, we continue to
identify, and are currently selling product into several new, higher-value
markets as evidenced by an 18% increase in end product revenue during fiscal
2005 but no material change during the quarter ended December 31, 2005. We
continue to experience strong demand for our end products.
3. Net Loss Per Share
Basic earnings per share represents income available to common
stockholders divided by the weighted average number of common shares outstanding
during the period. Diluted earnings per share reflects additional common shares
that would have been outstanding if potentially dilutive common shares had been
issued, as well as any adjustment to income that would result from the assumed
conversion. Potential common shares that may be issued by us relate to
outstanding stock options and warrants (determined using the treasury stock
method) and convertible debt. Basic and diluted net loss per share are the same
for the three months ended December 31, 2005 and 2004, since the effect of the
inclusion of all outstanding options, warrants and convertible debt would be
anti-dilutive.
4. Discontinued Operations
Due to the magnitude of the continuing operating losses incurred by our
Georgia ($3.4 million) and Tennessee ($1.8 million) subsidiaries during fiscal
2005, management determined it to be in the best interest of our company to
discontinue all Southeastern operations and dispose of their respective
operating assets. A majority of the Tennessee operating losses were due to rapid
market share growth within the state by an undercapitalized subsidiary,
necessitating us to transport an increasing number of Tennessee scrap tires to
our Georgia facility for processing at significant transportation and processing
loss. A majority of the Georgia operating losses were due to (1) the negative
impact of processing a significant number of Tennessee sourced tires; (2) a
change in the specifications of our primary end market customers requiring a
smaller product resulting in reduced processing capacity and significantly
higher operating costs and (3) equipment reliability issues resulting from aging
equipment processing an increasing number of scrap tires.
8
GREENMAN TECHNOLOGIES, INC.
Notes to Interim Consolidated Financial Statements
Quarter Ended December 31, 2005 and 2004
(Unaudited)
4. Discontinued Operations - (Continued)
On September 6, 2005 we entered into an agreement under which all
Tennessee scrap tire collection contracts and certain other contracts with
suppliers of waste tires and contracts to supply whole tires to certain cement
kilns in the southeastern region of the United States were assigned to a company
owned by a former employee. We received no cash consideration for these
assignments and recorded a $1,334,849 loss (including a non-cash loss of
$918,450 associated with goodwill written off) on disposal of the operations at
September 30, 2005. The aggregate net losses including the loss on disposal
associated with the discontinued operations of our Tennessee subsidiary included
in the results for the three months ended December 31, 2004 were $353,402.
On September 27, 2005, we adopted a plan to dispose of all Georgia
operations and during the quarter ended December 31, 2005, we substantially
curtailed operations at our Georgia subsidiary. As a result, we wrote down all
Georgia operating assets to their estimated fair market value at September 30,
2005 and recorded a loss on disposal of $4,631,102 (including a non-cash loss of
$1,253,748 associated with goodwill written off) net of a gain on settlement of
our Georgia facility lease of $586,137 (see Note 5). The aggregate net losses
including the loss on disposal associated with the discontinued operations of
our Georgia subsidiary included in the results for the quarters ended December
30, 2005 and 2004 were $746,290 and $736,443, respectively. We completed the
divestiture of all Georgia operating assets as of March 1, 2006.
On February 17, 2006, we entered into an Asset Purchase Agreement with
Tires Into Recycled Energy and Supplies, Inc. ("TIRES") a leading crumb rubber
processor in the United States. Under the agreement, we sold and assigned to
TIRES certain assets, including (a) certain truck tire processing equipment
located at our Georgia facility; (b) certain rights and interests in our
contracts with suppliers of scrap truck tires; and (c) certain intangible
assets. TIRES agreed to assume all of our rights and obligations under these
contracts. In addition, TIRES entered into a sublease agreement with us with
respect to part of the premises located in Georgia. As additional consideration,
TIRES agreed to terminate several material supply and equipment lease agreements
as well as terminating a December 2005 letter of intent between GreenMan and
TIRES containing an exclusive option to acquire certain operating assets of
TIRES (see Note 5).
On March 1, 2006, we entered into an Asset Purchase Agreement with MTR of
Georgia, Inc. ("MTR") a company co-owned by a former employee. Under the
agreement, we sold and assigned to MTR certain assets, including (a) certain
passenger tire processing equipment located at our Georgia facility; (b) certain
rights and interests in our contracts with suppliers of scrap passenger tires;
and certain intangible assets. MTR agreed to assume all of our rights and
obligations under these contracts. In addition, MTR entered into a sublease
agreement with us with respect to part of the premises located in Georgia (see
Note 5). We received $250,000 from MTR for these assets. As additional
consideration, MTR has agreed to assume financial responsibility for disposing
of all scrap tires and scrap tire processing residual at the Georgia facility as
of the close.
We agreed with TIRES and MTR not to compete in the business of providing
whole tire waste disposal services or selling crumb rubber material (except to
our existing customers) within certain Southeastern states for a period of three
years.
The major classes of assets and liabilities associated with discontinued
operations were:
December 31, September 30,
2005 2005
------------ -------------
Assets related to discontinued operations:
Cash ......................................... $ 9,922 $ 108,724
Accounts receivable, net ..................... 343,837 1,153,269
Equipment held for resale .................... 500,000 539,332
Other current assets ......................... 243,327 236,288
---------- ----------
Total assets related to discontinued
operations ............................... $1,097,086 $2,037,613
========== ==========
9
GREENMAN TECHNOLOGIES, INC.
Notes to Interim Consolidated Financial Statements
Quarter Ended December 31, 2005 and 2004
(Unaudited)
4. Discontinued Operations - (Continued)
December 31, September 30,
2005 2005
---------- ----------
Liabilities related to discontinued operations:
Accounts payable ............................... $3,137,562 $3,066,596
Notes payable, current ......................... 405,625 435,926
Accrued expenses, other ........................ 713,518 707,706
Capital leases, current ........................ 326,794 326,794
Lease payable, current ......................... 92,075 145,000
---------- ----------
Total current ................................ 4,675,574 4,682,022
Notes payable, non-current ..................... 13,659 16,425
Lease payable, non-current ..................... 555,000 555,000
---------- ----------
Total non-current ............................ 568,659 571,425
---------- ----------
Total liabilities related to discontinued
operations ................................. $5,244,233 $5,253,447
========== ==========
Net sales and (loss) from discontinued operations were as follows:
Three Months Ended Three Months Ended
December 31, 2005 December 31, 2004
----------------- -----------------
Net sales from discontinued operations .... $ 329,355 $ 2,855,330
(Loss) from discontinued operations ....... (746,290) (1,089,845)
5. Property, Plant and Equipment
Property, plant and equipment consists of the following:
December 31, September 30, Estimated
2005 2005 Useful Lives
------------- -------------- -------------
Land ................................ $ -- $ --
Buildings and improvements .......... 1,757,074 1,749,907 10 - 20 years
Machinery and equipment ............. 7,096,702 7,401,613 5 - 10 years
Furniture and fixtures .............. 201,932 199,934 3 - 5 years
Motor vehicles ...................... 3,588,665 3,598,098 3 - 10 years
Construction in process ............. 65,350 42,638
------------ ------------
12,709,724 12,992,190
Less accumulated deprecation and
amortization ...................... (6,826,737) (6,649,938)
------------ ------------
Property, plant and equipment, net .. $ 5,882,986 $ 6,342,252
============ ============
On February 28, 2006, we amended our Georgia lease agreement whereby we
obtained the right to terminate the original lease, which had a remaining term
of approximately fifteen years, by providing the landlord with six months
notice. In the event of such termination, we will be obligated to continue to
pay rent until the earlier to occur of (1) the sale by the landlord of the
premises; (2) the date on which a new tenant takes over; or (3) three years from
the date on which we vacate the property. As a result of the amendment and our
decision to dispose of our Georgia operations, we wrote off the unamortized
balance of $1,427,053 associated with the leased land and buildings and
improvements as a cost of disposal of discontinued operations at September 30,
2005. This loss was partially offset by a $586,137 gain on settlement of the
remaining capital lease obligations due and is included in the loss on disposal
of discontinued operations at September 30, 2005. (See Note 4)
10
GREENMAN TECHNOLOGIES, INC.
Notes to Interim Consolidated Financial Statements
Quarter Ended December 31, 2005 and 2004
(Unaudited)
6. Acquisition Deposit
In August 2004, we executed a non-binding letter of intent and escrow
agreement with TIRES. Pursuant to the escrow agreement, we made a "good faith"
payment amounting to $350,000, which was to be applied toward the purchase price
upon completion of the transaction. On December 8, 2004, we executed a new
letter of intent which superseded the August letter of intent in which we (1)
leased, with an option to buy, certain pieces of tire processing equipment owned
by TIRES (the "Equipment Leases"), (2) entered a material supply agreement (the
"MSA") and (3) were granted an exclusive purchase option to acquire additional
operating assets of TIRES. The operating leases were executed in January 2005
but became effective in February and March 2005 and provide for aggregate
monthly payments of $25,300 over terms ranging from 48 to 60 months.
We also agreed to allow TIRES to retain $101,378 of the "good faith"
payment to upgrade it's existing crumb rubber production capacity and have used
the remaining $248,622 to prepare and move the leased equipment for our use.
Accordingly, during the quarter ended March 31, 2005, the $101,378 was expensed
when it was released from escrow and approximately $243,597 had been capitalized
and was being amortized over the lease terms which ranged from 48 to 60 months.
The remaining balance of $205,306 was written off as a cost of disposal of
discontinued operations at September 30, 2005.
The exclusive purchase option to acquire additional operating assets of
TIRES was exercisable if predetermined financial performance criteria are met by
TIRES during the subsequent fifteen to twenty four month period after December
8, 2004. The ultimate purchase price was to be determined based on those
results. In return for the exclusive purchase option, we issued 127,389 shares
of our common stock (valued at $200,000) to TIRES. Had we exercised our
exclusive purchase option and closed a transaction, the value of the shares
would have been applied against the purchase price of the assets. If the
exclusive purchase option expired or we decided not to exercise the option,
TIRES would retain a sufficient number of our shares to equal $200,000 (as of
the date that the purchase option expires) and return the balance of such shares
of common stock to us. If at the time the purchase option expired, the value of
the shares were less than $200,000, we would have been required to issue a
sufficient number of additional shares to equal $200,000. If at the time the
purchase option expired, TIRES had not achieved the predetermined financial
performance criteria, TIRES would have had to return to us a sufficient number
of our shares to equal $200,000 at the time.
In February 2006 in conjunction with the discontinuance of our Georgia
operations (See Note 4), we agreed to sell and assign to TIRES (a) certain truck
tire processing equipment located at our Georgia facility; (b) certain rights
and interests in our contracts with suppliers of scrap truck tires; (c) certain
intangible assets; and (d) allowed TIRES to retain the 127,389 shares of our
common stock and in return received $155,000 in cash proceeds; agreed to
terminate the MSA, Equipment Leases and several other agreements previously
executed between the parties in addition to terminating a December 2004 letter
of intent and exclusive option. Accordingly, at September 30, 2005, included in
loss on disposal of discontinued operations is the $200,000 assigned to the
shares of common stock retained by TIRES.
7. Notes Payable/Credit Facilities
Republic Services of Georgia
On May 6, 2002 we issued Republic Services of Georgia, LP ("RSLP") a
$743,750 10% promissory note due in March 2007. On July 31, 2005, RSLP agreed to
defer all interest and principal payments due, including nine existing past-due
payments totaling $76,042 through June 2006 at which time all past due interest
and principal payments under the May 6, 2002 promissory note will be
incorporated into an a new 10% promissory note, payable in 48 monthly
installments commencing July 2006. At December 31, 2005 the unpaid principal and
interest amounted to $733,700.
11
GREENMAN TECHNOLOGIES, INC.
Notes to Interim Consolidated Financial Statements
Quarter Ended December 31, 2005 and 2004
(Unaudited)
7. Notes Payable/Credit Facilities - (Continued)
First American Credit Facility
On February 13, 2003, our Iowa subsidiary amended its existing term debt
with First American under the terms of a five-year, $1,760,857 secured term
note. The note is payable in sixty monthly installments of $33,425 and is
secured with all Iowa assets. The term note bears interest at 7.5% and the line
of credit bears interest at the prime rate plus 1%. At December 31, 2005, the
outstanding principal balance amounted to $1,077,292.
On February 10, 2005, First American renewed our working capital line until
February 10, 2006 (subsequently extended to June 15, 2006) and increased our
maximum availability under the line of credit to $800,000. In addition, First
American agreed to increase our overall maximum availability by an additional
$350,000 to $1,150,000 through June 10, 2005 to coincide with the performance of
a significant scrap tire cleanup project which was completed in April 2005.
Laurus Credit Facility
On June 30, 2004, we entered into a $9 million credit facility with Laurus
Master Fund, Ltd. ("Laurus"), consisting of a $5 million convertible, revolving
working capital line of credit and a $4 million convertible term note. At
closing, we borrowed $2 million under the line of credit and $4 million under
the term loan. We used the proceeds to repay certain existing debt obligations,
financing costs relating to this transaction, and general working capital. On
March 22, 2005, the credit facility was amended to (1) permit us to maintain
overradvances of up to $2,000,000 under the line of credit through December 31,
2005 (subsequently extended to May 31, 2006); (2) defer certain principal
payments on the term note as described below; and (3) reduce the conversion
price on the minimum borrowing note and term note as described below.
The line of credit has a three-year term and requires us to maintain a
minimum borrowing of $1,000,000. Advances generally bear interest at the prime
rate plus 1.0% (8.25% at December 31, 2005), and are convertible into shares of
our common stock at the option of Laurus. Except for downward adjustments
provided in the credit facility terms described below, the interest rate shall
not be below 5%. Amounts advanced under the line are limited to 90% of accounts
receivable and 50% of finished goods inventory as defined, subject to certain
limitations. Until May 31, 2006 however, we will be permitted to maintain
overadvances of up to $2,000,000 under the line of credit. In the event that our
outstanding overadvances exceed $2,000,000, or if any overadvance remains
outstanding on or after June 1, 2006, the excess or overdue overadvance will
bear interest, in addition to that otherwise required, at a rate equal to 2% per
month. At December 31, 2005, amounts outstanding under the line amounted to
$3,561,338, including permitted overadvances of $1,980,250.
Subject to certain limitations, Laurus has the option to convert the first
$1,000,000 of borrowings under the line of credit into our common stock at a
revised price of $0.79 (85% of the average closing price of our common stock for
the five days immediately preceding March 22, 2005). Each subsequent $1,000,000
of borrowings will be convertible at the higher of $.93 or a 10% premium over
the 22-day trailing average closing price computed on each $1,000,000 increment.
As a result of the reduction in conversion price pursuant to the terms of the
March 22, 2005 amendment, we recorded a beneficial conversion feature of
$598,717. The discount was recorded as additional paid-in-capital and was
amortized to interest expense through December 31, 2005.
The term note also has a three-year term and bears interest at the greater
of prime rate plus 1.0% or 5.0% (8.25% at December 31, 2005), payable monthly.
Monthly principal payments of $125,000 over the term of the loan commenced on
November 1, 2004; however, the terms of the March 22, 2005 amendment deferred
the principal payments otherwise due from December 1, 2004 through June 30,
2005, until the maturity date of the term note, at which time the deferred
payments and all other outstanding amounts are due. In addition, Laurus has
agreed to defer principal payments otherwise due from November 1, 2005 through
May 1, 2006, which will be payable in full at maturity.
12
GREENMAN TECHNOLOGIES, INC.
Notes to Interim Consolidated Financial Statements
Quarter Ended December 31, 2005 and 2004
(Unaudited)
7. Notes Payable/Credit Facility - (Continued)
Laurus has the option to convert some or all of the note's principal and
interest payments into common stock at a revised fixed conversion price of $.79
on the first $1,000,000 of borrowings, and $.93 on the remaining amounts.
Subject to certain limitations, regular payments of principal and interest will
be automatically payable in common stock if the 5-day average closing price of
the common stock immediately preceding a payment date is greater than or equal
to 110% of such fixed conversion price. As a result of the change in conversion
price pursuant to the terms of the March 22, 2005 amendment, we recorded an
additional beneficial conversion feature of $1,485,594 on the term note. The
additional discount amount was recorded as paid-in-capital with the portion
attributed to the first $1,000,000 of borrowings, $567,429 which was amortized
to interest expense through December 31, 2005 and the remaining balance of
$918,165 amortized over the remaining term of the note or ratably upon any
partial conversion.
On July 20, 2005, we issued an additional $1 million convertible term note
to Laurus. The note matures on June 30, 2007 and bears interest at the prime
rate plus 1.75% (9% at December 31, 2005), payable monthly commencing August 1,
2005. Monthly principal payments of $58,823.53 over the term of the loan
commenced on February 1, 2006. Laurus subsequently agreed to defer the principal
payments otherwise due from February 1, 2006 through May 1, 2006, until the
maturity date of the term note, at which time the deferred payments and all
other outstanding amounts are due. Laurus has the option to convert some or all
of the principal and interest payments into common stock at a price of $.33 (the
average closing price of our common stock on the American Stock Exchange for the
3-day period ending July 18, 2005).
In connection with this term note, we also issued Laurus an option to
purchase up to an aggregate of 2,413,571 shares of our common stock at an
exercise price equal to $0.01 per share. This option, valued at $401,738, was
immediately exercisable, has a term of ten years, allows for cashless exercise
at the option of Laurus, and does not contain any "put" provisions. Net proceeds
received from issuance of the tern note amounted to $955,000 and were allocated
to the term note and the warrant based on their relative fair values. The note
contained a beneficial conversion feature of $393,939 at issuance based on the
intrinsic value of the shares into which the note is convertible, and a debt
issue discount amounting to $446,738. The beneficial conversion amount was
recorded as paid in capital and will be amortized to interest expense along with
the debt conversion discount over the two year term of the note or ratably upon
any partial conversion. The terms of the note are substantially similar to our
June 2004 credit facility, including similar negative and restrictive covenants,
as well as reporting requirements and default provisions.
The conversion price applicable to each of the notes and the exercise
price of each of the warrants was previously subject to downward adjustment on a
"full ratchet" basis, if with certain exceptions, we issued shares of our common
stock (or common stock equivalents) at a price per share less than the
applicable conversion or exercise price. On April 8, 2006, Laurus agreed to
retroactively eliminate their rights to enforce these provisions
Subject to applicable cure periods, amounts borrowed from Laurus are
subject to acceleration upon certain events of default, including: (i) any
failure to pay when due any amount we owe to Laurus; (ii) any material breach by
us of any other covenant made to Laurus; (iii) any misrepresentation made by us
to Laurus in the documents governing the credit facility; (iv) the institution
of certain bankruptcy and insolvency proceedings by or against us; (v) the entry
of any monetary judgment or similar final process against us for more than
$50,000 that remain unvacated, unbonded or unstayed for a period of 30 business
days; (vi) suspensions of trading of our common stock from our principal trading
market for five consecutive days or five days during any ten consecutive days
(see Note 11); (vii) any failure to deliver shares of common stock upon
conversions under the credit facility; (viii) certain defaults under agreements
related to any of our other indebtedness; (ix) changes of control of our
company. Substantial fees and penalties are payable to Laurus in the event of
default. As of December 31, 2005, we were in default of several covenants of the
notes and agreements. These defaults have been waived by Laurus.
13
GREENMAN TECHNOLOGIES, INC.
Notes to Interim Consolidated Financial Statements
Quarter Ended December 31, 2005 and 2004
(Unaudited)
8. Notes Payable - Related Party
In November 2000, we borrowed $200,000 from a director. This unsecured
note payable bears interest at 12% per annum with interest due monthly and the
principal due originally in November 2001. Subsequently, the director agreed to
extend the maturity date of each note several times and in June 2005, agreed to
extend the maturity of this note until the earlier of when all amounts due under
the Laurus credit facility (See Note 7) have been repaid or June 30, 2007.
During the period of June to August 2003, two immediate family members of
an officer loaned us a total of $400,000 under the terms of two-year, unsecured
promissory notes which bear interest at 12% per annum with interest due
quarterly and the principal due upon maturity. In March 2004, these same
individuals loaned us an additional $200,000 in aggregate, under similar terms
with the principal due upon maturity March 2006. These individuals each agreed
to invest the entire $100,000 principal balance of their June 2003 notes
($200,000 in aggregate) into the April 2004 private placement of investment
units and each received 113,636 units in these transactions. At December 31,
2005, the remaining balance due on these advances amounted to $400,000. In
addition, the two individuals agreed to extend the maturity of the remaining
balance of these notes until the earlier of when all amounts due under the
Laurus credit facility have been repaid or June 30, 2007. (See Note 7).
In September 2003, an officer loaned us $400,000 under the terms of a
September 30, 2003 unsecured promissory note which bears interest at 12% per
annum with interest due quarterly and the principal due March 31, 2004
(subsequently extended to September 30, 2004). In 2004, the officer applied
approximately $114,000 of the balance due him and accrued interest of
approximately $21,000 to exercise options to purchase 185,000 shares of common
stock. In addition, he agreed to extend the maturity of the remaining balance of
this note until the earlier of when all amounts due under the Laurus credit
facility have been repaid or June 30, 2007. At December 31, 2005, the remaining
balance due on this note amounted to $99,320.
For the three months ended December 31, 2005 and 2004, interest expense on
notes payable to related parties amounted to $20,980 for each period. Accrued
interest payable amounted to $119,718 at December 31, 2005.
9. Litigation
As of May 1, 2006, approximately 16 vendors of our GreenMan Technologies
of Georgia, Inc. and GreenMan Technologies of Tennessee, Inc. subsidiaries had
commenced legal action, primarily in the state courts of Georgia, in attempts to
collect approximately $1.6 million of past due amounts, plus accruing interest,
attorneys' fees, and costs, all relating to various services rendered to these
subsidiaries. The largest individual claim is for approximately $650,000. As of
May 1, 2006, 3 of these vendors had secured judgments in their favor for an
aggregate of approximately $250,000. As previously noted, all of GreenMan
Technologies of Tennessee, Inc.'s assets were sold in September 2005 and
substantially all of GreenMan Technologies of Georgia, Inc.'s assets were sold
as of March 1, 2006. All proceeds from these sales were retained by our secured
lender and these subsidiaries have no substantial assets. We are therefore
currently evaluating the alternatives available to these subsidiaries.
GreenMan Technologies, Inc. was not a party to any of these vendor
relationships and none of the plaintiffs have filed suit against GreenMan
Technologies, Inc. While there can be no assurance that GreenMan Technologies,
Inc will not be named as a defendant in future proceedings, we believe that
GreenMan Technologies, Inc has valid defenses to any potential claims that may
be made against us, and we intend to defend against any such claims vigorously.
In addition to the foregoing, we are subject to routine claims from time
to time in the ordinary course of our business. We do not believe that the
resolution of any of the claims that are currently known to us will have a
material adverse effect on our company or on our financial statements.
14
GREENMAN TECHNOLOGIES, INC.
Notes to Interim Consolidated Financial Statements
Quarter Ended December 31, 2005 and 2004
(Unaudited)
10. Stock Options
We maintain stock-based compensation plans, which are described more fully
in Note 11 to the consolidated financial statements in the 2005 Annual Report
filed on Form 10-KSB. As permitted by Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation", we
previously had elected to continue with the accounting methodology prescribed by
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued
to Employees." Beginning on October 1, 2006, the Company will adopt SFAS No.
123(R) "Share-based Payment" and apply the required fair value methodology to
all stock option and equity award plans.
The following table provides the pro forma disclosures of net loss and
earnings per share as if the fair value recognition provisions of SFAS No. 123,
had been applied:
Three Months Ended Three Months Ended
December 31, 2005 December 31,2004
----------------- ----------------
Net loss as reported .......................... $(1,406,325) $(1,804,837)
Add: Compensation recognized under APB No.25 .. -- --
Less: Compensation recognized under FAS 123 ... (8,149) (25,997)
----------- -----------
Pro forma net loss ............................ $(1,414,474) $(1,830,834)
=========== ===========
Net loss per share:
Basic and diluted- as reported ............. $ (0.07) $ (0.09)
=========== ===========
Basic and diluted - pro forma .............. $ (0.07) $ (0.10)
=========== ===========
11. Stockholders' Equity
American Stock Exchange Notices
As previously disclosed, on January 5, 2006 we were notified by the
American Stock Exchange indicating we were not in compliance with the Exchange's
requirements for continued listing as set forth in Sections 134 and 1101 of the
Exchange's Company Guide (the "Company Guide") with respect to our failure to
file our Annual Report on Form 10-KSB for the year ended September 30, 2005 with
the Securities and Exchange Commission. In order to maintain our listing on the
Exchange, we were required to, and did, submit a plan by January 19, 2006
advising the Exchange of action we have taken, or will take, that would bring
our company into compliance with Sections 134 and 1101 of the Company Guide by
no later than March 20, 2006. On February 2, 2006, we were notified that the
Exchange had accepted our compliance plan and had granted us an extension of
time through March 20, 2006 to regain compliance with the continued listing
standards. We filed our Annual Report on April 20, 2006.
On February 14, 2006, we were notified by the Exchange that we are not in
compliance with the Exchange's requirements for continued listing set forth in
Section 1003(a)(i) of the Company Guide because we did not meet the $2,000,000
shareholders' equity requirement and because we reported losses from continuing
operations and/or net losses in two out of our three most recent fiscal years.
In order to maintain our listing on the Exchange, we were required to, and did,
submit a plan by March 14, 2006 advising the Exchange of action we have taken,
or will take, that would bring us into compliance no later than February 14,
2007.
On February 17, 2006 we were notified by the Exchange indicating we were
not in compliance with the Exchange's requirements for continued listing as set
forth in Sections 134 and 1101 of the Company Guide with respect to our failure
to file our Quarterly Report on Form 10-QSB for the quarter ended December 31,
2005 with the Securities and Exchange Commission. In order to maintain our
listing on the Exchange, we were required to, and did, submit a plan by March 3,
2006 advising the Exchange of action we have taken, or will take, that would
bring our company into compliance with Sections 134 and 1101 of the Company
Guide by no later than April 6, 2006. Although we had made progress toward
compliance by April 6, 2006, we did not file our Quarterly Report by that date.
On April 25, 2006 we were notified by the Exchange indicating its
intention to initiate proceedings to delist our common stock. The notice
indicated we failed to comply with Sections 134, 610, 1003 and 1101 of the
15
GREENMAN TECHNOLOGIES, INC.
Notes to Interim Consolidated Financial Statements
Quarter Ended December 31, 2005 and 2004
(Unaudited)
11. Stockholders' Equity - (Continued)
Company Guide as noted in the Exchange's February 14th and February 17th notices
describe above. In addition, the April 25th notice indicated that based on a
subsequent review of our Form 10-KSB for the fiscal year ended September 30,
2005, we are not in compliance with the Exchange's requirements for continued
listing set forth in Section 1003(a)(ii) of the Company Guide, which requires a
company to maintain stockholders' equity in excess of $4,000,000 if it has
sustained losses from continuing operations and/or net losses in three out of
its four most recent fiscal years. The Exchange's recent notice also indicates
we are not in compliance with Section 610(b) of the Company Guide, which
requires a company that has received an audit opinion containing a going concern
qualification to make a public announcement through the news media disclosing
the receipt of such qualified opinion.
We are entitled to appeal the Exchange's determination to initiate
delisting proceedings, and, on April 28, 2006, we filed such appeal and request
for a hearing before a committee of the Exchange. Pursuant to the Company Guide,
we expect that the delisting proceeding will be stayed pending the outcome of
our appeal and subject to the Exchange's ongoing review of our status. We can
provide no assurance, however, that our appeal will be successful or that the
Exchange will not suspend trading in our common stock prior to the hearing. A
final decision by the Exchange to delist our common stock would substantially
limit our stock's liquidity and impair our ability to raise capital. (See Note
2.)
12. Income Taxes
Based on continued operating losses, we determined the near-term
realizability of our deferred tax asset to be uncertain and accordingly
increased the valuation allowance by $270,000 during the quarter ended December
31, 2004.
13. Subsequent Events
Management Changes
On April 12, 2006, our Board of Directors named Lyle E. Jensen as
President and Chief Executive Officer succeeding Robert H. Davis, who resigned
those positions, and resigned as a member of our Board of Directors, on the same
day. Mr. Jensen has been a member of our Board of Directors since May 2002, and
served as the Chair of the Board's Audit Committee and as member of the Board's
Compensation Committee. Mr. Jensen will remain a member of the Board of
Directors, but will no longer serve on these committees. Nicholas DeBenedictis,
an outside Director has joined the Compensation Committee and will serve as our
interim Audit Committee Chair.
We entered into a five-year employment agreement with Mr. Jensen pursuant
to which Mr. Jensen will receive a base salary of $195,000 per year. The
agreement automatically renews for one additional year upon each anniversary,
unless notice of non-renewal is given by either party. The agreement may be
terminated without cause on thirty days' notice but provides for payment of
twelve months' salary and certain benefits as a severance payment for
termination without cause. The agreement also provides for incentive
compensation based on the attainment of certain financial and non-financial
goals. Mr. Jensen will receive a relocation allowance of up to $25,000 and a car
allowance of $600 per month. Mr. Jensen has been granted a qualified option
under the 2005 Stock Option Plan to purchase 500,000 shares of the our common
stock, par value $.01 per share, with an exercise price of $.28 per share which
was the closing price of our stock on the date of grant. In addition, upon
signing of his employment agreement, Mr. Jensen agreed to purchase 500,000
unregistered shares of our common stock at $.28 per share which was the closing
bid price of the common stock on the date the agreement was executed. In
conjunction with Mr. Davis's resignation, we agreed to the payment of salary and
certain benefits for a subsequent twelve month period which aggregate
approximately $260,000 pursuant to certain contractual obligations.
During the period of January to March 2006, a director loaned us $125,000
under the terms of two unsecured promissory notes which bear interest at 10% per
annum with interest and principal due June 30, 2006. On April 12, 2006, this
director converted $76,450 (including interest of $1,450) into 273,035 shares of
unregistered common stock at a price of $.28 which was the closing price of our
stock on the date of conversion.
16
Item 2. Management's Discussion and Analysis or Plan of Operations
The following information should be read in conjunction with the unaudited
consolidated financial statements and the notes thereto included in Item 1 of
the Quarterly Report, and the audited consolidated financial statements and
notes thereto and Management's Discussion and Analysis of Financial Condition
and Results of Operations contained in our Form 10-KSB filed for the year ended
September 30, 2005.
Results of Operations
Three Months ended December 31, 2005 Compared to the Three Months ended
December 31, 2004
Net sales from continuing operations for the three months ended December
31, 2005 were $5,111,861, a 1% decrease, compared to last year's net sales from
continuing operations of $5,167,645. Our continuing operations processed
approximately 4.0 million passenger tire equivalents during the three months
ended December 31, 2005, compared to approximately 4.6 million passenger tire
equivalents during the three months ended December 31, 2004. The slight decrease
in revenue was attributable to a 13% decrease in inbound scrap tires volume and
a 1% decrease in overall product revenue which was offset by a 13% increase in
overall tipping fees per passenger tire. During fiscal 2005, we completed an
evaluation of our corporate-wide inbound collection infrastructure and
determined that we would no longer provide certain levels of service and
products at existing rates in certain markets and therefore implemented price
increases where warranted and terminated service in situations where price
increases were not an alternative. While these initiatives reduced our overall
inbound tire volume growth rate, they have positively impacted our overall
tipping fee revenue and will continue to improve our performance through lower
labor, parts and maintenance costs.
Gross profit for the three months ended December 31, 2005 was $1,318,666
or 26% of net sales, compared to $735,892 or 14% of net sales for three months
ended December 31, 2004. Our cost of sales decreased $638,558 or 14% primarily
due to decreased collection and processing costs associated with lower inbound
volume and our ongoing efforts to reduce operating costs where available.
Selling, general and administrative expenses for the three months ended
December 31, 2005 increased $149,456 to $1,004,643 or 20% of net sales, compared
to $855,187 or 17% of net sales for the three months ended December 31, 2004.
The increase was primarily attributable to increased outside professional
expenses and insurance.
As a result of the foregoing, we had operating income of $314,023 for the
three months ended December 31, 2005 as compared to an operating loss of
$119,295 for the three months ended December 31, 2004.
Interest and financing costs for the three months ended December 31, 2005
increased $627,599 to $951,473 (including $656,271 of non-cash deferred
financing costs), compared to $343,874 (including $91,930 of non-cash deferred
financing costs) during the three months ended December 31, 2004. The increase
is primarily attributable to increased non-cash deferred financing associated
with the Laurus credit facility and an increase in borrowing rates.
Based on the magnitude of our fiscal 2005 losses, we determined the
near-term realizability of a $270,000 non-cash deferred tax asset to be
uncertain and therefore have provided a valuation allowance on the entire amount
during the three months ended December 31, 2004.
As a result of the foregoing, our net loss from continuing operations for
the three months ended December 31, 2005 decreased $54,957 to $660,035 or $.03
per basic share, compared to a net loss of $714,992 or $.04 per basic share for
the three months ended December 31, 2004. The $746,290 loss from discontinued
operations for the three months ended December 31, 2005 relates primarily to the
costs of exit activities associated with our Georgia operations. The loss from
discontinued operations for the three months ended December 31, 2004 includes
$736,443 associated with our Georgia operations and $353,402 associated with our
Tennessee operations.
Our net loss for the three months ended December 31, 2005 decreased
$398,512 to $1,406,325 as compared to a net loss of $1,804,837 for the three
months ended December 31, 2004.
17
Liquidity and Capital Resources
As of December 31, 2005, we had $119,520 in cash and cash equivalents and
a working capital deficiency of $9,977,341. Our continued existence is dependent
on our ability to generate positive operating cash flow, negotiate more
favorable terms with existing secured and unsecured creditors, refinance
existing long term debt, secure additional financing and achieve profitable
status on a sustained basis.
The Consolidated Statements of Cash Flows reflect events in fiscal 2006
and 2005 as they affect our liquidity. During the three months ended December
31, 2005, net cash provided by operating activities was $1,044,373. While our
net loss was $1,406,325 our overall cash flow was positively impacted by the
following non-cash expenses and changes to our working capital: $1,064,364 of
depreciation and amortization, $55,806 of non-cash net loss on disposal of fixed
assets and a decrease in accounts receivable of $1,615,741 which offset a net
decrease in accounts payable and accrued expense of $192,088 in aggregate.
During the three months ended December 31, 2004, net cash provided by
operating activities was $681,429. While our net loss was $1,804,837 our overall
cash flow was positively impacted by the following non-cash expenses and changes
to our working capital: $681,428 of depreciation and amortization, $270,000
associated with an increase to the valuation allowance for deferred taxes
(non-cash) and a decrease in accounts receivable of $623,150 and an net increase
in accounts payable and accrued expense of $921,215 in aggregate.
Net cash provided by investing activities was immaterial for the three
months ended December 31, 2005. The net cash used by investing activities for
the three months ended December 31, 2004 was $756,487 reflecting the purchase of
equipment to increase capacity and efficiencies at several of our operating
locations.
Net cash used for financing activities was $1,293,393 during the three
months ended December 31, 2005 reflecting the use of cash generated from
operations to pay down our working capital lines of credit by $868,914 in
addition to reducing notes payable by $371,882 in aggregate. Net cash used for
financing activities was $137,717 during the three months ended December 31,
2004.
The financial statements have been prepared assuming we will continue as a
going concern. We have incurred substantial losses from operations, and have a
significant working capital deficiency at December 31, 2005. These factors raise
substantial doubt about our ability to continue as a going concern.
In order to reduce our operating costs, address our liquidity needs and
return to profitable status, we have implemented and/or are in the processing of
implementing the following actions:
Divestiture of Unprofitable Operations
Due to the magnitude of the continuing operating losses incurred by our
Georgia ($3.4 million) and Tennessee ($1.8 million) subsidiaries during fiscal
2005, management determined it to be in the best interest of company to
discontinue all Southeastern operations and dispose of their respective
operating assets. A majority of the Tennessee operating losses were due to rapid
market share growth within the state by an undercapitalized subsidiary,
necessitating us to transport an increasing number of Tennessee scrap tires to
our Georgia facility for processing at significant transportation and processing
loss. A majority of the Georgia operating losses were due to (1) the negative
impact of processing a significant number of Tennessee sourced tires; (2) a
change in the specifications of our primary end market customers requiring a
smaller product resulting in reduced processing capacity and significantly
higher operating costs and (3) equipment reliability issues resulting from aging
equipment processing an increasing number of scrap tires.
On September 6, 2005 we entered into an agreement under which all
Tennessee scrap tire collection contracts and certain other contracts with
suppliers of waste tires and contracts to supply whole tires to certain cement
kilns in the southeastern region of the United States were assigned to a company
owned by a former employee. We received no cash consideration for these
assignments and recorded a $1,334,849 loss (including a non-cash loss of
$918,450 associated with goodwill written off) on disposal of the operations at
September 30, 2005. The aggregate net losses including the loss on disposal
associated with the discontinued operations of our Tennessee subsidiary included
in the results for the three months ended December 31, 2004 were $353,402.
18
On September 27, 2005, we adopted a plan to dispose of all Georgia
operations and during the quarter ended December 31, 2005, we substantially
curtailed operations at our Georgia subsidiary. As a result, we wrote down all
Georgia operating assets to their estimated fair market value at September 30,
2005 and recorded a loss on disposal of $4,631,102 (including a non-cash loss of
$1,253,748 associated with goodwill written off) net of a gain on settlement of
our Georgia facility lease of $586,137 (see Note 5 to the Interim Consolidated
Financial Statements). The aggregate net losses including the loss on disposal
associated with the discontinued operations of our Georgia subsidiary included
in the results for the quarters ended December 30, 2005 and 2004 were $746,290
and $736,443, respectively. We completed the divestiture of all Georgia
operating assets as of March 1, 2006.
On February 17, 2006, we entered into an Asset Purchase Agreement with
Tires Into Recycled Energy and Supplies, Inc. ("TIRES"), a leading crumb rubber
processor in the United States. Under the agreement, we sold and assigned to
TIRES certain assets, including (a) certain truck tire processing equipment
located at our Georgia facility; (b) certain rights and interests in our
contracts with suppliers of scrap truck tires; and (c) certain intangible
assets. TIRES agreed to assume all of our rights and obligations under these
contracts. In addition, TIRES entered into a sublease agreement with us with
respect to part of the premises located in Georgia. (see Note 6 to the Interim
Consolidated Financial Statements).
On March 1, 2006, we entered into an Asset Purchase Agreement with MTR of
Georgia, Inc. ("MTR") a company co-owned by a former employee. Under the
agreement, we sold and assigned to MTR certain assets, including (a) certain
passenger tire processing equipment located at our Georgia facility; (b) certain
rights and interests in our contracts with suppliers of scrap passenger tires;
and certain intangible assets. MTR agreed to assume all of our rights and
obligations under these contracts. In addition, MTR entered into a sublease
agreement with us with respect to part of the premises located in Georgia. We
received $250,000 from MTR for these assets. As additional consideration, MTR
has agreed to assume financial responsibility for disposing of all scrap tires
and scrap tire processing residual at the Georgia facility as of the close.
We agreed with TIRES and MTR not to compete in the business of providing
whole tire waste disposal services or selling crumb rubber material (except to
our existing customers) within certain Southeastern states for a period of three
years.
Credit Facility Refinancing
On June 30, 2004, we entered into a $9 million credit facility with Laurus
Master Fund, Ltd., ("Laurus") consisting of a $5 million convertible, revolving
working capital line of credit and a $4 million convertible term note loan. At
closing, we borrowed $4 million under the term loan and $2 million under the
line of credit, and used approximately $1,860,000 of the proceeds to repay the
outstanding indebtedness under our prior credit facility and approximately
$1,070,000 to repay in full the indebtedness due Cryopolymers Leasing.
Additional proceeds of the financing were used to increase working capital and
to pay certain costs and fees associated with this transaction including a
$425,000 placement fee paid to our investment bank. On March 22, 2005, the
credit facility was amended to permit us to maintain overadvances of up to
$2,000,000 under the line of credit through December 31, 2005 (subsequently
extended to May 31, 2006). In addition, the price at which the minimum borrowing
note and term loan are convertible into our common stock were adjusted (see Note
7 to the Interim Consolidated Financial Statements of interim financial
statements). As of December 31, 2005, our overadvance was $1,980,250.
On July 20, 2005, we issued a $1 million convertible term note to Laurus.
The note matures on June 30, 2007 and bears interest at the prime rate plus
1.75% (9% at December 31, 2005), payable monthly commencing August 1, 2005.
Monthly principal payments of $58,823.53 over the term of the loan commence on
February 1, 2006. Laurus subsequently agreed to defer the principal payments
otherwise due from February 1, 2006 through May 1, 2006, until the maturity date
of the term note, at which time the deferred payments and all other outstanding
amounts are due. Laurus has the option to convert some or all of the principal
and interest payments into common stock at a price of $.33 (the average closing
price of our common stock on the American Stock Exchange for the 3-day period
ending July 18, 2005).
On February 10, 2005, First American renewed our working capital line
until February 10, 2006 (subsequently extended to June 15, 2006) and increased
our maximum availability under the line of credit to $800,000. In addition,
First American agreed to increase our overall maximum availability by an
additional $350,000 to $1,150,000 through June 10, 2005 to coincide with the
performance of a significant scrap tire cleanup project which was completed in
April 2005.
19
Additional Steps to Increase Liquidity
Over the last several years, we have funded portions of our operating cash
flow from sales of equity securities, loans from officers and related parties,
increased borrowings and extending payments to our vendors.
In December 2003, we issued a 10% convertible note due December 2004 in
the aggregate principal amount of $375,000 to an investor. The note was
convertible at the option of the holder at any time prior to maturity into
investment units at a price equal to $1.07 per unit with each unit consisting of
one share of common stock and a warrant to purchase 1.5 shares of common stock
at an exercise price of $1.07 per share, exercisable nine months after issuance
for a period of five years from date of issuance. The note was converted on June
24, 2004 into 369,331 shares of common stock and we issued warrants to purchase
553,997 shares of our common stock. When originally issued, this note reflected
a beneficial conversion feature amounting to $154,226 and, upon conversion, the
remaining unamortized beneficial conversion discount of approximately $77,000
was charged to interest expense.
In April 2004, we commenced a private offering of investment units to
accredited investors, each unit consisting of one share of our common stock and
a warrant to purchase 0.5 shares of our common stock. As of June 30, 2004, when
the offering terminated, we had sold 1,594,211 units (1,594,211 shares of our
common stock and warrants to purchase 797,105 additional shares of our common
stock at prices ranging from $1.56 to $2.06 per share) to investors, including
our directors and existing shareholders, for gross proceeds of $1,547,800. We
used the net proceeds of this offering to commence re-establishing our Georgia
waste wire processing capacity and for general working capital purposes.
From June 2003 through March 2004, several of our officers and members of
their families loaned us an aggregate of $1,345,000. These advances bear
interest at 12% and mature at various times through March 2006. In April 2004,
several of these individuals agreed to invest approximately $550,000 of the
amounts due them under the terms of their loans into the private placement
described above. In April 2004, one of our officers applied approximately
$187,000 of amounts due him to pay off notes receivable due our company and in
June 2004 applied approximately $114,000 of amounts due him, plus $21,000 of
accrued interest to exercise options to purchase 185,000 shares of our common
stock. At December 31, 2005, the remaining balance on these advances amounted to
$699,320.
Operating Performance Enhancements
Historically, our tire shredding operations were able to recover and sell
approximately 60% of a processed tire with the balance disposed of as waste wire
residual (cross-contaminated rubber and steel) at an annual cost exceeding
$1,000,000 in prior years. During the past several years we have purchased
secondary equipment for our Iowa and Minnesota facilities to further process the
waste wire residual into saleable components of rubber and steel that not only
provide new sources of revenue but also significantly reduced our residual
disposal costs.
Effects of Inflation and Changing Prices
Generally, we are exposed to the effects of inflation and changing prices.
Primarily because the largest component of our collection and disposal costs is
transportation, we have been adversely affected by the significant increases in
the cost of fuel. Additionally, because we rely on floating-rate debt for
certain financing arrangements, rising interest rates have had a negative effect
on our performance.
Based on our fiscal 2006 operating plan our available working capital and
our revenues from operations, we believe that borrowings from affiliated and
unaffiliated lenders including additional funding from Laurus will be necessary
to satisfy our cash requirements for the foreseeable future. If we are unable to
obtain additional financing, our ability to maintain our current level of
operations could be materially and adversely affected and we may be required to
adjust our operating plans accordingly or to discontinue our operations
altogether.
Off-Balance Sheet Arrangements
We lease various facilities and equipment under cancelable and
non-cancelable short and long term operating leases which are described in
Footnote 10 to the Audited Consolidated Financial Statements contained in our
annual report on Form 10-KSB.
20
Cautionary Statement
Information contained or incorporated by reference in this document
contains "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, which statements can be identified by
the use of forward-looking terminology such as "may," "will," "would," "can,"
"could," "intend," "plan," "expect," "anticipate," "estimate" or "continue" or
the negative thereof or other variations thereon or comparable terminology. The
following matters constitute cautionary statements identifying important factors
with respect to such forward-looking statements, including certain risks and
uncertainties that could cause actual results to differ materially from those in
such forward-looking statements.
Factors That May Affect Future Results
Risks Related to our Business
We have lost money in the past thirteen consecutive quarters and will need
additional working capital, which if not received, may force us to curtail
operations.
We have incurred substantial losses from operations over the past 13
quarters. As of December 31, 2005, we had $119,520 in cash and cash equivalents
and a working capital deficiency of $9,977,341. These factors raise substantial
doubt about our ability to continue as a going concern. We understand our
continued existence is dependent on our ability to generate positive operating
cash flow, negotiate more favorable terms with existing secured and unsecured
creditors, refinance existing long term debt, secure additional financing and
achieve profitable status on a sustained basis. We are presently evaluating
several financing alternatives which would allow us to refinance a substantial
amount of our short-term secured debt into long-term secured debt to better
align debt maturities with our long-term business plan. There can be no
assurance however, that we will be successful in refinancing at favorable terms,
if at all.
Our liquidity has been significantly and adversely affected by continued
operating losses at our Southeastern operations. The divestiture of our
Tennessee operation in September 2005 eliminated continued operating losses
which aggregated approximately $1.8 million during the fiscal year ended
September 30, 2005. In addition, during the quarter ended December 31, 2005, we
substantially curtailed operations at our Georgia subsidiary which during the
fiscal year ended September 30, 2005 incurred an operating loss of approximately
$3.4 million. During the quarter ended March 31, 2006, we completed the sale of
substantially all Georgia operating assets to two separate parties and received
$405,000 in aggregate cash.
The aggregate net loss (including losses from operations and losses on
disposal) associated with the discontinued operations of our Georgia subsidiary
included in the results for the three months ended December 31, 2005 was
approximately $746,000 or 53% of our total loss for the quarter. The aggregate
net losses associated with the discontinued operations of our Tennessee and
Georgia subsidiaries included in the results for the fiscal quarter ended
December 31, 2004 was approximately $1,090,000 or approximately 60% of our total
loss for that period. The total net loss, including losses from operations and
losses on disposal associated with these subsidiaries during the fiscal year
ended September 30, 2005 was approximately $11.1 million or 73% of our total
loss for the 2005 fiscal year.
We have invested substantial amounts of capital during the past several
years in new equipment to increase processing capacity at our Iowa, Minnesota
and California locations, as well as consolidating our Wisconsin location into
our Minnesota operating during fiscal 2005 to substantially reduce operating
costs and maximize our return on assets. Our future operating plan focuses on
maximizing the performance of these three operations through our continuing
efforts to increase overall quality of revenue (revenue per passenger tire
equivalent) while remaining diligent with our ongoing cost reduction
initiatives. We will continue to evaluate each operation on its merits and
contribution to the corporation and we will continue to make the necessary
decisions to ensure the continued viability of GreenMan. During fiscal 2005, we
completed an evaluation of our corporate-wide inbound collection infrastructure
and determined that we would no longer provide certain levels of service and
products at existing rates in certain markets and therefore implemented price
increases where warranted and terminated service in situations where price
21
increases were not an alternative. As a result, we experienced a 4% increase in
overall tipping fees (fees we are paid to collect and dispose of scrap tires)
during fiscal 2005 and a 13% increase during the three months ended December 31,
2005 as compared to each respective period during fiscal 2004. While these
initiatives reduced our overall inbound tire volume growth rate during fiscal
2005 and the three months ended December 31, 2005, we believe they have and will
continue to improve our performance through lower labor, parts and maintenance
costs. In addition, we continue to identify, and are currently selling product
into several new, higher-value markets as evidenced by an 18% increase in end
product revenue during fiscal 2005. We continue to experience strong demand for
our end products.
The American Stock Exchange has initiated proceedings to delist our common
stock.
On April 25, 2006, we received a notice from the American Stock Exchange
(the "Exchange") stating that the Exchange intends to initiate proceedings to
delist the Registrant's common stock. The notice indicates that we failed to
comply with Sections 134, 610, 1003(f)(iii) and 1101 of the Exchange's Company
Guide (the "Company Guide"). We are entitled to appeal the determination to
initiate delisting proceedings and filed our request for a hearing on April 28,
2006. Pursuant to the Company Guide, we expect that the delisting proceeding
will be stayed pending the outcome of our appeal and subject to the Exchange's
ongoing review of our status. We can provide no assurance, however, that our
appeal will be successful or that the Exchange will not suspend trading in our
common stock prior to the hearing. A final decision by the Exchange to delist
our common stock would substantially limit our stock's liquidity and impair our
ability to raise capital.
We have substantial indebtedness to Laurus Master Fund secured by substantially
all of our assets. If an event of default occurs under the secured notes issued
to Laurus, Laurus may foreclose on our assets and we may be forced to curtail or
cease our operations or sell some or all of our assets to repay the notes.
On June 30, 2004, we entered into a $9 million credit facility with Laurus
pursuant to secured promissory notes and related agreements which were amended
on March 22, 2005 to provide, amount other things, the ability for us to
maintain overadvances of up to $2 million. On July 20, 2005, we borrowed an
additional $1 million from Laurus pursuant to a convertible term note and
related agreements. Subject to certain grace periods, the notes and agreements
provide for the following events of default (among others):
o failure to pay interest and principal when due;
o an uncured breach by us of any material covenant, term or condition
in any of the notes or related agreements;
o a breach by us of any material representation or warranty made in
any of the notes or in any related agreement;
o any money judgment or similar final process is filed against us for
more than $50,000 that remains unvacated, unbonded or unstayed for a
period of 30 business days;
o any form of bankruptcy or insolvency proceeding is instituted by or
against us;
o suspension of our common stock from our principal trading market for
five consecutive days or five days during any ten consecutive days;
and
o the occurrence of a change in control of our ownership.
In the event of a future default under our agreements with Laurus, Laurus
may enforce its rights as a secured party and we may lose all or a portion of
our assets, be forced to materially reduce our business activities or cease
operations. As of December 31, 2005, we were in default of several covenants of
the notes and agreements. These defaults have been waived by Laurus.
22
We will require additional funding to sustain and grow our business, which
funding may not be available to us on favorable terms or at all. If we do not
obtain funding when we need it, our business will be adversely affected. In
addition, if we have to sell securities in order to obtain financing, the rights
of our current holders may be adversely affected.
We will have to seek additional outside funding sources to satisfy our
future financing demands if our operations do not produce the level of revenue
we require to maintain and grow our business. We cannot assure you that outside
funding will be available to us at the time that we need it and in the amount
necessary to satisfy our needs, or, that if such funds are available, they will
be available on terms that are favorable to us. If we are unable to secure
financing when we need it, our business will be adversely affected and we may
need to discontinue some or all of our operations. If we have to issue
additional shares of common stock or securities convertible into common stock in
order to secure additional funding, our current stockholders will experience
dilution of their ownership of our shares. In the event that we issue securities
or instruments other than common stock, we may be required to issue such
instruments with greater rights than those currently possessed by holders of our
common stock.
Improvement in our business depends on our ability to increase demand for our
products and services.
Adverse events or economic or other conditions affecting markets for our
products and services, potential delays in product development, product and
service flaws, changes in technology, changes in the regulatory environment and
the availability of competitive products and services are among a number of
factors that could limit demand for our products and services.
Our business is subject to extensive and rigorous government regulation; failure
to comply with applicable regulatory requirements could substantially harm our
business.
Our tire recycling activities are subject to extensive and rigorous
government regulation designed to protect the environment. The establishment and
operation of plants for tire recycling are subject to obtaining numerous permits
and compliance with environmental and other government regulations. The process
of obtaining required regulatory approvals can be lengthy and expensive. The
Environmental Protection Agency and comparable state and local regulatory
agencies actively enforce environmental regulations and conduct periodic
inspections to determine compliance with government regulations. Failure to
comply with applicable regulatory requirements can result in, among other
things, fines, suspensions of approvals, seizure or recall of products,
operating restrictions, and criminal prosecutions. Furthermore, changes in
existing regulations or adoption of new regulations could impose costly new
procedures for compliance, or prevent us from obtaining, or affect the timing
of, regulatory approvals.
The market in which we operate is highly competitive, fragmented and
decentralized and our competitors may have greater technical and financial
resources.
The market for our services is highly competitive, fragmented and
decentralized. Many of our competitors are small regional or local businesses.
Some of our larger competitors may have greater financial and technical
resources than we do. As a result, they may be able to adapt more quickly to new
or emerging technologies and changes in customer requirements, or to devote
greater resources to the promotion and sale of their services. Competition could
increase if new companies enter the markets in which we operate or our existing
competitors expand their service lines. These factors may limit or prevent any
further development of our business.
Our success depends on the retention of our senior management and other key
personnel.
Our success depends largely on the skills, experience and performance of
our senior management, The loss of any key member of senior management could
have a material adverse effect on our business, financial condition and results
of operations.
23
Seasonal factors may affect our quarterly operating results.
Seasonality may cause our total revenues to fluctuate. We typically
process fewer tires during the winter and experience a more pronounced volume
reduction in severe weather conditions. In addition, a majority of our crumb
rubber is used for playground and athletic surfaces, running tracks and
landscaping/groundcover applications which are typically installed during the
warmer portions of the year. Similar seasonal or other patterns may develop in
our business.
Inflation and Changing Prices may hurt our business.
Generally, we are exposed to the effects of inflation and changing prices.
Primarily because the largest component of our collection and disposal costs is
transportation, we have been adversely affected by significant increases in the
cost of fuel. Additionally, because we rely on floating-rate debt for certain
financing arrangements, rising interest rates have had a negative effect on our
financial performance.
If we acquire other companies or businesses, we will be subject to risks that
could hurt our business.
A significant part of our business strategy entails future acquisitions,
or significant investments in, businesses that offer complementary products and
services. Promising acquisitions are difficult to identify and complete for a
number of reasons. Any acquisitions completed by our company may be made at
substantial premiums over the fair value of the net assets of the acquired
companies, and competition may cause us to pay more for an acquired business
than its long-term fair market value. There can be no assurance that we will be
able to complete future acquisitions on terms favorable to us or at all. In
addition, we may not be able to integrate future acquired businesses, at all or
without significant distraction of management from our ongoing business. In
order to finance acquisitions, it may be necessary for us to issue shares of our
capital stock to the sellers of the acquired businesses and/or to seek
additional funds through public or private financings. Any equity or debt
financing, if available at all, may be on terms which are not favorable to us
and, in the case of an equity financing or the use of our stock to pay for an
acquisition, may result in dilution to our existing stockholders.
As we grow, we are subject to growth related risks.
We are subject to growth-related risks, including capacity constraints and
pressure on our internal systems and personnel. In order to manage current
operations and any future growth effectively, we will need to continue to
implement and improve our operational, financial and management information
systems and to hire, train, motivate, manage and retain employees. We may be
unable to manage such growth effectively. Our management, personnel or systems
may be inadequate to support our operations, and we may be unable to achieve the
increased levels of revenue commensurate with the increased levels of operating
expenses associated with this growth. Any such failure could have a material
adverse impact on our business, operations and prospects. In addition, the cost
of opening new facilities and the hiring of new personnel for those facilities
could significantly decrease our profitability, if the new facilities do not
generate sufficient additional revenue.
Risks Related to the Securities Market
Our stock price may be volatile, which could result in substantial losses for
our shareholders.
Our common stock is thinly traded and an active public market for our stock
may not develop. Consequently, the market price of our common stock may be
highly volatile. Additionally, the market price of our common stock could
fluctuate significantly in response to the following factors, some of which are
beyond our control:
o any decision by the American Stock Exchange to delist our common
stock (see The American Stock Exchange has initiated proceedings to
delist our common stock, above).
o changes in market valuations of similar companies;
o announcements by us or by our competitors of new or enhanced
products, technologies or services or significant contracts,
acquisitions, strategic relationships, joint ventures or capital
commitments;
24
o regulatory developments;
o additions or departures of senior management and other key
personnel;
o deviations in our results of operations from the estimates of
securities analysts; and
o future issuances of our common stock or other securities.
We have options, warrants and convertible promissory notes currently
outstanding. Exercise of these options and warrants, and conversions of these
promissory notes will cause dilution to existing and new shareholders. Future
sales of common stock by Laurus and our existing stockholders could result in a
decline in the market price of our stock.
As of December 31, 2005, we have options and warrants to purchase
approximately 8,622,030 shares of common stock outstanding in addition to
$7,936,338 of convertible promissory notes. The principal amounts of these notes
are convertible into approximately 10,900,000 shares of common stock. The
exercise of our options and warrants, and the conversion of these promissory
notes, will cause additional shares of common stock to be issued, resulting in
dilution to investors and our existing stockholders. As of December 31, 2005,
approximately 13 million shares of our common stock were eligible for sale in
the public market. This represents approximately 68 percent of our outstanding
shares of common stock. After the effective date of the additional registration
statement we are required to file with respect to the Laurus credit facility
approximately 23,900,000 shares of our common stock will be eligible for resale
in the public market. Sales of a significant number of shares of our common
stock in the public market could result in a decline in the market price of our
common stock, particularly in light of the illiquidity and low trading volume in
our common stock.
Our directors, executive officers and principal stockholders own a significant
percentage of our shares, which will limit your ability to influence corporate
matters.
Our directors, executive officers and other principal stockholders owned
approximately 31 percent of our outstanding common stock as of December 31,
2005. Accordingly, these stockholders could have a significant influence over
the outcome of any corporate transaction or other matter submitted to our
stockholders for approval, including mergers, consolidations and the sale of all
or substantially all of our assets and also could prevent or cause a change in
control. The interests of these stockholders may differ from the interests of
our other stockholders. In addition, limited number of shares held in public
float effect the liquidity of our common stock. Third parties may be discouraged
from making a tender offer or bid to acquire us because of this concentration of
ownership.
We have never paid dividends on our capital stock, and we do not anticipate
paying any cash dividends in the foreseeable future.
We have paid no cash dividends on our capital stock to date and we
currently intend to retain our future earnings, if any, to fund the development
and growth of our businesses. In addition, our agreements with Laurus prohibit
the payment of cash dividends. As a result, capital appreciation, if any, of our
common stock will be shareholders' sole source of gain for the foreseeable
future.
Anti-takeover provisions in our charter documents and Delaware law could
discourage potential acquisition proposals and could prevent, deter or delay a
change in control of our company.
Certain provisions of our Restated Certificate of Incorporation and
By-Laws could have the effect, either alone or in combination with each other,
of preventing, deterring or delaying a change in control of our company, even if
a change in control would be beneficial to our stockholders. Delaware law may
also discourage, delay or prevent someone from acquiring or merging with us.
Environmental Liability
There are no known material environmental violations or assessments.
25
Item 3. Controls and Procedures
Our management, with the participation of our chief executive officer and
chief financial officer, evaluated the effectiveness of our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934) as of December 31, 2005. In designing and evaluating our
disclosure controls and procedures, we recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving their objectives and management necessarily
applied its judgment in evaluating the cost-benefit relationship of possible
controls and procedures. Based on this evaluation, our chief executive officer
and chief financial officer concluded that as of December 31, 2005, our
disclosure controls and procedures were (1) designed to ensure that material
information relating to the company, including our consolidated subsidiaries, is
made known to our chief executive officer and chief financial officer by others
within those entities, particularly during the period in which this report was
being prepared and (2) effective, in that they provide reasonable assurance that
information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the SEC's rules and forms.
No change in our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal
quarter ended December 31, 2005 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 6. Exhibits
(a) Exhibits
31.1(1) Certification of Chief Executive Officer pursuant
to Rule 13a-14(a) or Rule 15d-14(a)
31.2(1) Certification of Chief Financial Officer pursuant
to Rule 13a-14(a) or Rule 15d-14(a)
32.1(1) Certification of Chief Executive Officer under 18
U.S.C Section 1350
32.2(1) Certification of Chief Financial Officer under 18
U.S.C Section 1350
(1) Filed herewith.
(b) Reports on Form 8-K
None
26
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.
Date: May 11, 2006 /s/ Lyle Jensen
---------------
Lyle Jensen
Chief Executive Officer
By: GreenMan Technologies, Inc.
Date: May 11, 2006 /s/ Charles E. Coppa
--------------------
Chief Financial Officer, Treasurer,
Secretary
27